ML100260995

2009 Annual Financial Report

ML100260995
Person / Time
Site:	Columbia
Issue date:	01/14/2010
From:	Cullen G Energy Northwest
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
GO2-1 0-010
Download: ML100260995 (68)

Text

Gregory V. Cullen (K--.-ENERGY Manager, Regulatory Programs P.O. Box 968, Mail Drop PE20

\Q NORTHWEST Richland, WA 99352-0968 Ph. 509-377-6105 F. 509-377-4317 gvcullen @energy-northwest.com January 14, 2010 10 CFR 50.71 (b)

G02-1 0-010 U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001

Subject:

COLUMBIA GENERATING STATION, DOCKET 50-397 2009 ANNUAL FINANCIAL REPORT

Dear Sir or Madam:

In accordance with 10 CFR 50.71 (b), enclosed is,a copy of the Energy Northwest 2009 Annual Report for the subject facility.

There are no commitments contained in this letter or its enclosure. Should you have any questions, please call MC Humphreys at (509) 377-4025.

Respectfully, GV Cullen Manager, Regulatory Programs

Enclosure:

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

JPOWERFUL SOLUTIONS 2009 Annual Report Q OENERGY NORTHWEST

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3 A Message to Our Stakeholders 27 FINANCIAL DATA & INFORMATION 4 Executive Board 28 Management Report on Responsibility for Financial Reporting 5 Senior Leadership 28 Audit, Legal and Finance Committee Chairman's Letter 6 Energy Northwest Is Growing 29 Report of Independent Auditors 6 Board of Directors 30 Energy Northwest Management's Discussion and Analysis 7 Longest Serving Commissioner 40 Balance Sheets 8 Columbia Generating Station 42 Statements of Revenues, Expenses, and Changes in Net Assets 10 Columbia's Nineteenth Refueling Outage 43 Statements of Cash Flows 12 Nine Canyon Wind Project 45 Notes to Financial Statements 14 Packwood Lake Hydroelectric Project 66 Current Debt Ratings 16 White Bluffs Solar Station 17 Industrial Development Complex 17 Operations and Maintenance Services 18 Applied Process Engineering Laboratory 19 Environmental and Analytical Services Laboratory OUR VISION:

20 Calibration Services Laboratory Provide responsible and cost-effective energy 22 New Generating Resources solutions for the region's ratepayers.

23 Growing Our People 24 Growing Environmental Stewardship 25 Growing Our Community OUR MISSION:

26 Growing Our Future The region's preferred source for energy solutions.

I

Energy Northwest 2009 Annual Report 3 Challenge, commitment and accomplishment defined Energy Northwest people and operations in fiscal year 2009.

Despite a major refueling outage with more than the usual complement of unplanned maintenance challenges, the Energy Northwest team closed out the year $8 million under budget, vastly exceeding our goal of $6.8 million.

That performance honored our regional budgetary and planning commitments while Looking toward fiscal 2010 and beyond, Energy Northwest will continue to play a vital underscoring the immense value Energy Northwest brings to Northwest ratepayers in role in helping meet the region's need for clean, reliable, affordable electric power.

terms of affordable, environmentally responsible power Potential energy legislation at state and federal levels cannot be ignored. Legislators Fiscal 2009 also saw us deliver an application to renew our expiring 50-year license at both levels continue to debate the merits of environmental and energy policies. Our task for the Packwood Lake Hydroelectric Project. With initial operations in 1964, Packwood will be to remain fully engaged and continue to communicate the unique nature of public was our first project as a young joint operating agency. We have applied for a new 50- power organizations. We must remain vigilant to ensure well-intended legislation does not year license and anticipate a decision by the Federal Energy Regulatory Commission next diminish our ability to serve the needs of Northwest ratepayers.

spring. Closer to home we must continue to grow our future leaders. The inevitable march Other highlights of the year included an American Association for Laboratory of time will require and deliver new senior leaders, managers and team members. The Accreditation certification for our Calibration Services Laboratory, The certification - quality of our organization and our performance as a power generator will never be any which only a handful of nuclear utilities nationwide receive is based on rigorous Interna- better than the quality of our people. This is an essential, ongoing investment that must tional Organization for Standardization criteria. The internationally recognized certification never be underestimated.

validates the laboratory's quality and technical competence. We are especially pleased to report the launch of a new Nuclear Technology Program Our investments of time, effort and finances to upgrade our training programs was partnership with Columbia Basin College. The program is a vital step in helping us prepare officially recognized during the past year through the formal accreditation renewal of our tomorrow's workforce and leaders; especially in light of unprecedented industry retire-operations and engineering training programs by the National Nuclear Accrediting Board. ments anticipated in the coming decade.

The year's bright spots and accomplishments were dimmed several times by perfor- Fiscal 2009 was indeed a challenging year. Yet the truest measure of an organization mance issues at Columbia Generating Station While public safety - our first priority - was is never a snapshot in time, but rather how it moves forward from adversity to embrace never threatened, we were all reminded of the crucial importance of ongoing, planned and embody professional excellence.

investment in our facilities and our people. We have every confidence in our team's commitment, professionalism and sheer tal-Our commitment to improving performance at Columbia is unequivocal. Our Energy ent to advance us into the arena of world-class performance, where we belong.

Northwest leadership team is leaning forward to provide the resources and support The challenge belongs to every member of our Energy Northwest team. We look necessary to move us back up the performance ladder. forward to navigating the path to excellence with the support and encouragement of our Challenges arrived on the environmental front as well. We were inspired by the team's regional partners and slakeholders.

highly professional response to regulatory recommendations for improving our environ-mental compliance programs.

Receiving and responding productively to constructive feedback is a recognized Respectfully, hallmark of world-class organizations. The experience steeled our commitment to envi Joseph V (Vic) Parrish Sid Morrison ronmental stewardship and our ISO14001 environmental certification Chief Executive Officer Chairman, Executive Board

4 growing powerful solutions EXECUTIVE BOARD BACK (L-R): Bill Gordon, Kathleen Vaughn, Dan Gunkel, Tim Sheldon, Jack Janda FRONT (L-R): Sid Morrison, Lawrence Kenney, Edward E.(Ted) Coates, Tom Casey Energy Northwest's Executive Board sets the policies that govern the operations of the organization. It is made up of 11 members, five elected from the Board of Directors, three outside members appointed by the Board of Directors and three outside members appointed by the Washington State Governor.

Energy Northwest 2009 Annual Report 5 Coprt SerieVc rsd n

6 gmowing powerful solutions BOARD OF DIRECTORS STANDING (L-R): Steve Kern, Kathleen Vaughn, Dan Gunkel, Clyde Leach, Buz Ketchum, Ken McMillen, Raymon Sieler, Mike Murphy, Ann Congdon, Judy Ridge, Larry Reese, Will Purser, Roger Sparks, Greg Hansen, Dave Womack, Larry Dunbar, Ed Williams, Torn Casey, Jack Janda SITTING (L-R): Carol Curtis, Linda Gott, Diana Thompson, Chuck TenPas, Lori Sanders, Bill Gordon (Not pictured: Bill Gaines, Chris Kroupa. Picture reflects two additional members who joined after fiscal year 2009.)

Energy Northwest 2009 Annual Report 7 LONGEST SERVING COMMISSIONER Roger Sparks, Kittitas County Public Utility District Commissioner is Washington State's longest serving PUD commissioner, beginning his years of service in 1974. He joined the Energy Northwest Board of Directors as the Kittitas PUD representative in 1981.

COLUMBIA GENERATING STATION RICHLAND, WASH.

COMMERCIAL OPERATION: 1984 Columbia Generating Station had mixed performance this Commission, the Federal Energy Regulatory Commission, last year - the nineteenth refueling outage exceeded schedule and state and local emergency offices that Energy Northwest by eight days, and four unplanned outages kept the plant can handily defend Columbia's facilities and people against a down for 16 additional days, diminishing an otherwise strong hostile force.

online operation. Renewed emphasis on plant performance A major re-siding of the Reactor and Turbine Buildings was has already begun to provide the focus and resources needed completed in June. The effort required innovative installation to move Columbia back up the performance spectrum. techniques to replace the siding damaged during a severe In March, Columbia successfully completed a hostile- wind storm in February 2008. Although the damage was action-based exercise that displayed nearly a year of significant, there was no threat to nuclear safety.

preparation, practice and benchmarking of other nuclear In March, all 11 initial license class candidates successfully plants. The exercise demonstrated to the Nuclear Regulatory completed a challenging 18-month training program and

Energy Northwest 2009 Annual Report 9 Moving into the next quarter century of power generation, Columbia will continue to provide safe, efficient and valuable electrical power to the region.

QUALITY CONTROL Hy thr ine i lity control specitasiss REFUEL FLOOR: Located on th 606 foo elevatcio o i he read bil ii g, the obseived every aspet cCie R 19 efHeling oace. was a hub of activityciduinig theR 19irefielingoiffec COLUMBIA'S NINETEENTH REFUELING OUTAGE

Energy Northwest 2009 Annual Report 11 SAFETY: id , TRAINING: Th 1 11 ý! I for, Wi I i

12 growing powerful solutions NINE CANYON WIND PROJECT The Nine Canyon Wind Project is one of the largest public-owned wind projects in the nation. With 63 wind turbines - 14 rated at 2.3 megawatts and 49 more at 1.3 megawatts - Nine Canyon's total installed capacity is 95.9 megawatts. Fiscal 2009 was the first full year of operation for the third and final phase of the project, which added the 14 2.3 megawatt turbines.

The project produced 226,268 net megawatt-hours of electricity and achieved a 98.1 percent adjusted availability factor, up from 97.8 in fiscal 2008. This improvement is directly related to a reduction in the number of major component failures, which reflects the dedicated efforts of employees to aggressively address causes before failures occur. In April, a new maintenance building with a built-in heavy equipment crane was completed, allowing for the on-site storage and movement of heavy, critical equipment spares.

An equipment fire and two nearby grass fires challenged project performance. In early August 2008, fire in a wind turbine tower electrical cabinet severely damaged nearly all of the tower's components except for the main generator and the pad mounted transformer. The turbine was repaired and returned to service at the end of September. A brush fire started near Phase IIseveral days later, but was extinguished by local fire companies in an effort that included the air drop of fire retardant chemicals.

Damage to power poles was limited and the project was not harmed. In June 2009, a small brush fire was ignited by a bird coming in contact with a 115-kilovolt line. The fire was quickly contained, with no damage, through the rapid response of on-site employees until a Benton County fire crew arrived.

Energy Northwest continues working with local community colleges to develop wind technician training curriculum. These programs will help increase the availability to qualified local talent and prepare these individuals for the growing wind energy job market.

Energy Northwest 2009 Annual Report 13 I

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PACKWOOD LAKE HYDROELECTRIC PROJECT GIFFORD PINCHOT NATIONAL FOREST PACKWOOD, WASH.

COMMERCIAL OPERATION: 1964

Energy Northwest 2009 Annual Report 15 16 growingpow(ifu solutions

ý MIIMMII, IIIIM WHITE BLUFFS SOLAR STATION One of the great benefts of solar power is its reliability. air pollution and greenhouse gas emissions as "Green Tags!'

The sun rises and White Bluffs Solar Station produces electricity. Buyers who participate in utility green power programs With a rating of 38.7 kilowatts direct current, the 242-panel purchase these tags to replace traditional polluting sources station is located at the Industrial Development Complex near of electricity with clean, secure and sustainable renewable Columbia Generating Station. sources of energy from across North America.

White Bluffs produced 46,090 net kilowatt-hours of electric- Energy Northwest provided the leadership to develop this ity during fiscal 2009. The Bonneville Power Administration first-of-its-kind generating plant in the Northwest. White Bluffs integrates the power from White Bluffs into its system and continues to generate interest from innovators within the util-Bonneville Environmental Foundation markets the displaced ity, solar and academic communities.

46,090 net kilowatt-hours of electricity in fiscal year 2009 K

Energy Northwest 2009 Annual Report 17 INDUSTRIAL DEVELOPMENT COMPLEX The Industrial Development Complex is located east of the site currently at 80 percent capacity.The primary tenant is Columbia Generating Station. The IDC continues its focus on Washington Closure Hanford, which manages the Department of economic development and reuse of 40 facilities and associated Energy's cleanup of waste sites and burial grounds, and removal property through a diversified leasing program, which includes of excess facilities, throughout the Hanford Site.

use by Energy Northwest. In addition to the leasing program, the complex has the The long-term goal is to secure an "anchor tenant" which will capability of supplying both back up water and power to utilize most of the existing facilities. This would provide a $20 Columbia, as needed. IDC staff members also offer a variety of to $30 million savings in long-term site restoration costs for the training and support functions during Columbia's outage years, Bonneville Power Administration. as well as oversight on site environmental issues.

The leasing effort has been very successful to date, with OPERATIONS AND MAINTENANCE SERVICES Operations and Maintenance Services supplied and Olympic View Generating Station is owned by Mason County installed a high-voltage silicon coating, SiCoat, to the generator Public Utility District 3 and is comprised of two 2.8-megawatt step-up and auxiliary transformers at an AES Corporation coal generating units, powered by natural gas-fired reciprocating plant in Hawaii. The coating prevents coal dust contamination, engines. The nominal station output is 5.4 net megawatts.

and subsequent arcing, from tripping the generating unit. AES The plant is designed to be manned or operated remotely, has not experienced a single trip due to contamination since depending on load requirements.

the application. Energy Northwest also provided journeyman craft support Energy Northwest continued services for Olympic for Seattle City Light's Boundary Hydroelectric Project.

View Generating Station during fiscal 2009. Operations Located on the Pend Oreille River in northeastern and Maintenance Services has performed these Washington, the dam supplies more than one-third activities full time for the station since 2001. The of Seattle City Light's power.

18 growingpowerful solutions Growing powerful solutions is what the Applied Process Energy Northwest employs the Washington Technology Engineering Laboratory is all about - providing facilities, Center to provide diverse business incubation services to programs and services to technology startup and expanding improve performance and growth for successful startups. APEL companies. In 2009, APEL increased its emphasis on renewable provides entrepreneurship coaching, access to funding and and clean energy technologies to match Energy Northwest, resource connections, all of which complement a suite of locally Washington State and federal priorities. available technical assistance for businesses.

Throughout the year, Energy Northwest staff managed The laboratory also supports four business tenants in addition and maintained the laboratory within budget and returned a to anchor tenant PNNL. One business is on target to meet positive net margin of $445,000 inclusive of depreciation and graduation metrics in 2011, while two others scaled down to corporate cost allocations. This return will help offset the cost of withstand national economic impacts - specifically, delays in roof repairs at APEL slated for next year. Founding community federal or state contracts and research funding. APEL businesses stakeholders - Pacific Northwest National Laboratory, Port of include Environmental Assessment Services, InnovaTek, IsoRay Benton, the Department of Energy, Washington State University Medical and Energy Northwest's Environmental Services Tri-Cities, the city of Richland and the Tri-City Development Laboratory.

Council - continued to provide strategic vision and technical and The Tri-Cities Research District, a Washington State innovation operational support. partnership zone, relies on APEL to provide incubation programs

Energy Northwest 2009 Annual Report 19 and facilities for new technologyhbased businesses.

Centered in the research district, both APEL and Energy Northwest have a pivotal opportunity to lead technology innovation-to-commercialization initiatives in clean and renewable energy.

Key 2010 initiatives include continued focus on financial sustainability, and environmental and regulatory compliance. APEL will expand educational programs focused on leadership and innovative thinking, and will continue to support the Tri-Cities Research District initiatives in energy technology.

H

20 g7vwing powerful solutions CALIBRATION SERVICES LABORATORY The Energy Northwest Calibration Services Laboratory contract, and has a negotiated agreement with options to extend continued to excel in quality of work and customer satisfaction in services through October 2010. Revenue from these customers fiscal 2009. helps reduce overhead costs for its primary customer - the The laboratory added numerous small businesses to its growing Columbia Generating Station.

list of customers, which includes large companies such as Bechtel, Columbia receives in-house services, including support during Pacific Northwest National Laboratory, AREVA and Washington refueling outages and special testing. The laboratory also provides Demilitarization Company. It also recently completed 10 years services for Energy Northwest projects such as the Packwood Lake of service to the Hanford Site through the Fluor Hanford, Inc. Hydroelectric Project and Nine Canyon Wind Project, as well as the

Energy Northwest 2009 Annual Report 21 H.W. Hill Landfill Gas Power Plant owned by the Klickitat County comply with the International Standard. Further accreditation of Public Utility District. the Energy Northwest Standards Laboratory was also obtained During fiscal 2009, staff worked successfully to obtain from the American Association for Laboratory Accreditation, and laboratory accreditation to the International Standard ANS/ISOi will position the laboratory to attract new regional and national IEC 17025, certifying that the requirements for competence of customers.

laboratory testing and calibration are met. In order to obtain accreditation, laboratories must demonstrate that both their quality management system and their technical competence ii

22 gmowing powerful solutions NEW GENERATING RESOURCES A number of interrelated factors drive the development 2012. Radar Ridge would be the first major commercial project of new generating resources - regional economic and power west of the Cascades. The development is the result of member growth; financial incentives and lending practices; renewable needs for renewable energy, mandated by Washington State's portfolio standards; thermal emissions policies; and most Renewable Portfolio Standard, and member interest in projects importantly, member utility needs. The recession significantly outside of Bonneville Power Administration transmission impacted each of these broad categories, resulting in slower congestion.

growth and uncertainty in financial market and development Energy Northwest entered into a development services incentives. agreement with ADAGE, a joint venture of Duke Energy and To bolster financial security in new development, the Energy AREVA. ADAGE is developing several 50-megawatt wood Northwest Board of Directors passed a policy requiring a 75 biomass plants across the United States, including several in percent investment commitment and risk sharing from new the Pacific Northwest. Energy Northwest will assist them by generation development partners before progressing from the providing expertise in high-voltage transmission interconnection feasibility stage into the permitting development phase. and the marketing of Northwest power purchase agreements.

Despite such measures and an otherwise successful In the process, member utilities will be positioned to receive marketing effort, the economic environment effectively ended a projects in their service areas plus priority on baseload much anticipated partnership to develop Kalama Energy - a 680- renewable power.

megawatt combined-cycle natural gas plant - by October 2008. Feasibility studies were completed during the fiscal year for The site is now maintained for the potential future development a small landfill gas project and wood biomass project for Port of a smaller natural gas combined-cycle option for Energy Angeles. Work was also performed on large-scale and small-Northwest members and other regional public power utilities. In scale pilot solar projects, one in eastern Washington and one addition, a natural gas peaking plant option at the site is being in eastern Oregon, to determine the performance of thin film marketed to manage intermittent wind resources. Increased photovoltaic panels. A formal development offering is expected interest in both options is anticipated as the economy recovers. during fiscal 2010.

Four Energy Northwest utility members jointly invested in the Energy Northwest is also working with Northwest utilities to development of the Radar Ridge Wind Project in Pacific County. evaluate interest in studying small modular reactor designs and Participating public utility districts include Grays Harbor, Clallam the viability of this technology as part of a responsible look into a County, Pacific County and Mason County 3.The partnership diverse mix of energy resources that may be used to meet future formed a governance committee to oversee development of regional power needs. If enough interest is identified, a nuclear the 60- to 80-megawatt wind project proposed to be online in study group will be formed in fiscal 2010.

Energy Northwest 2009 Annual Report 23

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24 growingpowerful solutions GROWING ENVIRONMENTAL STEWARDSHIP Energy Northwest is committed to protecting the environment for current and future generations, and integrating environmental stewardship into every facet of the operation. The Energy Northwest Environmental Stewardship Policy is the cornerstone of its Environmental Management System.

This comprehensive program demonstrates commitment are periodically reviewed for compliance with environmental and establishes clear expectations for the entire organization. regulations and proper identification of potential impacts to This means that consideration of the environment is integrated the environment. Potentially impacting activities include waste into all aspects of the organization, including its structure, generation; atmospheric emissions; liquid discharges; storage resources, responsibilities, planning, practices, procedures and and use of petroleum, chemicals or radioactive materials; and processes. land use. These potentially significant impacts are addressed Designed to meet the rigorous requirements of the globally as a priority by Energy Northwest and are considered when recognized International Organization for Standardization setting environmental objectives and in designing and (ISO) 14001:2004 standard, Energy Northwest EMS places implementing necessary controls and programs. Under the additional emphasis on compliance, pollution prevention and EMS, the effectiveness of these controls is monitored and communication. corrective and preventative action is taken, as needed, to Energy Northwest's EMS was registered to the ISO continually improve.

14001:2004 standard in April 2005. Every three years, the To better assess Energy Northwest's impact on the registration is reviewed for recertification. Part of this process environment and the effectiveness of the EMS, environmental includes annual surveillance audits to help ensure that performance is trended through the use of key performance the system remains effective and continually improves. In indicators. These indicators monitor performance in areas such April 2009, the National Science Foundation recommended as energy production, effluents, emissions, wastes, compliance, recertification after a successful surveillance audit. pollution prevention and recycling.

Compliance with regulatory requirements is a fundamental In fiscal 2009, significant improvements in the area of aspect of sound environmental management. As Energy compliance were verified through internal assessments. This Northwest moves forward into fiscal year 2010, the goal is to achievement was due to increased staffing and monitoring, achieve and maintain environmental excellence and foster new and revised procedures, enhanced training and environmental stewardship at all communication, and increased management emphasis and Energy Northwest facilities. involvement.

To minimize Energy Energy Northwest's goal in fiscal 2010 is to continually Northwest's impact on the improve on environmental compliance and meet or exceed all environment, all agency activities environmental key performance indicators.

Energy Northwest 2009 Annual Report 25 GROW ING O UR C OMMUN ITY----------------

Energy Northwest and its employees are committed to From the chief executive officer making a positive and long-lasting difference in the Tri-Cities communitv. The Uon officialiy soonsors threevital

26 growingpowerful solutions F I GROWING OUR FUTURE Energy Northwest has aggregated the energy needs of of White Bluffs Solar Station, Energy Northwest intends to develop Washington's public power community for more than half-a- solar power generation projects for an anticipated 2010 offering to century. The agency's mandate to help member utilities deliver interested utilities.

reliable, affordable and environmentally responsible electric As a part of the diverse energy equation of the future, Energy energy to the region's ratepayers is on the cusp of a renaissance. Northwest must also look at affordable baseload energy sources, The next decade will refine current and emerging and new nuclear is one of the most affordable energy sources technologies, opening doors to vast "green"energy opportunities available. Nuclear power is safe, environmentally responsible and in the Northwest.The timing for this environmental-energy requires minimal land. This nearly carbontfree energy source is renaissance is superb given climate change concerns and Energy also now possible in smaller modular designs capable of powering Northwest's commitment to developing responsible energy small urban communities. Energy Northwest is proposing generation. working with other Northwest utilities to study the potential of Public policy and ratepayer demand will likely challenge the small, modular nuclear technologies in fiscal 2010.

energy industry to find improved and new renewable energy Through commitment to the region's ratepayers, technology sources. As a regional energy leader we must work to ensure those innovation and vision, the Energy Northwest team intends to sources are as affordable as they are environmentally attractive. take full advantage of tomorrow's energy opportunities, while One such proposed project is the ecologically friendly Radar Ridge providing the region reliable, affordable and environmentally Wind Project in Pacific County, in western Washington, tentatively responsible energy today.

scheduled for construction as early as 2011.

Energy Northwest also recognizes the need to develop a diverse mix of renewable energy sources, including advanced solar technologies. Moving beyond the successful demonstration

Energy Northwest 2009 Annual Report 27 Financial Data

& Information

28 growingpowerful solutions MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING Energy Northwest management is responsible for preparing procedures provide appropriate division of responsibility and are the accompanying financial statements and for their integrity. documented by written policies and procedures.

They were prepared in accordance with generally accepted Energy Northwest maintains an ongoing internal auditing accounting principles applied on a consistent basis, and include program that provides for independent assessment of the amounts that are based on management's best estimates and effectiveness of internal controls, and for recommendations judgments. of possible improvements thereto. In addition, The financial statements have been audited by PricewaterhouseCoopers LLP has considered the internal control PricewaterhouseCoopers LLP, Energy Northwest's structure in order to determine their auditing procedures for the independent auditors. Management has made available purpose of expressing an opinion on the financial statements.

to PricewaterhouseCoopers LLP all financial records and Management has considered recommendations made by the related data, and believes that all representations made to internal auditor and PricewaterhouseCoopers LLP concerning PricewaterhouseCoopers LLP during its audit were valid and the control procedures and has taken appropriate action to appropriate. respond to the recommendations. Management believes that, as Management has established and maintains internal control of June 30, 2009, internal control procedures are adequate.

procedures that provide reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention J.V. Parrish A.E. Mouncer Chief Executive Officer Vice President, and detection of fraudulent financial reporting. These control Corporate Services, Chief Financial Officer/

General Counsel AUDIT, LEGAL AND FINANCE COMMI'TEE CHAIRMAN'S LETTER The Executive Board's Audit, Legal and Finance Committee The Committee met regularly with Energy Northwest's (Committee) is composed of six independent directors. Members internal auditor and convened periodic meetings with the of the Committee are Chairman Larry Kenney, K.C. Golden, Bill independent auditors to discuss the results of their audit, Gordon, Jack Janda, Dave Remington, Kathy Vaughn and Sid their evaluations of Energy Northwest's internal controls, Morrison, Ex-Officio. The Committee held 11 meetings during and the overall quality of Energy Northwest's financial the fiscal year ended June 30, 2009. reporting. The meetings were designed to facilitate any private The Committee oversees Energy Northwest's financial communications with the Committee desired by the internal reporting process on behalf of the Executive Board. In fulfilling auditor or independent auditors.

its responsibilities, the Committee discussed with the internal auditor and the independent auditors the overall scope and specific plans for their respective audits, and reviewed Energy Larry Kenney Chairman, Northwest's financial statements and the adequacy of Energy Audit Legal and Finance Committee Northwest's internal controls.

Energy Northwest 2009 Annual Report 29 REPORT OF INDEPENDENT AUDITORS To the Executive Board of Energy Northwest In our opinion, the financial statements of the business-type America. Those standards require that we plan and perform activities of Energy Northwest (the "Company"), including the the audit to obtain reasonable assurance about whether the Columbia Generating Station, Packwood Lake Hydroelectric financial statements are free of material misstatement. An audit Project, Nuclear Project No. 1, Nuclear Project No. 3, the Business includes examining, on a test basis, evidence supporting the Development Fund, the Nine Canyon Wind Project, and the amounts and disclosures in the financial statements, assessing Internal Service Fund which collectively comprise the Company's the accounting principles used and significant estimates made balance sheets, statements of revenues, expenses and changes by management, and evaluating the overall financial statement in net assets, and of cash flows, present fairly, in all material presentation. We believe that our audit provides a reasonable respects, the respective financial position of the business- basis for our opinions.

type activities of the Company at June 30, 2009, and the The Management's Discussion and Analysis listed in the respective changes in financial position and cash flows, where table of contents is not a required part of the basic financial applicable, thereof for the year then ended in conformity with statements but is supplementary information required by accounting principles generally accepted in the United States the Governmental Accounting Standards Board. We have of America. These financial statements are the responsibility of applied certain limited procedures, which consisted principally the Company's management. Our responsibility is to express of inquiries of management regarding the methods of opinions on these financial statements based on our audit. We measurement and presentation of the required supplementary conducted our audit of these statements in accordance with information. However, we did not audit the information and auditing standards generally accepted in the United States of express no opinion on it.

L4 0 Portland, Oregon September 24,2009

30 growing powerful solutions Energy Northwest MaVnagement s Discussion and Analysis Energy Northwest is a municipal corporation and joint operating agency of the State of Washington. Each Energy Northwest business unit is financed and accounted for separately from all other current or future business assets. The following discussion and analysis is organized by business unit. The management discussion and analysis of the financial performance and activity is provided as an introduction and to aid in comparing the basic financial statements for the Fiscal Year (FY) ended June 30, 2009, with the basic financial statements for the FY ended June 30, 2008.

Energy Northwest has adopted accounting policies and principles that are in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America. Energy Northwest's records are maintained as prescribed by the Governmental Accounting Standards Board (GASB) and, when not in conflict with GASB pronouncements, accounting principles prescribed by the Financial Accounting Standards Board (FASB). (See Note 1to the Financial Statements.)

Energy Northwest 2009 Annual Report 31 Because each business unit is financed and accounted for The Balance Sheets present the financial position of each separately, the following section on financial performance business unit on an accrual basis. The Balance Sheets report is discussed by business unit to aid in analysis of assessing financial information about construction work in progress, the the financial position of each individual business unit. For amount of resources and obligations, restricted accounts and comparative purposes only, the table on the following page due to/from balances for each business unit. (See Note 1 to the represents a memorandum total only for Energy Northwest, as a Financial Statements.)

whole, for FY 2009 and FY 2008 in accordance with GASB No. 34, The Statements of Revenues, Expenses, and Changes in Net "Basic Financial Statements-and Management's Discussion and Assets provide financial information relating to all expenses, Analysis-for State and Local Governments" revenues and equity that reflect the results of each business unit The financial statements for Energy Northwest include the and its related activities over the course of the Fiscal Year. The Balance Sheets, Statements of Revenues, Expenses, and Changes financial information provided aids in benchmarking activities, in Net Assets, Statements of Cash Flows for each of the business conducting comparisons to evaluate progress, and determining units, and Notes to Financial Statements. whether the business unit has successfully recovered its costs.

The Statements of Cash Flows reflect cash receipts and disbursements and net changes resulting from operating, COMBINED FINANCIAL INFORMATION financing and investment activities. The JUNE 30, 2009 AND 2008 (000'S) statements provide insight into what generates cash, where the cash comes from, and purpose of cash activity.

2008 2009 Change The Notes to Financial Statements Assets present disclosures that contribute CurrentAssets $ 173,689 $ 187, 671 $ 13,982 to the understanding of the material Restricted Assets (15,200) presented in the financial statements.

Special Funds 119,525 104,325 Debt Service Funds 298,820 279,241 (19,579) This includes, but is not limited to, Net Plant 1,509,814 1,497,182 (12,632) Schedule of Outstanding Long-Term Nuclear Fuel 208,082 222,927 14,845 Debt and Debt Service Requirements Deferred Charges 4,492,382 4,455,067 (37,315) (See Note 5 to the Financial Statements),

ITOTALASSETS $ 6,802,312 $ 6,746,413 $ (55,899)1 accounting policies, significant (4,876) balances and activities, material risks, Current Liabilities $ 247,918 $ 243,042 $

Restricted Liabilities commitments and obligations, and Special Funds 128,678 135,373 6,695 subsequent events, if applicable.

Debt Service Funds 129,738 137,293 7,555

... . The basic financial statements of Long-Term Debt 6,290,766 6,226,186 (260 each business unit along 1,260 with the Other Long-Term Liabilities 9,337 10,597 Deferred Credits 5,920 6,179 259 notes to the financial statements Net Assets (10,045):: (12,257):: (2,212) and the management discussion and TOTAL LIABILITIES & NETASSETS $ 6,802,312 $ 6,746,413 $ (55,899)1 analysis should be used to provide an overview of Energy Northwest's financial Operating Revenues $ 455,066 $ 545,775 $ . - performance. Questions concerning 92,324 Operating Expenses 336,622 428,946 any of the information provided in this Net Operating Revenues . 118,444 $ 116,829 $ (1,615) report should be addressed to Energy Northwest at PO Box 968, Richland, WA, Other Income and Expense $ (120,337) $ (119,870):: $ 467 (Distribution)/Contribution (485) __ 829 99352.

1,314q Beginning Fund Equity (7,667):. (10,045):' (2,378)

ENDING NETASSETS $ (10,045) $ (12,257): $ 2,212

32 growingpowerful solutions The Columbia Generating Station (Columbia) is wholly owned fluctuates year to year depending on various factors such as by Energy Northwest and its Participants and operated by refueling outages and other planned activities. Lower generation Energy Northwest. The plant is a 1,1 50-megawatt electric (MWe, figures due to R-1 9, two forced outages, down-power constraints Design Electric Rating, net) boiling water nuclear power plant and the maintenance outage were the major drivers for the 79.6 located on the Department of Energy's (DOE) Hanford Site north percent increase in cost of power.

of Richland, Washington.

Columbia produced 7,725 gigawatt-hours (GWh) of electricity BALANCE SHEET ANALYSIS in FY 2009, as compared to 9,594 GWh of electricity in FY The net decrease to Plant in Service (Plant) and Construction 2008, which included economic dispatch of 15 and 134 GWh Work In Progress (CWIP) from FY 2008 to FY 2009 (excluding respectively. Columbia completed its two-year refueling and nuclear fuel) was $5.0 million. The additions to Plant/CWIP maintenance outage (R-1 9) on June 24 (47 days), with costs of $70.0 million were offset by an increase to Accumulated totaling $116.7 million. Budgeted days and costs for R-19 were Depreciation of $75.0 million resulting in the net decrease 38 days and $117.5 million. to Plant. The additions to Plant for FY 2009 were captured in Generation was down 19.5 percent from FY 2008 due to seven major projects: Main Condenser Replacement, Reactor the completion of R-1 9, two forced outages, (August 2008 and Recirculation Motor Refurbishment, Radio Obsolescence, February 2009), a down-power to 60% for one week in April Software Programs, Reactor Feed Pump Control Systems, Fatigue 2009 to allow for feed water pump work, maintenance outage in OrderTracking System, and the Cobalt Reduction Program. These November 2008 and FY 2008 being the second best generation projects resulted in 74 percent of the additions to Plant. The year on record. remaining 26 percent of additions were made up of 158 separate Columbia's performance is measured in several ways, projects.

including cost of power at Columbia. The cost of power for Nuclear fuel, net of accumulated amortization, increased FY 2009 was 4.94 cents per kilowatt-hour (kWh) as compared $14.8 million from FY 2008 to $222.9 million for FY 2009. During with 2.75 cents per kWh in FY 2008. The industry cost of power FY 2009 Columbia incurred $38.8 million in capitalized fuel Columbia Generating Station Columbia Generating Station Net Generation - GWhrs Cost of Power - Cents / kWh 10,000 5.00 1 ..494*

9,594 9,636' 8,016 8,000 "7,725' 7,599 4.00 3.69 3.34 6,000 3.00 2.75 2.12 4,000 2.00 2,000 1.00 0 finn ~ - '"-.' - - - ... .- '-. -

FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 000 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005

Energy Northwest 2009 Annual Report 33 purchases. Fuel bundles of $19.0 million were inserted in cycle holds and manages a trust fund for the purpose of funding 20 during R-1 9 and $18.0 million of uranium will be used for decommissioning and site restoration. (See Note 12 to the future reloads in cycle 21 and beyond. The fuel activity was offset Financial Statements.) The balances in these external trust by $24.0 million in current year amortization. funds are not reflected on Energy Northwest's Balance Sheet.

Current assets increased $4.2 million in FY 2009 to $139.1 Relicensing activities for Columbia accounted for $2.9 million of million. The main cause of this increase was from vendor invoice the increase. Columbia was issued a standard 40-year operating timing related to year end obligations incurred which amounted license by the Nuclear Regulatory Commission (NRC) in 1983.

to approximately $8.0 million. The remaining difference was due Energy Northwest is preparing an application to renew the to a decrease in materials and supplies of $3.8 million. license for an additional 20 years, thus continuing operations to The Restricted Assets Special Funds decreased $5.8 million to 2043. Submittal of this application is planned for January 2010.

$85.2 million in FY 2009 due to the FY 2009 bond financing plan The estimated duration of the license renewal process is 20-24 and schedule of construction costs for these funds in FY 2009. months from acceptance of application.

The Debt Service Funds increased $22.9 million in FY 2009 to Current Liabilities increased $25.3 million in FY 2009 to $87.3

$80.9 million. The increase was created due to restructuring as a million mostly due to current maturities of long-term debt and result of the bond sale. incurred costs at year end being higher than last year.

Deferred Charges increased $44.1 million in FY 2009 from Restricted Liabilities (Special Funds and Debt Service)

$809.2 million to $853.3 million. Components of this increase increased $11.3 million in FY 2009 to $191.1 due to bond activity.

were an increase to Costs in Excess of Billings, related to Long-Term Debt increased $37.3 million in FY 2009 from $2.4 refunding of current maturities of $41.7 million and a slight billion to $2.5 billion, excluding current maturities, which was a decrease to unamortized debt expense of $0.5 million and an result of the FY 2009 bond Issue. In FY 2009, new debt was issued increase of $2.9 million for relicensing efforts. The accumulated for various Columbia construction projects, as well as for part decommissioning and site restoration accrued costs are not of the Debt Optimization Program. (See Note 5 to the Financial currently billed to Bonneville Power Administration (BPA). BPA Statements.)

Other long-term liabilities increased $1.2 million in FY 2009 to

$10.6 million related to nuclear fuel cask activity.

STATEMENT OF OPERATIONS ANALYSIS Columbia is a net-billed project. Energy Northwest recognizes revenues equal to expense for each period on net-billed projects. No net revenue or loss is recognized and no equity is accumulated.

Operating expenses increased $90.4 million from FY 2008 to $403.7 million due to activity associated with R-1 9 and other outage related occurrences. Operations and Maintenance costs increased $94.3 million as a result of outage activity. The $3.0 increase to Administrative and General Expense was due to staffing requirements, related benefit increases and increased regulatory expenses. There were increases to depreciation of

$4.1 million due to plant increases and a slight increase of $0.3 million to decommissioning. The increases of $101.7 million were offset by decreases in nuclear fuel and disposal costs of $10.4

34 gmowig powfidst slu/ions million and by a decrease to generation tax of $0.9 million. These decreases were directly related to lower generation activity.

Other Income and Expenses increased $0.3 million from FY 2008 to $116.1 million net expenses in FY 2009. Expenses The Packwood Lake Hydroelectric Project (Packwood) is associated with bond activity increased $2.5 million but were wholly owned and operated by Energy Northwest. Packwood offset by lower investment income of $2.4 million, due to market consists of a diversion structure at Packwood Lake and a conditions. The remaining increase was due to increased costs powerhouse located near the town of Packwood, Washington.

associated with inter-business unit services. The water is carried from the lake to the powerhouse through Columbia's total operating revenue increased from $429.0 a five-mile long buried tunnel and drops nearly 1,800 feet in million in FY 2008 to $519.8 million in FY 2009. The increase of elevation. Packwood produced 99.34 GWh of electricity in FY

$90.8 million was due to increased costs associated with R-1 9 2009 versus 77.47 GWh in FY 2008. The 28.2 percent increase and other outage activity and the related effects of the net in generation can be attributed to an excellent snowpack and billing agreements on total revenue, ample water available for generation. FY 2008 experienced the Columbia incurred additional costs as a result of a FY 2008 lowest water levels in seven years while conditions in FY 2009 (February) wind storm that damaged siding on the Reactor resulted in a 14.2 percent increase in generation above the 30 Building and Turbine Generator Building. The damage from year average of 86.97 GWh and was the 12th highest generation the wind storm did not affect generation during the repair year on record.

period. Approximately $5.3 million was incurred in FY 2008 for In November 2006, Lewis County was declared a disaster repair work and $8.7 million was incurred in FY 2009. Columbia area because of torrential rain and flooding. During this event submitted an insurance claim for reimbursement of the $14.0 a large slide occurred adjacent to the Packwood underground million incurred due to wind damage. Columbia incurred costs of pipeline. Significant repairs to stabilize the pipeline were

$5.0 million for the deductible and $7.7 million of the remaining completed during the following year. Expenditures of $1.0 amount was covered by the insurer, which was paid directly million were incurred to install an H-Pile wall and improve to BPA. An additional $7.5 million in costs are expected to be drainage to mitigate the recurrence of additional slides in incurred in FY 2010 and will also be submitted for insurance that area. Packwood applied for"Public Assistance Grants" reimbursement. from the Washington State Military Department (Emergency Management Division) and Federal Emergency Management Agency (FEMA) in FY 2007 and the acceptance remains in Columbia Generating Station Operating Expenses pending status. Due to the delay in grant acceptance a bank line Total Operating Costs (000's) U Other Income I Expenses

$450,000

$400,000 Packwood Hydroelectric Project Net Generation - GWhrs

$350,000 100 99.34 97.80

$300,000 Y85,22

$250,000 80 77.47

$200,000 60

$150,000

$100,000 40 040 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 20 0 .... ... . .. . .

FY 2009 FY 2008 FY 2007 FY 2006 FY 2005

Energy Northwvest 2009 Annual Report 35 of credit was established for $1.3 million while grant acceptance 1960. The current license will expire on February 28, 2010. The from FEMA is being resolved. The line of credit has a $0.8 million final application for the relicensing of Packwood was submitted outstanding balance. to FERC on February 22, 2008. The estimated license renewal Packwood's performance is measured in several ways, process is 18-24 months from the acceptance of application.

including cost of power. The cost of power for FY 2009 was

$1.62 cents/kWh as compared to $3.87 cents/kWh in FY 2008. STATEMENT OF OPERATIONS ANALYSIS The cost of power fluctuates year-to-year depending on various The agreement with Packwood participants obligates them factors such as outage, maintenance, generation, and other to pay annual costs and to receive excess revenues. (See Note operating costs. The FY 2009 cost of power decrease was 1 to the Financial Statements.) Accordingly, Energy Northwest due to increased generation which resulted in an increase in recognizes revenues equal to expenses for each period. No net secondary market sales. revenue or loss is recognized and no equity is accumulated.

Operating expenses decreased $1.4 million from FY 2008 amounts, reflecting lower maintenance and outage costs and Packwood Hydroelectric Project other power supply expenses. FY 2008 incurred additional costs Cost of Power - Cents / kWh for slide repair work of $0.9 million and purchased power costs 4.00 3 87 of $0.7 million related to low water conditions. Slight increases in 3.50 FY 2009 took place to depreciation of $1 k for plant activity and 3.00 generation tax of $4k due to increased generation.

Packwood is obligated to supply a specified amount of power 2.50 hourly, known as Priority Firm Energy (PFE). The amount varies monthly based on historical average generation. If the project 2.00 1.61 can not deliver PFE, replacement power must be purchased on 1.50 the spot market. Electrical energy from Packwood is currently 1.00 sold directly to Snohomish PUD who purchases all of the output directly. The power purchase agreement (PPA) provides 0.50 a predetermined rate for all firm delivery, per the contract 0.00 L FY 2009 IFY2008 IFY2007 FY 2006 FY2005 Packwood Lake Hydroelectric Project BALANCE SHEET ANALYSIS Total Operating Costs (000's)

Total assets decreased $1.0 million from FY 2008, with the $3,200 major driver being the decrease to restricted assets from $1.8 $2,900 million to $0.8 million reflecting the elimination of all bonded ýA Operating Expenses

$2,600 U Other Income / Expenses debt associated with Packwood. The impact of debt elimination $2,300 was offset by an increase to relicensing of $0.2 million and net

$2,000 participant and receivable activity of $0.2 million. Significant

$1,700 changes to total liabilities were a direct result of the elimination

$1,400 of all bonded debt for Packwood.

$1,100 Packwood has incurred $3.6 million in relicensing costs

$800 through FY 2009. These costs are shown as Deferred Charges on the Balance Sheet. The FY 2010 projections call for an additional $500

$0.5 million in costs to continue the relicensing efforts. The FERC $200 issued a 50-year operating license to Packwood on March 1, -100 FY 2009 FY 2008 FY2007 FY 2006 FY2005

36 growing powerful solutions schedule and the Mid-Columbia (Mid-C) based rate for any deliveries above firm, or secondary power. Conversely, if there is excess capacity per the PPA with Snohomish PUD, Energy Northwest sells the excess on the open market for additional Nuclear Project No. 3, a 1,240-MWe plant, was placed in revenues to be included as part of the PPA with the participants extended construction delay status in 1983, when it was 75 of the project. (See Note 6 to the Financial Statements.) percent complete. On May 13, 1994, Energy Northwest's Board of Other income and expenses decreased from a net income of Directors adopted a resolution terminating Nuclear Project No. 3.

S11 k in FY 2008 to a net loss of $28k in FY 2009. The decrease in Energy Northwest is no longer responsible for any site restoration other income was due to much lower investment returns and costs as they were transferred with the assets to the Satsop decreased investment requirements due to bond retirement. Redevelopment Project. The debt service related activities remain Investment income decreased $66k from FY 2008 which was and are net-billed. (See Note 13 to the Financial Statements.)

offset by a decrease to bond related expenses of $27k.

BALANCE SHEET ANALYSIS Long-term debt decreased $55.9 million from $1.774 billion in FY 2008 to $1.718 billion in FY 2009, as a result of a portion of the maturing principal not being extended in the final years of the DOP.The current portion of long-term debt decreased $23.9 million in FY 2009 due to the maturity schedule of debt.

STATEMENT OF OPERATIONS ANALYSIS Energy Northwest wholly owns Nuclear Project No. 1. Nuclear Overall expenses decreased $8.2 million from FY 2008 related Project No. 1,a 1,250-MWe plant, was placed in extended to bond activity. The change in investment income of $1.5 million construction delay status in 1982, when it was 65 percent was due to market conditions.

complete. On May 13, 1994, Energy Northwest's Board of Directors adopted a resolution terminating Nuclear Project No.

1. All funding requirements are net-billed obligations of Nuclear Buins Deeomn Fund-Project No. 1.Termination expenses and debt service costs comprise the activity on Nuclear Project No. 1 and are net-billed.

Energy Northwest was created to enable Washington public BALANCE SHEET ANALYSIS power utilities and municipalities to build and operate generation Long-term debt decreased $41.2 million from $1.926 billion projects. The Business Development Fund (BDF) was created by in FY 2008 to $1.885 billion in FY 2009, as a result of a portion of Executive Board Resolution No. 1006 in April 1997, for the purpose maturing principal not being extended in the final years of the of holding, administering, disbursing, and accounting for Energy Debt Optimization Program (DOP).The current portion of long- Northwest costs and revenues generated from engaging in new term debt decreased $14.0 million in FY 2009 due to the maturity energy business opportunities.

schedule of debt.

The BDF is managed as an enterprise fund. Four business lines STATEMENT OF OPERATIONS ANALYSIS have been created within the fund: General Services and Facilities, Other Income and Expenses showed a net decrease to other Generation, Professional Services, and Business Unit Support.

revenues of $8.4 million from $106.0 million in FY 2008 to $97.6 Each line may have one or more programs that are managed as a million in FY 2009. Investment revenue decreased $1.9 million unique business activity.

due to market conditions. The lower investment revenue was offset by lower bond related expenses of $9.5 million. Decreased BALANCE SHEET ANALYSIS costs were incurred for plant preservation of $0.8 million with Total assets decreased $0.6 million from $6.3 million in FY 2008 minor increases in cost for decommissioning of $20k and surplus to $5.7 million in FY 2009. The decrease to current assets of $ 1.1 sale activity of $69k. million was due to current funding of operations, mainly due to

Energy Northwest 2009 Annual Report 37 generation sector development costs. The decrease to current assets was offset by a $0.5 million increase to plant, mostly from the Rattlesnake Mountain Combined Community Communication Facility Project. Liabilities increased $0.7 million from FY 2008 to FY 2009 due to operating activity. Net Assets decreased $1.3 million The Nine Canyon Wind Project (Nine Canyon) is wholly from $4.5 million in FY 2008 to $3.2 million in FY 2009 due to lower owned and operated by Energy Northwest. Nine Canyon is revenue realization with incurred development expenses. located in the Horse Heaven Hills area southwest of Kennewick, Washington. Electricity generated by Nine Canyon is purchased STATEMENT OF OPERATIONS ANALYSIS by Pacific Northwest Public Utility Districts (purchasers). Each Operating Revenues in FY 2009 totaled $8.7 million as purchaser of Phase I has signed a 28-year power purchase compared to FY 2008 revenues of $10.5 million, a decrease of $1.8 agreement with Energy Northwest; each purchaser of Phase million. There was a reduction in wind revenues of $2.3 million IIhas signed a 27-year power purchase agreement; and each from the previous year's sale involving the Reardan Twin Buttes purchaser of Phase IIIhas signed a 23-year power purchase Wind Project. The reduction in wind revenues was partially offset agreement. The agreements are part of the 2nd Amended and by $0.9 million for Radar Ridge Wind Project reimbursements. Restated Nine Canyon Wind Project Power Purchase Agreement Other business activity included a slight revenue increase to which now have an agreement end date of 2030. Nine Canyon is Environmental and Calibration Services of $0.1 million and a connected to the Bonneville Power Administration transmission reduction to revenues of $0.5 million for Professional Services from grid via a substation and transmission lines constructed by FY 2008. Net operations for FY 2009 showed an operating loss of Benton County Public Utility District.

$1.3 million, down $1.9 million from the FY 2008 operating gain Phase I of Nine Canyon, which began commercial operation of $0.6 million. The operating loss reflects increased spending in September 2002, consists of 37 wind turbines, each with a on the Radar Ridge Wind Project along with development maximum generating capacity of approximately 1.3 MW, for costs associated with the Professional Services Sector involving an aggregate generating capacity of 48.1 MW. Phase IIof Nine Technical Services. Canyon, which was declared operational in December 2003, Though revenues for Business Development declined overall, includes 12 wind turbines, each with a maximum generating the generation development team had a successful year relative capacity of 1.3 MW, for an aggregate generating capacity of to wind energy project development, including the complete approximately 15.6 MW. Phase IIIof Nine Canyon, which was subscription of the Radar Ridge Wind Project with a potential declared operational in May 2008, includes 14 wind turbines, of up to 82 megawatts-electric capacity. The preparation of each with a maximum generating capacity of 2.3 MW, for an the solicitation for the procurement process has commenced. aggregate generating capacity of 32.2 MW. The total Nine Feasibility and pre-development activities associated with the Mustang Ridge Wind Project, with a potential capacity up to 165 megawatts-electric, culminated with the commencement Nine Canyon Wind Project of marketing effort to subscribe the project's output. This Net Generation - GWhrs development offers the potential for an innovative teaming arrangement with a private developer who will share the financial risk and provide for the availability of the major equipment with firm pricing.

The Business Development Fund receives contributions from the Internal Service Fund to cover cash needs during startup periods. Initial startup costs are not expected to be paid back and are shown as contributions. As an operating business unit, requests can be made to fund incurred operating expenses. In FY 2009, the Business Development Fund did not receive any new contributions (transfers), as compared to an increase of $0.7 million for FY 2008. The contributions (transfers) balance remains at $2.5 million for FY 2009.

FY 2009 FY 2008 FY 2007 FY 2006 FY 2005

38 growingpowerful solutions Nine Canyon Wind Project Canyon generating capability is 95.9 MW, enough energy for Cost of Power - Cents / kWh approximately 39,000 average homes. 10.00 Nine Canyon produced 226.27 GWh of electricity in FY 2009 versus 237.33 GWh in FY 2008. Major component outages were 8.00 less in FY 2009 but wind speed averages were 9.2 percent lower than FY 2008 resulting in the slight decrease of 4.7 percent in generation. 6.00 Nine Canyon's performance is measured in several ways, including cost of power.The cost of power for FY 2009 was $7.79 4.00 cents/kWh as compared to $6.05 cents/kWh in FY 2008. The cost of power fluctuates year to year depending on various factors 2.00 such as wind totals and unplanned maintenance. The FY 2009 cost of power increase of 28.8 percent was due to increased fixed costs (depreciation and decommissioning) and increased FY 2009 FY 2008 FY 2007 FY 2006 FY2005 operations and maintenance costs both related to a full year's costs of the Phase IIIaddition.

BALANCE SHEET ANALYSIS STATEMENT OF OPERATIONS ANALYSIS Total Assets decreased $13.5 million from $144.8 million in FY Operating Revenues increased from $12.6 million in FY 2008 2008 to $131.3 million in FY 2009. Major drivers for the decrease to $15.6 million in FY 2009. The project received revenue from in assets were a decrease to plant of $5.8 million due to a full the billing of the purchasers at an average rate of $69.12 per year's depreciation of Phase IIIand a decrease to Debt Service MWh for FY 2009 as compared to $49.62 per MWh for FY 2008 funds of $8.1 million due to an early payment of outstanding which is reflective of the implementation of the revised rate debt. The remaining amount was an overall increase of $0.4 plan in FY 2008 to account for REPI funding shortfalls and costs million due to receivables, prepayments, and debt related of operations. Revenue was affected by having Phase IIIon line activities. The Renewable Energy Performance Incentive (REPI) for the entire year as compared to FY 2008; however, this impact accrual for FY 2009 was $0.8 million compared to $0.7 million was negated by lower generation. There was an increase in for FY 2008 and reflects funding expectations for the program. operating expenses of $3.3 million from $8.1 million in FY 2008 There was an overall decrease to liabilities of $12.3 million with to $11.4 million in FY 2009. Change in operating expenses was

$11.9 million related to debt activity and the early payment of due to increased depreciation costs of $2.6 million and operations outstanding debt. The remaining $0.4 million decrease is due to and maintenance costs of $0.7 million due to the Phase III operating activities. The decrease in Net Assets was $1.2 million addition.There were minor increases to decommissioning of $2k, in FY 2009 as compared to $2.9 million in FY 2008. The decline administrative and general expenses of $5k, and a minor decrease experienced in previous years is continuing, though there is a of $2k to generation tax due to lower generation. Other revenue continued trend of improvement from previous periods. The and expenses decreased $1.1 million from $7.4 million in FY 2008 original plan anticipated operating at a loss in the early years and to $6.3 million in FY 2009. Investment income associated with gradually increasing the rate charged to the purchasers to avoid bond funds increased $0.2 million due to increased funds available a large rate increase after the REPI expires. The REPI incentive for investments and favorable timing. Bond related expenses expires 10 years from the initial operation startup date for each accounted for the remaining decrease of $0.9 million. Net losses phase. Reserves that were established are used to facilitate this of $2.0 million for FY 2009 continued the trend from previous plan. The rate plan in FY 2008 was revised to account for the years. This trend is reflected in the declining Net Assets balance.

shortfall experienced in the REPI funding and to provide a new However, results are improved over the loss reported for FY 2008 rate scenario out to the 2030 project end date. of $2.9 million; the positive trend reflects the impact of the revised rate structure and Phase IIIimplementation.

Energy Northwest has accrued, as income (contribution) from DOE, REPI payments that enable Nine Canyon to receive funds

Energy Northwest 2009 Annual Report 39 based on generation as it applies to the REPI bill. REPI was created to promote increases in the generation and utilization of electricity from renewable energy sources and to further the advances of The Internal Service Fund (ISF) (formerly the General Fund) renewable energy technologies. was established in May 1957. The Internal Service Fund provides This program, authorized under Section 1212 of the Energy services to the other funds. This fund accounts for the central Policy Act of 1992, provides financial incentive payments for procurement of certain common goods and services for the electricity produced and sold by new qualifying renewable business units on a cost reimbursement basis. (See Note I to energy generation facilities. Nine Canyon received REPI funding Financial Statements.)

in the amount of $0.8 million for FY 2009, representing its share of funded amounts. The payment stream from Nine Canyon BALANCE SHEET ANALYSIS participants and the REPI receipts were projected to cover the Total Assets for FY 2009 increased $16.3 million from $37.4 total costs over the purchase agreement. Continued shortfalls million in FY 2008 to $53.7 million in FY 2009. The five major in REPI funding for the Nine Canyon project led to a revised rate items for the change were 1) an increase of $17.2 million to plan to incorporate the impact of this shortfall over the life of Cash for anticipated year end check and warrant redemption, 2) the project. The billing rates for the Nine Canyon participants an increase of $1.5 million to Personal Time Bank investments increased 69 percent and 80 percent for Phase Iand Phase II and cash (which represents decreased usage due to R-1 9 participants respectively in FY 2008 in order to cover total project requirements), 3) an increase of $0.7 million in restricted assets costs, projected out to the 2030 proposed project end date. The due to maturity schedule and escrow requirements processing increases for FY 2008 were a change from the previous plan where schedule, 4) a decrease in net plant due to depreciation of $2.3 a 3 percent increase each year over the life of the project was million, and 5) a decrease to operational activities of $0.8 million.

projected. Going forward, the increase or decrease in rates will be The net increase in Net Assets and Liabilities is due to based on cash requirements of debt repayment and the cost of increases in Accounts Payable and Payroll related liabilities of operations. Phase IIIstarted with an initial planning rate of $49.82 $11.0 million and an increase to Sales Tax Payable of $5.0 million, per MWh which will increase at 3 percent per year for three years. which is tied to movement of fabricated fuel into the State of In year four (FY 2011) the rate will increase to a rate that will be Washington.The remaining change is due to a $258k increase to stabilized over the life of the project. Possible adjustments may be Net Assets.

necessary to future rates depending on operating costs and REPI, similar to Phase I and II. STATEMENT OF OPERATIONS ANALYSIS Net Revenues for FY 2009 decreased $166k from FY 2008.

Investment income decreased $218k due to lower invested Nine Canyon Wind Project balance relating to lower yields. Lease utilization factors El Operating Expenses Total Operating Costs (000's) 0 Other Income / Expenses remained relatively constant from FY 2008 but reduced

$12,000 .......... .....................I....I I. ý. improvement costs resulted in a decrease to overall costs of

$11,000 .. ...... . ....... $209k. Results from operations resulted in a $531k decrease

$10,000 ..... ............. to costs with an offsetting increase of $688k due to increased

$9,0 00 ....................... ............. depreciation costs.

$8,000 ........

$7,000

$6,000 .

$5,000 .

$4,000 "'

$3,000... ..

$2,000 1,00 IFY2009 IFY2008 2FY2007 FY 2006 FY 2005

40 growing powerful solutions Blne t As of Jun 30, 200 (Dllr in Thuans Columbia Business 2009 Generating Packwood Lake Nuclear Project Nuclear Project Development NineCanyon Internal Service Combined solutions Station Project No.l No.3* Fund Wind Project Subtotal Fund i Total 40 growing powerful Assets CURRENT ASSETS Cash $ 10,092 $ 869 $ 209 $ 179 .5 360 :3 216 $ 11,925 i$ 18,876  :$ 30,801 Available-for-sale investments 18,029 4,159 5,003 2,485 6,362 36,038 24,488 60,526 Accounts and other receivables 352 263 507 2 1,124 128 1,252 Due from Participants 134 i 134 134 Due from other business units 4,537 18 441 124 1,023 6,143 464 Due from other funds 11,615 2,018 29,313 934 43,880 Materials and supplies 92,629 92,629 92,629 Prepayments and other 1,830 81 147 2,058 271 2,329 TOTAL CURRENT ASSETS 139,084 1,365 6,827 34,619 4,375 7,661 193,931 44,227 187,671 CURRENT RESTRICTED ASSETS (NOTE 1)

Special funds Cash 3,364 4 3 1: 3,372 583 3,955 Available-for-sale investments : 81,743 5,384 8,725 1,550 97,402 1,927 99,329 Accounts and other receivables 127 43 43 828 1,041 1,041 Debt service funds Cash 2,411 36 158 3 2,608 2,608 Available-for-sale investments 76,528 87,544 100,945 11,438 276,455 276,455 Accounts and other receivables 42 15 9 112 178 178 Due from other funds 1,935 809 295  : 3,039 TOTAL CURRENT .  :  :

RESTRICTEDASSETS 166,150 809 93,321 109,883 13,932 i 384,095 2,510 U 383;566 Non Current Assets UTILITY PLANT (NOTE 2)

Inservice 3,609,698 13,642 1,948 134,151 3,759,439 47,475 3,806,914 Not in service _ _25,253 - - - 25,253 25,253 Accumulated depreciation (2,321,450) (12,542):' (25,253):" (648): (26,965) (2,386,858) (40,517): (2,427,375) 1,288,248 1,100- 1,300 107,186 1,397,834 6,958 1,404,792 Nuclear fuel, net of accumulated amortization 222,927 222,927 222,927 Construction work in progress 92,390 92,390 92,390 TOTAL NONCURRENTASSETS i 1,603,565 1,100 - 1,300 107,186 1,713,151 6,958 1 1,720,109 DEFERRED CHARGES Costs in excess of billings 832,952-i . 1,881,219 1,699,206 4,413,377 4413,377 Unamortized debt expense 12,057 - 8,792 6,451 2,472 29,772 29772 Other deferred charges 8,269 3,649 11,918 11,918 TOTAL DEFERRED CHARGES 853,278 3,649 1,890,011 1,705,657 1 - 2,472 4,455,067 4,455,067 TOTALASSETS i$ 2,762,077 1$ 6,923 .$ 1,990,159 $ 1,850,159 1$ 5,675 $ 131,251 1$ 6,746,244 $ 53,695 1$ 6,746,413

• Project recorded on a liquidation basis.

The accompanying notes are an integral part of these combined financial statements

Energy Northwest 2009 Annual Report 41 Columbia Business 2UU9 Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service Combined Station Project No.* No.3* Fund Wind Project Subtotal Fund Total Liabilities And Net Assets CURRENT LIABILITIES Current maturities of long-term debt $ 22,375 $ $ 40,155 $ 71,280 i$ $ - :$ 133,810 i$ $ 133,810 Accounts payable and accrued expenses 42,184 999 292 245 2,495 719 46,934 39,520 86,454 Due to Participants 22,778 22,778 22,778 Due to other funds 809  ; 809 -

Due to other business units i i 464i 464i 6,143i TOTAL CURRENT ( .. i LIABILITIES 187,337 1,808 40,447 71,525 2,495 1,183 204,795 45,663 243,042 LIABILITIES- PAYABLE FROM CURRENT RESTRICTED ASSETS (NOTE 1)

Special funds Accounts payable and accrued expenses 118,922 14,773 1,095 134,790 583 135,373 Due to other funds 13,550 2,313 5,493 934 22,290 -

Debt service funds Accrued interest payable 58,633 5 47,737 30,918 137,293 137,293 Due to other funds 23,820 23,820 TOTAL CURRENT RESTRICTED ASSETS 191,105 5 64,823 60,231 2,029 318,193 583 272,666 LONG-TERM DEBT (NOTE 5)

Revenue bonds payable 2,392,382 1,821,165 1,729,005 144,730 6,087,282 6,087,282 Unamortized (discount)/premium on bonds - net 91,995 81,365 (2,548) 5,126 175,938 175,938 Unamortized gain/(loss) on bond refundings (11,339) ; (17,641): (8,054): (37,034) (37,034)!

TOTAL LONG-TERM DEBT r 2,473,038 " 1,884,889 1,718,403- 149856 6,226,186 " 1 6,226,186 OTHER LONG-TERM LIABILITIES 110,597 -a -- "'- 10,597 a " 10,597 DEFERRED CREDITS Advances from Members . . . i and others - , - . 726 726 Other deferred credits a 5,110 1 305 5,415 38i 5,453 TOTAL DEFERRED CREDITS 5,110. " " 305i 5,415 a 764 6,179 NET ASSETS Invested in capital assets, net of related debt 1,300 (40, 198):: (38,898) 6,958 (31,940)::

Restricted, net 11,599 11,599 1,928 13,527 Unrestrited, net 1,880 6,477 8,357 (2,201): 6,156 NETASSETS 3180 (22122) (18,942): 6,685 (12,257):

TOTAL LIABILITIES 2,762,077 6,923 1,990,159 1,850,159 2,495 a 153,373 6,765,186 47,010 a I) 6,758,670 TOTAL LIABILITIES AND . - . - -

NETASSETS $ 2,762,077 $ 6,923 :$ 1,990,159 i$ 1,850,159 i$ 5,675 a$ 131,251 i$ 6,746,244 $ 53,695 $ 6,746,413

• Project recorded on a liquidation basis.

The accompanying notes are an integral part of these combined financial statements

42 growing powerful solutions

'~State&mensOfRveus, xpnes n Chage . NewAssets In~p~r Fo the year ene 6 June 30, 209(olrnTosns Columbia Business 2009 Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service Combined solutions Station Project No.1* No.3* Fund Wind Project Subtotal Fund Total 42 growing powerful OPERATING REVENUES S 519,758 S 1,641 $ - S - $ 8,738 S 15,638 $ 545,775 $ - S 545,775 OPERATING EXPENSES Nuclear fuel 27,118 27,118 27,118 Spent fuel disposal fee 7,380 7,380 7,380 Decommissioning 6,457 76 6,533 6,533 Depreciation and amortization 77,063 36 213 6,736 84,048 84,048 Operations and maintenance 255,380 1,295 12,092 4,459 273,226 273,226 Other power supply expense 11i 111 111 Administrative &general 27,123 151 - - 51 27,325 27,325 Generation tax 3,137 20 48 3,205 3,205 TOTAL OPERATING EXPENSES 403,658], 1,613 " " 12,305 11,370 428,946 - 428,946 NET OPERATING REVENUES 116,100 28 - " (3,567)i 4,268 116,829 - 116,8291 OTHER INCOME AND EXPENSE Other 888 I 97,588 87,029 2,201 187,706 72,660 187,964 Investment income 1,993 19 410 494 63 605 3,584 150 3,584 Interest expense and discount amortization (118,981):: (47):: (96,160) (85,418): (6,869); (307,475) (307,475)

Plant preservation and termination costs (1,329):: (2,105) (3434) (3,434)

Depreciation and amortization (6): (6)' (2,727):: (6)

Decommissioning (503):: (503):: (503)

Services to other business units (69,825)-

TOTAL OTHER INCOME AND . .

EXPENSES (116,100): (28): - 2,264 (6,264): (120,128): 258 (119,870)

Changes in Net Assets - - (1,303): (1,996): (3,299): 258 (3,041)

(DISTRIBUTION)/CONTRIBUTION -- - 829. 829' -: 829 TOTAL NET ASSETS, BEGINNING OFYEAR . 4,483 (20,955)1 (16,472): 6,427 (10,045)

STOTAL NET ASSETS, END  : 6,685 OFYEAR END -i$ " -$ $ 3,180 I$ (22,122)15 (18,942)i$ 6,685 ($1 (12,257)F

• Project recorded on a liquidation basis.

The accompanying notes are an integral part of these combined financial statements

Energy Northwest 2009 Annual Report 43 Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2009 Station Project i No.1* No.3* Fund Wind Project Fund Combined Total CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Operating revenue receipts $ 481,142 $ 3,003 :$ $ $ 4,805 $ 16,814 i$ $ 505,764 Cash payments for operating expenses (295,537): (1,287) : _ (5,887) (5,696):: (308,407)

Other revenue receipts 129,515 134,013 263,528 Cash payments for preservation, termination expense _ _ _ (297) (512): (809)

Cash payments for services i - 19,205 19,205 Net cash provided/(used) by operating and other activities 185,605 1,716 1 129,218 133,501 (1,082): 11,118 1 19,205 479,281 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings 214,815 _ i 52,403 128,728 395,946 I

Refunded bond escrow requirement (125,305) (51,890)!: (127,765);: (304,960)

Deposit to Debt Service Fund 125,305 i 51,890 127,765 304,960 Payment for bond issuance and financing costs (2,511): (10) (1,415):: (3,034): (1)0 (46):: (7,017) 1 Payment for capital items (70,701); (327) : (500)) (730):: (73,192)

(934);:

Receipts from sales of plant assets 35  : 35 Nuclear fuel acquisitions (32,998) : _ _ (32,998)

Interest paid on revenue bonds (122,833): (46) (92,691) (122,415): ( 0,806) (348,791)

Principal paid on revenue bond maturities (25,242):: (1,241); (61,290) (142,860): (8,020) (238,653)

Escrow refund 5 1 94 100 Net cash providedl(used) by capital and -

related financing activities (39,465) (1,624):: (102,957)) (139,487)): (501):: (19,806): (730) (304,570)

CASH FLOWS FROM NON-CAPITAL FINANCE ACTIVITIES - -

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities (949,443):: (3,327) (351,897)i (423,759): (15,965): (44,432): (62,292): (1,851,115)

Sales of investment securities 740,411 4,069 324,291 425,905 14,441 43,452 1 60,947 1,613,516 Interest on investments 2,007 26 547 777 61 496 454 4,368 Net cash provided/(used) by investing activities (207,025) 768 (27,059) 2,923 (1,463) (484) (891) (233,231)

NET INCREASE (DECREASE) IN CASH (60,885) 860 1 (798)1 (3,063)1 (3,046) (9,172):: 17,584 (58,520)

CASH AT JUNE 30, 2008 76,752 1 9 1,047 1 3,403 1 3,406 I 9,392 1,875 95,884

{CASH AT JUNE 30,2009 1$ 15,867 1$ 869 iS 249 1$ 340 1$ 360 1$ 220 1$ 19,459 1$ 37,364

• Project recorded on a liquidation basis.

The accompanying notes are an integral part of these combined financial statements

44 growing powerful solutions Stt m n sOfC s Fl S .CntdFo th y.earede-ue 30, 2009 (Dlar . nhusns Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2009 Station Project No.1 No.3* Fund Wind Project Fund Combined Total RECONCILIATION OF NET OPERATING REVENUES TO NET CASH FLOWS PROVIDED BYOPERATING ACTIVITIES Net operating revenues $ 116,100 $ 28 $ $ - $ (3,567):$ 4,268 t$ $ 116,829 Adjustments to reconcile net operating revenues to cash provided by operating activities:

Depreciation and amortization 103,7251 251 100 6,712 110,562 Decommissioning 6,457 33 6,490 Other 1,631 338i 2,082 46 4,097 Change in operating assets and liabilities:

Deferred charges/costs in excess of billings (42,689) (12) (42,701)

Accounts receivable 467 203 15 685 Materials and supplies 3,815 3,815 Prepaid and other assets (528) (3) 21 (148): (658)

Due from/to other business units, funds and Participants (3,594): 1,171 (433):ý (29):i (2,885)

Accounts payable 221 (34)! 700 1 236 1,123 Other revenue receipts 129,515 134,013 263,528 Cash payments for preservation, termination expense _ _ __(297) '! ~ ~*...........

~ (512) (09 (809)

Cash payments for services 19,205 19,205 Net cash provided (used) by operating and other activities $ 185,605 $ 1716 129,218 $ 133,501 $ (1 08241$ ' 1,1 879,281"' 120S i,

• Project recorded on a liquidation basis.

The accompanying notes are an integral part of these combined financial statements

Energy Northwest 2009 Annual Report 45

• ~~~- 7a NOTE 1 -

SUMMARY

OF OPERATIONS AND SIGNIFICANT Energy Northwest also operates the Packwood Lake Hydro-ACCOUNTING POLICIES electric Project (Packwood), a 27.5-MWe generating plant com-Energy Northwest, a municipal corporation and joint operat- pleted in 1964. Packwood operates under a 50-year license from ing agency of the State of Washington, was organized in 1957 to the Federal Energy Regulatory Commission (FERC) that expires finance, acquire, construct and operate facilities for the genera- on February 28, 2010.The final application for the relicensing tion and transmission of electric power. of Packwood was submitted to FERC on February 22, 2008. The Membership consists of 22 public utility districts and 3 cities. estimated license renewal process is 18-24 months from the ac-All members own and operate electric systems within the State ceptance of application. Costs incurred to date for relicensing are of Washington. $3.6 million. The electric power produced by Packwood is sold Energy Northwest is exempt from federal income tax and has to 12 project participant utilities which pay the costs of Pack-no taxing authority. wood, including the debt service on Packwood revenue bonds.

Energy Northwest maintains seven business units. Each unit is The Packwood participants are obligated to pay annual costs of financed and accounted for separately from all other current or Packwood including debt service, whether or not Packwood is future business units. operable, until the outstanding bonds are paid or provisions are All electrical energy produced by Energy Northwest net-billed made for bond retirement, in accordance with the requirements business units is ultimately delivered to electrical distribution fa- of bond resolution.The participants share Packwood revenue as cilities owned and operated by Bonneville Power Administration well. In 2002, Packwood and its participants entered into a Power (BPA) as part of the Federal Columbia River Power System. BPA in Sales Agreement with Benton and Franklin PUDs to guarantee a turn distributes the electricity to electric utility systems through- specified level of power generation from the Packwood project.

out the Northwest, including participants in Energy Northwest's This agreement ended in October 2008. In October 2008, Pack-business units, for ultimate distribution to consumers. Partici- wood entered into a new Power Sales Agreement with Snohom-pants in Energy Northwest's net-billed business units consist ish PUD to purchase the entire project output (see Note 6).

of public utilities and rural electric cooperatives located in the Nuclear Project No. 1, a 1,250-MWe plant, was placed in ex-western United States who have entered into net-billing agree- tended construction delay status in 1982, when it was 65 percent ments with Energy Northwest and BPA for participation in one complete. Nuclear Project No. 3, a 1,240-MWe plant, was placed or more of Energy Northwest's business units. BPA is obligated in extended construction delay status in 1983, when it was 75 by law to establish rates for electric power which will recover percent complete. On May 13, 1994, Energy Northwest's Board of the cost of electric energy acquired from Energy Northwest and Directors adopted resolutions terminating Nuclear Projects Nos.

other sources, as well as BPA's other costs (see Note 6). 1 and 3. All funding requirements remain as net-billed obliga-Energy Northwest operates the Columbia Generating Station tions of Nuclear Projects Nos. 1 and 3. Energy Northwest wholly (Columbia), a 1,150-MWe (Design Electric Rating, net) generat- owns Nuclear Project No. 1.Energy Northwest is no longer ing plant completed in 1984. Energy Northwest has obtained all responsible for site restoration costs for Nuclear Project No. 3.

permits and licenses required to operate Columbia, including (See Note 13) a Nuclear Regulatory Commission (NRC) operating license that The Business Development Fund was established in April expires in December 2023. Energy Northwest is preparing an 1997 to pursue and develop new energy related business op-application to renew the license for an additional 20 years, thus portunities. There are four main business lines associated with continuing operations to 2043. Submittal of this application is this business unit: General Services and Facilities, Generation, planned for January 2010.The estimated duration of the license Professional Services, and Business Unit Support.

renewal process is 20-24 months from acceptance of the applica- Nine Canyon was established in January 2001 for the purpose tion. Costs to date on Columbia relicensing are $8.3 million. of exploring and establishing a wind energy project. Phase I of

46 growingpowerful solutions the project was completed in FY 2003 and Phase IIwas com- Energy Northwest maintains an Internal Service Fund pleted in FY 2004. Phase I and IIcombined capacity is approxi- for centralized control and accounting of certain capital mately 63.7 MWe. Phase Ill was completed in FY 2008 adding an assets such as data processing equipment, and for payment additional 14 wind turbines to the Nine Canyon Wind Project and and accounting of internal services, payroll, benefits, ad-adding an aggregate capacity of 32.2 MWe. The total number of ministrative and general expenses, and certain contracted turbines at Nine Canyon is 63 and the total capacity is 95.9 MWe. services on a cost reimbursement basis. Certain assets in The Internal Service Fund was established in May 1957. It is the Internal Service Fund are also owned by this Fund and currently used to account for the central procurement of certain operated for the benefit of other projects. Depreciation common goods and services for the business units on a cost relating to capital assets is charged to the appropriate busi-reimbursement basis. ness units based upon assets held by each project.

Energy Northwest's fiscal year begins on July 1 and ends on Liabilities of the Internal Service Fund represent June 30. In preparing these financial statements, the Company accrued payroll, vacation pay, employee benefits, and com-has evaluated events and transactions for potential recognition mon accounts payable which have been charged directly or or disclosure through October 30, 2009, the date the financial indirectly to business units and will be funded by the busi-statements were issued. ness units when paid. Net amounts owed to or from Energy Northwest business units are recorded as Current Liabili-The following is a summary of the more significant policies: ties-Due to other business units, or as Current Assets-Due from other business units on the Internal Service Fund a) Basis of Accounting and Presentation: The accounting Balance Sheet.

policies of Energy Northwest conform to GAAP applicable The Combined Total column on the financial state-to governmental units. The Governmental Accounting ments is for presentation only as each Energy Northwest Standards Board (GASB) is the accepted standard-setting business unit is financed and accounted for separately body for establishing governmental accounting and finan- from all other current and future business units. The FY cial reporting principles. Energy Northwest has applied all 2009 Combined Total includes eliminations for transactions applicable GASB pronouncements and elected to apply between business units as required in Statement No. 34, Financial Accounting Standards Board (FASB) statements "Basic Financial Statements and Management's Discussion and interpretations except for those conflicting with or in and Analysis for State and Local Governments," of the GASB.

contradiction to GASB pronouncements. The accounting Pursuant to GASB Statement No. 20, "Accounting and and reporting policies of Energy Northwest are regulated Financial Reporting for Proprietary Funds and Other Gov-by the Washington State Auditor's Office and are based on ernmental Entities That Use Proprietary Fund Accounting:"

the Uniform System of Accounts prescribed for public utili- Energy Northwest has elected to apply all FASB statements ties and licensees by FERC. Energy Northwest uses the full and interpretations, except for those that conflict with, or accrual basis of accounting where revenues are recognized contradict, GASB pronouncements. Specifically, GASB No.

when earned and expenses are recognized when incurred. 7, "Advance Refundings Resulting in Defeasance of Debt:"

Revenues and expenses related to Energy Northwest's and GASB No. 23, "Accounting and Financial Reporting for operations are considered to be operating revenues and Refundings of Debt Reported by Proprietary Activities:"

expenses; while revenues and expenses related to capital, conflict with Statement of Financial Accounting Standard financing and investing activities are considered to be (SFAS) No. 140,"Accounting forTransfers and Servicing of other income and expenses. Separate funds and book of Financial Assets and Extinguishments of Liabilities."As such, accounts are maintained for each business unit. Payment the guidance under GASB No. 7 and No. 23 is followed.

of obligations of one business unit with funds of another Such guidance governs the accounting for bond defea-business unit is prohibited, and would constitute violation sances and refundings.

of bond resolution covenants. (See Note 5)

Energy Northwest 2009 Annual Report 47 b) Utility Plant and Depreciation: Utility plant is recorded at (the amortization of the cost of nuclear fuel assemblies in original cost which includes both direct costs of construc- the reactor used in the production of energy and in the fuel tion or acquisition and indirect costs. pool for less than six months per FERC guidelines) is $121.0 Property, plant, and equipment are depreciated using million as of June 30, 2009.

the straight-line method over the following estimated use- A fuel lease agreement was entered into in FY 2007 ful lives: and was completed in FY 2009. The agreement provided for an exchange of uranium oxide (U308) for an equivalent Buildings and Improvements 20 - 60 years amount of uranium hexafluoride (UF6), which was returned Generation Plant 40 years at the conclusion of the loan.

Transportation Equipment 6 - 9 years A fuel agreement was entered into in FY 2009 in which General Plant and Equipment 3 - 15 years Energy Northwest purchased U308 from seller in February 2009. A related transaction will take place in FY 2011 in Group rates are used for assets and, accordingly, no which Energy Northwest will purchase conversion services gain or loss is recorded on the disposition of an asset unless from seller. At that time, Energy Northwest will deliver the it represents a major retirement. When operating plant U308 to seller for conversion to UF6.The seller shall deliver assets are retired, their original cost together with removal to Energy Northwest an equivalent quantity of UF6. This costs, less salvage, is charged to accumulated depreciation. purchase will take place on February 21, 2011.

The utility plant and net assets of Nuclear Projects Nos. Energy Northwest has a contract with the U.S. Depart-1 and 3 have been reduced to their estimated net realiz- ment of Energy (DOE) that requires the DOE to accept title able values due to termination. A write-down of Nuclear and dispose of spent nuclear fuel. Although the courts Projects Nos. 1 and 3 was recorded in FY 1995 and included have ruled that DOE had the obligation to accept title to in Cost in Excess of Billings. Interest expense, termination spent nuclear fuel by January 31, 1998, currently, there is expenses and asset disposition costs for Nuclear Projects no known date established when DOE will fulfill this legal Nos. 1 and 3 have been charged to operations. obligation and begin accepting spent nuclear fuel. Energy Northwest is currently seeking damages from DOE to cover c) Allowance for Funds Used During Construction (AFUDC): interim fuel storage expenses. (See Note 13)

For financing not related to a Capital Facility, Energy North- The current period operating expense for Columbia in-west analyzes the gross interest expense relating to the cludes a $7.4 million charge from the DOE for future spent cost of the bond sale, taking into account interest earnings fuel storage and disposal in accordance with the Nuclear and draws for purchase or construction reimbursements for Waste Policy Act of 1982.

the purpose of analyzing impact to the recording of capital- Energy Northwest has completed the Independent ized interest. However, if estimated costs are more than Spent Fuel Storage Installation (ISFSI) project, which is a inconsequential, an adjustment is made to allocate capital- temporary dry cask storage until the DOE completes its ized interest to the appropriate plant account. Interest costs plan for a national repository. ISFSI will store the spent fuel capitalized for FY 2009 totaled $1.9 million and related to in commercially available dry storage casks on a concrete Columbia. pad at the Columbia site. No casks were issued from the cask inventory account in FY 2009. Spent fuel is transferred d) Nuclear Fuel: All expenditures related to the initial pur- from the spent fuel pool to the ISFSI periodically to allow chase of nuclear fuel for Columbia, including interest, were for future refuelings. Current period costs include $25.9 capitalized and carried at cost. When the fuel is placed in million for nuclear fuel and $1.2 million for dry cask storage the reactor; the fuel cost is amortized to operating expense costs.

on the basis of quantity of heat produced for generation of electric energy. Accumulated nuclear fuel amortization

48 growingpowerful solutions e) Asset Retirement Obligation: Energy Northwest has i) Accounts Receivable: The percentage of sales method adopted FASB Statement of Financial Accounting Stan- is used to estimate uncollectible accounts. The reserve is dard (SFAS) No. 143,"Accounting for Asset Retirement then reviewed for adequacy against an aging schedule of Obligations'" This statement requires Energy Northwest to accounts receivable. Accounts deemed uncollectible are recognize the fair value of a liability associated with the re- transferred to the provision for uncollectible accounts on a tirement of a long-lived asset, such as: Columbia Generat- yearly basis. Accounts receivable specific to each business ing Station, Nuclear Project No. 1, and Nine Canyon, in the unit are recorded in the residing business unit.

period in which it is incurred. (See Note 11) j) Other Receivables: Other receivables include amounts f) Decommissioning and Site Restoration: Energy North- related to the Internal Service Fund from miscellaneous west established decommissioning and site restoration outstanding receivables from other business units which funds for Columbia and monies are being deposited each have not yet been collected. The amounts due to each busi-year in accordance with an established funding plan. (See ness unit are reflected in the Due To/From other business Note 12) unit's account. Other receivables specific to each business unit are recorded in the residing business unit.

g) Restricted Assets: In accordance with bond resolutions, related agreements and laws, separate restricted accounts k) Materials and Supplies: Materials and supplies are valued have been established. These assets are restricted for at cost using the weighted average cost method.

specific uses including debt service, construction, capital additions and fuel purchases, extraordinary operation and maintenance costs, termination, decommissioning, operat-ing reserves, financing, long-term disability, and workers' compensation claims. They are classified as current or non-current assets as appropriate.

h) Cash and Investments: For purposes of the Statement of Cash Flows, cash includes unrestricted and restricted cash balances and each business unit maintains their cash and investments. Short-term highly liquid investments are not considered to be cash equivalents, but are classified as available-for-sale investments and are stated at fair value with unrealized gains and losses reported in investment income. (See Note 3) Energy Northwest resolutions and in-vestment policies limit investment authority to obligations of the United States Treasury, Federal National Mortgage Association and Federal Home Loan Banks. Safe keeping agents, custodians, or trustees hold all investments for the benefit of the individual Energy Northwest business units.

Energy Northwest 2009 Annual Report 49 I) Long-Term Liabilities: Consist of obligations related to to cask activity.

bonds payable and the associated premiums/discounts and Long-Term Liability activity for the year ending June 30, gains/losses. Other noncurrent liabilities for CGS only relate 2009 is shown below.

Lo gT r Liblte (Dllr in Thousands)

Beginning Balance Increases Decreases  : Ending Balance Columbia Generating Station Revenue bonds payable $ 2,359,765 $ 204,110 $ 171,493 $ 2,392,382 Unamortized (discount)/premium on bonds - net 95,341 10,705 14,051 91,995 Unamortized gain/(loss) on bond refundings (19,336): 7,997 (11,339)

Other noncurrent liabilities 9,337 1,260 10,597 Current portion 6,100 46,095 29,820 22,375

$ 2,451,207 270,167 $ 215,364 $ 2,506,010 Packwood Lake Hydroelectric Project Revenue bonds payable 551i$ $ 551i$

Unamortized (discount)/premium on bonds - net (1) 1 Unamortized gainl(loss) on bond refundings 14 14 Current portion 690 690 1,254$ 1$ 1,255 $ -j Nuclear Project No.1 Revenue bonds payable $ 1,863,790 $ 49,420 $ 92,045 $ 1,821,165 Unamortized (discount)/premium on bonds - net 93,716 2,983 15,334 81,365 Unamortized gain/(loss) on bond refundings (31,404): 13,763: (17,641)

Current portion 54,160 40,155 : 54,160 : 40,155

$ 1,980,262 $ 106,321 $ 161,539 $ 1,925,044 Nuclear Project No.3 Revenue bonds payable $1,811,025 $117,025 $199,045 $1,729,005 Unamortized (discount)/premium on bonds- net (22,208): 19,660 (2,548)

Unamortized gainl(loss) on bond refundings (14,555):: 7,244 743 (8,054)

Current portion 95,155 71,280 95,155i 71,280 1,869,417 s 215,209 s 294,943 s 1,789,683 Nine Canyon Wind Project Revenue bonds payable $ 148,435 $ $ 3,705 $ 144,730 Unamortized (discount)I/premium on bonds - net 5,633 507 5,126 Current portion 4,315 4,315 158,383 $ $ 8,527 $ 149,856

50 growing powerful solutions m) Debt Premium, Discount and Expense: Original issue This program, authorized under section 1212 if the and reacquired bond premiums, discounts and expenses Energy Policy Act of 1992, provides financial incentive relating to the bonds are amortized over the terms of payments for electricity produced and sold by new qualify-the respective bond issues using the bonds outstanding ing renewable energy generation facilities. Nine Canyon method which approximates the effective interest method. recorded a receivable for the applied REPI funding in the In accordance with GASB Statement No. 23, "Accounting amount of $0.8 million for FY 2009, representing its share and Financial Reporting for Refundings of Debt Reported of funded amounts. The payment stream from Nine Canyon by Proprietary Activities'" losses on debt refundings have participants and the REPI receipts were projected to cover been deferred and amortized as a component of interest the total costs over the purchase agreement. Permanent expense over the shorter of the remaining life of the old or shortfalls in REPI funding for the Nine Canyon project led to new debt. The balance sheet includes the original deferred a revised rate plan to incorporate the impact of this short-amount less recognized amortization expense and is in- fall over the life of the project. The rate schedule for the cluded as a reduction to the new debt. Nine Canyon participants covers total project costs occur-ring in FY 2009 and projections out to the 2030 proposed n) Revenue Recognition: Energy Northwest accounts for end date.

expenses on an accrual basis, and recovers, through various agreements, actual cash requirements for operations and p) Compensated Absences: Employees earn leave in accor-debt service for Columbia, Packwood, Nuclear Project No. 1 dance with length of service. Energy Northwest accrues the and Nuclear Project No. 3. For these business units Energy cost of personal leave in the year when earned. The liability Northwest recognizes revenues equal to expenses for each for unpaid leave benefits and related payroll taxes was period. No net revenue or loss is recognized, and no equity $18.7 million at June 30, 2009 and is recorded as a current accumulated. The difference between cumulative billings liability.

received and cumulative expenses is recorded as either bill-ings in excess of costs (deferred credit) or as costs in excess q) Use of Estimates: The preparation of Energy Northwest of billings (deferred debit), as appropriate. Such amounts financial statements in conformity with GAAP requires will be settled during future operating periods. (See Note 6) management to make estimates and assumptions that Energy Northwest accounts for revenues and expenses directly affect the reported amounts of assets and liabilities, on an accrual basis for the remaining business units.The disclosures of contingent assets and liabilities at the date difference between cumulative revenues and cumula- of the financial statements, and the reported amounts of tive expenses is recognized as net revenue or losses and revenue and expenses during the reporting period. Actual included in Net Assets for each period. results could differ from these estimates. Certain incurred expenses and revenues are allocated to the business units o) Capital Contribution: Energy Northwest has accrued, as based on specific allocation methods that management income (contribution) from the DOE, Renewable Energy considers to be reasonable.

Performance Incentive (REPI) payments that enable Nine Canyon to receive funds based on generation as it applies to the REPI bill. REPI was created as part of the Energy Policy Act of 1992 to promote increases in the genera-tion and utilization of electricity from renewable energy sources and to further the advances of renewable energy technologies.

Energy Northwest 2009 Annual Report 51 NOTE 2 - UTIUTY PLANT Utility plant activity for the year ended June 30, 2009 was as follows:

Beginning Balance Increases Decreases Ending Balance Columbia Generating Station Generation i$ 3,547,102 $ 30,127 1$ - 3,577,229 Decommissioning 32,469 32,469 Construction Work-in-Progress 52,539 39,851 92,390 Accumulated Depreciation and Decommissioning (2,246,411): (75,039) (2,321,450)

UTILITY PLANT, net* 1,385,699 $(5,061): ' - ]l 1,380,638,1 Packwood Lake Hydroelectric Project Generation  :$ 13,558 !$ 84i$ :;$ 13,642 Accumulated Depreciation (12,517):: (25):  : (12,542)

IUTILITY PLANT, net i$ 1,041 :$ 59$ -is il 1,100 Business Development Generation iS 1,327 :$ 621 ;$ - iS 1,948 Construction Work-in-Progress .__

Accumulated Depreciation (548)i (100) (648)

IUTILITY PLANT, net  :$ 779 $ 521 $ -  :$ 1,300 Nine Canyon Wind Project Generation i$ 132,356 i$ 934 i$ - $ 133,290 Decommissioning 861 861 Construction Work-in-Progress "_ -:_

Accumulated Depreciation and Decommissioning (20,219) (6,746) (26,965)

IUTILITY PLANT, net $ 112,998 $ (5,812):$ -:S II 107,186 Internal Service Fund Generation 5 47,086 5 389 $ - i$ 47,475 Construction Work-in-Progress _ _.

Accumulated Depreciation - (37,790)i (2,727):i (40,517)

IUTILITY PLANT, net i$ 9,296 :$ (2,338):$ ":$ II 6,958

• Does not include Nuclear Fuel Amount of $223 million, net of amortization.

52 growingpowerful solutions NOTE 3 - DEPOSITS AND INVESTMENTS As of June 30, 2009, Energy Northwest had the following unrealized gains and losses:

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

Columbia Generating Station $ 176,207 $ 93 " $ 176,300 Packwood Lake Hydroelectric Project _ _-  : _-  : _-_  :

Nuclear Project No. 1 97,087 97,087 Nuclear Project No. 3 114,673 114,673 Business Development Fund 2,484 i1 . 2,485 Internal Service Fund 26,423 21 1 (29) 26,415 Nine Canyon Wind Project 19,215 149 (14) 19,350 (1)Allinvestments are in U.S.Government backed securities (2)The majority of investments have maturities of less than 1 year. Approximately $9.35 million have a maturity beyond 1 year with the longest maturity being June 10, 2011.

Interest rate risk: In accordance with its investment policy, Custodial credit risk, Deposits: For a deposit, this is the risk Energy Northwest manages its exposure to declines in fair values that in the event of bank failure, Energy Northwest's deposits by limiting investments to those with maturities designated in may not be returned to it. Energy Northwest's interest bearing specific bond resolutions. accounts and certificates of deposits are covered up to $250,000 by Federal Depository Insurance Corporation (FDIC) while non-Credit risk: Energy Northwest's investment policy restricts in- interest bearing deposits are entirely covered by FDIC and if nec-vestments to debt securities and obligations of the U.S.Treasury, essary, all interest and non-interest bearing deposits are covered U.S. Government agencies, Federal National Mortgage Associa- by collateral held in multiple financial institution collateral pool tion and the Federal Home Loan Banks, certificates of deposit administered by the Washington State Treasurer's Local Govern-and other evidences of deposit at financial institutions quali- ment Investment Pool (PDPC). Under state law, public deposito-fied by the Washington Public Deposit Protection Commission ries under the PDPC may be assessed on a prorated basis if the (PDPC), and general obligation debt of state and local govern- pool's collateral is insufficient to cover a loss. As a result, deposits ments and public authorities recognized with one of the three covered by collateral held in the multiple financial institution highest credit ratings (AAA, AA+, AA, or equivalent). This invest- collateral pool are considered to be insured. State law requires ment policy is more restrictive than the state law. deposits may only be made with institutions that are approved by the PDPC.

Concentration of credit risk: Energy Northwest investment policy does not specifically address concentration of credit risk.

An individual authorized security or obligation can receive up to 100 percent of the authorized investment amount; there are no individual concentration limits.

Energy Northwest 2009 Annual Report 53 NOTE 4 - DEFERRED CHARGES AND DEFERRED CREDITS Columbia are fixed rate bonds with a weighted average coupon Other deferred charges of $8.3 million and $3.6 million relate interest rate ranging from 4.83 percent to 5.67 percent. These to the Columbia and Packwood relicensing effort, respectively. transactions resulted in a net-loss for accounting purposes of

$0.03 million. According to GASB No. 23, "Accounting and Finan-NOTE 5- LONG-TERM DEBT cial Reporting for Refundings of Debt Reported by Proprietary Each Energy Northwest business unit is financed separately. Activities;" gains and losses on the refundings are deferred and The resolutions of Energy Northwest authorizing issuance of amortized over the remaining life of the old debt or the new revenue bonds for each business unit provide that such bonds debt, whichever is shorter.

are payable from the revenues of that business unit. All bonds The Series 2009-A Bonds issued for Nuclear Project No. 1, issued under Resolutions Nos. 769, 775 and 640 for Nuclear Proj- Nuclear Project No. 3, and Columbia are tax exempt fixed-rate ects Nos. 1, 3 and Columbia, respectively, have the same priority bonds that extended debt.

of payment within the business unit (the "Prior Lien Bonds"). All The Series 2009-B Bonds, issued for Nuclear Project No. 1, bonds issued under Resolutions Nos. 835, 838 and 1042 (the Nuclear Project No. 3 and Columbia are taxable fixed-rate bonds "Electric Revenue Bonds") for Nuclear Projects Nos. 1,3 and for the purpose of paying costs relating to the issuance of the Columbia, respectively, are subordinate to the Prior Lien Bonds Series 2009-A, Series 2009-B, and Series 2009-C Bonds, as well and have the same subordinated priority of payment within as certain costs relating to the refunding of certain outstanding the business unit. Nine Canyon's bonds were authorized by the bonds.

following resolutions: Resolution No. 1214 2001 Bonds, Resolu- The Series 2009-C Bonds issued for Columbia are tax exempt tion No. 1299 2003 Bonds, Resolution No. 1376 2005 Bonds and fixed-rate bonds to finance a portion of the cost of certain capital Resolution No.1482 2006 Bonds. improvements at Columbia.

During the year ended June 30, 2009, Energy Northwest is- Nuclear Projects Nos. 1 and 3 have long-term debt that sued, for Nuclear Projects No. 1 and 3, and Columbia, the Series contains variable rate interest. These rates are set periodically 2009-A Bonds and Series 2009-B Bonds. The Series 2009-C Bonds through a weekly rate reset. These rates ranged from 0.200 per-were issued for Columbia. The Series 2009-A, 2009-B, 2009-C cent to 9.240 percent during FY 2009.

Bonds issued for Nuclear Project No. 1, Nuclear Project No. 3, and The Bond Proceeds, Weighted Average Coupon Interest Rates, Net Accounting Loss, and Total Defeased Bonds for 2009-A, 2009-B, and 2009-C are presented in the following tables:

54 growingpowerful solutions BOND PROCEEDS (dollars in millions) In prior fiscal years, Energy Northwest also defeased certain revenue bonds by placing the net proceeds from the refunding 2009A 2009B 2009C Total bonds in irrevocable trusts to provide for all required future debt Project I $ 51.89 i$ 0.51 - $$ 52.40 service payments on the refunded bonds until their dates of CGS 125.30 18.51 71.00 214.81 redemption. Accordingly, the trust account assets and liability for Project 3 127.76 0.97 - 128.73 the defeased bonds are not included in the financial statements Total i$ 304.95 $ 19.99 $ 71.00 iS 395.94 in accordance with GASB statements No. 7 and 23. Including the FY 2009 defeasements, $44.8 million, $25.9 million, and $125.3 WEIGHTED AVERAGE COUPON INTEREST RATE FOR million of defeased bonds were not called or had not matured at REFUNDED BONDS June 30, 2009, for Nuclear Projects Nos. 1 and 3, and Columbia 2009A 2009B 2009C respectively.

Total 5.42%' -" Outstanding principal on revenue and refunding bonds for the various business units as of June 30, 2009, and future debt The 2009A issue refunded variable rate bonds that are not included.

service requirements for these bonds are presented in the fol-lowing tables:

WEIGHTED AVERAGE COUPON INTEREST RATE FOR NEW BONDS 2009A 2009B 2009C Total 4.83% 5.67% 4.88%

NET ACCOUNTING LOSS (dollars in millions) 2009A 2009B 2009C Total Project I $ (0.51):$ 0.51 $ $

CGS (2.15): 1.21 (0.94)

Project 3 0.01 0.96 0.97 Total $ (2.65)i$ 2.68 $ 0.03 TOTAL DEFEASED 2009A 2009B 2009C Total Project 1 i$ 51.89 - $ - :$ 51.89 CGS 125.30 : - 125.30 Project 3 127.76 - 127.76 Total 5 304.95 $ " i$ " i$ 304.95 Energy Northwest did not issue or refund any bonds associated with Packwood or Nine Canyon for FY 2009. All remaining bonded debt related to Packwood was paid off prior to June 30, 2009.

Energy Northwest 2009 Annual Report 55 NUCLEAR PROJECT NO.1 COLUMBIA REVENUE AND REFUNDING BONDS REFUNDING REVENUE BONDS Serial or Term Serial or Term Series Coupon Rate (%) Maturities Amount Series I Coupon Rate (%) Maturities Amount 1992A 6.30 7-1-2012 i$ 50,000 1989B 7.125 i 71I2016 i$ 41,070 1994A 5.40

• 7-1-2012 100,107 1990B 7.25 7-1-2009 2,695 2001A 5.00-5.50 7-1-13/2017 186,600 1993B 7.00 7-1-2009 5,855 2002A 5.20-5.75 7-1-17/2018 157,260 1996C 6.00 7-1-2009 6,335 2002B 5.35-6.00 7-1-2018 123,815 1998A 5.75 7-1-2009 2,810 2003A 5.50 7-1-10/2015 132,970 2001A 4.50-5.50 7-1-10/2013 76,560 2003B 4.15 7-1-2009 4,530 2002A 5.50-5.75 7-1-13/2017 248,485 2003F 5.00-5.25 7-1-10/2018 33,165 2002B 6.00 7-1-2017 101,950 2004A 5.25 7-1-10/2018 259,680 2003A 5.50 7-1-13/2017 241,455 2004B 5.50 7-1-2013 12,715 2003B 4.06 7-1-2009 18,210 2004C 5.25 7-1-10/2018 21,275 2004A 5.25 7-1-2013 62,485 2005A 5.00 7-1-15/2018 114,985 20048 5.50 7-1-2013 1,135 2005C 4.34-4.74 7-1-09/2015 91,890 2005A 5.00 7-1-13/2015 72,175 2006A 5.00 7-1-20/2024 434,210 2006A 5.00 7-1-10/2017 271,325 2006B 5.23 7-1-2011 4,420 2007A 5.00 7-1-13/2017 51,730 2006C 5.00 7-1-20/2024 62,200 2007B 5.07-5.10 7-1-12/2013 6,740 2006D 5.80 7-1-2023 3,425 2007C 5.00 7-1-13/2017 219,020 2007A 5.00 7-1-13/2018 77,575 2008A 5.00-5.25 7-1-13/2017 230,535 2007B 5.07-5.33 7-1-12/2021 10,665 2008B 3.60 7-1-2009 2,155 2007D 5.00 7-1-21/2024 35,080 2008D 5.00 7-1-10/2017 70,125 2008A 5.00-5.25 7-1-14/2018 110,935 2008E 4.15 7-1-2009 2,095 2008B 3.60-5.95 7-1-09/2021 14,850 2009A 3.25-5.00 7-1-14/2015 48,905 2008C 5.00-5.25 7-1-21/2024 37,240 2009B 4.59 7-1-2014 515 2008D 5.00 7-1-10/2012 127,510 1993 1A-1 VARIABLE 33,055 2008E 4.15 7-1-2009 3,545 1993-1A-2 VARIABLE 33,055 2009A 3.00-5.00 7-1-14/2018 116,425 1993-1A-3 VARIABLE 10,845 2009B - 4.59-6.80 7-1-14/2024 18,515 2009C 4.25-5.00 7-1-20/2024 69,170 Revenue bonds payable;;$ 1,861,320 Estimated fair value at June 30, 2009 I$ II 2,039,1771 (B)

Revenue bonds payablel. $ 2,414,757 (B)The estimated fair value shown has been reported to meet the disclosure requirements Estimated fair value at June 30, 2009 IS 2,589,5141 (B) of the Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.

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

56 growing powerful solutions Outstaning Log-er Debt (ConO)

As Of Jun 30, 200 (Dllr In Thosads NUCLEAR PROJECT NO.3 NINE CANYON WIND PROJECT REFUNDING REVENUE BONDS REFUNDING REVENUE BONDS SerialorTerm SerialorTerm Series Coupon RateN%) Maturities Amount Series Coupon Rate%) Maturities Amount 1989A (A) 7-1-0912014 $ 8,893 2003 i 3.75-5.00 i 7-1-10/2023 $17,600 1989B (A) 7-1-09/2014 29,224 2005 i 4.50-5.00 7-1-10/2023 i57,720 7.125 7-1-2016 76,145 2006 4.50-5.00 7-1-10/2030 69,410 105,369 19908 (A) 7-1-09/2010 4,871 Revenue bonds payable:, 144,730 1993B 7.00 7-1-2009 9,050 Estimated fair value at June 30, 2009 145,350 (B) 1993C (A) 7-1-13/2018 23,963 1997A 6.00 7-1-2009 5,235 (B)Theestimated fair value shown has been reported to meet the disclosure requirements of the Statement of Financial Accounting Standards (SFAS) 107 and does not purport to 2001A 5.50 7-1-10/2018 151,380 represent the amounts at which these obligations would be settled.

20018B 5.50 7-01-2018 10,675 (C) 20028 6.00 7-01-2016 75,360 Total Bonds Payable::$ 6,221,092 2003A 5.50 7-1-11/2017 241,915 Estimated fair value at June 30, 2009$ 6,669,5601 20038 4.15 7-1-2009 21,575 2004A - 5.25 7-1-14/2016 83,835 20048 5.50 7-12013 1,515 2005A 5.00 7-1-13/2015 129,265 2006A 5.00 7-1-16/2018 39,445 2007A 4.50-5.00 7-1-13/2018 84,465 20078 5.07 7-1-2012 1,725 2007C 5.00 7-1-12/2018 61,085 2008A 5.25 7-1-2018 13,790 20088 3.70 7-1-2010 110 2008D 5.00 7-1-10/2017 62,270 2008E 4.15 7-1-2009 2,485 2009A . 5.00-5.25 7-1-14/2018 116,055 20098B 4.59 7-1-2009 970 1993-3A-3 VARIABLE .15,795 2003E VARIABLE . 98,025 2008-Fl i VARIABLE .104,415 20084F2 VARIABLE 104,415 Compound interest bonds accretion:, 222,335 Revenue bonds payable:: $ 1,800,285 Estimated fair value at June 30, 2009 Is 11895,5121 (B)

(A) Compound Interest Bonds (B)Theestimated fair value shown has been reported to meet the disclosure requirements of the Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.

(C) Auction Rate Certificates that will have a rate of 5.50%o through 7/11/2010 and a variable rate thereafter until 7/1/2018.

Energy Northwest 2009 Annual Report 57 Deb Sevc Reureet As une30 f 209 DolarI Thuands)

COLUMBIA GENERATING STATION NUCLEAR PROJECT NO. 1 FiscalYear Principal Interest Total FiscalYear Principal ii Interest Total i '

6/30/2009 Balance I$ 22,375 $ 56,530 $ 78,905 6/30/2009 Balance $ 40,155 $ 47,274 $ 87,429 4 4 2010 156,795 126,473 283,268 2010 83,890 92,974 176,864 4 4 2011 94,395 116,239 210,634 2011 92,550 4 88,687 181,237 4

2012 266,717 111,547 378,264 2012 91,140 84,431 175,571 2013 69,090 97,006 166,096 2013 313,435 80,087 393,522 2014-2017 631,765 324,754 956,519 2014 367,680 64,133 431,813 2018-2022 884,460 178,007 1 1,062,467 2015 191,540 45,529 237,069 2023-2024 289,160 22,155 311,315 2016 326,665 36,274 362,939

$ 2,414,757 $ 1,032,711 $ 3,447,4681 2017 354,265 18,994: 373,259

$ 1,861,320 $ 558,383 $ !I 2,419,7031 Principal and interest due July1,2009.

Principal and interest due July1,2009 NUCLEAR PROJECT NO. 3 NINE CANYON WIND PROJECT FiscalYear Principal Interest Total FiscalYear Principal Interest Total 6/30/2009 Balance $ 46,492 $ 54,308 $ 100,800 6/30/2009 Balance* $ - $ $ -

2010 35,232 98,844 134,076 2010 3,965 6,963 10,928 2011 83,539 88,352 171,891 2011 4,260 6,774 11,034 2012 70,606 84,769 155,375 2012 4,575 6,570 11,145 2013 133,440 89,264 222,704 2013 6,930 6,351 13,281 2014-2017 826,840 216,474 1,043,314 2014-2017 31,310 21,873 53,183 2018 381,801 21,889 403,690 2018-2022 48,495 1 18,134 1 66,629 Adjustment ** 222,335 (222,335) - 2023-2030 45,195 8,692 i 53,887 S$ 1,800,285 i$ 431,565 i$ 2,231,8501 $ *144,730 1$ 75,357 1$ II 220,087 1

• Principal and interest due July1,2009.

• Principal and interest due July 1, 2009.

• Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet

58 growingpowerful solutions NOTE 6- NET BILWNG power, Packwood is required to provide any shortfall by purchas-ing power on the open market which resulted in $0.1 million of Security - Nuclear Projects Nos. 1 and 3 and Columbia purchased power in FY 2009. Conversely, if there is excess capac-The participants have purchased all of the capability of ity per the PPA with Snohomish PUD, Packwood sells the excess Nuclear Projects Nos. 1 and 3 and Columbia. BPA has in turn on the open market for additional revenues to be included as acquired the entire capability from the participants under part of the PPA with the Packwood participants. The Packwood contracts referred to as net-billing agreements. Under the net- participants are obligated to pay annual costs of the project in-billing agreements for each of the business units, participants are cluding debt service, whether or not Packwood is operable, until obligated to pay Energy Northwest a pro-rata share of the total the outstanding bonds are paid or provisions are made for bond annual costs of the respective projects, including debt service retirement, in accordance with the requirements of the bond on bonds relating to each business unit. BPA is then obligated to resolution. The Packwood participants also share project revenue reduce amounts from participants under BPA power sales agree- to the extent that the amounts exceed project costs.

ments by the same amount.The net-billing agreements provide that participants and BPA are obligated to make such payments NOTE 7 - PENSION PLANS whether or not the projects are completed, operable or operat-ing and notwithstanding the suspension, interruption, interfer- Substantially all Energy Northwest full-time and qualifying ence, reduction or curtailment of the projects' output. part-time employees participate in one of the following state-On May 13, 1994, Energy Northwest's Board of Directors wide retirement systems administered by the Washington State adopted resolutions terminating Nuclear Projects Nos. I and 3. Department of Retirement Systems, under cost-sharing multiple-The Nuclear Projects Nos. 1and 3 project agreements and the employer public employee defined benefit and defined contri-net-billing agreements, except for certain sections which relate bution retirement plans. The Department of Retirement Systems only to billing processes and accrued liabilities and obligations (DRS), a department within the primary government of the State under the net-billing agreements, ended upon termination of of Washington, issues a publicly available comprehensive annual the projects. Energy Northwest entered into an agreement with financial report (CAFR) that includes financial statements and BPA to provide for continuation of the present budget approval, required supplementary information for each plan. The DRS billing and payment processes. With respect to Nuclear Project CAFR may be obtained by writing to: Department of Retire-No. 3, the ownership agreement among Energy Northwest and ment Systems, Communications Unit, P.O. Box 48380, Olympia, private companies was terminated in FY 1999. (See Note 13) WA 98504-8380. The following disclosures are made pursuant to GASB Statement 27, "Accounting for Pensions by State and Security - Packwood Lake Hydroelectric Project Local Government Employers" Any information obtained from The Packwood participants, Benton PUD, and Franklin PUD the DRS is the responsibility of the State of Washington. Price-had a Power Sales Agreement extending through October 2008. waterhouseCoopers LLP (PwC), independent auditors for Energy This agreement was not renewed and a new Power Sales agree- Northwest, has not audited or examined any of the information ment between the Packwood participants and Snohomish PUD, available from the DRS; accordingly, PwC does not express an effective October 2008, ensued. Under the agreement, Snohom- opinion or any other form of assurance with respect thereto.

ish PUD purchases all of the output directly. The power purchase agreement (PPA) provides a predetermined rate for all firm de- Public Employees' Retirement System (PERS) livery, per the contract schedule and the Mid-Columbia (Mid-C) Plans 1, 2, and 3 based rate for all firm deliveries above firm, or secondary power. PERS is a cost-sharing multiple-employer retirement system Packwood is obligated to supply a specified amount of power. comprised of three separate plans for membership purposes:

If power production does not supply the required amount of Plans 1 and 2 are defined benefit plans and Plan 3 is a defined

Energy Northwest 2009 Annual Report 59 benefit plan with a defined contribution component. increased by 3 percent annually. Plan 1 members may also elect Membership in the system includes: elected officials; state to receive an optional COLA that provides an automatic annual employees; employees of the Supreme, Appeals, and Superior adjustment based on the Consumer Price Index. The adjustment courts (other than judges currently in a judicial retirement is capped at 3 percent annually. To offset the cost of this annual system); employees of legislative committees; community adjustment, the benefit is reduced.

and technical colleges, college and university employees not Plan 2 members are vested after the completion of five years participating in national higher education retirement programs; of eligible service. Plan 2 members may retire at the age of 65 judges of district and municipal courts; and employees of local with five years of service, or at the age of 55 with 20 years of governments. service, with an allowance of 2 percent of the AFC per year of PERS participants who joined the system by September 30, service. (The AFC is based on the greatest compensation during 1977, are Plan I members.Those who joined on or after October any eligible consecutive 60-month period.) Plan 2 members 1, 1977, and by either, February 28, 2002, for state and higher who retire prior to the age of 65 receive reduced benefits. If education employees, or August 31,2002, for local government retirement is at age 55 or older with at least 30 years of service, employees, are Plan 2 members unless they exercise an option a 3 percent per year reduction applies; otherwise an actuarial to transfer their membership to Plan 3. PERS participants joining reduction will apply. The benefit is also actuarially reduced to the system on or after March 1, 2002, for state and higher educa- reflect the choice of a survivor option. There is no cap on years tion employees, or September 1, 2002, for local government em- of service credit; and a cost-of-living allowance is granted (based ployees have the irrevocable option of choosing membership in on the Consumer Price Index), capped at 3 percent annually.

either PERS Plan 2 or PERS Plan 3. The option must be exercised Plan 3 has a dual benefit structure. Employer contributions fi-within 90 days of employment. An employee is reported in Plan nance a defined benefit component, and member contributions 2 until a choice is made. Employees who fail to choose within 90 finance a defined contribution component. The defined benefit days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and portion provides a benefit calculated at I percent of the AFC per Plan 3 members may opt out of plan membership if terminally ill, year of service. (The AFC is based on the greatest compensa-with less than five years to live. tion during any eligible consecutive 60-month period.) Effective PERS defined benefit retirement benefits are financed from a June 7, 2006, Plan 3 members are vested in the defined benefit combination of investment earnings and employer and em- portion of their plan after 10 years of service; or after five years ployee contributions. PERS retirement benefit provisions are of service, if 12 months of that service are earned after age 44; or established in state statute and may be amended only by the after five service credit years earned in PERS Plan 2 prior to June State Legislature. 1,2003. Plan 3 members are immediately vested in the defined Plan 1 members are vested after the completion of five years contribution portion of their plan. Vested Plan 3 members are of eligible service. Plan 1 members are eligible for retirement eligible to retire with full benefits at age 65, or at age 55 with 10 at any age after 30 years of service, or at the age of 60 with five years of service. Plan 3 members who retire prior to the age of years of service, or at the age of 55 with 25 years of service. The 65 receive reduced benefits. If retirement is at age 55 or older annual benefit is 2 percent of the average final compensation with at least 30 years of service, a 3 percent per year reduction (AFC) per year of service, capped at 60 percent. (The AFC is based applies; otherwise an actuarial reduction will apply. The benefit is on the greatest compensation during any 24 eligible consecutive also actuarially reduced to reflect the choice of a survivor option.

compensation months.) Plan 1 members who retire from inac- There is no cap on years of service credit, and Plan 3 provides the tive status prior to the age of 65 may receive actuarially reduced same cost-of-living allowance as Plan 2.

benefits. The benefit is actuarially reduced to reflect the choice The defined contribution portion can be distributed in accor-of a survivor option. A cost-of living allowance (COLA) is granted dance with an option selected by the member, either as a lump at age 66 based upon years of service times the COLA amount, sum or pursuant to other options authorized by the Employee

60 growingpowerful solutions Retirement Benefits Board. The required contribution rates expressed as a percentage of There are 1,190 participating employers in PERS. Membership current year covered payroll, as of December 31,2008, were as in PERS consisted of the following as of the latest actuarial valua- follows:

tion date for the plans of September 30, 2007:

PERS Plan 1 PERSPlan 21, PERS'Plan3 Retirees and beneficiaries receiving benefits 71,244 Employer* 8.31%** 8.31%* 8.31 Terminated plan members entitled to but not yet receiving benefits 26,583 Employee 6.00%- ".

5.45%-***

Active plan members vested 105,447 I-

• The employer rates include the employer administrative expense fee currently set at 0.16 Active plan members non-vested 52,575 percent.

Total 255,849 ** The employer rate for state elected officials is 12.39 percent for Plan 1 and 8.31 percent for Plan 2 and Plan 3.

Funding Policy *** Plan 3 defined benefit portion only.

• • • • The employee rate for state elected officials is 7.50 percent for Plan 1 and 5.45 Each biennium, the state Pension Funding Council adopts percent for Plan 2.

• • • • • Variable from 5.0 percent minimum to 15.0 percent maximum based on rate Plan 1 employer contribution rates, Plan 2 employer and em- selected by the PERS 3 member.

ployee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by Both Energy Northwest and the employees made the re-statute at 6 percent for state agencies and local government quired contributions. Energy Northwest's required contributions unit employees, and at 7.5 percent for state government elected for the years ended June 30 were as follows:

officials. The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed PERS Plan 1 PERS Plan 2 PERS Plan 3 by the Office of the State Actuary to fully fund Plan 2 and the 2009 $ 244,531 $ 6,774,304 $ 2,964,075 defined benefit portion of Plan 3. All employers are required 2008  :$ 201,971 i$ 4,313,031 5 1,702,720 to contribute at the level established by the Legislature. Under 2007 i$ 174,813 i$ 3,235,922 i$ 1,269,321 PERS Plan 3, employer contributions finance the defined benefit portion of the plan, and member contributions finance the The contributions above represent the full liability under the defined contribution portion. The Employee Retirement Benefits system. Any future pension benefits would be reflected in future Board sets Plan 3 employee contribution rates. Six rate options years as changes in contribution rates. Historical trends and are available ranging from 5 to 15 percent; two of the options are projections are available from the DRS and also disclosed in the graduated rates dependent on the employee's age. The methods CAFR.

used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 NOTE 8 - DEFERRED COMPENSATION PLANS RCW.

Energy Northwest provides a 401 (k) Deferred Compensation Plan (401 (k) Plan), and a 457 Deferred Compensation Plan. Both plans are defined contribution plans that were established to provide a means for investing savings by employees for retire-ment purposes. All permanent, full-time employees are eligible to enroll in the plans. Participants are immediately vested in their contributions and direct the investment of their contribution.

Each participant may elect to contribute pre-tax annual compen-sation, subject to current Internal Revenue Service limitations.

For the 401(k) Plan, Energy Northwest may elect to make an employer matching contribution for each of its employees who

Energy Northwest 2009 Annual Report 61 are a participant during the plan year.The amount of such an NOTE 10- INSURANCE employer match shall be 50 percent of the maximum salary de-ferral percentage. During FY 2009 Energy Northwest contributed Nuclear Licensing and Insurance

$2.2 million in employer matching funds. Energy Northwest is a licensee of the Nuclear Regulatory Commission and is subject to routine licensing and user fees, NOTE 9 - OTHER EMPLOYMENT BENEFITS to retrospective premiums for nuclear liability insurance, and to

- POST-EMPLOYMENT license modification, suspension, or revocation or civil penal-ties in the event of violations of various regulatory and license In addition to the pension benefits available through PERS, requirements.

Energy Northwest offers post-employment life insurance Federal law under the Price Anderson Act currently limits benefits to retirees who are eligible to receive pensions under public liability claims from a nuclear incident. As of June 30, PERS Plan 1, Plan 2, and Plan 3. There are 83 retirees that remain 2009, the current limit was $12.5 billion and is subject to change participants in the insurance program. In 1994, Energy North- to account for the effects of inflation and changes in the number west's Executive Board approved provisions which continued the of licensed reactors. As required by law, Energy Northwest has life insurance benefit to retirees at 25 percent of the premium for purchased the maximum commercial insurance available of $300 employees who retire prior to January 1, 1995, and charged the million, which is the primary layer of protection. The remaining full 100 percent premium to employees who retired after Decem- balance is covered by the industry's retrospective rating plan ber 31, 1994. The life insurance benefit is equal to the employee's that uses deferred premium charges to every reactor licensee annual rate of salary at retirement for non-bargaining employees if a nuclear incident at any licensed reactor in the United States retiring prior to January 1, 1995. The life insurance benefit has a results in claims that exceed the individual licensee's primary in-maximum limit of $10,000 for retiree after December 31, 1994. surance layer.The current maximum deferred premium for each The cost of coverage for retirees remained unchanged for FY nuclear incident is $117.5 million per reactor, but not more than 2009 and was $2.82 per $1,000 of coverage. Employees who $17.5 million per reactor may be charged in any one year for retired prior to January 1, 1995, contribute $.58 per $1,000 of each incident. Nuclear property damage and decontamination coverage while Energy Northwest pays the remainder; retirees liability insurance requirements are met through a combination after December 31, 1994, pay 100 percent of the cost coverage. of commercial nuclear insurance policies purchased by Energy Premiums are paid to the insurer on a current period basis. At Northwest and BPA. The total amount of insurance purchased the time each employee retired, Energy Northwest accrued an is currently $2.8 billion. The deductible for this coverage is $5.0 estimated liability for the actuarial value of the future premium. million per occurrence.

Energy Northwest revises the liability for the actuarial value of estimated future premiums, net of retiree contributions. The total liability recorded at June 30, 2009, was $0.7 million for these benefits.

During FY 2009, pension costs for Energy Northwest employ-ees and post-employment life insurance benefit costs for retirees were calculated and allocated to each business unit based on direct labor dollars. This allocation basis resulted in the follow-ing percentages by business unit for FY 2009 for this and other allocated costs; Columbia at 94 percent; Business Development at 4 percent; and Project 1, Nine Canyon, Packwood and Project 3 receiving the residual amount of 2 percent.

62 growingpowerful solutions NOTE 11 - ASSET RETIREMENT OBLIGATION (ARO) asset value of $1.2 million and an accumulated liability of $1.8 million.

Energy Northwest adopted SFAS No. 143 on July 1, 2002. An adjustment was made in FY 2009 for Nuclear Project No. 1 This Statement requires an entity to recognize the fair value of a to account for costs incurred for decommissioning and site res-liability of an ARO for legal obligations related to the dismantle- toration. Costs incurred in FY 2009 of $0.1 million combined with ment and restoration costs associated with the retirement of the current year accretion expense of $0.7 million and downward tangible long-lived assets, such as nuclear decommissioning and revision in future restoration estimates of $0.1 million resulted in site restoration liabilities, in the period in which it is incurred. a small increase to the ARO of $0.5 million. Nuclear Project No.

Upon initial recognition of the AROs that are measurable, the I has a capital decommissioning net asset value of zero and an probability weighted future cash flows for the associated retire- accumulated liability of $14.8 million.

ment costs are discounted using a credit-adjusted-risk-free rate, Under the current agreement, Nine Canyon has the obligation and are recognized as both a liability and as an increase in the to remove the generation facilities upon expiration of the lease capitalized carrying amount of the related long-lived assets. agreement if requested by the lessors. The Nine Canyon Wind Capitalized asset retirement costs are depreciated over the life Project recorded the related original ARO in FY 2003 for Phase I of the related asset with accretion of the ARO liability classified and II.Phase IIIbegan commercial operation in FY 2008 and the as an operating expense on the statement of operations and Net original ARO was adjusted to reflect the change in scenario for Assets each period. Upon settlement of the liability, an entity the retirement obligation, with current lease agreements reflect-either settles the obligation for its recorded amount or incurs a ing a 2030 expiration date. As of June 30, 2009, Nine Canyon has gain or loss if the actual costs differ from the recorded amount. a capital decommissioning net asset value of $.7 million and an However, with regard to the net-billed projects, BPA is obligated accumulated liability of $1.1 million.

to provide for the entire cost of decommissioning and site resto- Packwood's obligation has not been calculated because the ration; therefore, any gain or loss recognized upon settlement of time frame and extent of the obligation was considered under the ARO results in an adjustment to either the billings in excess this statement as indeterminate. As a result, no reasonable of costs (liability) or costs in excess of billings (asset), as appro- estimate of the ARO obligation can be made. An ARO will be priate, as no net revenue or loss is recognized, and no equity is required to be recorded if circumstances change. Management accumulated for the net-billed projects. believes that these assets will be used in utility operations for the Energy Northwest has identified legal obligations to retire foreseeable future.

generating plant assets at the following business units: Colum-bia, Nuclear Project No. I and Nine Canyon. Decommissioning and site restoration requirements for Columbia and Nuclear Project No. I are governed by the NRC regulations and site certi-fication agreements between Energy Northwest and the State of Washington and regulations adopted by the Washington Energy Facility Site Evaluation Council (EFSEC) and a lease agreement with the DOE. (See Notes I and 13) Additionally, there are sepa-rate lease agreements for land located at Nine Canyon. Leases at these locations are considered operating leases and expenses were $38.3k for Columbia, $35.Ok for Nuclear Project No. 1 and

$569.4k for the Nine Canyon project.

As of June 30, 2009, Columbia has a capital decommissioning net asset value of $17.6 million and an accumulated liability of

$117.1 million for the generating plant, and for the ISFSI a net

Energy Northwest 2009 Annual Report 63 The following table describes the changes to Energy North- Energy Northwest's current estimate of Columbia's decommis-west's ARO liabilities for the year ended June 30, 2009: sioning costs in 2009 dollars is $877.0 million (Columbia - $872.7 million and ISFSI - $4.3 million). This estimate, which is updated ASSET RETIREMENT OBLIGATION (dollars in millions) biannually, is based on the NRC minimum amount required to demonstrate reasonable financial assurance for a boiling water Columbia Generating Station reactor with the power level of Columbia.

Balance At June 30, 2008 .$ 111.27 Site restoration requirements for Columbia are governed by Current year accretion expense 5.82 ARO at June 30, 2009 Is 117.09 the site certification agreements between Energy Northwest and the State of Washington and by regulations adopted by the ISFSI EFSEC. Energy Northwest submitted a site restoration plan for Balance At June 30, 2008 $ 1.67 Columbia that was approved by the EFSEC on June 12, 1995.

4 Current year accretion expense 0.09 Energy Northwest's current estimate of Columbia's site restora-ARO at June 30,2009 Is 1.76 1 tion costs is $107.1 million in constant dollars (based on the 2009 study) and is updated biannually along with the decommission-Nuclear Project No. 1 ing estimate.

BalanceAt June 30, 2008 .$ 14.27 Both decommissioning and site restoration estimates (based Less: Restoration costs incurred (0.12) on 2009 study) are used as the basis for establishing a funding Current year accretion expense . 0.73 plan that includes escalation and interest earnings until decom-Revision infuture restoration estimates (0.11) missioning activities occur. Payments to the decommissioning ARO at June 30,2009 $ 14.77 and site restoration funds have been made since January 1985.

Nine Canyon Wind Project The fair value of cash and investment securities in the decommis-Balance At June 30, 2008 . $ 1.05 sioning and site restoration funds as of June 30, 2009, totaled ap-Current year accretion expense 0.04 proximately $117.9 million and $17.3 million, respectively. Since ARO at June 30,2009 Is 1.091 September 1996, these amounts have been held and managed by BPA in external trust funds in accordance with NRC require-ments and site certification agreements; the balances in these NOTE 12 - DECOMMISSIONING AND SITE RESTORATION external trust funds are not reflected on Energy Northwest's Balance Sheet. Energy Northwest established a second decom-The NRC has issued rules to provide guidance to licensees of missioning and site restoration plan for the ISFSI. Beginning in FY operating nuclear plants on decommissioning the plants at the 2003, an annual contribution is made to the Energy Northwest end of each plant's operating life (See Note 11 concerning re- Decommissioning Fund. These contributions are held by Energy lated ARO for Columbia). In September 1998, the NRC approved Northwest and not held in trust by BPA. The fair market value of and published its"Final Rule on Financial Assurance Require- cash and investments as of June 30, 2009, is $0.7 million. These ments for Decommissioning Power Reactors!"As provided in contributions will occur through FY 2029; cash payments will this rule, each power reactor licensee is required to report to the begin for decommissioning and site restoration in FY 2025 with NRC the status of its decommissioning funding for each reactor equal installments for five years totaling $2.06 million.

or share of a reactor it owns. This reporting requirement began on March 31, 1999, and reports are required every two years thereafter. Energy Northwest submitted its most recent report to the NRC in March 2009.

64 growingpowerful solutions NOTE 13 - COMMITMENTS AND CONTINGENCIES Nuclear Project No. 1 Site Restoration Site restoration requirements for Nuclear Project No. 1 is Nuclear Project No. 1 Termination governed by site certification agreements between Energy Since the Nuclear Project No.1 termination, Energy Northwest Northwest and the State of Washington and regulations adopted has been planning for the demolition of Nuclear Project No. 1 by EFSEC, and a lease agreement with the DOE. Energy North-and restoration of the site, recognizing the fact that there is no west submitted a site restoration plan for Nuclear Project No. 1 market for the sale of the project in its entirety, and to-date no vi- to EFSEC on March 8, 1995, which complied with EFSEC require-able alternative use has been found. The final level of demolition ments to remove the assets and restore the sites by demolition, and restoration will be in accordance with agreements discussed burial, entombment, or other techniques such that the sites pose below under"Nuclear Project No. 1 Site Restoration." minimal hazard to the public. EFSEC approved Energy North-west's site restoration plan on June 12, 1995. In its approval, EF-Nuclear Project No. 3 Termination SEC recognized that there is uncertainty associated with Energy In June 1994, the Nuclear Project No. 3 Owners Commit- Northwest's proposed plan. Accordingly, EFSEC's conditional tee voted unanimously to terminate the project. During 1995, approval provides for additional reviews once the details of the a group from Grays Harbor County, Washington, formed the plan are finalized. A new plan with additional details was submit-Satsop Redevelopment Project (SRP). The SRP introduced legisla- ted in FY 2003.This submittal was used to calculate the ARO tion with the State of Washington under Senate Bill No. 6427, discussed in Note 11.

which passed and was signed by the Governor of the State of Washington on March 7, 1996. The legislation enables local gov- Business Development Fund Interest in Northwest Open ernments and Energy Northwest to negotiate an arrangement al- Access Network lowing such local governments to assume an interest in the site The Business Development Fund is a member of the North-on which Nuclear Project No. 3 exists for economic development west Open Access Network (NoaNet). Members formed Noa-by transferring ownership of all or a portion of the site to local Net pursuant to an Interlocal Cooperation Agreement for the government entities. This legislation also provides for the local development and efficient use by the members and others of a government entities to assume regulatory responsibilities for site communication network in conjunction with BPA.

restoration requirements and control of water rights. In February The Business Development Fund has a 7.38 percent interest 1999, Energy Northwest entered into a transfer agreement with in NoaNet with a potential mandate of an additional 25 percent the SRP to transfer the real and personal property at the site of step-up possible for a maximum 9.23 percent. NoaNet has Nuclear Project No. 3.The SRP also agreed to assume regulatory $18.4 million in network revenue bonds outstanding, based on responsibility for site restoration. Therefore, Energy Northwest is their June 30, 2009 unaudited statements. The members are no longer responsible to the State of Washington and EFSEC for obligated to pay the principal and interest on the bonds when any site restoration costs. due in the event and to the extent that NoaNet's Gross Revenue

Energy Northwest 2009 Annual Report 65 (after payment of costs of Maintenance and Operation) is insuf- ment. No time frame has been provided for when a decision will ficient for this purpose.The maximum principal share (based on be rendered.

step-up potential) that the Business Development Fund could Grays Harbor Energy LLC v. Energy Northwest filed with be required to pay is $1.7 million. It is important to note that the American Arbitration Association in Seattle, WA, in April 2008 Business Development Fund is not obligated to reimburse losses (Case No. 75-158-115-08). A demand for arbitration was filed by of NoaNet unless an assessment is made to NoaNet's members Invenergy (under the name Grays Harbor Energy LLC) related to based on a two-thirds vote of the membership. In FY 2009 the the interpretation of a"First Power Purchase Option" contract Business Development Fund contributed $186k to NoaNet between the parties. Invenergy seeks declaratory relief that the based on an assessment by the NoaNet members. This equity Option is null and void. Energy Northwest filed a counterclaim contribution was reduced to zero at year-end because NoaNet requesting damages for breach of the Option. The matter was had a negative net equity position of $9.0 million as of June 30, fully arbitrated before an arbitration panel, with the hearing con-2009. Future equity contributions, if any, will be treated the same cluding on July 23, 2009. On August 18, 2009, the panel issued until NoaNet has a positive equity position. Financial statements its decision awarding in favor of Energy Northwest on all counts.

for NoaNet may be obtained by writing to: Northwest Open Energy Northwest received a cash settlement ($1.3 million) as Access Network, NoaNet Headquarters, 5802 Overlook Ave. NE, well as a month to month call option for a period of 3.5 years.

Tacoma, WA 98422. Any information obtained from NoaNet is the Energy Northwest is involved in other various claims, legal responsibility of NoaNet. PwC has not audited or examined any actions and contractual commitments and in certain claims and information available from NoaNet; accordingly, PwC does not contracts arising in the normal course of business. Although express an opinion or any other form of assurance with respect some suits, claims and commitments are significant in amount, thereto. final disposition is not determinable. In the opinion of manage-ment, the outcome of such litigation, claims or commitments, Other Litigation and Commitments will not have a material adverse effect on the financial positions Energy Northwest v. United States of America filed in U.S. of the business units or Energy Northwest as a whole.The future Court of Federal Claims in January 2004 (Cause No.04-001 0C). annual cost of the business units, however, may either be in-This is an action for breach of contract and breach of implied creased or decreased as a result of the outcome of these matters.

covenant of good faith and fair dealing brought by Energy Northwest against the United States (Department of Energy, "DOE") for damages for DOE's failure to meet its legal obliga-tions to accept and dispose of spent nuclear fuel and high-level radioactive waste per the contract. Energy Northwest's claim is in the amount of $56.8 million. A bench trial was conducted in February 2009, and the Court has taken the matter under advise-

66 growingpowerful solutions Curn Debt Ratng (Unudied)

Energy Northwest (Long-Term) Net-Billed Rating Nine Canyon Rating Fitch, Inc. AA A-Moodys Investors Service, Inc. (Moodys) Aaa A3 Standard and Poor's Ratings Services (S & P) AA A-Variable Rate Debt S&P FITCH MOODYS Letter of Credit Banks Bank of America Long-Term A+ Aa3 Short-Term A- VMIG1 JPMorgan Chase Bank Long-Term AA- AA Aal Short-Term A-1 + F1+ VMIG1 VRDN's Liquidity Provider Dexia Long-Term AA - AA Aaa Short-Term A-1 F1+ VMIG1 Bond Insurance (Long-Term) ___

Financial Security Assurance AAA AA Aa2 i

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