ML17276B069

Forwards Responses to NRC 811112 Request for Addl Financial info,810927 & 1227 Quarterly repts,1981 Annual Rept & Official Statement.Response Will Be Incorporated Into FSAR Amend within 2 Months

ML17276B069
Person / Time
Site:	Columbia
Issue date:	12/15/1981
From:	Bouchey G WASHINGTON PUBLIC POWER SUPPLY SYSTEM
To:	Schwencer A Office of Nuclear Reactor Regulation
Shared Package
ML17276B070	List: ML17276B069 ML17276B071
References
GO2-81-525, NUDOCS 8202180285
Download: ML17276B069 (264)

Text

I.r REGULATORY ORNA'T ION DI'STRIBUTION

'SY.M (RIDS)"AGCESSION NBR:8?02180285 DOC,DATE: 81/12/1'5 NOTARIZED; NO DOCKET 0'ACIL:50-397 O'PPSS Nuc lear Pr oj eats Uni t 2E washington,'Publ i c Pose 05000397 AUTH~NAMEAUTHOR AFFILIATION BOUCHEYiL,DE washington Public'Power Supply System"REC IP~NAME RECIPIENT AFFILIATION SCHKENCEREA

~Licensing Branch"2'

SUBJECT:

Forwards responses.to NRC 811112,request for addi financial infoi810927 L 1227 quarter ly r eptsE1981-annual rept official statement, Response will be inconporated into FSAR ,amend within 2 months.DISTRIBUTION CODE: BOOBS COPIES RECEIVED:L'TR.g ENCL g SIZE:, LL+t9Q TITLE: License Application AMDTS,(General Info)NOTES:2 copies all matl:PM'5000397 RECIPIENT ID CODE/NA'ME ACTION: LIC BR P2 BC 05 AULUCKiR~01 INTERNAl: ELO 11 IE 07 NRR/DE/HGEB 13 N S/LQB EG F 00~COPIES LTTR ENCL 1 1 1 1 1 1 2"2 2 2 1 1 1 RECIPIENT ID CODE/NAME LIC BR P2 LA ELD/AD 12 NRR/OE/AEAB 08 NRR/DE/QAB 09 NRR/OL DIR SP.COPIES LTTR ENCL 1 1 1 1 1 1 1 1 1 1 1 EXTERNAL: ACRS, 10 NRC P'Oh 02 NTIS 3 1 1 1 LPOR NSIC 03 06 1 1 1 1 TOTAL NUMBER OF"COPIES REQUIRED: LTTR~ENCl

~~M f f ilf X'I 1 Jf k"<<I I~)f pep 4 Washington Public Power Supply System P.O.Box 968 3000 George Washington Way Richland, Washington 99352 (509)372-5000 December 15, 1981 G02-81-525 SS-L-02-CDT-81-106

~g2021802B5 8<<>~<>q7PDR ADDCK 05OOO>+7,'.

",<<,'.,'A Docket No.50-397 Mr.A.Schwencer, Chief Licensing Branch No.2 Division of Licensing U.S.Nuclear Regulatory Commission Washington, D.C.20555 ll n,<BPCBIVpg 5 FEB X 7)g8P~lb~~~~i QQg~s.w't s

Reference:

NUCLEAR PROJECT NO.2 QUESTIONS CONCERNING FINANCIAL INFORMATION Letter, A.Schwencer to R.L.Ferguson,"WNP-2 FSAR Request for Additional Information", dated November 12, 1981 Enclosed are sixty copies of the responses to the NRC questions trans-mitted to the Supply System by the reference letter.These questions will be incorporated into an amendment to the WNP-2 FSAR within two (2)months.Seven copies of each of the following reports are being submitted as enclosures to this letter: 1.Washington Public Power Supply System quarterly Report, dated September 27, 1981 2.Washington Public Power Supply System 1981 Annunal Report 3.Washington Public Power Supply System$750,000,000 Official Statement Very truly yours,/gal'g~~Qjp~'8g:

G.D.Bouchey Deputy Director, Safety and Security CDT/rch cc: R Auluck-NRC WS Chin-BPA R Feil-NRC Si te

'~~g OW'-~~f")V/J'" I" 1'I 1l J I, 600.001 Indicate the estimated annuaL costs by year to operate the subject facility-for'he first seven full years of'commercial-operation.

The types of costs included in the estimates should be, indicated and should include (but not necessarily be Limited to)operation and main-tenance expenses with fuel costs shown separately, de" preciation, taxes, and reasonable return on investment.(Enclosed is a form which should be'sed for each year of the seven year period.)Indicate the projected plant capacity of each unit for each year.In addition, pro-vide similar data assuming plant capacity factors of 50%and 60%.b.Indicate the average unit price per kWh experienced on systemwide sales of electric power to all customers for the most recent 12-month period.Response: a~b, ,'The estimated annua l projected costs for the operation of'-;WNP-2 for the seven-year period February 1984.through;June 1991 are presented as Table 600.001-1, based on Supply System generation estimates.

Tables 600.001-2 and 600.001-3 present WNP-2 operating costs for the same period based on 50%and 60%-plant factors, respectively.

The Supply System-operates each Project as an independent futility and, accordingLy, does not maintain financial records on a system-wide basis.Results for the Hanford Generating Project and the Packwood Lake Hydroelectric Project for the twelve-month period ending October 30, 1'981, are as follows: Revenues Generation (mWh)Hills per kWh HGP$15',703,000 1,452,287 10.8 Packwood$794,000 90,248 8.8

TABLE 600.001-~ESTIHATEO ANNL!AL COST Of OPERATING NUCLEAR GENERATING IINIT WNP-2 FOR FISCAL YEAR ENDIILG JONE 30 (Oollars in Thousands)

Operation and Haintenance Expenses Nuclear Powe!'eneration:

Nuclear Fuel Expense (2)Other Operating Expenses (3)Haintenance Expenses Total Transmission Expenses (4)Administrative and General Expenses Property and Liability Insurance Other A6G Expenses Total Total.OltH Expenses Ueprec I a ti on Expense Taxes Other than Income Taxes: Property Taxes (5)Other (5)Total Income Taxes (6)Total Operating Expenses 1984('>>1985 1986 1987 1988 1989 1990 1991$39,364'99,066 90773 300818 4 967 14 252 S 880792 39,197 14 581$91,847 42,408 15 189$99.066$1090359$1200671$1280638 45.910 49,924 54.299 59,065 16 269 17 009 17 632 18 280 54 104 144 136 I 2 570 149 4 4 161 245 76 292 92 602 205 983 10661 7 727~9388 40641 40755 49867 50034 50125 59227 59332 15 934 13 093~14 620 16,141 17 486 19 394 21,480 20 75 18 640 19 il87~1 133 22 611 2 621 26 812 I 959 5 105 5 378 5 615 5~870 69131 6!442 62?3I l~~~95 866 242 992 240 204 248 694 263 038 280 454 299 829 316 518 63 492 164 711 161 210 168 931 102 420 190 903 27~7?23 232 795 30 415 73 176 73 600 74 140 74 740 75 420 76 164.76 99" Generation (kWh X 10)2.376 5,980 6.461 6,745 6,745 6,745 6,745 6,745 3 ((((I)2)3)4)5)6 5 months only Plant factor: 60%-1st 12 months;65K-2nd 12 months;70$-thereafter Includes provision for deco!n!!Issioning Plant output is transmitted by the Bonneville Power Administration The Supply System Is assessed a privilege tax in lieu of property taxes The Supply System is exempt from Income Tax liability l~I TABLE 600.001-2 ESTIHATEO AfiNUAL COST OF OPERATING NUCLEAR GENERATING UNIT llNP-2 FOR FISCAL YEAR ENDING JUNE 30 (Dollars in Thousands)

Operation and Hafntenance Expenses Nuclear PoMer Generatfon:

Nuclear Fuel Expense (2)Other Operating Expenses (3), Haintenance Expenses Total Transmfssfon Expenses (4)Administrative and General Expenses Property and Liability Insurance Other A6G Expenses Total Total ON Expenses Depreciation Expense Taxes Other than Income Taxes: Property Taxes (5)Other (5)Total Income Taxes (6)1984(')$32,803 9,773 4 967 5 3 1,661 7 727 388 56 931 30 415~7867 1985 1986 1987 1988-1989 1990 1991$798822$708604$668011 308SIS 398197 428408 14 252 14 581 15 189$65,605$70.433$74,703$798213 45,91D 49,924 , 54,299 59,065 16 265 17 005 17 632 18 280 8 37 66 736 555 156 558.4 816 5 105 5 228 5 368 5 547 5 752~5990 816 5 05 5 228 5 368 5 547 5 752 5 990 40641 48755 48867 58034 5'25 58227 58332 MO 75 8 9 8 Atr, 145 467 143 030 143 095 148 959 159 977 171 255 183 370 73 176 73 608 74 148 74 748 75 420'6 164 76 992 Generation (kMh X 10)1,980 223 459 221 743 222 4'7l 229 075 240 944 253 171 266 352 4,818 4,818 4,818 4,818 4,818 4,818 4,818 5I 5 months only Plant factor: 50K Includes provfsfon for deconnfssfonfng Plant output fs transmitted by the Bonnevf11e Power Administration The Supply System is assessed a privilege tax in lieu of property taxes The Supply System is exempt from Income Tax liability t

TABLE 600.001-3 ESTISITED AHHOAL COST OF OPERAIIHG NUCLEAR GENERATING Util T MNP-2 f'R FISCAL YEAR EHDIHG JUNE 30 (Oollars in Thousands)

Operation and Jiaintei>ance Expenses Nuclear Po~er Generation:

Nuclear Fuel Expense (2)Other Operating Expenses (3)Haintenance Expenses Total Transmission Expenses (4)Administrative and General Expenses Property and L1ability Insurance Other ASG Expenses Total Total 04H Expenses Oepreciation Expense Taxes Other than Income Taxes: Property I'axes (5)Other (5)Total Inco2ne Taxes (6)Total Operating Expenses Generation (k'Hh II 10)1984(')$39,364 9.773 4 967~5 04 1,661 7 727 9 388 63 492 30 415 I 959 959 95 066 2,376 1985 1986 1987 1988 1989 1990 1991$95,786 S 809004 S 789842$82,945$89,460$97,1)6$104,676 30,818-39,197 42,408 45,910 49,924 54,299 59,065 14 252 14 581 15 189 16 269 17 009 17 632)8~280 4,641 4,755 4,867 5,034 5,125 15 934 13 893 14 620 16 141 Iti486 20515 1868 19 8 2 15 22 1 5,227 5,332 19 394 21 480 62 6 12 161 431 152 430 155 926 166 299 179 004 193 668 208 833 73 176 73 608 74 148 74 748 75 420 76 164 76 992 5 056 056 5 246 5 420 0 6 8 08 372 239 663 231 284 235 494 246 675 260 257 275 921 292LI97 5,782 5.782 5,782 5,782 5,782 5,782 5,782 9 I)5 months only 2)Plant factor: 60K 3}Includes prov1sion for decotnxfssioning 4)Plant output 1s transmitted by the Bonneville Power Administration (5)The Supply System is assessed a pr1vilege tax 1n lieu of property taxes (6 The Supply System is exempt from Income Tax liability 0

WNP-2 Q.'00.002 F Indicate the estimated costs of;permanently shutting dow<<tnt.facilityi a List of what is included in such costs'he assumptions.

made in estimating the costs'he type of shutdown contemplated'nd the source of funds to cover these costs.Response.'

It is planned to decommission the WNP-2 facility at the end of its operating Life by placing the*facility in protective storage for f if ty years and then dismantle it with shipment of waste materials to appropriate repositories.

The'eneraL activities necessary for placing it in protective storage are: 1.Detailed planning and preparation for placing'in protective storager 2.Final shutdown of the nuclear reactions 3.Plant cooldowni 4.Fuel discharge into the spent fuel pools 5.Shipment of the fuel to a permanent disposal siter I 6.General decohtamination of the facilityr<7.Shipment of radioacti ve wastes to a disposal s iten 8.Deactivation of plant systems not needed during the protect ive storage periods 9.Confinement of residual radioactivityr as appropriates 10.Installation of, intrusion alarms and'barriersr and 11.Establishment of continuous surveillance.

Nonradioactive equipment and facil ities wi ll be salvagedi scrapped or converted to beneficial usesr as appropr iate.The total cost for decommissioning the facility is estimated to be$57r000r000 in 1978 dollarsi including$26r800i000 for placing it in protective storage.A breakdown of the costs for shutting the plant down and placing it in protective storage is attached as Table 600.002-1.

WNP-2 TABLE 600.002-1 ESTINATED.COSTS'OR PREPARATIONS

" FOR PASSIVE STORAGE-Cost Category Disposal of Radioacti ve Nateri als (Radi oact ive Wastes)Staf f Labor-Estimated Costs ($millions)$1.'2 11.3 Energy Special Tools and Equipment Ni sce l l aneous Supp l i es Specialty Contractors Nuclear.Insurance Spent'uel Shipment I Fuel'Channel Oisposal Contingency (25%)TOTAL 2.1 0.4 1.4 0.2 0.5 3.8 0.6 5.3$26.8

1 W NP'-'2 The pr imary assumpt i ons used 1., 1978 dollarsr for estimating these costs're

'I"2.1978 technology and 3.Al L radioactive was oriesi nuclear'egulationsi tes shipped't'o offsite reposit 4.Thirty fuLL power years of plant operations 5.ALARA occupati onal exposure phi Losophyi 6:.No unforeseen difficulties experienced while placing the plant in protective storager and 7., Radiation dose rates based on measured data from operating plants.Decommissioning of the Project will be financed by use of a decommissioning sinking fund.Payments into the fund duri'ng operation of the plantr together with investment income thereon'ill result in the accumulation of sufficient monies to finance the subsequent decommissioning.

Periodicallye at inter'v'ass no Longer than f ive years during commerc ia L operat i onset the decommissioning technology and regulatory cLimate will be revie'wed to determine if the payments into the sinking fund should be changedi and the payments will be adjusted accordingly.

e E Q.600.003 Provide an estimate of the annual cost to maintain the shut down f aci l i ty in a safe condit ion.Indi~ate what i s,inc Luded in the estimatei assumptions made in estimating the costs'nd the source of funds to cover these costs.Response:\The facility will be placed in protective storage as described above in th'e response to Question 600.002.The estimated annual cost for maintaining the protective storage is$75i000 in 1978 dollars.A breakdown of these costs is attached as Table 600.003-1.

The primary assumptions used for estimating these costs are: 1.1978 c os t si 2.1978 technology and nuclear regulationsi 3.Nultiple reactor sitei and'4.Specialty contractors will be hired for site securityr equipment maintenancei and radiation and environmental su>veillance.

The source of funds for the protective storage wi lL be the decommissioning sinking fund referred to in the response to Question 600.002.I t i 0 WNP-2TABLE 600.003-1 ESTINATED ANNUAL COSTS FOR WNP-2 PROTECTIVE STORASE Cost Category Surveillance and Naintenance Representative Secretary Repairman Security Third Party Inspection Environmental Radiological Nonitoring Program Personnel Quality Assurance Spec ia l i st Equi pment and Suppl.i es i Annual'LLowance for Repairs Uti li ties and Services License Fee NEL-PIA Insurance Contingency

.(25%)TOTAL Est imated Annual Cost (S)8 6r500 5 r 075 2r710 8r 800 7r500 14r230 1r000 1 r 000 5r000 5r000 650 2r500 14r991$74r956 I t',I l I WNP"2

REFERENCE:

1.Letter G02-81-525~

G.D.Bouchey to A.'chwenceri"Quest ions Concerning Financial Inf o~mat i on"i dated December 15r 1981.

4l W NP-2 S a ,Q..600.004: Provide'copies most recent pe recent"Annual , t~II of WPPSS's quarterly financial riod.Alsoi',provide a copy" of'inanci al Repo'i t".report f oi the most a lhr Response: A copy of the Supply System's most recent quarterly.finanrial report covering the period July 1i 1981 through October 1r 1981 p and a copy of the Supply System'1981 Annual Report have been submitted to the NRC.(See Reference 1.)

l 0 WNP-2 Q..600.005 I Provide copies of the official statement for WPPSS's most recent security issue and copies of the preliminary state-ment for any pending i ssue(s)-Response: copy of the September 1r 1981 official'tatement for nuclear projects 1i 2i and 3 has been submitted to the NRC.(See Reference 1 to Question 600.004.)The next bond issuance is anticipated for early 1982.No pret.iminary bond statement has as yet been prepared for that issue.

1 Q.600.006 describe the legal basis for WPPSS's rate-setting authority and how it may be used to ensure that sufficient funds wiLL be available to operate the facility and to eventually shut it down and maintain it in a safe shutdown condition.

Response: The Supply System is a jointoperating agency and a municipal corporation of the State of Washington organized under Chapter 43.52 of the'Revised Code of Washington's amended., fhe Supply System is composed of 19 operating public utility districts of the State of Washington and the cities of Richlandr Seattler Tacoma'nd ELLensburgr Washington.

Pursuant to its=statutory authorityi the Supply System is empowered to acquirer constructs and operate plants and facilities for the generation and transmission of eLectrical power and.energyr butr as a supply agencyr does not distribute power or sell at retai l..Ratheri it is reimbursedi pursuant to the provisions of the WNP-2 Net Billing Agreementsi by the 94 Participants for all WNP-2 costs'hether or not the Project is completedi operablei or operating.

See response to Question 600.007.

t 0 WNP-2 Q.600.007 Describe the contractua(provi sions between WPPSS anJ iL;memb'er municipal systems and ensure that sufficient funds wil'l be available to operate the facility and to eventualLy shut'it down and maintain it in a safe-shutdown condition.

Describe the municipa ls'ate-setting authority and the, rate covenants from the=municipals to WPPSS that.ensure satisfaction of these requirements.

Response: QNP-2 will be used-for the generation of electrical energy.It will be financedr constructedr operatedr and owned by the Supply System.Net Billing Agreements between the Supply Systems the Bonneville Power Administration

("BPA")r and 94 statutory preference customers of BPA.("the Participants")'i provide for the payment of project costs and the allocation of project capability.

The 94 Participants in WNP,-2 consist of 27 municipa litiesr 21 public utility districtsr 1 irrigation districtr and 45 cooperatives.

Of the total capability of WNP-2i the municipalities have contracted to purchase 22.6%i the districts have contracted to purchase 56.9%r and the co" operatives have contracted to purchase 20.5%.Under the Net Billing Agreementsr each Participant will assign its share of the project capability to BPA.BPA's purchase of the capabi lity of WNP-2 was authorized and approved by Congress in the Public Works Appropriations Acts of 1970 and 1971.BPA is obligated under the Net Billing Agreements to pay the Participants of WNP-2i and such Participants are'obligated to pay the Supply Systems the total annuaL costs of WNP-2r including,debt service on the Net Billed Bonds issued on the Projects Less amounts paio from other sources~whether or not WNP-2 is completedr operablei or operating and not withstanding the suspensioni reductionsi or curtail-ment of WNP-2's output.Payments of project costs by the'articipants to the Supply System will be credited against'he billing made by BPA to the Participants for power and certain services.Each Participant has covenanted that it will establish'aintains and collect rates or charges for power and energy and other"services furnished through its electric utility properties which shaLL be adequate to provide revenues suf ficient to make required payments to the Supply System.

WNP-2 For a more in-depth discussion of these contracts and their terms'ee"Bonneville Contracts" under the caption"Bonneville Power Administration" in the September 1i 1981m official statement for Nuclear Projects 1r 2i and3.(See Reference to Question 600.004.)

WNP-2 Indicate the amount of WPPSS'mos't recent rate rel i ef ac t ion and provide copies of the order authorizing the rates.Provide details of the amount and timing of any prospective rate increases-Response: The Supply System does not engage in the distribution of power to retail customers.

It is authorizedr among other thingsr to acquirei constructs and operate plantsr works'nd facilit.ies for the generation and transmission of power to utilities.

The Supply System does not have"rates"r but is reimbursed for the costs of each project by the Participants therein.In any events as a municipal corporation of the State of Washington'he Supply System is not under the juris-diction of any regulatory agency having control over"rates and services" incidenta l to the proposed activity.

WNP-2 a.600.009'g Indicate the current limit on WPPSS's bonded indebtedness and any prospective or requested increase in the Limit.Indicate the current outstanding indebtedness that is applied lo this limit.'esponse:

The September 1i 1981 bond issuance f'r WNP-2 was for$210+000i000.

The Supply System has now issued$1i695i000i000 f revenue bonds for WNP-2.It is estimated that the remaining o revenue on financial requirementsr based on the 1982 construction budge and the currently scheduled February 1984 commercial operation datei are$811r000r000.

The WNP 2 1981 bonds are part of an issue of bonds authorized t b issued pursuant to the revised code of Washington' e b Chapter 43.52's amendedi and Resolution No.640r adopted y the Board of Directors of the Supply System on June 26'973's amended (the"Project No.2 Resolution")r to pay the cost of the aequi s it i on and const rue ti on o'f WNP-2.The WNP-2 1981 bonds were issued pursuant to a resolution supplemental to the Project No.2 Resolutionr Resolution No.1184 (the"Project No-2 Supplemental Resoluti.on")adopted by such Board on September 4~1981.On November 3i 1981'he majority of voters of the State of Washington a'pproved Initiative Neasure No.394.If enacted in o to Lawi the initiative will require the Supply Systems after July 1s 1982'o obtain'he approval of the voters of its 23 member governmental entities in order to issue bonds to finance th'e cost of construct i on of each of i t s pro jec ts.In the event voter approval for the issuance of bonds with'espect to any project i s not obtained a'nd a L te mat i ve sources or methods to finance completion of construction of such project is not avaiL-abler the Supply System may be obligated to terminate the project.A termination of any of the Supply System's projects could have adverse effects on the projects of the Supply System no ermi a t t rminated.Howevers such termination would not affect We N-2 obligation of Bonneville or the Participants under the W P-Ne t Bi L L ing Agreement s.

4 gf 4 D 0>>r t.-o o'Oi S Co oo'K ot g g g o F o oo~'I 3 o oo c 0'N E 0 z z Q~a ZO I 8'C z Q$m~g~o men FT1>g m hJ z Q 0 Z December 27, 1981 QUARTERLY REPQRT IL na:ssÃssalyt'3 at ja~,S;Rwg~mAaaIBma 5+4~uk~sS+&~o~

~~>o I op)t o~2 A~g m 0~)0o~o C.Vl (CU O C7~~C/)P3 Q m m~(I k@@~-~go hips)g p~g g Bat R~G~.".-f.l4cu*;Wig WASHINGTON PUBLIC POWER SUPPLY SYSTEM@I'-Ogj Bg((TF/g j)py BALANCE SHEETS (Unaudited)

December 27, 1981 Current Assets-Operating Fund Restricted Assets: Special Funds Debt Service Funds Utility Plant Equipment:

In.Service (net)Construction Work in Progress Other Assets&Deferred Charges LIABILITIES Current Liabilities-Operating Fund Liabilities-Payable from Restricted Assets: Special Funds Debt Service Funds Long-Term Debt Other Liabilities

&Deferred Credits$5,541 3,198 6,490 9,688 41,190 41,190 4,409$60,828$1,926 418 1,191 1,609 53,881 3,412$60,828$45,621 700,069 896,549 1,596,618 8,806 6,294,294 6,303,100'I 2,301 7,957,640$39,621 431,077 324,567 755,644 6,649,984 512,391$7,957,640$19,240 5,331 5,331 1,099 25,670$19,317 6,353 25,670$70,402 703,267 903,039 1,606,306 55,327 6,294,294 6,349,621 17,809 8,044,138$60,864 431,495 325,758 757,253 6,703,865 522,156 8,044,138 STATEME NTS OF SOURCE AND USE OF FUNDS (Unaudited)

FISCAL SIX MONTHS ENDED DECEMBER 27, 1981 ($IN THOUSANDS)

SOURCE OF FUNDS Operating Receipts Collections Under Net Billing Bond Proceeds Interest Income Charged to Joint Owners Decrease in Restricted Funds Net Change in Operating Fund Other USE OF FUNDS Operating Expenses Construction Costs Interest Expense Nuclear Fuel Financing Expense Increase in Restricted Funds Revaluation of Investments Other Operating Projects Hanford&Packwood$24,870 902 1,702 646 2$28,122$23,969 920 247 1 2,985$28,122 Construction Nuclear Projects Nos.1,2,3&4/5$121,061 666,958 94,332 90,316 221,167 (5,331)19,5'I 1 1,208,014$810,442 261,530 89,890 1,663 46,411 (6,970)5,048$1,208,014 Internal Service Fund$222 761$983$983$983 Combined$24,870 121,061 666,958 95,234 90,316 222,869 (4,463)20,274$1,237,119$23,969 810,442 262,450 89,890 1,663 46,658 (6,969)9,016$1,237,119 The Washington Public Power Supply System was organized in 1957 as a municipal corporation and joint operating agency of the State of Washington.

Its membership consists of 19 public utility districts and 4 municipalities which own and operate electric systems within the State of Washington.

It is empowered to acquire, construct and operate facilities for the generation and transmission of electric power and energy.

SUPPLY SYSTEM DECEMBER 27, 1981 FISCAL YEAR 1982 PIRGIEC'll'GSTS WNP Nos.1-5 TOTAL FUNDING REQUIREMENTS I992 BUDGET CUMULATIVE COSTS FUNI3ING IREE UIIREMENT 8 SUPPLY SYSTEM FUNDING REQUIREMENTS 1992 BUDGET FUNDED TO DATE WNP Nos 1-5'SUPPLY SYSTEM OWNERSHIP SHARE: WNP No.3.7Ã5 WNP No.5.90'Yi I d.500~5241 I 11.000 10.000~11.12$1$$10 22)4.000 z O 3.500 3.OOO z 2.500~2214~I I12 T.OOO z 0 d.ooo 2 5.000 2,000 I1.012 42 421$1.$44~1,2%11342 2$4$$$1.0M 1'I'l~1 041 12,25 11.210~I 44~1 4$$~1 4'I~1.120 44 04~5210 20 1'I WNP No.1 wNP No.2 WNP No 3 WNP No 4 WNP No.5 WNP No.1 WNP No.2 WNP No.3 WNP Nol.4/5'Construction Completed STATUS OF CONSTRUCTION Plant Size:(M We)Date of Scheduled Commercial Operation Nuclear Project No.11250 June 1986 Nuclear Project No.2'100 February 1984 Nuclear Project No.3'240 December 1986 Nuclear Project No.4 1250 June 1987 Nuclear Project No.5 , 1240 December 1987 WNP-2 is in the system's completion phase-the last 15%of the project.Quarter Ended Dec.27, 1981 6.2 0 6.1 1.0.9 Cumulative Dec.27, 1981 52.9 42.1 24.0 15.8 Sl jMMARY (9 IN THOUSANDS)

AI c',FTI Construction Operating Projects Nuclear Projects Hanford&Packwood Nos.1, 2, 3&4/5 Internal~Service Fund Combined TE RMI NATION The termination of Projects 4 and 5 is now underway.The Board of Directors approved the termination of the two projects on January 22, 1982 by a vote of 22 to 0.The resolution came after months of negotiations to mothball the projects-p'lans that failed to get the necessary financial backing of the projects'articipants.

The goal o(the termination process is to provide an orderly disposal of the projects with the maximum return from the assets.To achieve this, the Supply System has established a separate Program Office to deal with all termination-rebted activities.

This group will give weekly (inancial reports and monthly status reports on its prog-ress.The Supply System's legal oflice has outlined a procedure for the consistent closure of all contracts and obligations, Three phases are included in the termination pbn.The initial phase is aimed at discharging the Supply System's obligations to Pacific Power and Light Company.The Oregon.based private utility has 10 percent ownership in Project 5 and therefore has 90 days following notice of termination to make an offer on the project.Other possible markets are also being sought.If no apparent buyers exist, the Supply System will move into Phase II-where it would seek a maximum return on sales of portions o(the Project 4 and 5 assets.This might include using portions of the plants for Projects I, 2 and 3 or selling components for use in other pbnts.Remaining material would be sold for salvage at the best return possible.Phase III woukf be necessary if either or both of the terminated projects could not be disposed of as a unit.It would involve whatever site work and restoration necessary to comply with the Department of Energy lease at Project 4 and on the agreements with the Energy Facility Site Evaluation Council at Project 5.The Supply System estimates that termination will cost about$531 million including all expenses incurred since July 1981.This estimate does not include (unds for site restoration work, interest costs.or revenue from disposal of the assets.The Supply System has spent$188 million since July 1981 to pay obligations for Projects 4 and 5.That leaves a balance of$343 million.Since participants'greements do not require termination payments for this purpose during the first year of termination, (inanc-ing must be secured to meet the obligations when currently available (unds become insufficient.

Project 415 participants aim to sign an agreement by mid-February to loan the Supply System$70.5 million.This agreement will permit the Supply System to pay appropriate por-tions o(the obligations during the next year.In support of the termination pbn, the Washington State Legisbture passed and the Governor signed into bw a bill that per-mits the Supply System to pay a 15 percent interest rate for the loans.The money will be advanced on an as.needed basis from June to December, 1982.It will be repaid with interest between January and June, 1983.FINANCING In the second quarter, Supply System operating receipts totaled$78,947,000.

Operating plant receipts were$11,401,000 for the Han-ford Generating Project and$287,000 for the Packwood Lake Hydroelectric Project.Net billing receipts from the participants in Nuclear Projects I and 2 were$67,259,000.

The termination of Plants 4 and 5 will not change the maturity schedule for the Supply System's outstanding bonds.Should Initiative 394 prove constitutional in the courts (see the Initiative 394 section), the required steps are being taken to enable the Supply System to take its proposed financing program to the polls on September 21, 1982.Meanwhile, normal construction and financ.ing activities continue.Financings to be done prior to July I, 1982 will fund Projects I, 2 and 3 through December, 1982.The Supply System pbns to issue around$500 million in bonds during February, with an additional issue planned prior to July I, 1982.INITIATIVE 394 On November 3, 1981, Washington State voters passed Initiative 394 which requires public agencies, including the Supply System, to conduct an election before issuing new bonds for energy projects of more than 250 megawatts.

Election provisions for Supply System plants do not take effect until July I, 1982.Meanwhile, the Supply System is financing and continuing construction of Projects I, 2 and 3 in accordance with their current schedules and cost estimates.

Three trustees of the Supply System~Seattle First National Bank, Continental Illinois National Bank&Trust Company of Chicago, and Morgan Guarantee Trust Company of New York-filed suit against 394 in December.They maintain that the Initiative viobtes provisions of the Washington State and the U.S.Constitution.

If the Initiative is hekl to be constitutional, the Supply System anticipates it will request on July I, 1982 that an election be held in September, 1982, to authorize issuance of bonds for the three projects.CONSTRUCTION Record progress achievements at WNP-I, 2 and 3 continued despite the turmoil surrounding the termination of Projects 4 and 5.Pbnt construction progress records were set at WNP-3 in October and November when the site achieved construction rates of 2.1 percent-the highest monthly rates ever reached at the Satsop pro-ject.These figures represent a doubling of the project's production rate since March.The pbnt.which was less than 25 percent corn.piete in January 1981, is now 43 percent complete.During November, a major part of the WNP-3 electrical generator-a 195.ton rotor-was set in place on the operating deck in the turbine building.The generator will eventually produce a net output of 1,240 megawatts of electricity.

And, at WNP.3, efforts now are concentrated on the immense task of pulling 5.5 million (eet of permanent plant electrical cable through a network of cable trays at the project.The beginning o(cable.pulling operations started nearly four months ahead of schedule.WNP-3 also continues to achieve unprecedented safety records with over 2.5 million hours worked without an injury.*Construction progress at WNP-I also reached its highest monthly rate ever at 2.3 percent in November.The project is now 53 percent complete, and four months ahead of its overall schedule.In November, the Final Safety Analysis Report for WNP-I was delivered to the Nuclear Regubtory Commission INRC)five weeks ahead of schedule.The NRC also conducted an audit of WNP-I con-struction during November, reponing no quality related problems.Scaffo'lding work at Project I is now consolidated under one con.tractor, saving the Supply System$15 million.A similar action at WNP-3 ls saving$2.5 million.At WNP-2, a major milestone was achieved in December when the 690.ton turbine made its first electrically powered revolution.

The turning gear is now automatically operated from the control room.Also, mechanical work in the WNP 2 wet well will be completed in January in time for the reactor vessel to be filled and ffushed as scheduled in April, 1982.LABOR A labor stabilization agreement that prohibits strikes and lockouts was signed January 20 by all unions and contractors working on Pro.jects I and 2 at Hanford.A similar agreement was reached last February at the Satsop project, and both agreements are expected to keep craftsmen on the job during wage negotiations.

OPERATIONS The Hanford Generating Plan generated its 50 billionth kilowatt hour on November 10 making the N.Reactor/HGP complex the second nuclear pbnt in the country to achieve this record.The Han.(ord Generating Plan delivered a total of 284,230,000 kWh for the quarter.The Packwood Lake Hydroelectric Project netted a total of 13,016,625 kWh this quarter.About 980 hours0.0113 days <br />0.272 hours <br />0.00162 weeks <br />3.7289e-4 months <br /> of down time were scheduled for annual maintenance from October 3 through November 6.MANAGEMENT Four outside members (or the Supply System's Executive Board are now being recruited.

The four vacancies occurred following the resignations of the initial four outside members who were appointed October 26, 1981.William Roberts, Vice President of Morgan Park, Inc., cited personal and business reasons for his resignation in November.The remaining three-C.Michael Berry, Charles F.Luce and Edward Car(son~resigned in mid January when panicipants failed to approve the mothball pbn for Projects 4 and 5.Their corn.bined letter of resignation noted that the public perceived the Executive Board to have legal authority which in fact it did not have.It shoukf be noted that the Washington State Legislature is now keenly aware of the legal restraints on the Executive Board and is try-ing to better define its scope of responsibility.

WASHINGTON PUBLIC POWER SUPPLY SYSTEM 1981 ANNUAL REPORT Table of Contents Financial Statements:

2/Balance sheets 4/Statements of operations-Hanford and Packwood Projects 5/Statements of changesin financial position-Hanford and Packwood projects 6/Statements of source and use of funds-Nuclear Proj acts Nos.1 through 5 7/Notes to financial statements 20/Report of independent accountants 21/Statements of debt service requirements 23/Construction projects expenditures Balance Sheets (S in thousands)

ASSETS CURRENT ASSETS-OPERATING FUND Cash and Investments...................

Accounts Receivable Prepaid and Other.Due from Other Projects and Internal Service Fund..................

Due from Other Funds..................

TOTAL CURRENT ASSETS-OPERATING FUND RESTRICTED ASSETS-NOTES B 8E C Special Funds (Primarily for Construction)

Cash and Investments..................

Receivable from Joint Owners and Other Assets........Due from Other Projects and Internal Service Fund.Due from Other Funds-Net............

PACKWOOD LAKE HYDRO-HANFORD ELECTRIC PROJECT PROJECT NUCLEAR PROJECT NO.1 S10,840 S 89 S 17,768 S 90 211 375 14 19,859 S 8197 S 640 2,641 56,753 S 34,532 941 738 3,030 2,498 79 33 1,178 63 12,562 410 1,736 2,352 21,856 300 20,159 3,893 2,542 11,478 64.617 40,310 3,177 203 262,990 164,374 S 178,628 S 127,919 59 479 124 19,129 5,471 737,291 25,262 647,270 15,960 18 251 1,133 1,182 9,120 2,045 31,946 41.084 27,521 NUCLEAR NUCLEAR NUCLEAR INTERNAL COMBINED JUNE 30 PROJECT PROJECT PROJECT SERVICE No.2 NO.3 NOS.4/6 FUND 1961 1BBO Debt Service Funds Cash and Investments................

TOTAL RESTRICTED ASSETS.........UTILITY PLANT AND EQUIPMENT-NOTE B In Service Improvements to U.S.Government Facilities Less Allowance for Depreciation and Amortization.

3,177 280 7,228 740 10,405 1,020 67,008 12,204 14,411 (46,674)(4,357)34,745 7,847 263,720 165,631 208,059 108,750 51,383 144,258 167,381 535,982 9,547 (604)8,943 372,470 217,014 352,317 703,363 803,637 848,341 690,751 555,128 1.651,978 1,245,879 5,679 94,438 85,002 14,411 14,411 (940)(52.575)(49,163)4,739 56,274 50,250 Construction Work in Progress..........

Nuclear Fuel and Prepaid Enrichment

.Services Less Amount Charged to Joint Owners..TOTAL UTILITY PLANT AND EQUIPMENT.1,165,590 1,566,404 910,774 1,731,310 112,515 43,596 18,424 (260,179)121,607 (80,133)1,278,105 1,610,000 669,019 1,772,784 5,374,078 3,919,439 296,142 169,509 (340,31 2)(221,665)5,329,908 3,867,283 34,745 7,847 1.278,105 1,618,943 669,019 1,772,784 4,739 5,386,182 3,917,533 OTHER ASSETS AND DEFERRED CHARGES Unbilled Reimbursable Costs..........

Preliminary Survey and Investigation Costs.Unamortized Debt Expense...........

Other.TOTAL OTHER ASSETS AND DEFERRED CHARGES 1,412 3,031 156 29 1,568 3.060 2,402 2,402 1,986 1,344 5,137 4,443 1,986 4,827 10,550 7,907 11,054 371 371 1,344 5,137 371 15,868 23,284 S59,280 S12,337 S1,674,833 S1,858,102 S1.022,680 S2,481,284 S16,588 S7,118,645 S5.227,006 Mlashington Public Power Supply System 1981 Annual Report LIABILITIES HANFORD PROJECT PACKWOOD LAKE HYDRO.ELECTRIC PROJECT NUCLEAR PROJECT No.1 NUCLEAR PROJECT NO.2 NUCLEAR PROJECT NO.3 NUCLEAR PROJECT NOS.4/5 INTERNAL SERVICE FUND 1981 1980 COMBINED JUNE 30 CURRENT LIABILITIES

-OPERATING FUND Accounts Payable and Accrued Expenses.Due to Other Projects..................

S 7,326 S 295 S 18,856 S 17,159 1,736 S11,299 S 54,935 S 35,522 400 390 TOTAL CURRENT LIABILITIES-OPERATING FUND LIABILITIES

-PAYABLE FROM RESTRICTED ASSETS-NOTES B&C Special Funds (Primarily for Construction)

Accounts Payable and Accrued Expenses Amounts Withheld from Contractors

....Due to Other Projects and Internal Service Fund Due to Other Funds-Net...............

9,062 677 295 18,856 65,311 38,144 108 17,159 35,413 S 62,110 S 105,798 32,015 28,157 49,918 61 124 268,632 148,234 172,325 116,221 801 1,508 11 699 54 935 35 912 677 103,563 67,613 90,267 155,716 417,667 290,054 Debt Service Funds Accrued Bond Interest Payable..Due to Other Funds-Net.......

489 501 144 48 598 31.641 96,909 81 2,352 176 9,120 31,946 177,781 44,176 106,074 28,555 TOTAL LIABILITIES

-PAYABLE FROM RESTRICTED ASSETS..990 1,667 225 50,950 176 40,761 128,855 C 225 154,513 67,789 131,028 284,571 221,957 134,629 639.624 424,683 LONG-TERM DEBT-NOTE C Revenue Bonds Payable.................

Less Unamortized Discount on Bonds-Net TOTAL LONG-TERM DEBT..............

46,045 11,809 1,455,000 1,459,000 905,000 2,250,000 (856)(109)(24,344)(13,143)(13,348)(53,287)45,189 11,700 1,430,656 1,445,857 891,652 2,196,713 6,126,854 4,568,783 (105,087)(42,103)6,021,767 4,526,680 OTHER LIABILITIES AND DEFERRED CREDITS Unearned Revenue Deferred Gain on Revenue Bonds........Due to Other Projects...................

Advances and Other TOTAL OTHER LIABILITIES AND DEFERRED CREDITS.............

COMMITMENTS AND CONTINGENCIES

-NOTE D 1,962 1,400 3,362 117 70,808 284,049 43,248 117 70,808 327,297 354,857 192,530 2,079 2,212 4,154 735 45,383 44,989 4,889 402,319 239,731 S59,280 S12,337 S1,674,833 S1,858,102 S1,022.680 S2.481.284 S16,588 S7.118.645 S5,227.006 See accompanying notes to financial statements.

Statements of Operations (S in thousands J Hanford and Packwood Projects COMBINED YEAR ENDED JUNE 30 HANFORD PROJECT PACKWOOD PROJECT 1981 1980 OPERATING REVENUES OPERATING EXPENSES: Reactor Availability Depreciation and Amortization.......

Power Production and Transmission

.Maintenance Administrative and General.........Net Operating Revenue OTHER INCOME AND EXPENSE: Interest and Other Income.Interest Expense and Discount Amortization

..NET REVENUE 912,471 6,700 2,546 1,107 1,424 488 12,265 206 1,683 (1,889)(206)S-0-S 861 256 138 121 52 567 294 190 (484)(294)S-0-S13,332 6,700 2,802 1,245 1,545 540 12,832 500 1,873 (2,373)(500)S-0-S38,441 32,063 2,802 1,327 966 614 37,772 669 1,518 (2,187)(669)S-0-4 See accompanying notes to financial statements.

washington Public'ower Supply System 1981 Annual Report Statements of Changes in Financial Position (S in thousands Hanford and Packwood Projects COMBINED YEAR ENDED JUNE 30 HANFORD PACKWOOD PROJECT PROJECT 1981 1980 SOURCE OF FUNDS: Operations Net Revenue Items Not Affecting Working Capital: Depreciation and Amortization..............

Decrease (Increase) in Costs Reimbursable from Power Purchasers Less Gain on Redemption of Revenue Bonds Total from Operations Contributions for Improvements

..............

-Advances from Participants for Working Capital TOTAL SOURCE OF FUNDS APPLICATION OF FUNDS: Net Improvements Cost of Revenue Bonds Purchased and Retired Increase in Restricted Assets Changes in Working Capital Cash and Investments Receivables and Other Payables and Other.Net Increase in Working Capital..TOTAL APPLICATION OF FUNDS..S-0-2,613 414 (129)2,898 86-0-$2,984 S 86 2,810 88 2,984 1,325 (359)(966)-0-$2.984 S-0-260 (26)(93)141$142$127 15 142 (79)42 37-0-$142 S-0-2,873 388 (222)3,039 87-0-$3,126 S 86 2,937 103 3,126 1,246 (317)(929)-0-$3,126 S-0-2.873 251 (194)2,930 149 500 S3,579 S 149 2,847 83 3,079 3,552 480 (3,532)500 S3,579 See accompanying notes to financial statements.

Statements of Soulee and Use of IFunds (S in thousands)

Nuclear Projects Nos.1 through 5 NUCLEAR NUCLEAR NUCLEAR PROJECT PROJECT PROJECT NO.1 NO.2 NO.3 NUCLEAR PROJECTS NOS.4&5 COMBINED YEAR ENDED JUNE 30 1981 1980 SOURCE OF FUNDS: Collected Under Net Billing.Bond Proceeds.Interest Income Charged to Joint Owners Net Decrease in Restricted Funds Decrease in Amounts Due Participants Revaluation of Investments

.Other S 91,212 394,104 34,866 2,525 S 90,232 193,875 34,536 1.288$217,289 30,345 88,130 13,383$735,253 67,387 30,517 S 181,444 1,540,521 1 67,134 118,647 13,383 1,288 2,525 S 86,918 738,890 132,343 77,255 399,088 992 3,590 TOTAL SOURCE OF FUNDS$522,707$319,931$349,147$833,157$2,024,942$1,439,076 USE OF FUNDS: Construction Costs Interest Expense Nuclear Fuel Financing Expense Bonds Redeemed Revaluation of Investments

.Net Increase in Restricted Funds.Increase in Amounts Due Participants Increase in Operating Fund.Transfers to the Hanford Project.Preliminary Survey and Investigation Costs (Energy and Uranium Programs)Other$241,507 90,189 51,405 963 1,311 111,403 18,282 2,610 5,037$204,422 95,041 3,431 635 6,500 2,604 7,048 250$295,100 53,284 98 492 173$491,367 159,264 55,783 1,967 27,400 6,892 90,484$1,232,396 397,778 110,717 4,057 33,900 10,980 208,935 18,282 2,610 5,037$1,063,671 280,553'6,979 1,703 32,240 2,853 7,494 2,635 250 948 TOTAL USE OF FUNDS$522,707$319,931$349,147$833,157$2,024,942$1,439,076 6 See accompanying notes to financial statements.

Washington Public Power Supply System 1981 Annual Report Note A-Organization The Washington Public Power Supply System was organized in 1957 as a municipal corporation and joint operating agency of the State of Washington.

Its membership consists of 19 public utility districts and 4 municipalities that own and operate electric systems within the State of Washington.

It is empowered to acquire, construct and operate facilities for the generation and transmission of electric power and energy.The Supply System has constructed and is now operating the Packwood Lake Hydro-electric'Project and the Hanford Generating Project and has five nuclear electric gener-ating plants under construction (Nuclear Projects Nos.1, 2, 3, 4 and 5).In addition, the Supply System has an Internal Service Fund (formerly General Fund)to account for the central procurement of certain common goods and services for the projects on a cost-reimbursement basis.Nuclear Projects Nos.1, 2, and 4 are owned by the Supply System.Nuclear Project No.3 is jointly owned by the Supply System (70/0)and four investor-owned utilities (30/0).Nuclear Project No.5 is also jointly owned by the Supply System (90/0)and one investor-owned utility (10/0).Each joint owner is responsible for its own financing costs, providing its share of the costs of construction and operation and will be entitled to its ownership share of the projects'apability.

Budgeted construction costs of the projects are disclosed else-where in this annual report.In accordance with the covenants of the bond resolutions, the Supply System is authorized to recover its cost of operation and debt service over the life of the plant or bonds outstanding.

Accordingly, the Supply System realizes no income or loss and equity is not accumulated.

Note B-Summary of Significant Accounting Policies The Supply System has adopted accounting policies and practices that are in accordance with generally accepted accounting prin-ciples applicable to the utility industry.Separate books of account are maintained for each project except for Nuclear Projects Nos.4 and 5, which are accounted for as a single entity.Principles of Combination The individual and combined financial state-ments have been prepared to facilitate an understanding of the financial position and results of operations of each project, the Internal Service Fund and, because of common management control, the Supply System as a whole.All significant inter-project due to and from balances have been eliminated from the combined columns.Restricted Funds In accordance with project bond resolutions and certain related agreements, separate restricted funds are required to be estab-lished for each of the projects.The assets held in these funds are restricted for specific uses including construction, debt service and other special reserve require-Notes to IFinaneial Statements Notes to Financial Statements (Continued)-

ments.Restricted funds currently include the following:

Special Funds~Construction

~Construction Revolving or Trust~Construction Fuel~Reserve and Contingency Debt Service Funds~Bond Fund Principal~Bond Fund Retirement

~Bond Fund Reserve~Bond Fund Interest~Construction Interest Cash and investments in Special Funds of projects under construction include cash retainage amounts held in escrow for con-tractors of$135,406,998 and$104,790,195 at June 30, 1981 and 1980.Current Assets and Current Liabilities Assets and liabilities shown as current in the accompanying balance sheets exclude current maturities on revenue bonds and accrued interest thereon because Debt Service Funds are provided for their payment.Investments Investments include time certificates of deposit, repurchase agreements (secured by U.S.Government securities) and United States Government and Government Agencies securities.

Investments are stated at cost or amortized cost as appropriate and include accrued interest.Investments held in the Bond Fund Reserve Accounts (included in Debt Service Funds)and Reserve and Contingency Funds (included in Special Funds)are stated at the lower of amortized cost or market as pro-vided by their respective bond resolutions.

The market value of investments held in Debt Service and Special Funds and in Cur-rent Assets (Operating Fund)approximate the carrying value as of June 30, 1981 and 1980.Income Earned on Investments Income earned on investments includes gains and losses from the sale of invest-ments.Income earned on investments held by projects under construction is recorded as a reduction in construction costs.Income earned on investments held by operating projects accrues to the applicable project's Operating Fund.Capitalization of Construction Costs and Overhead Expenses During the construction phase of a project, the Supply System will capitalize all costs of the project including general, administrative, interest, certain depreciation and other over-head expenses.The overhead expenses of the Supply System are allocated from the Internal Service Fund to the various projects primarily on the basis of direct labor cost or direct usage.The preliminary survey and investigation costs carried as a deferred charge in Nuclear Projects Nos.4 and 5 at June 30, 1980, have been included in Construction Work in Progress at June 30, 1981, as a result of the discontinuance of the Energy and Fuel Development Programs.Such costs will be amortized over the period of plant operations.

Washington Public Power Supply System 1981 Annual Report Utility Plant and Equipment-At Cost Provisions for depreciation are computed by the straight-line method based on the estimated useful lives of the projects, which approximate the term of the related revenue bonds.Provisions for amortization of improvements to U.S.Government-owned facilities are being amortized over the period covered by the contract for dual-purpose operation of the Department of Energy's New Production Reactor.Contributions Used for Purchase of Equipment-Packwood and Hanford Projects Monies provided by participants to acquire equipment since completion of the Project are recorded and accounted for as a reduc-tion of the carrying value of such equipment included in Utility Plant.Debt Discount, Premium and Expenses Debt discount or premium and expenses relating to the issuance of revenue bonds are amortized by the straight-line method over the terms of the respective issues.Revenues Member purchasers of power are contrac-tually obligated to pay project annual costs (excluding depreciation and amortization) and debt service.The Supply System records these reimbursable annual costs as oper-ating revenues for the Hanford and Packwood Projects.In addition to recovery of such project annual costs, the Supply System records as revenue each year an amount equal to the provisions for depreci-ation and amortization, less the recorded gains on bond redemption.

This accounting policy is used in order to spread such revenues equally over the full term of the bonds.Cumulative annual charges for depreciation and amortization, less payments by member purchasers for bond redemption, are reflected as Unbilled Reimbursable Costs in the accompanying balance sheets.For Projects Nos.1 and 2, payments received from member purchasers for bond redemption and interest are shown as Unearned Revenue in the accompanying balance sheets.Retirement Plan The Supply System participates in the Washington State Public Employees'etire-ment System that provides retirement bene-fits to eligible employees.

Cost of the plan to the Supply System is determined by the Retirement System's Board.The actuarially computed value of pension benefits exceeds the fund assets for the Retirement System.However, because the Retirement System is a multi-employer system, the amount of such excess, if any, that relates to the Supply System is not available.

The Supply System's required contributions were S3,829,798 in 1981 and S2,907,523 in 1980.Note C-Long-Term Debt Except for Nuclear Projects Nos.4 and 5, which are being financed together as one utility system, all Supply System projects are financed separately.

The revenue bonds Notes to Financial Statements (Continued)

Notes ,to Financial Statements (Continued) issued with respect to each project are payable solely from the revenues of that project.Outstanding revenue bonds of the various projects as of June 30, 1981 and 1980, are presented on pages 14 through 19.Security-Agreements and Contracts The United States of America, Department of Energy (DOE), acting by and through the Bonneville Power Administration (BPA)has purchased the entire capability of the Hanford Project and the Supply System's ownership share of the projects'apability in Nuclear Projects Nos.1, 2 and 3 from its statutory preference customers and, in addi-tion, with respect to Project No.1, five of its private utility customers.

Each of these customers has, in turn, purchased such capability from the Supply System, all under the Net Billing and Exchange Agreements.

BPA is obligated to pay the participants, and the participants are obligated to pay the Supply System its pro rata share of the total annual costs of the projects including debt service on the bonds, whether, or not the projects are completed, operable or oper-ating and notwithstanding the suspension, reduction or curtailment of the projects'utput.

The Supply System's Packwood Project revenue bonds are secured by Power Sales Contracts between the Supply System and each of its 12 member purchasers.

Pursuant to these agreements, member purchasers pay for their percentage allocation of power specified therein at rates sufficient to operate and maintain the project, and pay debt service on the bonds.Such payments continue until the bonds are paid or provi-sion is made for their payment or retirement.

As security for the Generating Facilities revenue bonds for Nuclear Projects Nos.4 and 5, the Supply System has entered into Participants'greements with 88 utilities operating principally in the western United States.Pursuant to the Participants'gree-ments, the participants are obligated to pay their respective share of project annual costs, including debt service on the bonds, whether or not the projects are completed, operable or operating and notwithstanding the suspension, reduction or curtailment of the projects'utput.

Billings to the partici-pants for Nuclear Projects Nos.4 and 5 will begin on July 1, 1988, or the date of com-mercial operation for the respective projects, whichever is earlier.See Note D for a dis-cussion of recent financing difficulties of Nuclear Projects Nos.4 and 5 and contem-plated amendments to the Participants Agreements.

Advances from Members and Participants and Unearned Revenue As of September 1, 1977, for Nuclear Project No.2 and July 1, 1980, for Nuclear Project No.1, project participants were required to fund debt service, working capital and reserve requirements as provided in the Net Billing Agreements.

The debt service portion of this funding has been classified as Unearned Revenue, a deferred credit, which will be recognized as earned revenue during the operating period of the plant.UVashington Public Power Supply System 1981 Annual Report Note D-Commitments and Contingencies Contracts The Supply System has entered into sub-stantial contracts covering a portion of total estimated costs for certain major equipment and material, and for services relating to financing, design and the supply of nuclear fuel for the projects under construction.

Hanford Project andits Relationship to Nuclear Project No.1 The Department of Energy owns and operates a nuclear reactor, the New Produc-tion Reactor.This reactor provides by-product steam to the Hanford Project.Revenues and costs of the project were significantly reduced in 1981 because it operated for only a short period as a result of labor difficulties at the New Production Reactor.The Supply System's current agree-ment with DOE provides for the continu-ation of this dual-purpose operation of the reactor through June 1983.It was initially intended that Nuclear Project No.1 would be constructed adjacent to the Hanford Project and would provide the energy source to operate the project when DOE ceased operation of the New Produc-tion Reactor.Because studies indicated that generating resources in the Pacific North-west would be inadequate in the late 1970's and early 1980's, the Supply System determined that the Hanford Project should be kept available for power production.

Therefore, the Nuclear Project No.1 Net Billing, Exchange and Project Agreements were amended to provide for the separation of Nuclear Project No.1 from the Hanford Project and to provide that Hanford Project costs, to the extent not otherwise provided for, will be treated as Nuclear Project No.1 costs having a first claim on the revenues of that project.The amended agreements provide for the payment by Nuclear Project No.1 partici-pants of all debt service costs of the Hanford Project, commencing July 1, 1980, regard-less of continued operation of the reactor.If the plant ceases operations, revenues to the Hanford Project arising from the aforemen-tioned payments will nevertheless be recorded each year thereafter in amounts that will result in full realization of the carrying value of the plant.The U.S.Government has an option to acquire ownership of the Hanford Project upon obtaining Congressional approval.If the Government exercises its option, it must assume all rights and obligations of the project, including the obligation to pay all revenue bonds.Litigation The Supply System is involved in various legal actions as both a plaintiff and a defen-dant and in certain claims arising in the normal course of business for a large con-struction program.Although some suits and claims-are significant in amount, final disposition is not determinable.

In the opinion of management and legal counsel, the outcome of any such litigation or claims will not have a material effect on the financial positions of the projects.The estimated cost of the projects may either be increased or decreased as a result of the outcome of these matters.Initiative 394 In July 1981, the Secretary of State of Washington certified that sufficient signa-Notes to IFinancial Statements (Continued)

Notes to Financial Statements (Continued) tures had been obtained to qualify Initiative Measure No.394 for submission to voters of the State of Washington at the general elec-tion to be held November 3, 1981.If enacted into law by a majority of such voters, the Supply System, after July 1, 1982, would be required to obtain the approval of the voters of its 23 member governmental entities in order to issue bonds to finance the cost of construction of each of its projects.In the event voter approval for the issuance of bonds with respect to any of its projects was not obtained and alternative sources or methods to finance completion of construc-tion of any such projects were not available, the Supply System may be obligated to ter-minate such projects.A termination of any of the Supply System's projects could have adverse effects on the projects of the Supply System not terminated.

However, such ter-mination would not affect the obligation of Bonneville or the participants under the billing agreements (for Projects Nos.1, 2 and 3)or the Participants Agreements (for Projects 4 and 5)as described in Note C Revenue Bonds.Recent Financing Difficulties

-Projects Nos.4 and 5 Because of uncertainty as to the ability to continue to finance remaining construction costs of Nuclear Projects Nos.4 and 5, the Supply System has implemented a slow-down of construction work on the two projects.Although the construction slow-down has reduced the projects'ash flow requirements, additional financing will be required in mid-October 1981.As a result of this need for financing, the Supply System and the Participants purchasing the capability of the projects (see Note C)are considering specific actions which may allow for continued financing of the projects (see Note E).The specific actions being considered by the Participants

-including certain amendments to the Participants'greements

-may allow for continued financing of the projects (in a slowdown mode)beyond October 1981 and until March 1, 1982.If the Participants'greements are not amended to provide for a more secure financial basis by March 1, 1982, and the Supply System is unable to secure additional financing, one or both of the projects would likely be terminated.

If termination of Projects Nos.4 and 5 occurs, the Participants in these projects would be obligated to pay the annual costs, including the debt service on bonds issued with respect to such projects and other costs of termination, beginning one year after the date of termination.

Although there can be no reliable assessment at this time of the costs of termination of such projects, preliminary estimates indicate that the Supply System's Ownership Share of such costs could range from$475,000,000 to$760,000,000.

Until payments from the participants begin, the Supply System may have insufficient funds to pay such termi-nation costs.However, debt service on Projects Nos.4 and 5 bonds is currently funded to March 1, 1983.A termination of Projects Nos.4 and 5 would cause the cost of certain services and facilities which are to be shared with Projects Nos.1 and 3, respectively, to be Washington Public Power Supply System 1981 Annual Report borne in whole or in part by Projects Nos.1 and 3.The Supply System's preliminary esti-mates indicate that such costs could increase the direct construction costs to be incurred for Project No.1 and the Supply System's Ownership Share of Project No.3 in the order of$450,000,000 and$350,000,000, respectively.

No assurance can be given that such costs will be within these estimates.

In addition to these pro-spective costs of shared services and facil-ities, there may be claims that Projects Nos.1 and 3 should reimburse Projects Nos.4 and 5 for all or a portion of the costs of such services and facilities already paid by Projects Nos.4 and 5.These costs in the approximate amount of$181,000,000 and$224,000,000 for Projects Nos.4 and 5, respectively, could increase the costs of Projects Nos.1 and 3 if such claims were allowed.I)In the event of an insufficiency of funds available to pay creditors with respect to services, work or materials provided with respect to the construction of Projects Nos.4 and 5, such creditors may, through legal process, seek to reach funds held by Projects Nos.1, 2, 3, Hanford or Packwood, or the revenues pledged thereto.In the opinion of Bond Counsel and Special Counsel to the Supply System, the respec-tive revenues and the funds held by such projects are not subject to claims of such creditors and no liens thereon are available to such creditors, except as any such creditors may obtain rights through a valid exercise of the sovereign police powers of the State of Washington or of the constitutional powers of the United States of America, or by a voluntary bankruptcy of the Supply System.Note E-Subsequent Events In order to meet their cash flow needs, Nuclear Projects Nos.4 and 5 sold nuclear fuel and related enrichment contract rights to Nuclear Project No.1 on August 14, 1981.The sales price was approximately

$61 million, which was$55 million dollars less than the carrying value of these assets.The Supply System believes that the terms of this transaction are not less favorable than Projects Nos.4 and 5 could have obtained from an unrelated party.On September 25, 1981, the Supply System began implementing the steps required to essentially halt construction and keep Projects Nos.4 and 5 in an inactive preservation mode for approximately two years.This period will allow for certain power planning studies and actions required under the Regional Power Act to ascertain the need for these projects in the region.The Supply System and the Participants purchasing the capability of the projects are considering specific actions for financing the continuing costs and debt service during this two-year period.If the Supply System were unable to secure additional financing, both projects would likely be terminated.

Notes to Financial Statements (Continued)

Outstanding Long-Term l3ebt (S in thousandsJ project Series Effective Date Interest Offering oi Sale Rare Prices Coupon Rate Serial or Term Maturities 1981 June 30 1980 Hanford Project Revenue Bonds (S2,915,000 and S2,810,000 due within one year at June 30, 1981 and 1980 respectively) 1963 5-8-63 3.26/0 (A)~2.90-3.10/o 9-1-80/1986 S 18,460$21,270 98 3.25 9-1-1996 27,585 27,585 S 46,045 S48,855 Packwood Lake Hydroelectric Project (S145,000 and S140,000 due within one year at June 30, 1981 and 1980 respectively)

Revenue Bonds Revenue Bonds 1962 1965 3-20-62 3.66 99.425 11-4-65 3.76 100.5 3.625 3.75 3-1-2012 3-1-2012 S 8,959 2.850 S 11,809 S 9,153 2,875 S12,028 Nuclear Project No.1 Revenue Bonds (S1,000,000 due July 1,1981)1975 9-18-75 7.73 (A)100 100 5.75-7.40 7.70 7.75 7-1-81/2000 7-1-2010 7-1-2017 S 42,000 58,300 74.700 175,000 S 42,000 58,300 74,700 175,000 Revenue Bonds (S1,215,000 due July 1,1981)1976A 2-4-76 6.84 (A)100 100 6.00-6.25 7-1-81/1998 6.90 7-1-2010 7.00 7-1-2017 37,020 66,485 76,495 180,000 37,020 66,485 76,495 180,000 Revenue Bonds (S1,480,000 due July 1,1981)Revenue Bonds 1 976 B 8-31-76 6.37 1978A 3-21-78 5.69 (A)100 99.50 (A)100 100 5.00-5.90 7-1-81/1998 6.50 7-1-2010 6.50 7-1-2017 5.00-5.50 7-1-84/2002 5.80 7-1-2010 5.875 7-1-2017 41,825 66.940 71,235 180,000 64,270 50,920 64,810 180,000 41,825 66,940 71,235 180,000 64,270 50,920 64,810 180,000 14 (AJ Various Prices Washington Public Power Supply System 1981 Annual Report Project Series Date of Sale Effective Interest Rate Offering Prices Coupon Rate Serial or Term Maturities 1981 June 30 1980 Revenue Bonds 1978B 12-5-78 6.61%(A)100 100 99.50 5.50-6.00%7-1-84/1998 6.35 7-1-2003 6.60 7-1-2009 6.80 7-1-2017 S 38,355 22,305 38,190 81.150 180,000 S 38,355 22,305 38,190 81,150 180,000 Revenue Bonds 1979 6-19-79 6.64 (A)100 100 100 6.00 7-1-84/1998 6.40 7-1-2003 6.70 7-1-2009 6.80 7-1-2017 29,385 18,560 32,370 69.685 150,000 29,385 18,560 32,370 69,685 150,000 Revenue Bonds 1980A 8-5-80 8.87 (A)100 100 99.00 (A)7.00-10.00 9.00 9.20 9.25 7.75 7-1-86/1 995 7-1-2002 7-1-2005 7-1-2013 7-1-2017 55,500 37,000 16,950 70,550 30,000 210,000 Revenue Bonds 1981A 4-13-81 11.30 (A)11.30-13.00 7-1-96/2003 100 11.625 7-1-2012 28,580 91,420 Revenue Bonds Revenue Bonds 1981 B 4-13-81 11.30 1981 C 4-13-81 10.29 (A)10.00 7-1-201 6 10.25 7-1-2015 120,000 40,000 40.000 S1,455,000 S1,045,000 OutStanding LOng-Term Debt (continued)(S in thousandsj Project Series Effective Date Interest Offering of Saic Rate Prices Coupon Rate Serial or Term Maturities 1981 June 30 1980 Nuclear Project No.2 Revenue Bonds(S3,000,000 due July 1, 1981 and 1980)Revenue Bonds (S2,500,000 due July 1, 1981 and 1980)1973 1974 6-26-73 5.66/0 7-23-74 7.21 (A)100 (A)100 100 5.00-5.10'-1-81/2010 5.70 7-1-2012 6.50-6.90 7-1-81/1994 7.00 7-1-1999 7.375 7-1-2012 13,600 S 124,400 138,000 18,000 15,000 37.000 70,000 16,600 124,400 141,000 20,500 15,000 37,000 72,500 Revenue Bonds($1,000,000 due July 1, 1981 and 1980)Revenue Bonds 1974A 11-26-74 7.67 1975A 3-6-75 6.71 (A)100 100 (A)100 100 7.20 7-1-81/1994 7.40 7-1-1999 7.75 7-1-2012 6.60 7-1-82/1994 6.60 7-1-1999 6.875 7-1-2012 28,000 15,000 78,000 121,000 32,000 15,000 78,000 125,000 29,000 15,000 78,000 122,000 32,000 15,000 78,000 125,000 Revenue Bonds 1976 6-3-76 6.63 (A)99.25 100 5.40-6.25 7-1-82/1998 6.625 7-1-2006 6.75 7-1-2012 27,840 42,300 49.860 120,000 27,840 42,300 49,860 120,000 Revenue Bonds 1976A 11-18-76 5.87 (A)100 99.50 5.50-5.875 7-1-82/2002 6.00 7-1-2007 6.00 7-1-2012 94,195 44,815 60,990 94,195 44,815 60,990 Revenue Bonds 1978 7-11-78 6.71 (A)100 100 5.50-6.60 7-1-82/2000 6.80 7-1-2006 6.875 7-1-2012 200,000 200,000 68,250 68,250 45,520 45,520 66,230 66,230 Revenue Bonds 1979 3-13-79 6.49 (A)100 100 5.50-6.00 7-1-82/1999 6.40 7-1-2004 6.75 7-1-2012 180,000 62,905 33,490 83,605 180,000 180,000 62,905 33,490 83,605 180,000 16 (A j Various Prices Washington Public Power Supply System 1981 Annual Report Project Series Date of Sale Effective Interest Rate Offering Prices Coupon Rate-Serial or Term Maturities 1981 June 30 1980 Revenue Bonds 1979A 10-17-79 7.69%(A)100 100 6.40-7.30%7.1-82/1 999 7.60 7-'I-2004 7.75 7-1-2012 S 44,950 23,050 57,000 S 44,950 23,050 57,000 Revenue Bonds 1980 10-21-80 9.36 (A)100 100 (A)(A)8.90-10.90 9.30 9.60 9.25 8.25 7-1-86/1 997 7-1-2001 7-1-2006 7-1-2001 7-1-2012 125,000=125,000 35,230 23,735 46,070 75,045 19,920 200,000 S1,459,000 S1,265,500 Nuclear Project No.3 Revenue Bonds 1975 12-3-75 7.87 (A)100 100 5.40-7.25 7.875 7.875 7-1-83/1998 7-1-2010 7-1-2018 S 26,145 52,695 71,160 150,000 S 26,145 52,695 71,160 150,000 Revenue Bonds 1976 4-13-76 6.48 (A)99.625 100 5.50-6.00 7-1-83/1998 6.50 7-1-2010 6.60 7-1-2018 19,605 35,100 45,295 100,000 19,605 35,100 45,295 100,000 Revenue Bonds Revenue Bonds 1977 1978 9-12-77 5.71 9-12-78 6.27 (A)99.50 99.50 (A)100 99 5.00-5.30 7-1-85/2000 5.70 7-1-2009 5.80 7-1-2018 5.90-6.00 7-1-85/2004 6.375 7-1-2010 6.40 7-1-2018 59,305 63,535 107,160 230,000 66,385 42,985 90,630 200,000 59,305 63,535 107,160 230,000 66,385 42,985 90,630 200,000 OutStanding LOng-Term Debt (continued)

Project Series Date of Sale Effective Interest Rate Offering Prices Coupon Rate Serial or Term Maturities 1981 June 30 1980 Revenue Bonds 1981A 2-11-81 10.80/o (A)100 99.50 88.50 88.50 9.50-12.50/0 7-1-87/2001 11.125 7-1-2005 11.125 7-1-2010 9.75 7-1-2017 9.75 7-1-2018 64,375 40,535 80,310 18.950 20,830 225.000 S905.000-S680,000 Nuclear Projects Nos.4 and 5 Revenue Bonds (S27,400,000 due within one year at June 30, 1980)Revenue Bonds 1975 7-24-75 7.04 1977A 2-3-77 5.93 (A)(A)100 100 6.75-6.90 5.50-5.75 5.90 6.00 6-1-80/1981 7-1-89/2001 7-1-2008 7-1-2015 42,105-40.605 62,290 145,000 27,400 42,105 40,605 62,290 145,000 Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds 19778 5-24-77 6.32 1977C 9-13-77 5.96 1978A 1-31-78 6.07 1978B 5-23-78 6.86 1978C 10-12-78 6.81 1979A 2-14-79 7.16 (A)100 (A)100 (A)u 99.75 100 (A)100 100 (A)99.50 100 (A)100 100 6.00-6.20 7-1-89/2001 6.40 7-1-2012 5.20-5.70 7-1-89/2001 6.00 7-1-2018 5.50-5.75 7-1-89/2000 6.00 7-1-2010 6.125 7-1-2018 6.00-6.60 7-1-89/2003 6.80 7-1-2010 6.90 7-1-2018 6.00-6.50 7-1-89/2003 6.75 7-1-2010 7.00 7-1-2018 6.30-6.90 7-1-89/2003 7.125 7-1-2010 7.25, 7-1-2018 33,485 56,515 90.000 20,480 109,520 130,000 27,700 43,900 78,400 150,000 37,785 32.960 79,255 150,000 45.225 42,970 81,805 170,000 47,515 43,140 84,345 175,000 33,485 56,515 90,000 20,480 109,520 130,000 27,700 43,900 78,400 150,000 37,785 32,960 79,255 150.000 45,225 42,970 81,805 170,000 47,51 5 43,140 84,345 175.000 18 (A j Various prices Washington Public Power Supply Sysfem 1981 Annual Report Project Effective Date Interest Series of Sale Role Offering Prices Coupon Rate Serial or Term Maturfues 1981 June 30 1980 Revenue Bonds 1979B 8-28-79 7.69/o (A)100 100 99 7 00-7 10/0 7.40 7.60 7.625 7-1-89/1999 7-1-2003 7-1-2010 7-1-2018 25,505 14,600 37,425 72,470 150,000 s 25,505 14,600 37,425 72,470 150,000 Revenue Bonds 1979C 12-11-79 8.30 (A)100 99.50 71.47 7.90-8.75 7-1-89/2002 8.50 7-1-2010 8.50 7-1-2017 5.75 7-1-2018 39,145 54,020 89,185 17,650 200,000 39,145 54,020 89,185 17,650 200,000 Revenue Bonds 1980A 5-9-80 9.23 (A)100 99.25 93.50 7.90-8.70 7-1-89/1995 9.30 7-1-2003 9.375 7-1-2010 8.50 7-1-2016 7,000 17,575 75,425 30.000 130,000 7,000 17,575 75,425 30,000 130,000 Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds Revenue Bonds 1980B 7-15-80 9.50 1980C 9-23-80 10.69 1980D 12-19-80 12.44 1980E 12-19-80 11.83 1981A 3-17-81 11.77 1981 B 3-17-81 11.06 (A)99.50 (A)(A)100 99.50 (A)(A)100 100 (A)(A)100 99.50 100 (A)(A)9.10-10.75 7-1-89/1999 9.875 7-1-2012 7.75 7-1-2018 10.00-12.00 7-1-89/1999 10.80 7-1-2007 10.875 7-1-2015 9.00 7-1-2017 14.60-1 5.25 7-1-89/1996 12.25 7-1-2000 12.50 7-1-2010 9.50 7-1-2013 11.75 7-1-2010 10.50-11.50 7-1-89/1995 11.75 7-1-2000 12.00 7-1-2009 10.25 7-1-2011 11.00 7-1-2009 55,000 95,000 30,000 180,000 20,000 33,550 102,450 24,000 180,000 11,280 18,145 109,575 11,000 150,000 50,000 15,255 27,105 102,640 25,000 170,000 30,000 S2.250.000 S1,517,400 Board of Directors Washington Public Power Supply System Richland, Washington Report of Independent Accountants We have examined the individual and combined financial statements, as listed in the financial statements section of the table of contents, of Washington Public Power Supply System's Hanford Project, Packwood Lake Hydroelectric Project, Nuclear Project No.1, Nuclear Project No.2, Nuclear Project No.3, Nuclear Projects Nos.4 and 5, and the Internal Service Fund for the years ended June 30, 1981 and 1980.Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the financial statements listed in the aforementioned table of contents present fairly the respective individual and combined financial positions of Washington Public Power Supply System's Hanford Project, Packwood Lake Hydroelectric Project, Nuclear Project No.1, Nuclear Project No.2, Nuclear Project No.3, Nuclear Projects Nos.4 and 5, and the Internal Service Fund at June 30, 1981 and 1980, and the respective individual and combined results of operations and changes in financial position of the operating projects and sources and uses of funds of the con-struction Projects Nos.1, 2, 3, and 4 and 5 for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis.Seattle, Washington August 28, 1981 except as to Note E as to which the date is September 25, 1981 Washington Public Power Supply System 1981 Annual Report Statements of l3ebt Service Requirements June 30,1981 (S in thousandsJ Hanford Year Principal Annual Debt Interest Requirements Packwood Principal Interest Annual Debt Requirements WNP-1 Principal Interest Annual Debt Requirements 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 S 2915 2,915 3,010 3,125 3,240 3,255 3,360 3,485 3,455 5,065 5,585 5,835 800 S 1,393 1,303 1,210 1,114 1,014 913 806 693 580 425 246 58 4 S 4,308 4,218 4,220 4,239 4,254 4,168 4,166 4,178 4,035 5,490 5,831 5,893 804$46,045$9,759$55.804 S 145 155 160 170 175 180 190 195 265 275 290 300 315 330 340 360 380 465 490 515 540 565 590 615 640 665 690 715 618 76 S 440 434 429 423 416 410 403 397 389 380 370 359 348 337 324 312 299 285 270 253 236 217 197 176 155 132 109 85 60 34 8$11,809$8,687 S 585 589 589 593 591 590 593 592 654 655 660 659 663 667 664 672 679 685 735 743 751 757 762 766 770 772 774 775 775 652 84 7,510 4,045 9,245 9,785 14,855 15,470 16,115 16,810 19,045 59,835 20,675 22,075 23,035 24,060 25,640 27,255 28,795 30,870 32,955 35,205 37,645 40,290 43,175 46,315 49,700 53,360 57,315 61,585 68,195 73,205 77,790 67,570 59,940 64,050 108,445 103,140 108,004 107,793 107,570 107,064 106,527 105,505 104,582 103,621 102,614 101,449 96,125 94,831 93,422 91,928 90,347 88,518 86,596 84.554 82,278 79,833 77,204 74,370 71,282 67,933 64,332 60,456 56,283 51,791 46,949 41,475 35,568 29,309 24,429 20,346 15,981 7,314 115,514 111,838 116,815 116,849 121,382 120,975 120,697 120,431 121,659 161,284 116,800 116,906 116,457 115,988 115,987 115,773 115,391 115,424 115,233 115,038 114,849 114,660 114,457 114,248 114,032 113,816 113,598 113,376 115,144 114,680 113,358 96,879 84,369 84,396 124,426 110,454$20,496$1,455,000$2,688,183$4,143,183 Statements of debt Service Requirements (continued)(S in thousands J WNP-2 Year Principal Interest Annual Debt Requirements WNP-3 Principal Interest Annual Debt Requirements WNP-4&5 Principal Interest Annual Debt Requirements 1982 S 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 14,130 S 15,010 15,940 16,925 19,675 20,940 22,245 23,630 25,115 26,705 28,410 30,260 32,235 34,365 36,655 39,120 41,775 44,630 47,700 51,055 54,675 58,560 62,740 67,230 72,085 77,305 82,930 88,980 95,485 102,480 110,010 100.876 100,013 99,096 98,123 97,090 95.809 94,488 93,082 91,579 89,966 88,238 86,389 84,433 82,344 80.095 77,677 75,068 72,252 69,220 65,908 62,335 58,481 54,333 49,882 45,065 39,890 34,356 28,408 22,014 15,141 7,750 115,006 115,023 115,036 115,048 116,765 116,749 116,733 116,712 116,694 116,671 116,648 116,649 116,668 116,709 116,750 116,797 116,843 116.882 116,920 116,963 117,010 117,041 117,073 117,112 117,150 117.195 117,286 117,388 117,499 117.621 117,760 1,680 1,785 6,175 6,530 8,925 9,525 10,170 10,870 11,625 12,440 13,315 14,270 15,310 16,430 17,055 18,910 20,345 21,920 23,630 25,500 27,525 29,720 32,105 34,715 37,550 40,635 43,995 47,645 30,025 32,040 34,190 36,485 38,940 41,555 63,300 68,165 67,283 67,283 67,191 67,093 66,757 66,401 65,769 65,087 64,395 63,682 62,913 62,082 61,179 60,190 59,109 57,932 56,708 55,313 53,769 52,078 50,231 48,195 45.987 43,590 40,965 38,111 35,008 31,632 27,957 23,947 21,975 19,870 17,622 15,222 12,659 9,922 5,152 67,283 68,963 68,976 73,268 73,287 75,326 75,294 75,257 75,265 75,307 75,353 75,397 75,449 75,500 75,539 74,987 75,618 75,658 75,689 75,708 75,731 75,720 75,707 75,695 75,680 75,661 75,643 75,627 75,602 53,972 54,015 54,060 54,107 54,162 54,214 73,222 73,317 S I 24,060 75,530 57,125 29,125 31,265 34,415 36;1 65 39,335 42,160 45,390 49,000 52,975 55,160 59,855 65,015 70,685 76,940.83,780 91,280 99,500 108,535 116.820 111,080 92,740 110,945 107,595 114,855 118,485 118,740 131,445 187,904 187,904 187,904 187,904 187,904 187,904 187,904 187,904 185,991 178,083 173,144 170,437 167,991 165,243 162,338 159,097 155,643 151,923 147,843 143,349 138,657 133,500 127,825 121,574 114,729 107,233 99,011 89,979 80,065 70,226 60,952 53,702 44,612 35,926 26,657 17,871 9,020 187,904 187,904 187,904 187,904 187,904 187,904 187,904 211,964 261,521 235,208 202,269 201,702 202,406 201,408 201,673 201,257 201,033 200,923 200,818 198,509 198,512 198,515 198,510 198,514 198,509 198,513 198,511 198,514 196,885 181,306 153,692 164,647 152,207 150,781 145,142 136,611 140,465 S1,459,000 S2,159,401 S3,618,401 S905,000 S1,730,259 S2,635,259 S2,250,000 S4,795,853 S7,045,853 22 Washington Public Power Supply System 1981 Annual Report Construction Projects Expenditures

($'in thousands)

NUCLEAR PROJECT NO.1 Construction

&Fuel.Engineering

&Construction Management..............

Owner's Cost Net Interest, Financing&Reserves.Total Funding Requirements Less: Interest, Financing&Reserves Funded by BPA.Total Supply System Funding Requirements........

NUCLEAR PROJECT NO.2 Construction lk Fuel Engineering

&Construction Management..............

Owner's Cost Net Interest, Financing&Reserves Total Funding Requirements

.Less: Interest, Financing&Reserves Funded by BPA.Total Supply System Funding Requirements........

Cumulative Costs Thru June 30, 1991 S 975,140 118,703 52,736 131,526 1,278,105 (70.808)91,207,297 91,053,804 189,758 133,984 241.397 1,618,943 (327,297)91,291,646 1992 Construction Budget 92,260,907 391,821 315,790 1,299,482 4,268,000 (1,078,000)

S3,190,000 91,624,316 391,900 405,806 793,978 3,216,000 (710,000)S2,506,000 Percent Expended 43.1 30.3 16.7 10.1 29.9 6.6 37.8 64.9 48.4 33.0 30.4 50.3 46.1 51.5 NUCLEAR PROJECT NO.3 Construction

&Fuel.Engineering

&Construction Management..............

Owner's Cost Net Interest, Financing&Reserves" Total Funding Requirements

.Less: Interest, Financing&Reserves Funded by BPA.Private Utilities'unded Ownership"...........

Total Supply System Funding Requirements........

9 724,080 108,495 43,864 75,370 951,809 (282,790)S 669,019 92,502,609 292,763 366,715 1,369,913 4,532,000 (756,971)(1,317,083) 92,457,946 28.9 37.1 12.0 5.5 21.0 21.5 27.2 NUCLEAR PROJECT NO.4 Construction

&Fuel.Engineering

&Construction Management...

Owner's Cost Net Interest, Financing&Reserves S 678,728 118,701 52,737 101,301 S2,413,101 391,822 331,826 2,373,251 28.1 30.3 15.9 4.2-Total Supply System Funding Requirements...

S 951,467 S5,510,000 17.3"Assumes that nat financing costs applicable to the private utilities'wnership shares are proportionally the same as the Supply System's.23 COnStruCtiOn PrOjeCtS EXpenditureS (continued)(S tn thousands)

Cumulative Costs Thru June 30, 1991'i 982 Construction Budget Percent Expended NUCLEAR PROJECT NO.5 Construction fk Fuel Engineering 8t Construction Management...

Owner's Cost Net Interest, Financing 6t Reserves" S 671,862 108,496 43,874 85,798 S2,722,135 292,764 379,850 2,866,251 24.7 37.1 11.6 3.0 Total Funding Requirements

.Less: Private Utility's Funding Ownership"......Total Supply System Funding Requirements...

910,030 (88,713)S 821,317 6,261,000 (592,076)S5,668,924 14.5 14.9 14.5 Washington Public Power Supply System 1982 Construction

~Private Utilities Ownership Budget J j Bonneville Power Administration (S in Millions J Cumulative costs through June 30, 1981 Project No.1 S1.278 S4,268 Project No.2 S1.619 S3,216 Project No.3 S952 S4,532 Project No.4 S951 S5.510 Project No.5 S910 4 A A k 4 A 4 A A k A A A 0 500 1,000 1.500 2.000 2,500 3,000 3,500 4.000 4,500 5,000 5,500 6,000 S6,261"Assumes that net financing costs applicable to the private utilities'wnership shares are proportionally the same as the Supply System's.Washington Public Power Supply System 1981 Annual Report e v vv, t Lt I m pf L3 V)v v'v i'v v v~r o jf tv h u v AQ.~>>*(n vv d v WASHINGTON PUBLIC POWER SUPPLY SYSTEM 3040 GEORGE WASHINGTON WAY RICHLAND, WA 99352 BULK RATE U.S, POSTAGE PAID PERMIT NO.207 RICHLAND, WA 99352 UAIR It ARLY REPORT of the Supply System Annual Report and addnfonaf copies ol thb rruy be obtafned by writ'ntg to: tubfic Affairs S Information WashfnSton tubffc tower Supply System t.O, Box 96ft, ftrchfand, WashinSton 993$2 MlaFI giing BiiFectOI'S COITJIT3ent WNP-4/5 MOTHBALL DECISION On September 18, the Governors'lue Ribbon Panel released the results of its study on WNP-4 and S.Their recommendation, which the Board of Directors adopted at its October 23 meeting, puts the projects in a preservation mode until at least June 30, 1983.By the end o(this peciod, the WNP-4 and 5 study mandated by the Washington State Legis-lature will have been completed.

Also, the Regional Power Council will have finished its plan and wilt be fn a position to consider whether or not to recommend Bonneville's acquisi-tion o(power from WNPA and 5.The plan to preserve the projects involves participation by the 88 participants in the projects, three investor-owned utilities and the region's direct service industries.

The partici-pants agreed to pay$91 million of the$150 million cost to defer construction as well as 100 percent of the interest dur-ing constcuction beginning March 1, 1983.The three investor owned utilities-Puget Sound Power&Light, Washington Water Power Co.and Pacific Power&Ught Co.-agreed to pay$29.5 million.The remaining$29.5 million will come from the region's direct service industries.

Tbe immediate and orderly shutdown of Projects 4 and 5 Is being implemented.

In addition, the Supply System has taken the following steps to preserve the assets of the pro-jects at tbe least possible cost:~Ordered a two-month hiring freeze, except for jobs crit-ical to the compfetion of WNP-1, 2 and 3.~Implemented a reduction in force of approximately 344 Supply System employees.

This reduction will cut the Supply System's salary cost by nearly$9 million annually.~Directed a rewvaluation of impact payments to school districts based on construction of three p'iants rather than (ive.These steps reflect the transformation of an organization constructing five nuclear power generating plants to one that is now constructing three.Both the cegion and the Supply System have demon-strated their commitment to providing for the energy needs of the Northwest.

In a sense, the$150 million needed to pre-serve WNPA and 5 is similar to an insurance premium~ne that guarantees that the assets are there if needed in the future.The agreement to preserve WNP<and 5 puts those units in the background for the time being.It also allows the Supply System to move aggressively ahead with construction of its other three projects.FINANCIAL In the first quarter, Supply System operating receipts totaled$66,984g00.

Operating plant receipts were$12g98,000 for the Han(ord Generating project and$284+00 for the packwood Lake Hydroelectric project.Net billing receipts from the participants in Nuclear projects 1 and 2 were$53A02@00.During the quacter, tbe Supply System's single largest bond sale was completed.

The net proceeds of the$750 mil-lion are expected to provide enough funds to continue con-struction of WNP-1, 2 and 3 through early 1982.The bonds sold at an average interest rate of about 145 percent.The funds have been apportioned as follows: WNP-1,$315 mil-lion;WNP-2,$210 million;and WNP-3,$225 million.It was the first negotiated safe since the Washington State Legisla-ture passed a law to allow that financing option.Pcior to that, the Supply System was compelled to o(fer bonds on a com-petitive bid basis before a safe could be negotiated.

In July, the Board of Directors approved a$238 billion construction budget which covered the total estimated costs for completing all (ive projects during the next six years.It was the first mnstruction budget prepared under the new Supply System management philosophy~ne which uses a zero-based budgeting concept.CONTRACTS Bechtel Power Corporation was selected as the System's Completion Contractor at WNP-2 in late August.The project is about 86 percent complete and is scheduled for fuel load-ing in September 1983.New fegisiation adopted by the Washington State Legislature earlier this year allows the Supply System to negotiate a"systems completion contract" once a pcoject is 80 percent complete.This enables the Supply System to consolidate the finishing wock under one contractor.

ln September, a contract induding an incentive clause, which could mean up to$45 million in pcofits, was signed with Ebasco Services, Incorporated.

Ebasco will be paid that sum only if it finishes WNP-3 and 5 at least 10 months ahead of schedule.It represents a potential savings o(up to$1 bil-lion (or the ratepayers, since the projects would produce revenues during those 10 months and avoid additional con-struction and financing costs.The previous Ebasco contract was essentially a cost-plus arrangement that required negotia-tions for any change-a process that added cost and delays to the projects.CONSTRUCTION/OPERATIONS The thcee vital components of the nuclear steam supply sys-tem for WNP-3 were installed in late August-a week ahead of schedules set more than a year ago.The productivity at the project was a record 1.6 percent in August, with a total for the quarter of 4.3 percent.Construction progress is also ahead of schedule at WNP-1 with construction progress at 1.8 percent in August, and a total ol 5.5 percent for the quarter.Work is nearing comple-tion on the containment dome.At WNP-2, a week-long inspection by the Nuclear Regu-latory Commission in September indicated no violations.

It included examination of management programs including project mntrols, quality assurance, design and construction.

A draft environmental impact repoct on WNP-2, com-pfeted this summer, stated"operation of the nuclear plant would have no adverse social or economic effect on Han(ocd or the surrounding communities." The final environmental report will be published fn December and a safety evaluation will be issued in March 1982.Following tbe recommendation by the Board of Directors to preserve WNPA and 5 for two to two-and-one-half years, the Supply System organized a team to dicect the orderly and immediate shutdown of the plants.At WNP<, the craft wock (orce is below 50, with activities geared toward auditing and securing contractors'ocumentation, disposing of contrac-tors'nventories and maintaining equipment and buildings.

Similar activities aie taking place at WNP-S, where critical construction is continuing to natural stopping points so that the project can be preserved for future use.The Hanford Generating Project returned to service August 1 a(ter its scheduled summer outage.From August 1 to August 20, operation was intermittent.

Full generation was reattained August 24 and the project continued operating without interruption in September for a total of 619,880,000 kwh.The packwood Lake Hydroelectric project netted a total of 19,470500 kWh this quarter.About 430 hours0.00498 days <br />0.119 hours <br />7.109788e-4 weeks <br />1.63615e-4 months <br /> of down time were scheduled due to decreased stream flow into the lake.MANAGEMENT ln September the Supply System's top management was realigned to include 12 rather than 15 directors.

Safety and Security is the new corporate unit responsible for all health, safety and security, environmental programs and regulatory matters related to licensing by the Nuclear Regulatory Commission.

Its director is John W.Shannon, pre-viously manager ol Safety and Security.Former adminstrative director Dwight R.Frindt is the new director of Business Programs.Added to bis directorate are management policy and systems, contracts and materials management and internal auditing.The Supply System recently initiated a p~ogram to reduce the 1982 adminstrative and general expenditures by 25 per-cent.The Supply System sta(f was also reduced by 12Vi per-cent.These decisions have been difficult, but were deemed necessary to fulfill our commitment to complete WNP-1, 2 and 3 within their projected cost estimates.

supt'Lysys7IM" QUARTERLY REPORT SEPTEMBER 27, 1981 FISCAL YEAR 1982 PROJECT COSTS WNP Nos.1-5 TOTAL IVHDWQ RCOV>RCMCHIS IWI OVOol'I~CVMV(AT)VS FUNDING I SUptLY SYSTCM SVHDJNO RcovtrtcM(NIs 1<<1 svootl REQUIREMENTS

+SVH~D TO.DATC WNP N(33 1Q svtrsysyenuowvra¹vtlNMdr wNtN>,hyov

~l>>t~NI~~VN Z t oct Z r tw>I 1>I Tci,'.'NII~IN l~i~~I Nl)t(I'I I I>N N~vn>N>I NN t I WN>>N~WN>>N~~I le>>Z row~tle~t>>~IN lnr~N\~NM WN>N>S Wet N>1'N IN 7 I Nt NN WN>Nll~~I~urs Slw (MWt)D>>e or Schod¹<<Con>>>>tc>>l Optrovon Owhtl Caste S>CC.27.1901 Cwtwuvw Sore.27.1991 STATUS OF CONSTRUCTION Nvcleer Stere>>No.I 1250 Jvne)905 Net>ter tr¹oa No.2 1100 Fee>wry 1904 Nwuer tract>>No 2)240 Dec<<noel 1904 Nvclo<<tretea No, 4)2$0 Jvt>>ISST Nvawr start>>Nh 5 1240 Docvvaor'1507 wnt 2 Is In 0>>ly¹tnl's tap)avon phetewhe ulc I sos oc rh\ptorecs 45 1~0 IO$40 240 150

SUMMARY

BALANCE SHEETS (Unaudited) ll IN THOUSANDS)

ASS(TS Cvn¹h t>>vw)1>nor>>0 Fvnd Rearvted AM>>sl Special Fvtvu De<<Serwce Fends vuuy tiara ove>+none In Stnlce (t>>0 Con¹hhlvn wats vl frater>>other Assets~Derened Cheroot Oper ovnt treroca He>fold 4 t<<awood S.C15 4.9C4 0.4$1~)492~1492 1.515 Censer vcvon Nvaeor troyects Nos.1.t$4~/5 IA)st~797.7M I.lit.Its 0074 SAM2,$11 5.7$1.$45 2$.42 5 Ilmnlel Selwce Send~.9$0 070 I t0$$A)$1 002.72$18$7.754 M.724 5.742.511 4.794.2$7 29.220 (AASR)rtt S cwrenc Uooda>>ew)r>>teens fend~trout Nato Ro¹rraed As>ace: Speool FNNN Dept Setww fvntn SEPTEMBER 27, 1981 od tu<<e0 0>><<<<o<<461.808 40$407 1.292 M.914 461.808 47.664.213

~$2454$91.412 I M.$9$4l9 DOS 4.424.97$451>>47 47,664,213 014.038 t7.740.059

$92.$97 IM 000 451.197 0.542.000 4A)10 414,038 47,740.059 lt IN THOUSANDS)

Conacrva>>n Op<<tons troyoas Nwteor tteroas Ht>r¹d 4 t<<swo¹1 Nw.l.2,$5 1/5 uoernol Sauce F thd STATEMENTS OF SOURCE AND USE OF FUNDS (Unaudited)

SOVRCC Of SVICDS Op>>tant Rocova Con<<l>>nl Vndot N>>Scant Sond trocoe<<Hverws<<cane Cl>>rt<<IO JOVO Owners Der/eew Ih Roan>>ed fvnda N>>Chenpo tn Op>>tent fvnl Chhor~1$.102 t4$7 ($2(4 2 1$$AO2$7.47$$$.(0)MAT I 422 (42)~Itl02 M.002 444.9$0$0.215$$.101 41.900 297 416.843 4851.827 4253 0867.923 FISCAL THREE MONTHS ENDED SEPTEMBER 27, 1981 USC Of fVHDS Content Caper>>et C¹wrweon Cons too>a¹Clpeneo NWI>et SWI f v>>nant C>pen>>H>c>WW ln Rttcrht<<farm Reterwt>>n ol Vwe¹n>>nu Ov>>r el ltto 24$142 2.9$0~$44490 Ilt.tco I~.$$0$4244)(7 1 0)4.4$1~IM Sl I.t90 SC4.494 120.404 I MSO Sss SS820l l$$41 T.C44 016.843 4851,827 4253 4867.923 The Washington public power Supply Syslem was organlsed In ttfy as a municipal corporation and joint opecating agency ol the State ol Washington.

Iumembenhlp conshts ol tt pubgc uti Sty dhlrkts and 4munkfpalitks whkh own and operate ekctrle sys(erne within Ihe SM(e of W<<hlngtorh I(h empowered lo acquire>cons(rod and operate facilities lor the generation and trammlnion ol ekctdc power and energy.e

.Interest ls cxcmpt, in thc opinion of Bond Caurtscl, from Federal Incarrtc taxatlan uttdcr cxistiag laws, regulations artd rulings Issued by thc Internal Revenue Scrvlcc.NEW ISSUE RATINGS Moody'n Aaa S&P AAA (See"Ratings" herein)$750,000,000 WASHINGTON PUBLIC POWER SUPPLY SYSTEM$315,000v000 Nuclear Project No.'Revenue Bonds, Series 1981D$210t000t000 Nuclear Project No.2 Revenue Bonds, Series 1981A$225,000,000 Nuclear Project No.3 Revenue Bonds, Series 1981B Dated: Sejttember 1, 1981 Due: July 1, as shown below Principal of and semi-.annual interest (payablc January I, 1982 and each January 1 and July 1 thereafter) on tho above series of bonds (coHectively the"1981.Nct BtHcd Bonds")are payable at the otficcs of banhng institutions in the cities of Seattle, Washington, Chicago, Illinois and New York.New York, as set forth herein.'Ihe 1981 Nct Billed Bonds are subject to rcdcmptioa prior to maturity as set forth herein.The 1981 Net BHled Boads and the iatcrcst thereon are payable from the revenues derived by the Supply System through the ownership aad operation by It of the related Net BHled Project, as more fuHy described herein, The Uaited States of America, Department of Energy, acting by and through the BonneviHe Povver Administrator, has purchased the entire capabHIty of the Net BHled Projects from certain of its statatory preference customers and lnvestor-owned utiHty customers who, ln turn, purchased such capablHty from the Supply System, ail under the Net BHHng Agree.ments aad the Project No.1 Exchange Agreements.

Bonaevfile Is obHgated to pay, pursuant to the net bHHag arrangemcnts aad from the sources described hereht, the total annual cost of each Net BHled Project.Including the debt service, on the related 1981 Net Billed Bonds, whether or not the Net BIHed Project ls complet~operable or operathg aud notwithstanding the suspension, reduction or curtaHment of project output.The below listed maturities arc a consolidation of thc above three series of 1981 Net Billed Bonds otfcrcd hereby.For a description of thc terms relating to each separate series, see thc caption"Description of 1981 Net Billed Bonds" herein.$50,000,000 14'%erm Bonds Due July 1, 2001-Price 100%$150,000t000 8V4%Ternt Bonds Due July 1, 2003 Yield 14.25%$50,000,000 14Vx%Term Bonds Due July 1, 2006-Price 99%$50,000,000 13V~%Tenn Bonds Due July 1, 2012-Price 100%$265,000,000 15%Term Bonds Due July 1, 2017-Price 100%$185,000,000 15%Term Bonds Due July 1, 2018-Price 100%(plus accrued interest from September 1, 1981)Thc Net Billed Bonds due July I, 2012 will be payable at the optioa of the holdcts on July I, 1991 or any July I thcreaftcr upon notice given by the holders, as more fuHy described herein.The 1981 Net Billed Bonds are otfcrcd when.as and if issued and received by the Underwriters, subject to thc approval of legality by Wood&Dawson, New York, Ncw York, Bond Counsel to the Supply System, and Houghtoa Cluck Coughlin&Riley, Seaulc, Washington, Special Counsel to the Supply System, and to certain other conditions.

Certain legal matters wiH bc assed upon by General Counsel to the BonncviHe Power Administration.

Certain legal mattcts will be passed upon for the ndcrwrncrs by Mudge Rose Guthrie&Alexander.

New York, New York, Counsel to the Underwriters.

It is expected that the 1981 Net Bfilcd Bonds in definitive form will be available for delivery in Ncw York, Ncw York, on or about Scptcm-bcr 17, 1981, Merrill Lynch White Weld Capital Markets Group Merrill I yach, Pierce, Fenaev gc Smith incorporated Goldman, Sachs 9c Co.Salomon Brothers Blyth Eastman Paine Wcbbcr incorporated Smith Barney, Harris Upham 8c Co.Incorporated Bear, Stearns Zc Co.~of A~mNT8.SA The First Boston Corporation Donaldson, Luflcin Zc Jenrette Securities Corporation Continental Bank Continental IHinoie National Bank aad Trust Company of Chicago Kidder, Peabody 8 Co.Incorporated Lebman Brothers Kuhn Loch incorporated John Nuveen Zc Co.Incorporated The Robinson-Humphrey Company, inc.Dain Bosworth Incorporated Foster 8c Marshall Inc.Seattle-Northwest Securities Corporation September 4, 1981 Morgan Guaranty Trust Company of New York Represeatadres to tbo Board of Directors Donald Clayhold>>Robert O.Keiser Alvin E.Fletcher Ed Fischer'oward B.Richman>>Howard Prey Larry Nickel William G.Kuehne Kenneth R.Cochrane Harold F.Nelson John J.Welch>>Roger Sparks Marion C.Babb Leonard M.Alien Edwin W.Taylor Stanton H.Cain Hal Norman Thomas M.Logston Joseph P.Recchi*Rolf E.Jemtegaard C.Stanford Olsen>>Paul J.Nolan" Charles F.Emerick Mtmbac Public Utility Dittttct ttu.i Public Utility District No.I Public Utility District No.I Public Utility District No.I Public Utility District No.I Public Utility District No.I City of Ellenburg.Public Utility District iVo.I Public Utility District No.I Public Utility District No.2 Public Utility District No.I Public Utility District Vro.I Public Utility District No.I Public Utility District No.I Public Utility District iVo.3 Public Utility District No.I Public Utility District No.2 City of Richhnd.City of Seattle Public Utility District No.I Public Utility District No.I City of Tacoma...~Public Utility District No, I of Benton County of Chelan County of Cia!1am County of Clark County of Cowlitz County of Douglas County of Ferry County of Franklin County of Grant County......of Grays Harbor County oi Kittitas County of Klickitat County of Lewis County.of Mason County of Okanogan County of Pacihc County~~c~~c~~~of Skamania County.of Snohomish County......of Wahkiakum County....Executive Committee Member OppicERs WASHINGTON PUBLIC POWER SUPPLY SYSTEM P.O.Box 968 Telephone (509)372-5000 Richland, Washington 99352 Stanton H.Cain John J.Welch Marion C.Babb ADMINISTRATivE STAPP President Vice President Secretary Managing Director Deputy Managing Director Nuclear Projects Nos.I and 4 Program Director Nuclear Project No.2 Program Director Nuclear Projects Nos.3 and 5 Program Director Treasurer Acting Chief Counsel Internal Auditing Manager ADMINIsTRATIYE AUDITQR J.A.Hare R.L.Ferguson A.Squire D.W.Mazur R.G.Matlock R.S.Leddick J.D.Perko G.E.C.Doupe J.J.Wentz FINANCIAL ADVISOR Lazard Frhres&Co.BoNo CGUNsEL Wood&Dawson SPEcIAL CGUNsEL Houghton Cluck Coughlin&Riley CONSULTING ENGLbtEER R.W.Beck and Associates CONSTRUCTION MANAGERS Projects Nos.1 and 2 Bechtel Power Corporation Project No.1 United Engineers&Constructors Inc.Project No.3 Ebasco Services Incorporated iNO dealer, broker, salesman or other person has been authorized by the Supply System or by the Underwriters to give any information or to make any representatioas, other than as contained in this Official Statement, and if given or made such other information or representatioas must not be rened upon as having been authorized by the Supply System or the Underwriters.

This Offichl Statement does not constitute an ojfer to sell or the solicitation of an otfer to buy, nor shall there be any sale of the 1981 Net Billed Bonds by any person in any jurisdiction in which it is unlawful for such persons to make such oKer, solicitation or sale.The information set forth herein has been furnished by the Supply System and includes information obtained from other sources which are believed to be reliable, but is not guaranteed as to accuracy or com-pleteness by, and is not to be construed as a representation by, the Underwriters.

The information and expressions of opinion contained herein are subject to change without notice aud neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create aay implication that there has been no change in the affairs of the Supply System since the date hereof.IN CONNECTION WITH'IKE OFFERING OF THE 1981 i~BILLED BONDS, THE UNDERWRITERS MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF SUCH BONDS AT LEVELS ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.SUCH STABILIZING, IF COM MENCED, MAY BE DISCONTINUED AT ANY TIME.TABLE OF CONTENTS INIRODUcrioN 1 EsTL4lATED APPLIcATIGN oF PRocEEDs oF 1981 NET BILLEo Bouos.4 ESTIMATED FINANCINQ PROGRAM FOR NET BILLED PROJECTS 4 SEcURITY FoR THE NET BILLED BoNns..........

4 Purchase of Capability by Bonneville

......4 Source of Payments S Net Billing Payment Procedure..............

5 Additional Net Billing Requirements

.........7 Project No.1...........

8 REGENT DEvEI.oIMENTs

.8 Management Changes.8 Schedules and Budget Estimates.............

9 Initiative Petition 10 Status of Projects Nos.4 and 5 and Possible Effect on Net Billed Projects.............

10 POWER SUPPLY IN THE PACIPIC NORTHWEST......14 Historical

Background

....................

14 Regional Power Requirements and Resources..IS Regional Comparison of Energy Costs.......18 BONNEVILLE POWER ADMINISTRATION

...~.......19 Acquisition of Project CapabGity and Power Supply 19 Federal System Revenue Requirements

......20 Federal System Application of Revenues.....20 Bonneville's Borrowing Authority..........

24 Bonneville Contracts...................

24 The Regional Power Act..................

2$Page Federal System Rates.................

28 Estimated Bonneville Revenues From Prefer-ence Customers.................

31 Federal System Historical Revenues and Ex-penses~32 Regional Loads and Resources..............

33 Bonnevine Litigation

................

3S THE SUPPLY SYSTEM.Management of the Supply System......Management Actions Sutce August 1980..Projects in Operation Projects under Construction

...........

Schedules and Budgets~Construction Management 35 36 37 37 38 38 41 PRDJEcT No.2 Location.49 49 PRoJEGT No.1 42 Location.42 Description 42 Permits and Licenses 43 Contracts and Schedule...............

43 Nuclear Fuel 44 Estimated Financing Requirements

..........

44 Power Production 46 Estimated Project No.1 Annual Costs and Payments.46 Hanford Project and its Relationship to Project No.1 48 Page Description..................

49 Permits and Licenses..........

49 Additional NRC Actions.50 Contracts and Schedule 51 Nuclear Fuel...........

51 Estimated Financing Requirements

..........

52 Power Production

.53 Estimated Project No.2 Anaual Costs.......53 54$4 54 55$$55$6 57 58 60 60 60 62 62 63 63 63 64 64 6$6$66 66 66 67 67 67 67 68 68 68 68 70 70 71'?1 71 72 72 72 72 73 PR0JEGT No.3~~~~Location.Description Permits and Licenses Coatracts and Schedule Nuclear Fuel Estimated Financing Rcquiremcnts

..........

Power Production

.Estimated Project No.3 Annual Costs.......NIVCLEAR INSURANCE LKGlsLATIVE DEVELOPMENTs Washington Senate Inquiry................

State Legishtive Developments

.............

THE PARTtctPANTs, CGMPANIEs AND OvvNERs......THE NET BILLING AGREEMIRrrs

~~~~~~~~~~~~~~~~T Cfln~~~~~~~~~Ownership and Operation................

Sale, Purchase sad Assignment

.............

Tctuunauon Modljication of Agreement................

Provisions Required by Statute or Executive Order THE Fao JEGT AGREESIENTs

~~~~~~~~~~~~~~~Terms~~~~~~~~~~~Design.Licensing and Construction of'he Projects Financing..Representation by Bonncvillc oa the Committee Established Pursuant to the Project No.3 Ownership Agreement Budgets Operation and Maintenance

................

Bonds for Replacements, Rcyairs and Capital Additions Bonneville's Approval and Project Consultant Provisions Required by Statute or Executive Order.THE PROJEcr No.3 OvttNERsHIP AGREEMENT Ownership of Project No.3....,...........

Committee Construction.

Licensing, Operation and Main-tenance Consttuction aud Operating Payments.......Fuel and Scheduling

.Insurance Liabiliucs, Waiver of Subrogation

...........

Uncontrollable Forces Damage to Project No.3 Default Assignment

.End of Project 1V Page DssGRIPTION oP 1981 NET BILLED BDNDs........73 The Project No.1 Bonds and the Project No.1 1981 Bonds.73 Description of Project No.1 1981 Bonds.....73 The Project No.2 Bonds.and the Project No.2 1981 Bonds 7S Description of Project No.2 1981 Bonds....75'Ihe Project No.3 Bonds and thc Project No.3 1981 Bonds.~...............76 Descriptio of Project No.3 1981 Bonds....76 Notice of Redemption......

77

SUMMARY

oP CERTAIN PRovISIGNs oP THE NET BILLED RESOLUTIONS AND SUPPLEMENTAL RESOI.U TIONS 78 Subsequent Series of Nct Billed Bonds.....,.78 Additional Obligations Other Than Net Billed Bonds 78 Effect of Amendments Adopted March 21, 1978 and August 5, 1980 (Project No.1)..~...79 acct of Amendment Adopted October 21, 1980 (Project No.2)............

80 Efcct of Amendment Adopted February 11, 1981 (Project No.3)80 Coastrucuon Fund;Application of Bond Pro-ceeds.................

80 Other Funds Established by the Net Billed Res-olutions;Flow of Revenues..............

81 Certain Covenants....................

88 Events of Default;Remedies...............

91 Amendments; Supplemental Resolutioas

......92 Suyplemental Resolution No.804...........

92 Defeasance

.............

93 LITIGATION 93 Supply System 93 Corporate Existence and Powers.............

94 Equal Employment Opportunity

............

94 Project No.2 Contractor Litigation

..........

9$Fuel Litigation 95 Threatened Litigation

........95 UNDERwRITINo 96 CERTAIN LEGAL MATIERS..96 TAX EXEMPIION~~~~~~~~~~~~~~~~~~96 RATINGs...........

96 MtscELLANEous..........................

9?MAP~~~~~~~~~~~Centerfold EJaasIT A-The Particiyants, Companies and Owners ExHtsIT B-Letter and Report of L W.Beck and Assoc tates ExHISIT C-Letter of Bechtci Power Corporation ExHIEIT D-Letter of Burns and Roe, Inc.ExHISIT E-Letter of Ebasco Services Incorporated ExHIEIT F-Proposed Forms of Opinions of Counsel ExHIsrr G-Nct Billing Requirements

-Supyly System's Net Billed Projects ExHIEIT H-Federal System Audited Financial Statements O.0 OFFICIAL STATE~iNT$75G,OOG,000

%ASHINGTON PUBLIC POWER SUPPLY SYSTEM$315,009,000 Nuclear Project iVo.1 Revenue Bonds, Series 19810$210,000,000 Nuclear Project No.2 Revenue Bonds, Series 1981A$225,000,000 Nuclear Project No.3 Revenue Bonds, Series 1981B September 4, 1981 Washington Public Power Supply System, a municipal corporation and a joint operating agency of the State of Washington (the"Supply System"), proposes to issue$315,000,000 Nuclear Pmject No.1 Revenue Boads, Series 1981D (the"Project No.1 1981 Bonds"),$210,000,000 Nuclear Pmject No.2 Revenue Bonds, Series 1981A (the"Project No.2 1981 Bonds")aad$225,000,000 Nuclear Project No.3 Revenue Bonds, Series 1981B (the"Project No.3 1981 Bonds" aad, together with the Project No.1 1981 Bonds and thc Project No.2 1981 Bonds, the"1981 Net Billed Bonds")and furnishes this Qfilcial Statement, which includes the cover page hereof and.the exhibits hereto in conaection wiith the sale of the 1981 Net Billed Bonds and for the information of all who may become holders of the 1981 Net Billed Bonds.INTRODUCTION The Supply System.The Supply System was organized in 1957.Its members are 19 operating public utility districts aad the cities of Ellensburg, Richland, Seattle and Tacoma, all located in the State of Washingon.

The Supply System has the authority, amoag other things, to acquire, construct aad operate plants, works and facilities for the generation aad transmission of electric power and energy.The Supply System is operating generating facilities of approximately 888 MW capacity and has under construction five nuclear projects, aggregating approximately 6,080 MW of capacity, all located in the State of Washington.

Aurhorizauon and purpose of Project Ho, I 1981 Bonds.The purpose of the$315,000,000 Project Vio.1 1981 Bonds is to finance a portion of the cost of constructing and acquiriag Washington Public Power Supply System Nuclear Pmject No.1 (" Project No.1").The Supply System has here-tofore issued$1,455,000,000 of revenue bonds for Project No.1 and it is estimated that the remaining finaacing requirements for Project No.1, including the Project No.1'1981 Bonds, based on the 1982 Project No.1 construction budget and the currently scheduled June 1986 commercial operation date, are$1,735,000,000.

Project No.1 is being finance aad accounted for as a system separate from all other current or future Supply System projects.Project No.1 is located about 140 miles southeast of Seattle, Wash-ington, near Richland on the United States Department of Energy's Hanford Reservation and will consist of a pressurized water nuclear electric generating plant with a aet generating capability of approximately 1,250,000 kilowatts, together with the necessary facilities to deliver the output to the 500 kV transmission facilities of the Federal Columbia River Power System located in the vicinity of Project No.1.Based on the 1982 Project No.1 construction budget, construction of Project No.1 was approximately 41/o complete as of July 1, 1981.The Project No.1 1981 Bonds are part of aa issue of bonds (the"Project No.1 Bonds")authorized to be issued pursuant to the Revised Code of Washington, Chapter 43.52, as amended (the"Act"), and 1 Resolution No.769 adopted by the Board of Directors of the Supply System on September 18, 1975, as amended (the"Project No.I Resolution"), to pay the cost of the acquisition and construction of Project No.1.The Project No.I 1981 Bonds wiH be issued pursuant to a resolutioa supplemental to the Project No.I Resolution, Resolution No.1183 (the"Project No.1 Suppplemental Resolution")adopted by s'uch Board on September 4, 1981.1 Authoriwuon and Purpose oj Project No.2 1981 Bonds.The purpose of the'$210000000

.'7~~f j Project No.1981 Bonds is to finance a portion of the cost of constructing and acquiring washington Public Power Supply System Nuclear Project No.2 (" Project No.2").The Supply System has hereto-fore issued$1,485,00Q,000 of revenue bonds for Project iNo.2 and it is estimated that the remaining financing requirements for Project No.2, including the Project No.2 19&1 Bonds, based on the 1982 Project iNo.2 construction budget and the currently scheduled February 1984 commercial operation date, are$1,021,000,000.

Project No.2 is beiag finance and accounted for as a system separate from all other current or future Supply System projects.Project No.2 is also located near Richland, Washington on the Hanford Reservation and will consist of a boiling water nuclear electric generating plant with a aet generating capability of approximately 1,100,000 kilowatts, together with the necessary facilities to deliver the output to the 500 kV transmission facilities of the Federal Columbia River Power System located in the vicinity of Project italo.2.Based on the 1982 Project No.2 construction budget, construction of Project No.2 was approximately 86%complete as of July I, 1981.The Project iNo.2 1981 Bonds are part of an issae of bonds (the"Project No.2 Bonds")authorized to be issued pursuant to the Act and Resolution No.640 adopted by the Board of Directors of the Supply System on June 26, 1973, as ameaded (the"Project No.2 Resolution"), to pay the cost of the acquisition and construction of Project No.2.The Project No.2 1981 Bonds will be issued pursuant to a resolution supplemental to the Project No.2 Resolution, Resolution No.1184 (the"Project No.2 Supplemental Resolution")adopted by such Board on September 4, 1981.Authorizauon and Purpose oj Project No.3 1981 Bonds.The purpose of the$225,00Q,QQQ Project No.3 1981 Bonds is to financ a portion of the cost of constructing aad acquiYing Washington Public Power Supply System Nuclear Project No.3 (" Project No.3").The Supply System has entered into an agreement with four investorwwned utilities (the"Project No.3 Owners")which provides that Project No.3 will be owned 70%by the Supply System (the"Ownership Share")and 30%by such utilities.

The Supply System's Ownership Share of Project No.3, Project No.I and Project Vio.2 are hereinafter called the"Net Billed Projects".

The Supply System has heretofore issued$905,000,000 of revenue bonds for Project No.3 and it is estimated that the Supply System's remaining financing requirements for Project No.3, including the Project No, 3 1981 Bonds, based on the 1982 Project No.3 construction budget and the currently estimated December 1986 commercial operation date, are$1,553,000,000.

The Supply System's Ownership Share of Project No.3 is being financed aad accounted for as a system separate from all other curreat or future Supply System projects.Project iVo.3 is located about three miles south of the community of Satsop ia Grays Harbor County, approximately 66 miles southwest of the City of Seattle, and will consist of a pressurized water nuclear electric generating plant with a net generating capability of approximately l,240,000 kilowatts, together with the necessary facilities to deliver the output to the 500 kV transmission facilities of the Federal Columbia River Power System located in the vicinity of Project iNo.3.Based on the 1982 Project No.3 construction budget, con-struction of Project No.3 was approximately 32%complete as of July I, 1981.The Project No.3 198l Bonds are part of an issue of bonds (the"Project No.3 Bonds" and, together with the Project No.I Bonds aad.the Project No.2 Bonds, the"Net Billed Bonds")authorized to be issued pursuant to the Act and Resolution No.775 adopted by the Board of Directors of the Supply System on December 3, 1975, as amended (the"Project No.3 Resolution" and, together with the Project iNo.1 Resolution and the Project No.2 Resolution, the"Net Billed Resolutions"), to pav the Supply System's Ownership Share of the cost of the acquisition and construction of Project No.3.The Project No.3 1981 Bonds will be issued pursuant to a resolution supplemental to the Project No.3~o Resolution, Resolution No.1185 (the"Project No.3 Supplemental Resolution" aad, together with the Project No.1 Supplemental Resolution and the Project No.2 Supplemental Resolutioa, the"Net Billed Supplemental Resolutions")adopted by such Board on September 4, 1981.Security for the Ner Billed Bonds.Principal and interest on each series of Net Billed Bonds are payable from (i)the reven'uestderived by the Supply System through ownership and operation by it of the related Net Billed Project, including all'payments to be made to the Supply System pursuant to the related Net Billing Agreements referred to below and, with respect to Project No.1, the Project No.'Exchange Agreements referred to below and (ii)related Net Billed Bond proceeds.-

The United States of America, Department of Energy, acting by and through the Bonneville Power Administrator

(" Bonneville"), has purchaSed the entire capability of the Net Billed Projects from certain of its statutory preference customers and investor-owned utility customers who, in turn, purchased such capability from the Supply System, all under the Net Billing Agreements and the Project No.1 Exchange Agreements.

Bonneville is obligated to pay, pursuaat to the net billing arrangements and from the sources described herein, the total annual costs of each Net Billed Project, including the debt service on the related Net Billed Bonds, whether or not the Net Billed Project is completed, operable and operating and notwithstanding the suspension, reduction or curtailment of project output.See the caption"Security for the Net Billed Bonds".Bonneville is obligated by law to establish rates for electric power and transmission of electric power which wiH recover the cost of acquisition (including all payments under the Net Billing Agreements), coaservatioa aad transmission of electric power including the amortization of the Federal investment in the Federal Columbia River Power System and other costs and expenses incurred.See"Federal System Rates" under the caption"Bonneville Power Administration".

The Regional Power Act (as hereinafter defiaed)does not dilute or diminish Bonneville's existing obligations under the Net Billing Agreements, which remain as pre-existing Bonneville obligations.

Schedules and Budgets.As a result of the reevaluation aad preparation of new construction schedules and cost estimates for the Supply System's nuclear projects, including Projects Nos.4 and 5 referred to below, the 1982 project construction budgets total estimated cost at completion approved by the Board of Directors of the Supply System for all five projects is$23.8 billion, an increase of$7.9 billion over the 1981 total budget of S15.9 billion.The 1982 project construction budgets also refiect delays ranging from 6 months to 13 months in the commercial operation dates for each of the Supply System's nuclear projects.See"Schedules and Budget Estimates" under the caption"Recent Developments".

Iniriau've Petition.In July 1981, the Secretary of State of Washington certified that sufiicient signatures had been obtained to qualify Initiative Measure No.394 for submissioa to voters of the State of Washington at the general election to be held November 3, 1981.If enacted into law by a majority of such voters, the Supply System, after July 1, 1982, would be required to obtain the approval of the voters of its 23 member governmental entities in order to issue bonds to finance the cost of construction of each of its projects.In the event voter approval for the issuance of bonds with respect to any of its projects was not obtained and alternative sources or methods to finance completion of construction of any such projects were not available, the Supply System may be obligated to terminate such projects.A termination of any of the Supply System's projects would have adverse effects on the projects of the Supply System not terminated.

See"Initiative Petition" nader the caption"Recent Developments".

Status of Projects Nos.4 and 5.On June 18, 1981, a slowdowa of construction work was imple-mented by the Supply System at the Supply System's Nuclear Projects Nos.4 and 5 (" ProjectsÃos.4 and 5").The Supply System does not currently have sufiicient funds to pay for invoices being received aad for site work being performed, and the Supply System must depend upon additional funds becoming available.

In order to provide such additional funds, the Supply System is proceeding with the preparation of a bond issue for Projects Nos.4 and 5 for sale in October.There can be no assurance that such bonds can be sold, and if such bonds are not sold, there is a likelihood that both Projects Nos.4 and 5 will be terminated.

Such termination would result in increased costs and possible schedule delays on the Net Billed Projects.See"Status of Projects Nos.4 and 5, and Possible Effect'on Net Billed Projects" under the caption"Recent Developments".

I Deposit to Construction Fund.....:.........

Capitalized Interest(1)

Deposit to Reserve Account(2)

..............

Underwriters'iscount...,..Original Issue Discount Financing Expenses.....Total ESTIMATED APPLICATION OF PROCEEDS OF 1981 Project No.1 1981 Bonds$269,421,550 22,550,000 9,440,550 12,012,900 1,575,000$315,000,000 NKI'ILLED Project No.2 1981 Bonds$150,544,550 11,768,750 6,293,700 40,343,000 1,050,000 BONDS Project No.3 1981 Bonds$151,831,700 32,300,000 24,791,450 6,743,250 8,208,600 1,125,000 S 210,000,000

$225,000,000 O.(Dollarsin Thousands)

Calendar Project Project Project Yest No.1 No.2 No.3 Fjaaaoiag to Date(2).............

$1,770,00Q$1,595,000$1,150,000 1982..........

435,000 811,000 1,771,000 1983........~.500,000 750,000 1984..........

250,000 500,000 1985..........

235,000 485,000 1986 53,000 Total Remaining Financing.........$1,420,000$811,000$1,328,000$3,559,000 Total Financing Requirements

.......$3,190.000(3)

$2,506,000 S2,458,000

$8.154,000 (1)Does not include any possible impacts on Proiccis Nos.1 and 3 which may result from a termination of either Project No.4 or Project No.5, (2)Includes the 19&1 Net BiHed Bonds.(3)Does not reflect the fuel scgluisition from Projects Nos.4 and 5 discussed under"dVuclear Fuel" under the caption"Project No.1".Based upon the 1982 project construction budgets and current cash jjow projections, the Supply System estimates that moneys currently available (including the proceeds of the 1981 Net Billed Bonds)together with investment income thereon, will be sujjjcient to meet cash jjow requirements on Projects Nos.1, 2 and 3 until April 1982.Additional moneys for construction of the iNet Billed Projects are intended by the Supply System to be obtained from borrowjngs.

For the status of jmancing with respect to Projects Nos.4 and 5 see"Status of Projects Nos.4 and 5 and Possible Ejfect on Net Billed Projects" under the caption"Recent Developments".

In the event of the inability of the Supply System to finance continued construction of any of the projects, such inability could result in a further delay and increased costs of such project or possible termination of such project.See"Initiative Petition" under the caption"Recent Developments".

SECUIUTY FOR THE NET BILLED BONDS Purchase of Capability by Bonneville Bonneville has purchased the entire capability of Project No.1 from 104 of its statutory preference customers (the"Project No.1 Participants")and jive investorwwned utilities (the"Project No.1 Companies")who, in turn, have purchased such capability from the Supply System, all under net billing agreements (the"Project No.1 Net Billing Agreements")and Exchange Agreements (the"Project Total Sd,595,00Q 525,000 250,000 250,000 250,000 53,000 (ll late:cst wes aoitaliced oa posjcct No.1 Bonds aad project No, Beads lo septesatser l.laid aad September 1, 1977, respectively, end thereafter paid pursuant to the respecdve Nct Bimng Agreements.

Interest will be cspitalixcd on project No.3 Bonds to September 1, 1982 and thereafter paid pursuant to the project No.3 Net Billing Agreements.

(2)Based on maximum six months'ntcrcst accruing on the 1981 Ndt Billed Bonds.ESTIMATED FINANCING PROGRAM FOR NET BILLED PROJECTS Supply System Financing Programs Net Billed Projects(1)

~e No.1 Exchange Agreements"), respectively.

BonneviHe has purchased the entire capability of Project No.2 from 94 of its statutory preference customers (the"Project No.2 Participants")who, in turn, have purchased such capability from the Supply System, aH under net billing agreements (the"Project No.2 Net BiHing Agreements").Further, Bonneville has purchased the capability of the Supply System's Ownership Share of Project No.3 from 103 of its statutory preference customers (the"Project No.3 Participants" and, together'with'the Project No.1 Participants and the Project No.2 Participants, the"Participants"), who, in turn, have purchased such capability from the Supply System, aH under net billing agreements (the"Project No.3 Net Billing Agreements" and, together with the Project No.1 Net Billing Agreements and the Project No.2 Net Billing Agreements, the"Net Billing Agreements").BonneviHe's purchase of the capability of'the Net Billed Projects was authorized and approved by Congress in the Public Works Appropriations Acts of 1970 and 1971.Certain capitalized terms not herein defined shall have the meaning as set forth in the Net Billing Agreements.

For a summary of certain provisions of the Net Billing Agreements see the caption"The Net Billing Agreements".

Sonrce of Payments The principal of, premium, if any, and interest on each series of the Net Billed Bonds are payable solely from the income, revenues and receipts derived by the Supply System through the ownership and operation by it of the respective Net Billed Project, including the revenues derived by the Supply System from the respective Net BiHing Agreements and respective Net Billed Bond proceeds and, in the case of Project No.1, the Project No.1 Exchange Agreements.

The revenues of the Supply System derived or to be derived from Projects Nos.4 and 5, Hanford Project, Packwood Lake Hydroelectric Project and any other project which may hereafter be undertaken by the Supply System are not pledged to the payment of the Net Billed Bonds.The Net Billed Resolutions provide for the benefit of the holders from time to time of the respective Net Billed Bonds, a legally valid and binding pledge of and lien on the funds and accounts pledged to uch Net BiHed Bonds under such Net Billed Resolutions and the revenues pledged to such funds and accounts under such Net BiHed Resolutions, as provided in and contemplated by such respective Net Billed Resolutions.

With respect to each Net BiHed Project, Bonneville is obligated to pay the Participants in such Project, and such Participants are obligated to pay the Supply System, in the manner and from the sources described below, the total annual costs of such Project, including debt service on the Net Billed Bonds issued for such Project (and, in the case of Project No.1, certain Hanford Project costs)less amounts paid from other sources, whether or not each such Project is completed, operable or operating and notwithstanding the suspension, reduction or curtailment of each such Project output.See"Project No.1" below.¹t BHHng Payment Procedure Ner Billing Credits.The Participants are municipalities, districts and electric cooperatives, aH of whom are statutory preference customers of Bonneville and purchase aH or a portion of their power supply directly from Bonneville under power sales contracts with Bonneville.

For a discussion of these contracts and their terms see"Bonneville Contracts" under the caption"Bonneville Power Administra-tion".These power sales contracts provide for monthly billings and payments.Under the Net Billing Agreements, in payment for the share of each Net BiHed Project capability purchased by each Partici-pant, such Participant will pay the Supply System its share of the Supply System's costs for such Net Billed Project less amounts payable from any other sources.For each Net Billed Project BonneviHe will pay for such Project capability sold by the Participants to Bonneville under the Net Billing Agree-ments by giving the Participants credits against the amounts the Participants owe BonneviHe under the aforesaid power sales contracts and under any contracts for power and certain services, and the Participant is obligated to pay the Supply System the amount so credited.This crediting procedure is called"net billing".Under the Net Billing Agreements, prior to each Contract Year the Supply System will adopt an Annual Budget for each Net Billed Project covering aH the Supply System's costs for such Net Billed Project, including debt service on the respective Net Billed Bonds.Thereafter the Supply System will prepare Billing Statements for each Net Billed Project for each Participant therein which will show the Participant's share of the Annual Budget for such Net Billed Project less amounts payable from any other sources.The Annual Budget and Billing Statements may be amended during a Contract Year if necessary.

Each Participant is a party to at least two agreements with BonneviHe providing for net biHing.In the month preceding the beginning of each Contract Year, the BonneviHe bill to each Participant for power supply and other services under the Participant's power sales contracts with BonneviHe will show an offsetting credit equal to the Participant's obligations to the Supply System and others, as showa on its Billing Statements and billing statements under its other net billing agreements, up to the fuH amount of such bills if necessary.

In each month thereafter such crediting will continue until credits equal to the total amount shown on the Participant's Billing Statements and other bilhng statements have been made to the Participant.

The credits received by the Participant from BonneviHe in each month under all net billing agreements are required to be aHocated pro rata among the Participant's net biHing obligations.

In each month of the Contract Year, and within 30 days of receiving the credit, the Participant must pay the Supply System an amount equal to the pro rated credit for the'Net Billed Projects received from Bonnevifie in the preceding month.The effect of this payment procedure is that moneys in the amount due Bonneville from the Participants, up to the Participants'otal obligations to-the Supply System as shown on their Billing Statements for the Net Billed Projects, are required to be paid to the Supply System and would not become available to pay other BonneviHe obligations.

If BonneviHe estimates that a Participant's obligation to BonneviHe under its power sales contracts will not equal or exceed the Participant's obligations during a Contract Year to the Supply System and others under its Net Billing Agreements and its other net billing agreements, thus resulting in a net biHing deficiency, the Net BiHing Agreements provide that Bonneville shall use its best efforts to make assignments of such Participant's share of capabHity in a Net BiHed Project to other Participants and other customers of Bonneville to the extent necessary to eliminate such Participant's net billing deficiency and, if such assignments are not sufiicient to eliminate such deficiency, the iVet Billing Agreements pro-vide for mandatory assignments to the other Participants in such Net Billed Project.Such mandatory assignments to any Participant may not exceed 25Fo of that Participant's original share of such Net Billed Project capability or be such as to cause its obligation to the Supply System to exceed the credits available to it from Bonneville.

If a Participant defaults under its Net Billing Agreement, each other respective Participant's share of respective Net Billed Project capability will be automatically increased for the remaining term of the respective Net BHling Agreement pro rata with that of other nondefaulting Participants up to an accu-mulated maximum of 257o of its original share of respective Net Billed Project capabiTity; provided that such increase shaH not cause the estimate of the payments to be made by such Participant to the Supply System to exceed the estimate of the credits available to it from Bonnevfile's biHings to the Par-ticipant for power and certain services.Bonneville Cash Payments.The Net Billing Agreements provide that if assignments cannot be made in amounts sufiicient to bring into balance the respective dollar obligations of BonneviHe and a Participant, and an accumulated balance in favor of such Participant from a previous Contract Year is expected by Bonneville to be carried for an additional Contract Year, such balance and any sub-sequent'monthly net balances that cannot be net billed will be paid in cash to such Participant by Bonneville.

Bonneville may make expenditures from its revenues in the Bonneville Power Adminis-tra ion Fund (the"Fund")without further aporopriation by Congress for any purpose necessary or appropriate to carry out the duties imposed upon Bonneville pursuant to law, including making any cash payments required under the Net Billing Agreements.'VhHe BonneviHe's expenditures from its d'revenues in the Fund do not require formal approval by Congress Congress may impose specifi 1 1 0 spe c irectives or limitations on such expenditures.

This procedure remains unchanged by the Regional Power Act.Bonneville is obligated to pay from its revenues in the Fund any cash payments required under the Net Billing Agreements, subject to the power of Congress to impose specific directives or limit such cash expenditures, prior to any payments by BonneviHe to the Treasury for repayment of (i)the Federal~.e e' investment in the Federal Columbia River Power System (the"Federal System"), (ii)Corps of Engineers and the Bureau of Reclamation costs connected with the Federal System and (iii)boads issued to the United States Treasury pursuant to the Federal Columbia River Transmission System Act aad the Regional Power Act.Bonneville has stated by letter,to the Supply System aad each Participant that, in accordance with the provisions of the Transmission Act, it will pay in cash from the Fund any costs billed to a Partici-pant aot paid through net billing credits on a parity with other Bonneville operating expenses including payments for additional resources acquired under the Regional Power Act.Bonneville has executed agreements with 90 of the Participants which permit it to make such cash payments directly to the Supply System without notice to these Participaats.

Bonneville is obligated by law to establish rates for electric power and transmission of electric power which will recover the cost of acquisition (including all payments under the Net Billing Agreements), conservation and transmission of electric power iacluding the amortization of the Federal investment in the Federal Columbia River Power System and other costs and expenses incurred.Bonneville currently estimates that its revenues from Participants subject to net billing credits will exceed Bonneville's net billiag obligations through September 30, 1985, the last fiscal year for which revenues have been estimated.

To the extent that net billing obligations may exceed such revenues in later years, Bonneville is obigated to pay such deficiencies under the assignment and net billing procedures or by cash payments from the Fund in the manner described above.Net billing deficiency payment obligations are on a parity with Bonneville's obligatiori to pay its operation aad maintenance expeases, including payments for additional resources acquired under the Regional Power Act.To the extent that Participants enter into new power sales contracts with Bonneville under the provisions of the Regional Power Act, Participants'bligations to Bonneville may be expected to increase, which will increase the Bonneville revenues subject to aet billing.For a discussion of Bonneville revenues available from preference customers for net billing credits aad cash payments, as described above, see"Estimated Bonneville Revenues from Preference Customers" under the caption"Bonneville Power Administration".

Additional Net BilBng Requirements Each Participant is obligated to pay the Supply System the amount set forth in its Billing Statement by the end of thc Contract Year, whether or not it has received equivalent net billing credits or cash payments from Bonneville.

No Participaat will be required to make payments to the Supply System except from revenues derived from the ownership and operation of its electric utility properties aad from cash payments made by Bonneville.

Each Participant has covenanted that it will establish, maintain and coHect rates or charges for power and energy and other services furnished through its electric utility properties which shall be adequate to provide revenues suQicient to make required payments to the Supply System.Payments under the Project No.1 Net Billiag Agreements began in July 1980 aad payments under the Project No.2 iNet Billing Agreements began in January 1977, in each case for all costs not capital-ized, including debt service on the respective Net Billed Bonds.The Project No.3 Net Billing Agree-ments provide that payments will commence on the date when Project No.3 is ready to be operated on a commercial basis, or January 1, 1981, whichever is earlier;provided, that such paymeats prior to the date Project iVo.3 is ready to be operated on a commercial basis or September 1, 1981, which-ever is earlier, are limited to such amounts as Bonneville and the Supply System agree may be included in the Annual Budgets for Project No.3.Since interest on the Project No.3 Boads is capitalized to September I, 1982, it is now expected that the first Aanual Budget providiag for net billing payments will be the Annual Budget for the Contract Year beginning July 1, 1982.Each Net Billed Resolution provides for a Reserve Account in the respective Bond Fund equal to one-half of the maximum annual interest on each series of respective Net Billed Bonds.The require-ment for the outstanding Project No.1 Bonds has been provided from Project No.1 Bond proceeds.The requirement for the Project No.1 1981 Bonds will be provided from Project No.1 1981 Bond proceeds and the requirement for future Project No.1 Bonds will be provided from Project No.1 Bond proceeds or from payments received under the Project No.1 Net Billing Agreements and Project No.1 Exchange Agreements prior to the issuance of such Bonds.Thc requirement for outstandiag Project No.2 Bonds has been provided from payments received under the Project No.2 Net Billing Agreements and Project No.2 Bond proceeds.The requirement for the Project No.2 1981 Bonds will be provided from Project No.2 1981 Bond proceeds, and for subsequent series of Project No.2 Bonds will be provided either from Project No.2 Bond proceeds or from payments received under the Project No.2 Net Billing Agreements prior to the issuance of such Bonds.As of September I, 1982, the requirement for each series of Project No.3 Bonds then outstanding must be deposited in thc Reserve Account for Project No.3.The Supply System will deposit$24,791,458 from Project No.3 1981 Boad proceeds to provide the balance of such requirement.

As of July I, 1981,$25,000,QQQ has been deposited in the Reserve Account from Project No.3 Bond proceeds.project No.1 In addition to the revenues aad funds described above, the zevenues derived by the Supply System from the Project No, I Exchaagc Agreements are also pledged to the payment of the principal of and iaterest oa thc Project No.I Boads.The Project No.I Companies are five investor-owned utility customers of Boaneville, each of which has purchased 6.494%of Project No.I capability during the period 1980 to 1996, and will pay the Supply System therefor the amount provided ia the Project No.I Exchange Agreements.

Such payments began ia July 1980.As paymeat for the sale of this portion of Project No.I to Bonneville, Bonneville has agreed to furnish to each such Company 80,000 kilowatts of capacity aad 68,000 kilowatts of average annual energy.Under the Project No.I Net Billing Agreements and the Project No.I Exchange Agreements, the annual costs of Project No.I include, to the extent not otherwise provided for, the costs of the Hanford Project.Payment of thc principal of and interest on the Project No.I Bonds is subject to the prior paymeat from income, revenues aad receipts of the costs of the Supply System's Hanford Project not provided from such project's revenues.It is estimated that such costs to be paid from the zcvenues of Project No.I will average approximately

$3,212,000 per year during the fiscal years 1982 through 1991 when they will terminate.(See"Estimated Project No.I Annual Costs aad Payments" aad"Hanford Project and its Relationship to Project No.I" under the caption"Project No.I".)The Project No.I Annual Budget will include, to the eaeat aot otherwise provided, the cost of the Hanford Project, and the Billing Statements will refiect credits for amounts paid by the Project No.I Compaaics under the Project No.I Exchange Agreements.

Amounts payablc by Project No.I Partic-ipants pursuant to the Project No.I Net Billing Agreements will be increased to the extent that paymeats are aot aude by the Project No.I Companies under the Project No.I Exchange Agreemeats.

RECENT DKVELOPMWTS Management Changes Mr.Robert L.Ferguson was appointed Managing Director of the Supply System oa August I, 1980.Since that time he has undertaken steps to reorganize the managemeat of the Supply System's nuclear projects.Senior managers with extensive experience in directing nuclear industry construction have been reczuited to lead the Supply System's construction programs.See"Management Actions.Since August 1980" under the captioa"The Supply System".In January 1981, the Supply System entered into an agreement with Bechtel Power Corporation

("Bechtel")

to provide construction management services for Projects Nos.I, 2 and 4.United Engineers and Constructors Inc.retains responsibility for engiaeering at Project Nos.I and 4 and certain construction maaagement services at Project No.1.Burns and Roe,~/Iac.retains responsibility for engineering at Project No.2.In early 1981 Ebasco Services Incorporated

("Ebasco")

assumed iadependent responsibility to perform eagiaeeriag and construction management services at Projects Nos.3 and 5.Concurrently with the Managiag Director's reorganization of the Supply System, a special engineering task force to recommend improvemeats in engineering procedures aad interfacing with construction management was instituted.

For a discussion of the task force's recom-mendatioas and subsequent actions by the Supply System, see"Management Actions Siace August 1980" under the caption"The Supply System".~o Se Construction Percent Project Complete(1)

No.1(6)........41%No.2.;........

86 No.3...~......32 No.4(7)........23 No.5(7)........14 Comm erchl Operation Date(2)Juae 1986 February 1984 December 1986 June 1987 December 1987 Totals$1,455 1,485 905$1,735 1,021 1,553 8,929 2,250$6,095 11,771 11,179$23,787$19,333$13,238 (1)For a discussion of construction completion percentages see"Schedules and Budgets" under the caption'"The Supply System".(2)The scheduled conunercial operation dates for Projects Nos.I, 2, 3, 4 and 5 reflect delays of 12, 13, 6, 12 and 6 months, respectively, over those in the 1981 budget.(3)Includes Supply System financing requirements for its projects, payments by the investorwwned utilities which are part owners of Projects Nos.3 and 5 and the debt service on bonds issued for Projects SVos.1, 2 and 3 and certain reserves which have been or will be paid by Bonneville prior to the projected commercial operation dates.(4)Does not include any possible impacts which may result from a termination of either project No.4 or Project Vo.5.(5)Includes the 1981 sVet Billed Bonds.~(6)Does not reflect thc fuel acquisition from Projects Nos.4 and 5 discussed under"Vduclear Fuel" under the caption"Project No.1".(7)Does not retiect any possible actions that may be taken by the participants in projects Nos.4 and 5.See"Status of Projects Nos.4 and 5 and Possible Eifect on SVet Billed Projects'nder the caption-Recent Developments".

The 1982 project construction budgets total estimated cost at completion for all projects is$23.8 billion, an increase of$7.9 billioa over the 1981 budget total of$15.9 billion.The following table is a comparison between the 1981 and 1982 budget summaries.

Budget Comparisoas (Dollars ln idions)Total Estimated Costs at Completion(1)(2) 1982 1981 1981 Hadaet(2)Sadaet Budget 5 4,268 S 2,736 3,216 2,467 4,532 3,130 11,771 7,615 823,787 515,948$13,194 1982 8 eeet(2)Increase$1,035 7520 636 3,948$6,139 Project No.1(4)No.2.......iNo.3.......Nos.4 and 5(5)Totals.$2,155 1,986 1,822 7,23 I (I)Includes Supply System financing requirements for its projects, payments by the investorwwned utilities which are part OWnerS Of PrajeCtS V)OS.3 and 5 and the debt SerViCe On bOndS iSSued fOr PrO!CCtS eVOS.1, 2 and 3 and Certain reserves which have been or will be paid by Bonneville prior to the projected commercial opemtion dates.(2)Does not include any possible unpacts which may result from a termination of either project Svo.4 or Project No.5.(3)Includes S6,095 million of bonds issued to date.(4)Does not reflect the fuel acquisition from projects Nos.4 and 5 discussed under"Nuclear Fuel" under the caption"Project No.1".(5)Does not retject any possible actions that may bc taken by the participants in Projects Nos.4 and S.See"Status of Projects Nos.4 and 5 and Possible EfFects oa Net Billed Projects" under the caption"Recent Developments".

Schednles and Budget Estimates In January 1981, the construction management firms, the architect-engineering firms aad the Supply System staff were directed to completely reevaluate and prepare new and detailed construction schedules aad cost estimates for each of the nuclear projects.The evaluation process was the most extensive budget review undertaken by the Supply System and included a review of all cost components from the lowest common denominator'I'to develop a total project cost (a"zero-base" budgeting coacept).The budgeuag system included new controls to moaitor costs, integrated project schedules, monthly project reviews and an incentive program for construction management.

The following table summarizes the status, the scheduled commercial operation dates and total estimated financin requirements which resulted from the reevaluations and which have been approved aad adopted by the Supply System's Board of Directors as the 1982 project construction budgets: 1982 Budget Summary Status, Schedule aad Costs (Dollars in i>Kllons)Total Sapply Estimated System Cost at Financing Bonds'Bonds Comple-Require.Previously To Be ttaa(3)(4) meat(4>lmaed Iemed(d)(5)

$4,268 3,216 4,532 The increases in the estimated costs are the result of a combination of factors, primarily schedule delays, increased estimates in amounts of labor and mdterials, an increase in the assumed rate of infiation of the cost of labor and material and an increase in the assumed interest and financing costs.See"Schedules and Budgets" under the caption"The Supply System"., Initiative Petition In July 1981, the Secretary of State of Washington certified that sufficient signatures were obtained to qualify Initiative Measure No.394 for submission to the voters of the State of Washington at the state wide general election to be held on November 3, 1981.If Initiative Measure No.394 is enacted into law by a majority of the voters voting at the state wide general election it would require that no joint operating agency could issue or sell bonds after Jul l 1982 u y, to finance the cost of construction of certain electric generating facilities, including the Net,Billed Projects and Projects Nos.4 and 5, unless it had first obtained authority therefor at a regular or special election by approval of a majority of the voters of the local government entities comprising the membership of the joint operating agency voting at such election.Prior to such election an inde-pendent consultant approved by the State Finance Committee must prepare a cost effectiveness study of such generating facility.The Supply System is unable to predict whether or not Initiative Measure No.394 will be enacted into law.If such initiative is enacted into law, the Supply System expects that its constitutionality would be challenged.

However, even if such litigation were ultimately successful, such law could result in delays in the construction schedules of each of the Supply System's projects and increase the cost of such projects.In the opinion of Bond Counsel and Special Counsel to the Supply System and General Counsel to Bonneville, if Initiative Measure No.394 were enacted into law and an action were properly instituted and prosecuted by appropriate parties contesting its constitutionality as applied to the Supply System's Nuclear Projects Nos.1, 2, 3, 4 and 5, the plaintUIs should prevail.In the event such initiative is enacted into law and voter approval for the issuance of bonds with respect to any project were not obtained, the Supply System may be obligated to terminate such project if other sources or methods of financing completion of construcfion of such project were not available.

A termination of such project would have adverse effects on projects not terminated.

For a sumtnary of certain provisions with respect to termination in the Net Billing Agreements, see"Termina-tion" under the caption"The Net Billing Agreements".

In the opinion of Bond Counsel and Special Counsel to the Supply System and General Counsel to Bonneville, the obligations of Bonneville, the Participants and, as to Project No.1, the Project No 1 Companies in respect of the payment of the annual costs of the Net Billed Projects, including debt service on the Net Billed Bonds, under the Net Billing Agreements and, with respect to Project No.1, the Project No.1 Exchange Agreements, and the obligation of the Supply System to pay such debt service under the Net Billed Resolutions would remain in full force and effect, subject to the exceptions set forth in the next to the last paragraph of the opinions with respect to such agreements conmined in Exhibit F, if any of the Net Billed Projects were terminated as a result of the enactment into law of Initative Measure No.394 and the failure to obtain voter approvaL Status of Projects Nos.4 and 5 and Possible Effect on Net Billed Projects the'v On June 18, 1981, the Board of Directors of the Supply System upon the recommendat o f t e.1anaging Director made on May 29, 1981, authorized a construction slowdown on Projects Nos.4 and 5, which immediately thereafter was commenced.

The process of construction slowdown has substantially reduced the number of constructiorl workers at Projects Nos.4 and S.The S l S e upp y ystem estimated that such construction slowdown would not result in a delay in the scheduled commercial opera-tion dates or in an increase in costs of construction for Projects Nos.4 and 5 if normal construction were resumed within approximately six months after initiation of the slowdown.However, for the reasons described hereafter, there is a likelihood that such slowdown will continue beyond that period.Further, the projects could be terminated during such period as a result of the circumstances hereafter described.

10 Prior to the construction slowdown, the 1981 Washington State Legislature adopted Washington Laws 1st Ex Sess 1981, ch.4.This law requires the Joint Energy Research Center of the University of Washington and Washington State University, through its afBiate ofiice of applied energy studies of Washington State University, to conduct a study of Projects Nos.4 and 5.Among other matters, the study must determine the need for Projects Nos.4 and 5 and the cost effectiveness of reliable available alternatives as compared to Projects iVos.4 and 5.The study must be completed by March 15, 1982.For a more detailed description of the study see"State Legislative Developments" under the caption"Legislative Developments".

Subsequent to the Managing Director's recommendation for the construction slowdown on Projects Nos.4 and 5, on June 11, 1981 Moody's Investors Service, Inc.revised downward the rating on Supply System bonds issued for Projects Nos.4 and 5 from Al to Baal and on June 19, 1981 Standard R Poor's Corporation revised downward the-rating on such bonds from A+to A.The ratings reQect only the respective views of the rating agencies and an explanation of the significance of the ratings may be obtained only from the rating agency furnishing the same.Moody's Investors Service, Inc.and Standard 4 Poor's Corporation have given the 1981 Net Billed Bonds ratings of Aaa and AAA, respectively.

See the caption"Ratings".

On July 23, 1981, the Governors of the States of Washington and Oregon announced the appoint-ment of an independent panel of business leaders to study, over a period of 30 to 60 days, the impact of Projects Nos.4 and 5 on the region's economy, state and local governments, public and private utilities and electric ratepayers.

The members of the panel are Edward E.Carlson, Chairman of the Board of UAL, Inc.;George Weyerhaeuser, President and Chief Executive Officer of Weyerhaeuser Co.;and John Elorriaga, Chairman of the Board and Chief Executive Ofiicer of U.S.National Bank of Oregon and the U.S.Bancorp.The report is expected in the near future.On July 27, 1981, Bonneville approved the purchase, with construction fund moneys of Project No.1, of certain nuclear fuel materials and services relating to Projects Nos.4 and 5 for approximately

$100 million.Of such funds, approximately

$36 million will be paid in October 1981 for Department of Energy enrichment services and the balance will be applied to the construction costs of Projects Nos.4 and 5.The Supply System estimates that such funds will be suQicient, together with other available moneys, during the construction slowdown, to meet cash Qow requirements through mid October 1981.The Supply System does not at present have sufiicient funds to pay for invoices being received and for site work being performed, and the Supply System must depend upon additional funds becoming available.

As set forth below, the Supply System is proceeding with the preparation of a bond issue for Projects Nos.4 and 5 for sale in October.There can be no assurance that such bonds can be sold.Currently there is no other source of funds available to the Supply System.As a result of its financial situation, the Supply System notified its construction and equipment contractors on Projects Nos.4 and 5 that if on or about September 1, 1981 there were no reasonable expectation that the Supply System would be able to obtain additional funds by mid October, the Managing Director would be obliged to request authority from the Board of Directors of the Supply System to issue stop work orders to all contractors for Projects Nos.4 and 5 and to commence the required process working towards termination of such projects.As a result of the adoption by the Participants'ommittee for Projects Nos.4 and 5 (the"4-5 Participants'ommittee")of the resolu-tion of August 27, 1981 discussed below and the determination by the 4-5 Participants'ommittee to proceed with the preparation for the sale of the Projects iVos.4 and 5 bonds, the Managing Director has not requested authority from the Board of Directors of the Supply System to commence the termina-tion process of Projects iVos.4 and 5.On August 27, 1981 the 4-5 Participants'ommittee adopted a resolution providing generally as follows: (1)The participants purchasing the capability of projects Nos.4 and 5 (the"4-5 participants")

should amend the Participants'greements to provide for payment to, the Supply System of at least 50 percent of the interest during construction on Projects Nos.4 and 5 bonds after March 1, 1983,~(2)The Supply System should covenant with the purchasers of Projects Nos.4 and 5 bonds that if the Participants'greements are not amended as described in Paragraph (1)by March 1, 1982, and the Supply System is at any time thereafter unable to Qnance both projects, one project shall be terminated.

The Supply System would determine that it is unable to Qnance both 11 projects if at any time it did not have on hand available funds (excluding amounts held in the reserve account in the bond fund), and/or firm commitments to provide funds for Pro'ects r ro]ec Nos.4 and 5, in an amount which is sufficient to pay (a)twelve months interest on aH out-standing Projects Nos.4 and 5 bonds (except to the extent that the 4-5 Participants shaH be obli-gated to make payments with respect to such interest), and (b)aH requirements of the construction budget for the Supply System's share of the costs of Projects Nos.4 and 5 (excluding interest, financing costs and reserves)(i)during the period from March 1, 1982 to June 1, 1982, for the next three months and (ii)after June 1, 1982, for the next six months.Following termination of one project, the 4-5 Participants would make payments for interest and principal in the amounts described below.The Supply System would further covenant as follows: (a)Project bonds to be issued in the amount necessary to terminate the project would , be fully amortized over a five-year period with payments by 4-5 Participants beginning twelve months after termination.(b)Project bonds to be issued to finance the continued project in an amount equal to that of aH bonds outstanding as of August 19, 1981 and attributable to the terminated project would be fuHy amortized by 1992.(c)The terms of the project bonds hereafter issued would contain provisions for accel-eration of retirement in the event of tennmation of a single project so as to fully amortize the portion of such bonds attributable to the terminated project over a ten-year period with payments by 4-5 Participants beginning twelve months after termination.

(3)prior to March 1, 1982 the Supply System will continue construction of projects Nos.4 and 5 on a slowdown basis until further directions from the 4-5 Participants'ommittee, and there-after, subject to the availability of financing, proceed with aH dispatch with construction of both projects or one project if the other is terminated, and (4)The covenants with future bondholders, as described in Paragraph (2), would provide that in the event that BonneviHe acquires the capability of Projects Nos.4 and 5 in a manner substantiaHy similar to Projects Nos.1, 2 and 3, (a)the 4-5 Participant" would not be required to S pay further interest during construction as contemplated by Paragraph (1)above and (b)th upply System would not be required to terminate one project as set forth in Paragraph (2)above.Fourteen of the 88 4-5 Participants, representing 8.283 percent of the 4-5 Participants'hares, vote against adoption of the August 27, 1981 resolution.

Comments made by certain members i th 5 Participants Committee representing approximately 30 percent of the 4-5 Participants'hares at e meeting at which the August 27, 1981 resolution was adopted indicated a strong sentiment that rojects Nos.4 and 5 be regionalized to broaden the risk and cost base and that regionalization would be necessary before they would agree to pay 50 percent of interest during construction and would be a major consideration of the 4-5 Participants in their determination to take future actions required to continue Projects Nos.4 and 5.Regionalization would involve acquisition of the capability of Projects Nos.4 and 5 by BonneviHe or long-term participation by other utilities or the direct service industrial customers of BonneviHe in such Projects.There are at present no commitments by Bonneville or such 4 and 5.other utilities or direct service industrial customers with respect to the regionalization f Pro cts N'on o jects i os.The Supply System estimates, based on the 1982 Projects Nos.4 and 5 construction budgets, that if the 4-5 Participants pay 50 percent of the interest during construction on Projects Nos.4 and 5 bonds after March 1, 1983, the total Supply System financing requirements for Projects Nos.4 and 5 may be reduced by approximately

$2.3 biHion.In the opinion of Bond Counsel and Special Counsel to the Supply System, the approval by each 4-5 Participant is required to amend its Participants'greement to provide for the making of payments to the Supply System of interest during construction of Projects Nos.4 and 5 prior to the dates now contemplated by the Participants'greements.

The Supply System is proceeding to implement the plan set forth in the August 27, 1981 resolution through the sale and issuance of bonds for Projects Nos.4 and 5 in October.No assurance can be given that the Supply System will be able to seH such bonds, and in the event such bonds are not sold or additional funds are not timely received by the Supply System, there is a likelihood that Projects Nos.4 and 5 will be terminated.

IE termination of Projects Nos.4 and 5 occurs, the 4-5 Participants would be obligated under the participants'greements relating to such projects to pay thc annual costs, including the debt service on bonds issued with respect to such projects and other costs of termination, beginning one year after the 12 O.

date of termination.

Although there can be no reliable assessment at this time of the costs of termina-tion of such projects, the Supply System's preliminary estimates indicate that the Supply System's Owner-ship Share of such costs could range from$475,000,000 to$760,000,000 and, until such payments are received from the 4-5 Participants, the Supply System may have insufficient funds to pay such costs.Debt service on the Projects Nos.4 and 5 bonds is currently funded to March 1, 1983.In the event of an insufficiency of funds available to pay creditors with respect to services, work or materials provided with respect, to>the construction of Projects Nos.4 and 5, such creditors may, through legal process, seek to reach the Net Billed Projects or funds held under the Net Billed Resolutions, or the revenues pledged thereunder.

In the opinion of Bond Counsel and Special Counsel to the Supply System, the Net Billed Projects, the respective revenues of the Net Billed Projects and the funds held under the Net Billed Resolutions are not subject to claims of such creditors and no liens thereon are available to such creditors, except as any such creditors may obtain rights through a valid exercise of the sovereign police powers of the State of Washington or of the constitutional powers of the United States of America, or by a voluntary bankruptcy of the Supply System.There may also be other claims which are not foreseeable and as to which no opinion can be expressed.

Projects Nos.4 and 5 are being constructed as twin units to Projects Nos.1 and 3, respectively, and consequently many of the construction and equipment contracts for Projects Nos.4 and 5 also include construction work, services and equipment for Projects Nos.1 and 3.Therefore a termination of Projects Nos.4 and 5, and an insufficiency of funds to pay such contractors with respect to work, services or equipment for such projects, could excuse performance of aH work under such contracts or otherwise disrupt construction of, and result in claims for additional compensation for work or equipment for, Projects Nos.1 and 3.Although such disruptions and claims would result in increased costs and possible schedule delays with respect to Project Nos.1 and 3, the Supply System cannot predict whether such disruptions and claims would occur or the magnitude of their impact on such costs and schedules.

A termination of Projects Nos.4 and 5 would cause the cost of certain services and facilities which are to be shared with Projects Nos.1 and 3, respectively, to be borne in whole or in part by Projects Nos.1 and 3.The Supply System's preliminary estimates indicate that such costs could increase the direct construction costs to be incurred for Project No, 1 and the Supply System's Ownership Share of Project No.3 in the order of$450,000,000 and$350,000,000, respectively.

No assurance can be given that such costs will be within these estimates.

In addition to these prospective costs of shared services and facilities, there may be claims that Projects Nos.1 and 3 should reimburse Projects Nos.4 and 5 for aH or a portion of the costs of such services and facilities already paid by Projects Nos.4 and 5.These costs in the approximate amount of$181,000,000 and$224,000,000 for Projects Nos.4 and 5, respectively, could increase the costs of Projects Nos.1 and 3 if such claims were aHowed.The Supply System cannot predict the outcome if any such claims were made.The Supply System and Bonneville are presently negotiating an agreement with respect to the allocation of costs for services and facilities common to the Net Billed Projects and Projects iVos.4 and 5 during the construction slowdown of Projects Nos.4 and 5.Assuming a one year slowdown in construction of Projects Nos.4 and 5, it is estimated that such agreement could result in approximately

$120,000,000 of additional costs to the Net Billed projects over what is presently borne by such projects with respect to commonly shared costs.Under the Net Billed Resolutions; a default can occur if a court of competent jurisdiction appoints a receiver, trustee or liquidator of the Supply System or such court assumes custody or control of the Supply System under any law for the relief or aid of debtors.As a result of creditors'laims or judgments relating to Projects Nos.4 and 5, such creditors may attempt, through legal process, to have the court assume control of the Supply System or place it in receivership or to have a trustee or liquidator appointed therefor.While under certain circumstances municipal corporations could be placed in involuntary receivership in judicial proceedings within the State of Washington, it is the opinion of Bond Counsel and Special Counsel to the Supply System that it is unlikely that such relief would be available to such creditors under the existing laws of the State of Washington as long as the Supply System is attempting in good faith to meet its obligations and is complying with orders entered by the cour:=..The Net Billed Resolutions also provide that certain actions taken by the Supply System or voluntaril consented to by it relating to insolvency, bankruptcy or receiverships of the Supply System wiff constitu:e a default thereunder.

See"Events of Default;Remedies" under the caption"Summary ct Cert" in Provisicns of the Net Billed Resolutions and Supplemental Resolutions".

~".he i',pioicn of Bond Counsel and Special Counsel to the Supply System and General Counsel to Bonne"iHe, the obligations of BonneviHe, the Participants and, as to the Project No.1 Bonds, the 13 project No.1 Companies in respect of the payment of the annual costs of the Net Billed projects, including debt service on the Net Billed Bonds, under the Net Billing Agreements and, with respect to Project No.1, the Project No.1 Exchange Agreements, and the obligation of the Supply System to pay such debt service under the Net Billed Resolutions would remain in fuH force and effect, subject to the exceptions set forth in the next to the last paragraph of the opinions with respect to such agree-ments contained in Exhibit F, notwithstanding the occurrence of any event of default under the Net Billed Resolutions or other occurrences resulting from a termination of projects Nos.4 and 5.POWER SUPPLY IN THE PACIFIC NORTHTVESZ Historical

Background

Planning of power supply facilities in the Pacific Northwest (the states of washington, Oregon, Idaho, and Montana west of the Continental Divide, plus small adjacent portions of California, Montana, Nevada, Utah and Wyoming)has been undertaken with a high degree of cooperation for man y ars.The Northwest Power Pool, a voluntary organization of public, investor-owned and Federal power e suppliers, was established in 1942 to coordinate power operations in the Pacific Northwest and continues to assist in this function.The Pacific Northwest Utilities Conference Committee ("PNUCC'), consisting of essentially all power generating interests in the region, was formed in the late 1940's to extend the functions established in the Northwest Power Pool into other areas including the advanced planning of power resources on a coordinated basis.The Public Power Council, representing over 100 publicly owned utilities and cooperatives, was formed in the late 1960's to coordinate the activities of publicly owned utilities in the further development of the region's electric power supply.The Bonneville Power Administration was established by the Bonneville Project Act of 1937.Under the Bonneville Project Act and the Federal Columbia River Transmission System Act of 1974, Bonneville constructs and operates transmission facilities and markets power from 30 federal hydroelectric generating resources and from generating resources acquired from non-federal sources in the P ifi ces in e ac c i ozthwest.Bonneville's transmission facilities, together with its generating resources, comprise the Federal Columbia River Power System (the"Federal System").Bonneville seus electric power at wholesale to 146 utility, industrial and government customers'in the Pacific Northwest including 116 public and cooperative utility customers, and'sells any available surplus electric power to wholesale power purchasers within and outside the region.Bonneville is required by statute to establish rates sufiicient to recover the'costs of acquiring and transmitting electric power.Until the late 1960's nearly all the power supply in the Pacific Northwest was obtained from the hydroelectric resources of the region.By that time, most of the potential hydroelectric resources remain-ing to be developed were peaking resources with only limited base load energy generating capabilities.

Since the electric energy loads in the region were continuing to inczease, base load thermal generating resources were necessary to supply the region's increasing energy needs.In 196&, a Ten-year Hydro Thermal Power Program was adopted which was to provide for the con-struction of hydro and thermal generating resources to meet the region's power requirements and to guide the region in its transition from a hydroelectric power supply base to a mixed base of hydro and thermal generating resources.

This program provided for eight large thermal plants scheduled for commercial operation at various times through the early 1980's, including the Net Billed Projects.Under this pro-su I t its gram and its then existing statutory authority, Bonneville undertook to provide for additi al e or a tion power supp y to its preference customers and industrial loads by acquiring the capability of certain publiciy owned generating facilities by purchase under the"net billing" concept.Early in the 1970's it became apparent that the Ten-year Hydro Thermal Power Program would not provide adequate generating resources beyond the early 1980's.Consequently, as part of a regional cooperative power supply effort Bonneville's public and cooperative utility customers undertook to provide their own additional generating resources, such as Projects Nos.4 and 5, without the ac uisition of the capability thereof by Bonneville.

, wtt out t e acquisition of Qn December 5, 1980, Federal legislation was enacted entitled the"Pacific Northwest Electric Power Planning and Conservation Act", Pub.L.96-501 (the"Regional Power Act").This!egisiation sub-stantially changed the power supply program of the Pacific Northwest utilities, Bonneville an 3 Bonneville's 14 direct service industrial customers.

Under the Regional Power Act, Bonneville is authorized to acquire electric power resources, including capability, from non-federal entities, although-Bonneville is not authorized to own or to construct generating facilities.

Simultaneously, the Regional Power Act makes Bonneville responsible for meeting the firm power requirements of aH requesting Pacific Northwest utilities to the extent these requirements exceed the utilities'wn committed resources and it also directs Bonneville to continue to serve the loads of BonneviHe's direct service industrial customers with an amount of power equivalent to that provided under current contracts.

The authority granted Bonneville for conservation and for the acquisition of electric power resources is intended to enable BonneviHe to carry out these new power supply obligations.

BonneviHe must offer each requesting Pacific Northwest utility a net requirements power sales contract by September 5, 1981 and each utility will have one year from the date of such offer to accept.Under such contracts Bonneville will be required to meet each utility's firm power loads in excess of such utility's own committed resources.

For a detailed discussion of the impacts of the Regional Power Act on BonnevHle and BonneviHe's customers see"The Regional Power Act" under the caption"Bonne-ville Power Administration".

Re@'onal Power Requirements and Resources In past years, a load and resource analysis for the utilities comprising the West Group of the Northwest Power Pool has been developed by the PNUCC.Because of the passage of the Regional Power Act, the PNUCC West Group Forecast was discontinued in 1981 and in its place PNUCC has published the Northwest Regional Forecast of Power Loads and Resources (the"Regional Forecast").The Regional Forecast is a compilation of the forecasts submitted by, or for, each of the utilities in the region.The Northwest Regional Area energy load is approximately 10%larger than that of the West Group Area.The 1981 Regional Forecast shows that a deficiency of estimated energy resources exists in aH years and a deficiency of estimated peaking resources exists in ten of the eleven years included in the forecast.However, these deficiencies are smaller than the deficiencies shown in the 1980 West Group Area Forecast.The reduction of the deficiencies is due primarily to three factors: Qrst, the inclusion, by utilities, of additional conservation savings and end-use renewable resource potential; second, a one-time reduction by BonneviHe in the load forecasts estimated by some of its customers; and third, an increase in the rate of addition of conventional resources in the later years.Resource planning in the region is based on a multi-year critical period for hydroelectric resources, which is the historical water year period that, when augmented with stored water, is the most critical with respect to system load requirements.

During portions of most years substantial secondary energy, resulting from morc favorable water conditions, is expected to be available.

The PNUCC load and resource analysis has historically provided the basis for long-range regional resource planning by the utilities.

The data in the foHowing table shows an average annual increase in peak requirements of 3A%per year and an increase in energy requirements of 3.2'7o per year over theperiod 1982 through 1992.Other groups have undertaken studies of the projected electric utility loads in the region.Some of these studies indicate lower future requirements for power than those shown in the table and some higher depending on the assumptions made in the study.The Regional Power Act includes strong conservation elements.Although present load forecasts refiect some energy conservation efforts, a report prepared for the PNUCC by Kttman Associates Inc., a consulting firm, released in July 1981 states that growth in Pacific Northwest electric energy requirements will be substantially reduced as a result of conservation and customerwwned generation.

The report indicates that the current Regional Forecast-refiects about 2990 average megawatts of conservation savings in Qscal year 1990 and that an additional 1600 average megawatts of conservation savings are likely in 1990 as a result of conservation strategies which are cost effective at 50 mills per kilowatt-hour, in 1980 dollars, plus a 10 fo premium for conservation as'provided for under the Regional Power Act.15 The following table summarizes the estimated electric power requirements of the region, the estimated resources available to meet those requirements and the estimated surpluses or deficiencies that will exist during the period of the forecast, as.published in the 1981 Regional Forecast.REGIONAL LOADS AND RESOURCES ESTIMATED REOUD(E3(ENTS(1)

ESTIMATED RESOURCES(3)

Year Eadtna Jaae 30 Pabllc aad Direct Federal Scsrtce A I)r Iarestot Total Orrncd Rea else.Vttttdes ments Pabllc Aa carr Federal Orra Othet Total Sr R R R Percent Sar)des or Sarptas or De()dt(3)Dcdcit(3)1982 1983 1984 1985 1986 1987 1988.....~.1989 1990 1991 1992 12,452 13,04S 13,587 14,083 14,631 1$,116 15,6$5 16,237 16,848 17,475 18,064 3,603 3,641 3,820 3,997 4,015 4,038 4,067 4,098 4,118 4,124 4,128 14,377 15,037 15,642 16,283 16P08 17,467 18,014 18,617 19,228 19,800 20,350 Peak CapabgIty~Wegawatts 30,432 13,428 3,473 31,723 13,337 3,679 33,049 13,291 3,79$34,363 14,147 3,799 35454 I5,7Q2 3,832 36,621 18,026 3,793 37,736 18,754$,771 38852 18,680 5,549 40,194 18,631 5498 41,399 1847$5,287 42,542 18,619 5,182 13,341 12,923 12,978 12,800 12,863 13,351 13,929 14,209 13,840 14,733 14,944 30,242 29,939 30,064 30,746 3o497 3.5,170 38,4$4 38,438 37,769 38,59$38,745 (190)(0.6)(1,784)~($.6)(2,985)(9.0)(3,617)(10.5)(3,157)(8())(1,451)(4.0)718 19 (514)(I 3)(2,425)(6.0)(2,804)(6.8)(3,797)(8.9)-Et)erg@Ca pat)itlty-Average Megawatts 1982......~1983 1984 1985 1986 1987 1988 1989,.......1990......~1991 1992 7,056 7,408 7,778 8,043 8,338 8,60$8,88$9,197 9,518 9,8$1 10,194 3,S21 3,556 3,683 3,906 3,924 3g4$3,974 4,006 4,025 4,031 4,03$8,321 8,687 9,024 9,370 9,690 9,993 10~3 10,609 1035 11449 I I+46 18,898 19,651 20,485 21419 21,952 22443 23,152 23,812 24,478 o&,I31 o&,775 7,&72 1,870 8,033 I@I I 8,102 2,069 8,489 2,141 8,S68" 184 9,481~o9 9443 3,351 9,498 3)654 947S 3,844 9cS95 3,900 9,595 3/06 7,769 7,934 7,809 7,939 8,193 8,473 8,979 9,197 9,172 9454 10,097 17,511 17,878 17()80 18,569 18()4$20,213 21,873 2",349 2" 591 o&,049 23898 (1,387)(7.3)(1,773)(9.0)(240$)(12.2)(2,750)(12.9)(3,007)(13.7)(2330)(10.3)(I~o79)(SD)(1,463)(6.1)(1,887)(7.7)(" 082)(8.3)(2,177)(8A)o (1)Estimated requirements are by type of wholesale power user in the region.For a discussion of Bonneville's potential obligations to serve regional requirements under the Regional Power Act see"The Regional Power Act" under the caption"Bonneville Power Administration".

(2)After deducting reserves under PNUCC planning guidelines.

Peak reserve requirements are based on 12'f the total area load for the first year, increasing at a rate of 1Ão per year up to 20Fo, and remaining at 20Ão thereafter.

Reserves also include allowance for load growth reserves equal to one-half of the area load growth for utility-type loads during that year.Assumes critical water conditions.

Substantial secondary energy is expected to be available under most stream fiow con-ditions.All resources forecasted under these guidelines are licensed for construction except Puget Sound Power 8(Light Company's Skagit Nuclear Unit No.1, and The washington

")Vater Power Company's Creston Coal Units Nos.1, 2 and 3.(3)After supplying all area interruptible loads (including Bonneville's industrial interruptible loads)which range from 1,002 to 1,249 megav(atts on peak and 1,057 to 1,301 average megawatts oi energy, not including associated line losses.Parentheses denote deficit values.16 The following graph depicts the eneigy loads and resources shown in the above table.In order to show the region's resource mix and the extent of the hydroelectric base, the resources have been divided into hydroelectric resources and thermal and miscellaneous resources, with the Supply System's projects each shown separately.

Tf REGlONAL ENERGY REQUlREMENTS AND RESOURCES TOTAl ESTIMATED REOUIREMENTS TOTAL ESTIMATED RESONANCES

?.0f DEFICIENCY

~'..0f..'elf'IP'er>RRO~CT NO'S'If~~I~'.

I."x"o'>

',,ccTPEI 10 1 M 0J C 10 I H DR CTRIC RESO 100$1004 100~1001 YEARS ENO0IO~SD 1000 1000 1001 1002 17 The schedule of thermal generating plants planned or under construction, as utilized in the previous table, is shown below.Principal Seaarar Idaho Power Company The Montana Power Company IVashington Public Power Supply System Idiho Power Company The Montana Power Company IVashington Public Power Supply System IVashington Public Power Supply System IVashington Public Power Supply System Washington Public Power Supply System The Washington Water Power Company The Washington Water Power Company Puget Sound Power 8c Light Company The Washington Water Power Company Valmy No.2 Colstrip No.4 Project No.I Project No.3 Winnemucca, NV Colstrip, 5IT Hanford, WA Satsop, WA Coal Coal Nuclear Nuclear Project No.4 Hanford, WA Nuclear Project No.5 Sstsop, WA Nuclear PROJECTS PLAV>>VED BUT iVOT LICEiVSED Creston No.1 Creston, WA Coal Creston No.2 Slmgit No.1 Creston No.3 Creston, WA Hanford, WA Crestone WA Coal Nuclear Coal Project I eaaea Type PROJECTS UiVDER CONSTRUCTION ValmyNo.1 Winaemuccs, NV Coal Cohtrip No.3 Colstri p, MT Coal Project No.2 Hanford, WA Nuclear Rated Capacity iMev)250 700 p 1,100 250 700 1,250 1,240 1,250 1,240 500 500 1,288 500 Probable Energy Dal~Oct.19S1 Jan.1984 Feb.1984 Oct.1984 July 1985 June 1986 Dee.1986 June 1987 Dec.19S7 July 19S7 Jan.1989 Jan.1991 Jan.1992'The probable energy dates are the later of the scheduled operation dates established by the plant sponsor or the dates determined by application of Milestones.

Milestone dates are determined from a standardized schedule refiecting anticipated average planning and construction times.Reyonal Comparison of Energy Costs The Pacific Northwest has consistently had low rates for electric service in comparison with most other regions of the country.A comparison of residential rates for representative utilities, both public and investor-owned, in several regions has been made to show this rehtionship.

The rates shown in the following table are averages based on a United States Department of Energy ("DOE")report.The use of other schedules applicable to particular customers or the choice of different representative utilities wiH vield different results.Average residential usage of electricity in the Pacific Northwest of approximately 16,000 kilowatt-hours annually is nearly twice the national average of approximately 9,000 kilowatt-hours annually, due primarily to the more extensive use of electric space heating.In order to show the general effect of different levels of usage, average rates at usages of 6,000 kilosvatt-hours per year and 12,000 kilowatt-hours per year have been calculated for each region as shown.Average Annual Resldenthl Bills at:>>o 6,000 kWh/Jz.I",000 kWh/yr.Region Pacific Northwest...............

Pacific Southwest...............

Northeast/New England.........Southeast Mdwest S outh.\~~~~~~~~~~~Cost$I32$327$460$325$323$289 Mills/kWh 22 55 77 54 54 48 Cost$233$667$795$607$504$521'Mills/kWh 19 56 66 51 42 43*Source: "Energy Data Report: Typical Electric Bills-January I, 1980";U.S.Department of, Energy, December 1980.18 BONNEVILLE POWER ADMINISTRATION The Bonneville Power Administration was established by the Bonneville Project Act of August 20, 1937.Under the Bonneville Project Act, and the Federal Columbia River Transmission System Act enacted in 1974 (the"Transmission Act"), Bonneville constructs and operates transmission facilities and markets power from 30 Federal hydroelectric projects in the Pacific Northwest with an installed peak generating capability of 20,121,720 kilowatts and a firm energy capability of 7,583,000 average kilowatts.

These projects, authorized new projects and potential additions to existing projects will have the potential of an installed peak generating capability of ap'proximately 31,748,000 kilowatts.

Bonneville's transmission faciTities include approximately 13,000 circuit miles of 115 kV to 500 kV ac and 800 kV dc transmission lines.These transmission facilities, together with the hydroelectric pro-jects mentioned above and the resources acquired from non-Federal sources, comprise the Federal System.More than 80 percent of the 500kV and 230 kV transmission system capacity in the Pacific Northwest is owned by Bonneville.

In addition to Federal power, Bonneville transmits over the Federal System the major portion of the power from 12 non-Federal projects to various investor-owned and public utilities in the Pacific Northwest.

Bonneville sells electric power at wholesale to 146 utility, industrial and government customers in the Pacific Northwest, a service area of over 300,000 square miles with a population of about 8,000,000.

Of its 146 customers, Bonneville serves either all or the major share of the electric load of most of its 116 public and cooperative utility customers and 15 industrial customers.

In the year ended June 30, 1980, the Federal System produced approximately 50%of the region's energy requirements.

In addition, Bonneville sells surplus power under contract to 15 customers outside the Pacific Northwest.

New legislation substantially changing Bonneville's authority was enacted on December 5, 1980.The Regional Power Act requires Bonneville to offer to sell power to each requesting Pacific Northwest utility to meet its firm power loads in the region in excess of the utility's own resources committed to serve such loads and to offer to sell power under new Iong-term contracts to Bonneville's existing direct service industrial customers.

To enable Bonneville to meet its increased service obligations, the Regional Power Act directs Bonneville to acquire sufficient resources which are cost-effective, first from conserva-tion, then from renewable resources, then from high fuel efficiency resources and then from conventional resources.

For a more complete discussion of the act see"The Regional Power Act" below.Under the Bonneville Project Act, the Transmission Act and the Regional Power Act, Bonneville acquires the conservation and generating resources needed to serve its contract obligations; markets at wholesale the electric energy from Federal hydroelectric projects and the net billed projects and such additional resources as it may acquire;constructs, operates, and maintains transmission lines and sub-stations;interconnects the Federal hydroelectric projects and non-Federally owned power systems and projects;and is required by statute to establish rates to recover its costs of acquisition (including all payments under the Net Billing Agreements), conservation and transmission of electric power including the amortization of the Federal investment in the Federal Columbia River Power System and other costs and expenses incurred.Acquisition of Project Capability and Power Supply Although the Federal System has a potential peak generating capability substantially greater than the existing installed capability, the firm energy capability of the hydro system is not expected to increase substantially.

As part of the Hydro Thermal Power Program, described under the caption"Power Supplv in the Pacific Northwest", Bonneville has purchased, through net billing agreements and exchange agreements, the capability of the Net Billed Projects and the City of Eugene, Oregon's 30Fo ownership share of the Trojan Project (the"net billed projects").

Under the provisions of the Regional Power Act, the Federal hydroelectri resources will be melded with the energy from net billed projects to form, in part, a resource pool called the Federal base system resources.

These resources comprise a portion of the rate base for power sales to preference customers, including the Participants, and others 19 (as described in"Federal System Rates" below)and receive other special treatment under the Regional Power Act.The net billed projects are expected to represent 26/o of the estimated energy capability of the Federal System in the year ending June 30, 1989, the year the last net biHed project to come on line is expected to reach its full forecasted generating capability.

To the extent that Bonneville'cquires additional resources to meet its obligations under the Regional Power Act, the net billed projects will represent a smaller portion of the total resources available to Bonneville.

BonneviHe has acquired the capability of the Supply System's Hanford Project in exchange for firm power from the Federal System.In addition, the United States entered into a treaty with Canada in 1964 for a term of sixty years under which Bonneville obtained certain rights to 15,500,000 acre-feet of hydro storage on the Columbia River and its tributaries in Canada, which has increased the capacity of Federal hydroelectric projects.For the 12 month period ended June 30, 1981, the portion of this increase available to Bonneville has been computed to be one million kHowatts of peak generating capability and three billion kilowatt hours of energy generating capability.

Federal System Revenue Requirements Bonnevifie is the marketing and financial reporting entity for the Federal System, an integrated power system which in addition to BonneviHe's facilities consists of the Pacific Northwest generating faciTities ot the Corps of Engineers (" Corps")and, except for the Green Springs Project in southern Oregon, the Bureau of Reclamation (the"Bureau").Bonneville accounts for and zecozds aH Federal System revenues.BonneviHe sets wholesale power and transmission rates to recover the costs associated with the acquisition, conservation and transmission of electric power, including the recovery of the Federal investment in Federal System transmission and generating facilities.

The required level of revenues the rates must pro-duce is determined by a repayment study prepared by BonneviHe.

The Bonneville Project Act, the Transmission Act, the Regional Power Act and BonneviHe's policy for the preparation of the repayment study require that BonneviHe's rate structure be designed so that revenues be sufiicient to recover the costs of: (1)the purchase and exchange of power, including the cost of the net billed projects and resources acquired under the Regional Power Act, (2)Federal System operation and maintenance, (3)interest and amortization of bonds sold to the Treasury, (4)interest and amortization on Federal power facilities financed with appropriated funds, (5)certain imgation costs assigned to be repaid from power revenues and (6)the other costs and expenses incurred by Bonneville under the Regional Power Act and other provisions of law.Rates must be designed to amortize the investment in Federal hydro projects within 50 years after they become revenue producing; the investment in BonneviHe's transmission facilities financed with appropriated funds within their average service life, which is currently 35 years;and the investment in replacement equipment for Federal hydro projects within the service life of the equipment.

In addition to preparing the repayment study to determine the amount of revenues that will be required, Bonneville also prepares commercial financial statements for the Federal System which include depreciation.

These financial statements, however, are not used in establishing revenue zeauirements.

The audited financial statements and notes for the fiscal years ended September 30, 1979 and 1980 are showa in Exhibit H.The total investment in Federal hydroelectric projects and the BonneviHe transmission system was in excess of$9.0 biHion as of September 30, 1980.Approximately 83 Io of this investment is to be repaid from Federal System revenues.The investment in multipurpose Corps and Bureau projects is allocated among the purposes served by the projects, which include food control, navigation, imgation, municipal and industrial water supply, water quality, recreation, and the enhancement and propagation of fish and wildlife, in addition to the generation of power.Federal System AppHcation oi Revenues Prior to 1974 aH revenues collected by Bonneville were deposited funds for aH Bonneville expenditures were appropriated by Congress.into the Federal Treasury and Under the provisions of the 0 Transmission Act adopted in 1974 all Bonneville's revenues from the sale and transmission of electric power and energy are deposited in the Bonneville Power Administration Fund (" Fund")established in the Treasury.Such revenues are used to pay all of the Federal System's costs, including its net billing deficiencies and the costs of resources acquired under the Regional Power Act.Since 1974 Congress has not directly appropriated any funds to Bonneville.

Payments of principal and interest on bonds issued to the Treasury for the purposes specified in the Transmission Act and Regional Power Act, together with amortization and interest on the Federal investment in the Federal System, are expressly subordinated to Bonneville's net billing obligations, including any necessary net billing deficiency payments.Net billing deficiency payments are payable on a parity with Bonneville's other operating expenses.Other subordinated obligations include irriga-tion costs payable from power revenues and Bonneville's reimbursement to the Treasury of operation and maintenance costs incurred by the Corps of Engineers and Bureau of Reclamation on Federal System Projects.Although Bonneville establishes rates which are designed to produce revenues sufficient to pay all its annual costs, payments required to be made to the Treasury from net proceeds can be deferred if net proceeds are insufficient for these purposes.(See the following Chart and Table.)21 Bonneville Power Administration Flow of Funds Obligations of Participants'll Other Sources of Funds" Less Net Billing Credits" Bonneville Power Administration Fund Bonneville Operating Expenses (Payable on Parity)~Operation 8 Maintenance Expenses~Research, Development, Investigation 8 Testing Expenses~Power Marketing Expenses~Transmission and Wheeling Expense~Purchased Power Expenses including:

a)Net Billing Deficiencies b)Resources Acquired Under Regional Power Act~Emergency Expenses~Expenses to Carry Out Purposes of Regional Powe'r Act Application of Remaining Funds:~Interest and Principal on Bonds Issued to U.S.Treasury under Bor-rowing Provisions of the Transmission Act and Regional Power Act~Reimbursement of Operation 8 Maintenance Costs Incurred by Corps of Engineers and Bureau of Reclamation on Federal System Projects~Interest on Unpaid Annual Expenses (deferred payments to U.S.Treasury)and on the Federal Investment on Power Facilities Financed Through Appropriations

~Amortization of Unpaid Annual Expense~Amortization of the Federal Investment in Power Facilities Financed Through Appropriations

~Construction, Addition to and Replacement of Transmission System~Irrigation Expenses Expressly Authorized by Law and others subject to net billing"The obligations of any of Bonneville's customers to Bonneville may become subject to net billing credits if such customers accept re-assignment of participants'hares.

See"Net Billing Payment Pro-cedure" under the caption"Security for the Net Billed Bonds".includes credits for the Net Billed Projects

~~~'ederal System Applieatlou of Revcnucs (Do(lais Io Wooaao)h)lfistorieal Vnaahlaa IS)Ill)Qoatcrll))111ol>S)a I 111 ISN ISSllu Pro eclcd ISIS ISSI I)as Total Power Sales (Gwh)...Revenues: Total Operating Rcvcnucs(5)

Less: Nct Billing Credits(6)

Net Rcceivcd.........Application of Rcvcnues in Order of Priurity: I.Donncvillc Operation g hfaintenance

.........Purchase and Exchange Power Payincnts Not Part of Net Billing Contracts (7)-.""."-"".Nct Billing Deficiency

-Payments(8)(9)

......Subtotal.........2.Amount available for pay-ment to Treasury and for Bonncvillc Construction Pro&ran>(10)

Total Application of Revenues............

77,409 20,5M 61.755 76.511 72.024 72.549 79.&66 107.029 116.044 122.114 130,838$296,998$75,508$223,592$333,964$296,559$512,466 34,649 7,706 66,807 96,704 110.584 165,732$694,600$1,579,454$2,223,342$2,771,274$3,392,756 219,273 326,600 586,200 815,900 931,300$262,349$67,802$156,785$237,260$185,975$346,734$475,327$1,252,854$1,637,142$1,955,374$2,461,456 121 166 2,178 850 1,969 2,66S 12,500 632,056 S20,608 1,009,974 1,254,773 1,563 1,494 15,158" 22,413 I 8, I&5 10,399 7,927 0 0 0 0 52,124 16,608 76,812 95,340 102,001 121,095 159,351 809,709 I,046,246 1,298,898 1,610,535 210.225 51,194 79,973 141,920 83,974 225,639 315,976 443,145 590,896 656,476 850,921$262,349$67,802$156,785$237,260$185,975$346,734$475,327$1,252,854$1,637,142$1,955,374$2,461,456$50.440$14,948$59,476$72.077$81>&47$108,028$13 S,924$177,653$225,63S$288,924$355,762 (I)Fiscal Year ended Junc 30, 1976.(2)The Transition Quarter commenced July I, 1976, and terminated Scptembcr 30, 1976.(3)Fiscal Year 1977 started on October I, 1976 and ended Scptembcr 30, 1977.All subsequent.fiscal yeacs start on October I, and end on Ihe following Scptcmbcr 30.(4)1981 figures include ac(ual ligurcs through Junc 30 and projected figures through September 30.(5)Receipts from Tccasury borrowings arc cxcludcd.Bonncvillc's preliminary projections of its total rcvcnue rcquircments for f>seal years 1983, 1984, and 1985 imlicatc a nccd for rcvenuc lcvcl increases of approximately 20%, 10%, and 5%, rcspcctivcly, over projected rcvcnuc levels under current rates.Also included in projected rcvcnuc lcvcls arc additional rcvenucs from incrcascd power sales.(6)Nct billing credits equal that por(ion of par(icipants'bliptions to Bonneville for power and other scrviccs which is credited on partici-j)ants'onthly Bunncvillc bills to pay for the participants nct billings obligations to Ihc City of Eugene, Oregon and Io thc Supply System m the manner dcscril>ed under Ihc caption"Secucity for the Nct Billed Bonds".After July I, 1983, these purchases arc limited by thc availability of Federal System power and the h)dro and Ihcrmal cncrgy allocations contained in participants'urrent power sales contracts, but du not taLc into account cxpimtion uf contracts with direct-scrvicc industrial customers and Federal agency customers.

Thc net billing credits specifically include Ihe following plants which are subject Io nct billing contracts:

thc Net Billed Projects and Trojan.IBistorical net billing credits also include n>inor amounts of administratively dctcrmincd nct billing credits, for other (lian nct billed thermal projects.(7)Includes the following purchased power payments which arc not subject to net billing contracts:

Boardman, Ccntralia, investor-owned utility cxchangc costs, and other power purchases.

(8)A nct billing deficiency is thc aniuunt by which Bonneville's obligation to pay to Ihe par(icipants thc annual costs of thc nct billed projec(s exceeds the par(icipants'hligaiiuns to pay l3unncville for power and oihcr scrviccs.Nct billing dcficicncics will bc paid in thc manner desciibcd umlec the cap(ion"S~lity for thc Nct Billed Dnnds".(9)Bunncvillc has agrccmcnts ivith 90 of 104 j)aiticipants allowing it Io make cash payments whcncvcr individual participant's obligations Io Ih)nncville subject Io nct b>illing are insulliment to cover their nct billing obligation.

Bonncvillc makes such cash payn>cnts rather than reassign thc shares of participants to other particij)an(s or customers wliich arc not participants.

IVhi(c Bonneville has made nct billing deficiency payn)ants in ihe past, projected net billing deficiency payments arc calculated based upon thc assumption that rcassignmcnts arc made.Thc City of Eugene, Orcgun i)as rerpiested a$6 million cash paymc>0 to bc niadc in Oc(ober 1981.Since Donncvillc may arrange for Ihe assign-ment of dclicicncics to other Bunncvillc customers, this potential cash payment is not rcportcd here as a projcctcd required net bilhng dclicicncy paynicnt.(10)Auu)unt rcprcscnts thc balance of revenues available for payn>cnt Io Ihc Treasury for bond interest and amortization, Corps and Bureau opcmtion and maintcnancc costs, anmial intcrcst cxpcnsc of Ihc Fcdcral System, unpaid annual expcnsc, aml amortization of tbc Federal facilities, and fur payment of Dom)eville"s construction program.Actual cash paynicnts to thc Treasury will di(fer from thcsc amounts duc to adjustmcnts for worLing.capital, rcccipts bahncc fron>prior years, misccllancous rcccipts, rein>bucscablc progran>s and actual borrowing Iransactiuns.

BonnevBle's Borrowing Authority Bonneville is authorized by law to borrow money by selling its bonds, notes and'other evidences of indebtedness to the Treasury.The Transmission Act authorized Bonneville to sell up to$1.25 billion in bonds to the Treasury, at interest rates comparable to those prevailing in the market for similar utiTity debt instruments for construction of transmission facilities.

The Regional Power Act amends the interest criteria to set interest rates comparable to those prevailing in the market for similar bonds issued by government corporations.

The Regional Power Act extended the application of Bonneville's Transmission Act borrowing authority to include the implementation of the Regional Power Act (including Qnancial assistance for conservation measures, renewable resources, and Qsh and wildlife, but not including the authority to acquire electric power from a generating facility having a planned capability greater than 50 average megawatts).

The costs of all borrowing as weH as all of Bonneville's and the Federal System's operating costs, including acquired resources, are required by the Regional Power Act to be paid by the region's electric ratepayers.

The Regional Power Act also established an additional

$1.25 billion in new borrowing authority, to finance conservation and renewable resource loans and grants.Borrowing under this additional authority is to be available as provided in advance in annual appropriation acts.Bonneville is not otherwise authorized to issue evidence of indebtedness in its own name.As of June 1, 1981 Bonneville had borrowed from the Treasury$235,000,000 under a short-term note and$290,000,000 under long-tenn bonds.These amounts were borrowed prior to enactment of the Regional Power Act.Bonneville Contracts Under the provisions of the Regional Power Act, Bonneville must oGer each requesting preference customer, investor-owned utility and existing direct service industrial customer within the Pacific North-west an initial long-term power sales contract by September 5, 1981.Bonneville also is authorized to sell electric power to Federal agencies in the Pacific Northwest.(See"Power Sales Contracts" under the subcaption"The Regional Power Act", below.)Each Participant is a preference customer of Bonneville and has, with other public bodies and cooperatives, a statutory preference and priority to power from the Federal System.Each Participant is a party to at least one power sales contract requiring payment to Bonneville for the purchase of power.Such contracts, which expire between 1983 and 1994, are usually for a term of 20 years, the maximum permitted by law, and generally provide for the sale and delivery of firm power to the Participant in the amount of its requirements over and above the generating resources, if any, that the Participant has available to serve its own load.Bonneville's obligation to meet a preference cus-tomer's requirements is eKective for the term of the contract, unless Bonneville gives the preference customer at least seven years'rior notice of insufficiency of supply.In 1976 Bonneville gave its preference customers notice that an insufiiciency in power supply would occur after July 1, 1983.The existing power sales contracts provide that after the date of insufiiciency Bonneville will be obligated to make available to each preference customer an allocation of firm energy for the balance of the term of the contract.Bonneville has not delivered Qrm power to Regional investor-owned utihties since 1973 because the Federal System resources were insufiicient to serve both preference and non-preference regional power loads.Bonneville delivers power to 15 industrial customers, most of which use large amounts of electric power to produce metals or chemicals, pursuant to 20-year power sales contracts.

These contracts expire between 1981 and 1991.

In addition to sales ia the Pacific Northwest, Bonneville delivers surplus power to entities outside the region.A lazge portion of this surplus power is sold to entities in California.

From time to time, Bonaeville receives applications for purchase of power from public bodies and cooperatives other than its.existing preference customers.

These entities may also have a statutory preference aad priority to power from the Federal System.The Regional Power Act On December 5, 1980, the Regional Power Act was enacted.This legislation substantially changed the power supply program of the Pacific Northwest utilitics, Bonneville and Bonneville's direct service industrial customers.

Under the new law, Bonneville is authorized to'acquire electric power resources from noa-federal entities, although Bonneville is not authorized to own or to construct generating facilities.

Simultaneously, the aew law makes Bonneville responsible for meeting the firm power requirements of all requesting Pacific Northwest utilities to the extent these requirements exceed the utilities'wn committed resources and it makes Bonneville responsible for continuing to meet the contractual loads of Bonneville's" direct service industrial customea.The new authority granted Bonneville for conservation and for the acquisition of electric power resources is intended to enable Bonneville to carry out these new power sales obligations, The Regional Power Act does not dilute or diminish Bonneville's ability to meet its existing obliga-tions under the Net Billing Agreements or the Project No.1 Exchange A'greements, which remain as pre-existing Bonneville obligations.

The new law, however, is expected to improve Bonneville's ability to perform its net billing obligations by (i)iacreasing Bonneville's net billing capability, and (ii)increas-ing the total amount of revenue that Bonneville will receive annually from its power sales customers.

A summarv description of the peztincat provisions of the act is set forth below.Power Sales Contracts:

The Regional Power Act requires three major types of Bonneville power sales contracts to be offered by September 5, 1981.The act states that Bonneville is deemed to have sufficient resources for purposes of eateriag into these initial coatracts.

Each utility will have oae year from thc date of such offer to accept.Bonneville anticipates that the majority of utilities offered power sales contracts will sign the contracts promptly.Twelve public!yawned utilities have chosen to litigate certain terms of the contracts offered to BonneviHe's direct service industrial customers, alleging viola-tioas of the Administrative Procedure Acz, and the prefereace provisioas of the Bonneville Project-Act and the Regional Power Act.Public interest groups have expressed concern that the contracts are aot conditioned on a.utility's undertaking a conservation program and have alleged violations of the National Environmental Policy Act.Such litigation and the other litigation which may be filed will not affect the obligations of Bonneville under the Net Billing Agreements and the Project No.1 Exchange Agreemeats and the impact of such litigation on Bonneville's revenues would be insignificant.

First, Boaaeville is required to offer each requesting Pacific Northwest utility, including each requesting Participant, a long-term contract under which Bonneville would be obligated to meet such utility's firm power load in the region to the exteat that such load exceeds (i)the utility's firm resources used in the year prior to December 5, 1980, to serve its loads in the region aad (ii)such other resources as the customer determines will be used to serve such loads.Preference customer and Federal agency contracts shall include provisions that enable BonaeviHe to restrict its contractual obligation to meet loads if it determines, after a reasonable period of experience under the new legislation, that it cannot be assured on a planning basis of acquiring sufficient resources to meet all such requirements during a specified period of insufficiency.

Suitable notice of the insuffi-ciency to customers is also required.These contract provisions shall require that any such restriction shall not be applicable until the year in which the total of all preference customers'nd Federal agency customers'irm loads to be served by Bonneville exceeds the firm capability of the Federal base system resources.

These resources primarily include the Federal System hydroelectric projects and the net billed projects.Also, preference customer and Federal agency entitlement to Qrm power may not be restricted below (i)an amount less than the Qrm capability of the Federal base system resources and (ii)the amount of generating or conservation resources acquired by BonneviHe from, or for the benefit of, such customers.

Initial contracts offered preference customers shall provide that their entitlements to finn power during a period of insufficiency will not be less than the amount of firm power they received from BonneviHe in the year immediately preceding the period of insufficiency.

Preference customers'ontracts must contain a formula for determining on an annual, uniform basis each customer'entitlement to Qrm power from Bonneville.

Such entitlement may not be reduced because a customer has committed its own resources to serve its own firm load.Contracts with other Pacific Northwest utilities must include provisions aHowing Bonneville to restrict the amount of power it is obligated to provide upon five years notice, as is currently required by the Bonneville project Act.However, these nonpreference utilities'ontractual entitlements to firm power may not be restricted below the amount of power or conservation acquired by Bonneville from, or for the benefit of, such customers.

Second, BonneviHe is required to exchange power with each Pacific Northwest electric utility which offers to exchange power with Bonneville in the amount, and for the use, of its residential and farm loads.Such exchange is limited to an amount not in excess of 60 percent of such utility's regional residential and farm loads beginning July 1, 1981, increasing in equal annual increments to 100 percent of such loads beginning July 1, 1985, and thereafter.

Such contracts may not be effective before October 1, 1981.Third, Bonneville is required to offer to each of its existing direct service industrial customers a long-term contract for sale of an amount of power substantiaHy equivalent to that under its existing long-term contract.These sales shall continue to provide BonneviHe a portion of the reserves for Qrm power loads in the Pacific Northwest through BonneviHe's ability to interrupt such service for certain purposes.Such contracts shall be effective not later than October 1, 1981.In addition, the Regional Power Act ensures that customers will not be restricted below the amount of power that they have provided to BonneviHe pursuant to resource acquisition contracts, that customer entitlements are a'dditive in the event of insufficiency, and that any customer's excess entitlement during a given year of insuQiciency shall be made available to other customers of the same class Qrst (public bodies and cooperatives, Federal agencies, direct service industries, and investor-ov:ned utilities), Fur-thermore, restrictions on the entitlements of any class of customers are to be equitably distributed throughout the Pacific Northwest to avoid geographic discrimination.

For a discussion of the impact of the Regional Power Act on the BonneviHe rates for power sold under such contracts, see"Federal System Rates" below.The Council and the P/an: The Regional Power Act authorizes the establishment of the Pacific Northwest Electric Power and Conservation Planning Council (the"Council"), to be composed of two r'epresentatives from each of the States of Idaho, Montana, Oregon and Washington, appointed pursuant to state law.The CouncH has been established and held its first meeting on April 28, 1981.The Council is to prepare and adopt a Regional Electric Power and Conservation Plan (the"Regional Plan")within two years after it is formed and is to prepare and adopt a program to protect, mitigate and enhance Qsh and wildlife located on the Columbia River and its tributaries.

The Regional Plan must set forth a general plan for implementing conservation measures and developing the resources required by Bonneville to meet its obligations, an'd must also incorporate a Qsh and wildlife program.The Regional Plan shall give priority to resources which the Council deter-mines to be cost<ffective, with priority among cost-effective resources given: first, to conservation; second, to renewable resources; third, to generating resources utilizing waste heat or of high fuel con-version efficiency; and fourth, to aH others.Also, due consideration is required to be given to environ-O.~o 26 mental quality;resource compatibility with the existing regional power system;protection, mitigation and enhancement of fish and wildlife;and other criteria as may be set forth in the Regional Plan.These same priorities and considerations guide Bonneville's resource acquisition determinations.

Conservarion and Resource Acquisirion:

To meet its obligations under the above-described pov:er sales contracts, the Regional Power Act requires Bonneville to implement conservation and to purchase power from resources developed by other entities.In acquiring resources under the act, Bonneville will not own or construct any generating resources.

Bonneville's acquisitions will be by contract to pay for the planned or actual capability, or power output from a generating resource, conservation resource or group of resources, or, in some cases, a specific amount of power from a utility's system.Bonneville's future obligations under contracts to acquire new resources shall be secured solely by its revenues received from the sale of power and other services and shall not be construed to be general obligations of, or secured by the full faith and credit of, the United States.The Regional Power Act requires that Bonneville acquire sufiicient firm resources under long-term arrangements to meet its contractual obligations to serve loads without consideration of any restrictions which Bonneville may be able to place upon its contractual obligations discussed above under"Power Sales Contracts".

Bonneville also may continue to use its authority under the Transmission Act to make short-term power purchases to meet its contractual obligations to the extent that it is unable to acquire sufhcient resources under the Regional Power Act."Resources" are defined as (i)electric power, including the actual or planned electric power capability of generating facilities, or (ii)actual or planned load reduction resulting from direct application of a renewable energy resource by a con-sumer or from a conservation measure.For a discussion of the load and resource deficits which Bonneville would be required to meet ii the rights under the act of the Pacific Northwest utilities, Federal agencies and direct service industrial customers are exercised, see Regional Power Requirements and Resources" under the caption"Power Supply in the Pacific Northwest".

If a Bonneville customer prefers to commit a conservation or generating resource to its own loads within the region instead of selling it to Bonneville, the Regional Power Act provides that Bonneville must pay biBing credits to that customer for qualified resources constructed, completed or acquired after the elfective date of the act to the extent such resources actually reduce Bonneville's obligations to serve loads in the Pacific Northwest.

The amount of such biBing credits for a resource other than a conservation measure will equal the net costs for such resource actually incurred by such customer, provided that the credit is limited such that the rate impact to Bonneville's other customers is no greater than the rate impact would have been had Bonneville acquired an equivalent amount of resources or conservation.

For conservation measures, the credit wiB equal the savings resulting from such measure, provided that the rate impact to Bonneville's other customers is equal to what the'rate impact would have been had Bonneville acquired an equivalent amount of resources or conservation.

The intent of the billing credit provision is to avoid financial disincentives, which may othenvise result from Bonneville's low rates, to customers who choose to develop their own resources which reduce additional demand on BonneviBe.

The procedures and determinations which must be completed before Bonneville acquires a con-servation or generating resource vary'depending upon whether or not a resource is a"major" resource.A major resource is one which is expected to produce or save more than 50 average megawatts and to be acquired for more than five years.Special procedures are required for Bonneville to acquire a major resource, implement a major conservation measure or grant billing credits for a major resource.Such procedures require public notices and hearings by Bonneville.

Thereafter, BonneviBe is required to make findings of consistency of such resource or other action with the Regional Plan, or if no plan is in effect, with the priorities and considerations, contained in the act.The Council may't'ake action by majority vote to determine whether or not the proposal is consistent within 60 days of receipt of such proposal.Bonneville is also reauired 27 to publish notice of its decision, to submit to appropriate committees of Congress the administrative record of the decision and to note the proposal in its budget submitted to Congress for review or other action.Bonneviile may acquire nonmajor resources which are not consistent with the plan but which Bonneville determines are consistent with the priorities and consideration contained in the act.If the Council determines that the proposed major resource acquisition is inconsistent with the Regional Plan or, if no Plan is in effect, with the priorities and considerations contained in the act, Bonneville may not implement its proposal until (i)it has determined that notwithstanding such incon-sistency the proposed resource or conservation measure is required to meet Bonneville's obiigations under the act and (ii)the funds for such acquisition have been specifically authorized by an Act of Con-gress, which may be accomplished by Congressional approval of a line item in Bonneville's budget submittal.

To the extent that Participants develop and sell to Bonneville the resources that they would have otherwise committed to serve their loads, the costs of such resources which the Participants would have incurred directly will be recovered by Bonneville through its rates.This will increase Bonneville revenues from Participants subject to net billing to pay for the costs of the Net Billed Projects, although to the extent that a participant receives billing credits from Bonneville under the Regional Power Act, the Bonneville revenues subject to net bining from an individual Participant tahng billing credits could be reduced.A detailed assessment of the economic impact of the Regional Power Act on Bonneville and its customers, including the Participants, cannot be completed until the power sales contracts authorized by the act are negotiated and until certain procedures required by the act have been developed.

4.Federal System Rates Federal System rates are developed by Bonneville and submitted to the Federal Energy Regulatory Commission

("FERC")for confirmation and approval.The Regional Power Act gives FERC express in-terim rate approval authority in addition to its fina1 approval authority.

The 1981 rates received interim approval by the Department of Energy in accordance with the provision of the act allowing the Secretary of Energy to establish interim rates effective until Juiy 1, 1982.The Regional Power Act directs that rates shall only become effective, except in the case of interim rules and procedures as provided in the act, upon a finding by FERC that the rates (i)are sufficient to assure repayment of the Federal investment in the Federal System over a reasonable number of years after nrst meeting Bonneville's other costs, (ii)are based on Bonneville's total system costs, and (iii)insofar as transmission rates are, concerned, equitably allocate the costs of the Federal transmission system between Federal and non-Federal power being transmitted over such system.Rare Filings: Bonneville has received interim approval of its 1976 transmission rate increase.That rate increase, effective June 10, 1977, produced an increase in annual transmission and miscellaneous revenues of about 22Ão in fiscal year 1978.By order of December 1, 1980, FERC remanded, without prejudice, Bonneville's 1976 transmission rate filing for further development of the record to demonstrate that the filing meets applicable statutory standards.

Bonneville is preparing its response to the FERC order and will forward the information to FERC as soon as it is assembled.

FERC's remand order has no bearing on Bonneville's authority to collect revenues under the file rate schedules pending final approval of the rates.As of March 31, 1981, transmission revenues totaling approximately S24,300,000 were subject to refund with interest in the event that FERC does not grant final approval of the transmission rate increase.Qn June 24, 1981, Bonneville received interim approval for its 1981 transmission rate increase which went into effect on July 1, 1981.The anticipated revenue from the rates for firm transmission service is, on the average, 43 percent higher than the level of revenue from the 1976 firm transmission rates.28 On December 3, 1979, Bonneville received interim approval for a power rate increase effective December 20, 1979, which, in conjunction with Bonneville's 1981 transmission rate increase, was intended to raise the level of Bonneville's annual revenues by approximately 88 percent.The whole-sale power rates were the subject of litigation discussed in"Bonneville Litigation

-1979 Power Rate Increase" below.On November 21, 1980, FERC issued an order remanding Bonneville's 1979 whole-sale power rate filing without piejudice.

The order required that Bonneville further supplement the ofiicial record in order to demonstrate that the rates and charges meet the applicable statutory standards.

Bonneville compiled the additional documentation requested by FERC and forwarded that information to FERC on July 10, 1981.FERCs remand order has no bearing on Bonneville's authority to collect revenues under the filed rate schedules during the interim period.Should FERC ultimately approve rates which are lower than those being collected on an interim basis, Bonneville may be required to refund excess revenues plus accrued interest.Revenues collected under the rates, which are subject to refund with interest if disapproved by FERC, totaled approximately

$327,094,000 on March 31, 1981.Rate's Under Regional Power Act: Enactment of the Regional Power Act substantially changes the manner in which Bonneville treats the costs which its wholesale firm power rates are designed to recover.Bonneville must still set rates to be sufficient to recover its total costs of doing business, including the costs of the Net Billed Projects and any new resource acquisitions.

Prior to the Regional Power Act, however, these total system costs were not differentiated into groups, and rates to aH customers were designed to recover total costs.The Regional Power Act changes this by establishing separate rates that are based on categories of resources and their associated costs.The rate for preference customers and Federal agencies, and for the power exchanged with any exchanging utilities to meet their residential and farm loads, is to be based on the costs of the Fed-eral base system resources, including the net billed projects.When the capability of Federal base system resources are exceeded, the rate will include first the costs of the resources acquired by the exchange with utilities at their average system cost, and then the cost of such additional resources acquired by Bonneville as are needed to supply such loads.This rate will be Bonneville's lowest firm power rate because it includes the low-cost Federal hydroelectric resources.

After July 1, 1985, the rates to preference customers and Federal agencies for their general requirements will be tested against a rate ceiling which is designed to ensure that their rates do not exceed what they would have been had Bonneville not engaged in power sales or purchase transactions authorized by the Regional Power Act.Should such rates exceed the ceiling, the excess costs are to be recovered from Bonnev01e's other power sales.Prior to July 1, 1985, the rates for sales to direct service industrial customers will recover the cost of resources required to serve these loads plus the otherwise unrecovered net costs associated with Bonneville's exchange with utilities for service to their residential and farm loads.These un-recovered exchange costs will represent the difference between (1)the costs to Bonneville of exchange power, and (2)the revenues received by Bonneville for power exchanged with utilities for service to their residential and farm consumers, to the extent that these costs are not recovered through Bonneville's rates to its other customers.

After July 1, 1985, rates to direct service industrial customers will be set at a level that is equitable in relation to the retail rates charged to industrial consumers by preference customers in the Pacific Northwest.

These rates will be adjusted to take into account various factors including the value of power system reserves made available to BonneviHe through its contractual rights to restrict service to its industrial customers.

In no case may the rates to direct service industrial customers be less than the rates in effect on June 30, 1985.A third rate category will be established for all other firm power sales such as: (i)the rate to investor-owned utilities to serve their total system load growth and deficits existing at the time of enact-ment of the Regional Power Act, (ii)the rate to preference customers to meet any new large single load on their systems, and (iii)the rate for any miscellaneous firm power sales.This rate category will be based upon the costs of resources which Bonneville determines are applicable to such sales.29 The Regional Power Act also provides for, among other things: (i)discretionary discounts to customers, such as small rural cooperatives, with low system densities, (ii)uniform rates for peaking capacity, (iii)an equitable allocation to all power rates of costs and.benefits which are not otherwise allocated such as those from the conservation, fish and.wildlife, and other provisions of the Regional Power Act, (iv)detailed procedures for Bonneville ratemaking, and for both interim and final confir-mation and approval of such rates by FERC, (v)the adjustment of rates to a customer which fails to implement any model conservation standards adopted by the Regional CouncH and endorsed by Bonne-ville, and the disposition of the revenues from such adjustment, (vi)special procedures for establishing rates for the sale of nonfirm power outside the Pacific Northwest but within the United States, (vii)the negotiation or establishment of rates for power sold to entities outside the United States which shall be equitable with rates charged by those entities to the Pacific Northwest and (viii)authorization to make impact aid payments to appropriate local governments within the region which are impacted substantially by major transmission facilities completed after enactment of the Regional Power Act.Bonneville's proposed power sales contracts will give it the right to increase its power rates to the extent necessary no sooner than nine months from the latter of (1)the date that appropriate Notice of Intent is published in the Federal Register, or (2)the previous rate adjustment date.198I Power Rare Filing: Rates submitted to FERC in June 1981 were developed to conform to the new rate directives contained in the Regional Power Act and are designed to include the costs of the exchange with utilities for the benefit of their residential and farm consumers, the cost of new conservation and generating resource acquisitions necessary to meet the power sales obligations which Bonneville may be expected to assume under the Regional Power Act, and other costs to Bonneville.

Bonneville has made an estimate oi the costs associated with the implementation of the Regional Power Act and included that estimate in the development of its 1981 wholesale power rates.Bonneville estimates that these costs, as included in its 1981 wholesale power rates, total approximately

$184 million, excluding the cost associated with the exchange of power with utilities for their residential and farm loads.The net exchange costs will be paid by BonneviUe's industrial customers to the extent these costs are not recovered through Bonneville's rates to its other customers.

On June 24, 1981, Bonneville received interim approval for its 1981 power rates which became effective on July 1, 1981.The anticipated revenue from the new rates for the sale of firm power to preference customers is expected to be approximately 59 percent higher than under the prior rates.The increase is attributable to the combined effects of higher costs of the Federal System due to the addition of new facilities and infiation, increased costs of Projects Nos.1 and 2, a reduction in the revenues estimated to be attainable from the power rates placed into effect in December 1979, and costs associated with the Regional Power Act.General Counsel to Bonneville anticipates litigation on these rates at some unknown time in the fumre.Bonneville bases its anticipation upon briefs filed and arguments presented by the parties in Bonneville's hearings related to its 1981 power rates and upon petitions to intervene filed by such parnes with FERC regarding such rates.The outcome of any such litigation will not affect the obligations of Bonneville under the Net Billing Agreements and the Project No.1 Exchange Agreements.

In fiscal year 1980 the average cost per kWh paid to Bonneville by its preference utility customers for firm power including firm capacity was 6A4 mills.Estimated fiscal year 1981 costs paid to Bonne-ville by its preference customers is 7.55 mills per kWh.This estimate is based on projected firm energy loads.By 1985 the average cost paid to Bonneville by its preference customers is expected to be 23.5 mills per kWh.These existing and estimated costs are substantially less than comparable existing and expected wholesale power costs in other areas of the nation and the average retail rates of these customers are expected to remain weH below average rates paid in other areas of the nation.Bonneville has calculated that the average cost per kWh in 1979 paid by all retail customers of its preference utilities was 11.82 mills per kWh, with residential customers paying 13 45 mills per kWh.For a discussion of the average residential cost of power in the Pacific Northwest as compared to other regions of the United States see"Regional Comparison of Energy Costs" under the caption"Power Supply in the Pacific Northwest".

30 Revenues from Preference Customers...........

Less: Net BiHing Obligations(5)

................

Revenues available to BonneviHe or (ii'et Billing Deficiency)(6)

Average Charge (miHs per kWh)..............

61,'49 124 130 162 7.5 11.4 16.5 21.5 23.5 (1)The preliminary revenue estimates for fiscal years 1983, 1984, and 1985 include costs based upon the Supply System's 1982 project construction budgets (see"Federal System Rates" above).Revenues for aH years refiect only finn power sales to preference customers.

Additional revenues from non-firm energy sales, transmission services, and other miscellaneous revenues from preference customers are also subject to net billing but are not included in this table.(2)Includes revenue to pay the debt service associated with Projects Nos.1 and 2.(3)Includes revenue to pay the debt service associated with Projects Nos.1, 2, and 3.(4)Includes revenue to pay the debt service associated with Projects Nos.1 and 3, and the total annual costs of Project No.2.Revenues include the sale of power generated at Project No.2.(5)Net billing obligations equal that portion of participants'bligations to Bonneville for power and other services which is credited on participants'onthly Bonneville bills to pay for the participants'et billings obligations to the City of Eugene, Oregon, and to the Supply System in the manner described under the caption"Security for the Net BiHed Bonds".Net billing obligations are calculated for ratemaking purposes by assuming that the projected capital costs of the net billed projects will be amortized ratably over the life of the bonds.(6)A net biHing deficiency is the amount by which BonneviHe's obHgation to pay to the participants the annual costs of the net billed projects exceeds the participants'bligations to pay Bonneville for power and other services.Net billing deficiencies, if any, will be paid in the manner described under the caption"Security for the Net Billed Bonds".'Rates to preference customers are based, for the most part, upon the costs of the Federal base system-resource pool.This pool includes the costs of the Net Billed Projects.BonneviHe revenues from preference customers are expected to increase in the fiscal years 1983 through 1985 as a result of additional costs of the Net Billed Projects, additional costs of Federal investments, inQation, and increased Regional Power Act costs.Because the additional cost impacts of the Net Billed Projects on this pool are expected to increase more rapidly in the near term than other costs, the rates to prefer-ence customers will consequently increase more rapidly than those based upon other reso'urce pools.Bonneville currently estimates that its revenues from preference customers will exceed BonneviHe's net billing obligations through September 30, 1985, the last fiscal year for which revenues have been estimated.

To the extent that net billing obligations may exceed such revenues in later years, Bonneville will make such net billing deficiency payments either (i)through assignments of portions of'such partici-pants'hares to other Bonneville customers, thereby using their net biHing capacity or (ii)by Bonneville, in cash, from the BonneviHe Power Administration Fund.In accordance with the Transmission Act, any payments from the Fund for annual costs of such projects are treated on a parity with other Bonneville operating expenses and take priority over BonneviHe's obligation to pay the Treasury for amortization.and interest on the investment in the Federal System and related operation and main-tenance expenses of the Corps and the Service.Because the Regional Power Act requires BonneviHe to sign new requirements contracts with requesting preference customers, including the Participants, Bonneville expects that its revenues from Par-ticipants will be greater than it BonneviHe, in the absence of the Regional Power Act, had made an admin-istrative aHocation of limited Federal resources beginning in July 1983.To the extent that Participants Estimated Bonneville Revennes from Preference Customers The following table represents an estimate of the revenues to be derived by Bonneville from preference customers and subject to net billing from the present through 1985.This estimate assumes that aH preference customers, will sign new net requirements contracts with Bonneville.

Estimated BonnevHle Revenues from Preference Customers(1)(Dolhrs la Mmons)Hscal Yeas Eading Sept~mba 30 1981(2)1982(2)1983(3)1984(4)1985(4)288 476 710 946 1,093 227 327 586 816 931'1 develop and sell resources to Bonneville which they would have otherwise committed to serve their loads, the costs of such resources will be recovered by Bonneville through its rates.This will increase Bonneville revenues from Participants subject to net billing.To the extent that a participant receives billing credits from Bonneville under the Regional Power Act, the Bonneville revenues subject to net billing from an individual participant taking billing credits could be reduced.Federal System Historical Reventtes and Expenses The following statement of Federal System revenues and expenses is based on the accrued cost accounting method of financial reporting and shows audited Federal System revenues and expenses for the Transition Quarter, and fiscal years 1976 through 1980, and unaudited revenues and expenses for the first six momhs of fiscai year 1981.Bonneville prepares financial statements for the Federal System on this basis to assess its financial condition in a manner similar to a commercial enterprise.

The Federal System financial statements and notes thereto for fiscal years 1980 and 1979 are attached as Exhibit H.iNote 1 of Exhibit H describes the basis of preparation of Federal System financial statements and the significant accounting policies used in their preparation.

The following statement of historical revenues and expenses has been examined by Coopers 8r, Lybrand, independent certified public accountants, for the fiscal years ended September 30, 1980 and 1979, and should be read in conjunction with their report and the other financial statements and related notes for these years included herein as F&ibit H.Coopers Sc Lybrand has also examined the state-meats for 1977, 1978, and the Transition Quarter and issued similar reports thereon, which reports are not reproduced in this Official Statement.

The statement for fiscal year 1976 was examined by the General Accounting Office and reported upon by the Comptroller GeneraL Federal System Historical Revenues and Expenses (Dollars la Thousands) six Meectl E$3dcd March st, 19d1 (U?$essdttc4 Ftceet Yeer Essdcd Seycc3221)er SO, Tressstuea (carter$2ded Sct)tcs321)cr 30, 1916 Ftcecl Ycer Eadcd S(8$$c 00, 09EEAnNo REvE~(I)(2)Sales of electric power: Publicly owned utilities Privately owned utilities Federal agencies.....Aluminum industry...Other industry.......KVheeiiag and other operanag revenues(3)

.Total operating revenues..~~.~00EmTtvo ExrsssEs Opera!iona Xiajatenance Purchase and exchange power(4)(S)(6)

~~~~~Writewff of Trojan Nu.clear Project aet billing advances(7)

De preciatioa Total operating expenses Iieet operating revenues......IrrrEazsr EmENsE Iaterest oa Federal in.vestment Allowance for funds used during construction

...63fet intereSt expense(8)

NET REvEÃvEs (APE:tsE)....$157,598 58,194 5,001 74,191 6,991$258,087 75,567 8,045 116,647 12,374$146,796 48,131 4,840 53,168 4,584$136,373 68,475 8,764 74,676 7,379$125492 24,299 3,530 37,401 4,083$25,429 19,672 2,263 19,791 1,759$126,772 57,395 7,975 70,927 7,976 25.963 41,746 39,040 38.297-8.987 6.594 327.938 S(2.466 296,559 333.964 2'13,592 75,508 51,019 25,703 104,444 49,610 76,$47" 46,601 68,184 41,914 5$,772 39,019 13,439 9,171 25.953 296.998 48,77$30,516 120,223 138,533 25,195 51,130 23,719 7,176.7,692 27,537 224,482 44,210 51.380 S0,164 47,580 42.49S 10,1$6 388.17?198,507 208.SOS 161.005 39.942 103.456 124,289 98.052 125,156 62.587 35,566 38.785 125.768 171"30 121,016 225,699 197,972 169,079 146,866 3630$139,665 (18."18)(41.920)("9,971)(6.859)(28,373!(6,712)(35,561)102./98 183.779 168.001 142.220 118.493 29.593 104.104 5 658$(59,490)$~(69.949$~()7.064$(55.906)$5.973$67.126 32 (Footnotes on foffo)6/fng page)

Electric power reveriues for the six months ended March 31, 1981;and the year ended Sep-tember 30, 1980, reQect increased power rates effective December 20, 1979.Revenues resulting from this increase in power rates, which are subject to refund with interest if disapproved by FERC, totaled approximately

$195,775,000 at September 30, 1980 and$327,094,000 at March 31, 1981 (see"Federal Systc,m Rates"}.(2)Revenues are significantly affected by weather conditions in the Columbia River basin.In fiscal year 1979 reduced sales of electric power were due to low streamQows which resulted in restric-tions of service to direct service industrial customers and reduced secondary energy available for sales to privately-owned utilities.

The regionwide drought during most of the fiscal-year 1977 reduced sales of electrical power in that year.(3)wheeling and other operating revenues refiect a transmission rate increase of approximately.22/o effective July 1, 1977, and an increase in other revenues from the use of Bonneville transmission facilities (see"Federal System Rates").(4)Purchase and exchange power expense for the six months ended March 31, 1981 reQects Bonne-ville payments, billing credits and amortization of previously deferred payments and billing credits totaling S45,801,000 and$43,598,000 for Projects Nos.1 and 2, respectively.

(5)Since January 1, 1980, Bonneville payments and billing credits totaling$68,702,000 and$106,579,000 required under net billing agreements for Projects Nos.1 and 2, respectively, have been charged directly to purchase and exchange power expense.Formerly, such amounts were deferred ($55,537,000 was deferred in 1977,$57,936,000 in 1978,$88,275,000 in 1979 and$10,759,000 in the first three months of fiscal year 1980)for future amortization to expense over the project esumated useful life commencing with the date of commercial operation.

This change from deferring such amounts'to including them as annual expenses was made because the new power rates effective December 20, 1979, provide for current recovery of thermal plant net billing advances.Additionally, since the new rates provide for recovery of the deferred amounts, amortization thereof over a 35 year period was commenced in December 1979.Amortization of$4.554,000 and$3,036,000 is included in purchase and exchange power expense for fiscal year l980 and for the six months ended March 31, 1981, respecfively.

(6)Changes in purchase and exchange power expense for fiscal year 1979 and prior are due primarily to Quctuations in the cost of Hanford Project power and the cost of acquiring the City of Eugene's share of the Trojan Project (see"Acquisition of Project Capability and Power Supply").(7)The terms of the Trojan Nuclear Project net billing agreements, under which the City of Eugene ("the City")assigned its 30 percent share of the project capability to Bonneville and other parti-cipants, contained a provision allowing the City to withdraw the project capability for use in its own system beginning in 1984.Had the City exercised its withdrawal rights a settlement for Bonne-ville's prepaid Trojan costs would have been negotiated at the time of withdrawal, and accordingly such prepaid costs were included as net billing advances on Bonneville's balance sheet.On July 1, 1980, the City's right to withdraw expired, and the balance of Bonneville's prepaid Trojan costs was charged to 1980 expense.(8)N Net interest expense for 1980 and for the six months ended March 31, 1981, increased prin-cipally because of additional borrowings on September 30, 1979 and 1980 from the Treasury under the Transmission Act and additional interest on new appropriations for generating projects.Re~jonal Loads and Resources The Regional Power Act requires that Bonneville offer to sell power to each utility to meet the utility's firm power loads in the Pacific Northwest which exceed that utility's resources committed to such loads.The act also requires that the Council adopt a regional electric power and conservation plan which shall include a twenty year.projection of loads and resources.

Therefore, the loads and resources assessment of the Federal Svstem must now consider the" regional potential as its potential planning 33 base.The table entitled"Regional Loads and Forecasts" under the caption"Power Supply in the Pacific Northwest" includes loads and resources Bonneville must plan to serve under existing contracts and the resources currently available to serve such loads, as well as the loads and resources which are forecas;for the region.Bonneville annually submits to the PNUCC its estimated loads and resources.

These loads and resources are then combined with the loads and resources of other utilities to develop long-range planning studies.In order to carry out its obligations under the Regional Power Act, Bonneville is currently developing an independent forecast of regional loads and resources.

The 1981 PMJCC forecast includes new utility load forecasts which represent a lower rate of regional load growth than that published in the 1980 Blue Book as well as an adjustment to Federal System loads.Bonneville expects to use the 1981 forecast as an interim planning document until its own forecast more completely reflecting developments under the Regional Power Act can be developed in early 1982.The following table sets forth the rate of energy load growth experienced by Bonneville's preterence customers during the years ended June 30, 1971 through 1981.(July 1 to June 30)1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 Rate~'%)4.8~~~2.8 4.9 1.9 5.5...9.4 4,3 3A 9.0~~~~~~~~~1 9~~~~0 22 o Percentage increase over previous year.Energy load growth rates can be affected signiffcantly by (1)voluntary conservation such as that which occurred in response to drought conditions experienced in 1974, 1977 and 197&, (2)poor economic conditions affecting industry such as those of 1972, 1974, and recently, and (3)unusually low or high average seasonal temperatures such as the abnormally low winter temper'atures of 1979 which spurred growth or the warm winter temperatures which in 1980 and 1981 contributed to lower than expected use of electricity for space heating.Recent low rates of energy load growth are a result of above normal winter temperatures and prolonged unemployment in the lumber and wood products industry which began in the spring of 1980.The 1981 PNUCC forecast projected an average compound rate of load growth for Bonneville's preference customers of 3.8%for the years ending June 30, 1982 through 1992.This compares to a historical rate for such customers of 4.5'or the period 1971 through 1981.As the historic growth rates have declined, forecasted growth rates have followed.(The one-time reduction by Bonneville to forecasted Federal System loads is attributable to the system as a whole and is not to be disaggregated by a class of customer.It therefore is not considered in the forecast growth rate for preference cus-tomers.)In general, high rates of inflation and the region's growing dependence on high cost thermal generation have produced increases in the cost of electricity to consumers and have tended to suppress the growth in energy consumption relative to earlier periods.Heightened awareness of the need and means to conserve electric energy has also produced voluntary reductions by consumers in electric energy use and has led to increasing utility efforts to implement electric energy conservation programs which seek to offset the need for more expensive thermal generation.

Some individual utility fore-34 0 casts have also considered the likely impacts of voluntary conservation and increasing energy costs on projected electric energy usage.Nevertheless, it is estimated that preference customers'irm energy requirements will double between 1981 and 2001.BonneviHe Litigation Hydro Thermal Power Program Phase 2: Bonneville's participation in Phase 2 of the Hydro Thermal Power Program has been the subject of two lawsuits.Both originated in the United States District Court for the District of Oregon and both were appealed to the Ninth Circuit Court of Appeals.In both instances the Ninth Circuit Court of Appeals affirmed the judgment of the lower court requiring Bonneville to prepare and file Environmental Impact Statements relating to its participation in Phase 2 of the Hydro Thermal Power Program.In the first case Bonneville has filed two Environmental Impact Statements and is taking steps to have the outstanding judgment declared satisfied.

In the second case, the matter ivas dismissed on the grounds that the case was moot as a result of the passage by Congress of the Regional Power Act (see"The Regional Power Act" under the caption"Bonneville Power Administration").In the opinion of General Counsel to Bonneville and Bond Counsel and.Special Counsel to the Supply System, the remaining judgment does not adversely affect the validity of, or Bonneville's obligations under, the Net Billing Agreements, the Project No.1 Exchange Agree-ments or the Project Agreements.

1979 Power Rate Increase: On January 22, 1980, Pacific Power&Light Company filed suit in the United States District Court for Oregon against DOE and Bonneville to have the Assistant Secretary for Resource Applications'nterim rate order of December 3, 1979, declared unlawful and for other relief.Portland General Electric Company and the Oregon Public Utility Commissioner intervened as plaintiffs in the lawsuit.The Public Power Council-intervened as defendant.

On September 30, 1980, the Court issued its opinion (amended October 14, 1980)ruling in favor of the Federal defendants in all respects.Plaintiffs in the Pacific case filed timely appeals of the Court's decision, but later moved for voluntary dismissal.

The appeals were dismissed on February 13, 1981.On June 6, 1980, the Montana Power Company (" Montana")and the Idaho Power Company filed suit in the United States District Court for the District of Montana seeking an injunction against collection of the interim rates approved by the Assistant Secretary for Resource Applications in her order of December 3, 1979, and for other relief.Upon the Federal defendants'otion, the case was transferred to the District of Oregon.By opinion and order of May 18, 1981, the court ruled in favor of Federal defendants in all respects and ordered the case dismissed.

An appeal was filed on August 21, 1981.Potenrial Lirigarion.

For a discussion of potential liYigation involving Bonneville's 1981 power rate filing, see"Federal System Rates" above.For a discussion oi potential litigation which may challenge the validity of the Net Billing Agreements see"Threatened Litigation" under the caption"Litigation".

THE SUPPLY SYSTEM The Supply System, a municipal corporation and a joint operating agency of the State of Washington, was organized in January 1957 pursuant to the Act.Its membership is made up of 19 operating public utility districts and the cities of Ellensburg, Richland, Seattle and Tacoma, all.located in the State of Washington.

The Supply System has the authority, among other things, to acquire, construct and operate plants, works and facilities for the generation and transmisson of electric power an'd energy and to acquire uranium bearing hnds, as well as to make surveys, plants, investigations or studies relating thereto.The Supply System has the power of eminent domain, but it is specifically precluded from the condemnation of any plants, works or facilities owned and operated by any city, public utility district or investorwwned electric utility.The Supply System has its principal office in Richland, Washington.

The management and control of the Supply Svstem is vested in a Board of Directors (the"Board")composed of representatives from each of its members.The Executive Committee, consisting of seven members of the Board, administers the business of the Supply System between regular quarterly meetings of the Board.The Executive Committee meets regularly twice a month.For discussion of recent legislation with respect 35 to management and control of thc Supply System, see"State Legislative Developments" under the caption"Legislative Developments".

The Supply System's packwood Lake Hydroelectric project, Haaford project, project No.1, project No.2 and its Ownership Share of Project No.3 have each been and are being financcd as separate utility systems.Projects Nos.4 and 5 are beiag finaaced together as one utility system.The obligations issued with respect to each such system are payable solely from the revenues of that system.Management of the Supply System The management of the Supply System is under the direction of the Managing Director, who serves at the pleasure of the Board.The following are members of the Supply System's management staff and their backgrounds.

RoBERT L.FERoUsoN, Managing Director.prior to joining the Supply System, Mr.Ferguson served as the Deputy Assistant Secretary for the U.S.Department of Energy's Nuclear Reactor Programs in Washington, D.C.In 1971, he became Assistant Manager for Programs for the Richland office of the former Atomic Energy Commission (the"AEC")and served as Director of the Fast Flux Test Facility (the"FFTF")at Hanford from 1973 to 1978 where he was responsible for planniag and directing advanced reactor technology aad coastruction for the experimental reactor.From 1961 to 1970, Mr.Ferguson served as Reactor Safety Engineer for experimental and power reactors with the Chicago Operations OKce of the AEC and was later promoted to Assistant Manager for Projects and Deputy Assistant Manager for the Chicago AEC offic.Mr.Fermxson holds a Bachelor of Science degree in physics from Gonzaga University in Washington.

ALEXANDER SQUiRE, Deputy Managing Director.In this position Mr.Squire assists the Managing Director in the overall Supply System construction program.Mr.Squire has thirty-five years of experience in senior engineering and management posiuons.Prior to joining the Supply System in July, 1980, he served as President of Westinghouse Hanford where he was responsible for the Hanford Engineering Development Laboratory and the FFTF.He is a charter member of the American iVuclear Society and was elected to the National Academy of Engmecring in 1979.Mr.Squire holds a Bachelor of Science degree in Electro-chemical Engineering from the Massachusetts Institute of Technology.

DQNALD W.iVIAZUR, Projects Nos.1 and 4 Program Director.In this position Mr.Mazur is responsible for all project activities regarding Projects Nos.1 and 4.Mr.Mazur has 18 years of general aad nuclear related construction experience.

Prior to joining the Supply System in November 1980, he served as Project Manager with the Field Project Once of the Department of Energy's Strategic Petro-leum Reserve program in Louisiana.

Prior to assuming this post, he served as Deputy Director of the FFTF, where, he assisted in its overall construction, eagineeriag aad startup.Mr.Mazur holds a Bachelor of Science degree ia Mechanical Engineeriag Rom the Lawrence Institute ot'echnology ia ivlichigan.

DR.ROBERT MATLoCK, Project No.2 Program Director.In this position Dr.Matlock is primarily responsible for the construction and completion of Project No.2.Prior to joining the Supply System ia August 1980, Dr.Matlock's experience includes twenty years in advanced engineering projects, both in design and management of nuclear, fossil and solar energy research and development programs.Hc also served in a senior capacity in the experimental nuclear reactor construction, startup and operations at the Department of Energy's Idaho Nuclear Engineering Laboratory in Idaho Falls.Dr.Matlock holds a Bachelor of Science degree in Mechanical Engineering from the University of Washington and a Doctorate in Nuclear Physics from the University of Colorado.RQTH S.LEoatcit, projects Nos.3 and 5 program Director.In this position Mr.Leddick is responsible for all project activities regarding Projects Nos.3 and 5.Prior to joining the Supply System in March 1981, Mr.Leddick served most recently as Director, Special Nuclear Program for the Northern States Power Company and also as Project Manager for their Prairie Island, Minnesota Nuclear Power Stations.As Project Manager, he was responsible for engineering, licensing and construction of new power plants as well as modification projects for existing nuclear power stations.As Project Manager at Prairie Island, he supervised the successful fuel loading, startup and commercial operations of two Prairie Island Nuclear Power Plants.Mr.Leddick holds a bachelor's degree from the U.S.Naval Academy, a second bachelor's degree and a master's degree, both in Mechanical Engineering, from the U.S.Naval Postgraduate School, has completed the U.S.Naip's Naval Nuclear Power Training Program and has the equivalent of a Masters of Business Administration degree from the Industrial College of the Armed Forces in Washington, D.C.As of July 1, 1981, the Supply System employed 2,142 persons, including 1,272 persons in execu-tive, finance and administrative functions, 491 persons in projects operation programs and 379 in the technical area.The technical staff, with electrical, mechanical, civil and nuclear engineering and other technical disciplines, has over 7,300 man-years of technical experience including over 4,500 man-years of nuclear experience.

Management Actions Since August 1980 Mr.Robert L.Ferguson was appointed Managing Director of the Supply System on August 1, 1980.Since that time he has undertaken significant steps to establish a strong management team in order to attain the objectives of the Supply System of supplying reliable and low cost electric power for the consumers of the Pacific Northwest.

The Managing Director has assembled a new management team of highly qualified professionals from the nuclear and construction industries.

The management of construction and startup at the Supply System's nuclear projects has been decentralized and program directors for each of the sites have been hired who are directly responsible to the Managing Director for the performance of the projects against the 1982 project construction budgets and schedules.

In addition, a duplication of responsibilities was eliminated when the Supply System removed its staff from acuve construction manage-ment and changed its primary role to management coordination and overvi w.The Managing Director also established an independent nuclear safety evaluation group for each of the Supply System's nuclear projects.A Corporate Nuclear Safety Review Board was also formed to routinely review major safety items and to advise the Managing Director on safety matters.In order to increase construction progress the Managing Director appointed a special engineering task force to make a comprehensive evaluation of construction management at the Supply System.The major recommendations of the task force have been substantially implemented by the Supply System, including the end of joint management, clarification of the separate responsibilities of the owner, the architect-engineer and construction manager, review of overspecificafion of technical requirements, delegation of more authority for timely action, realignment of selected contracts and improvements in coordinated schedules.

A number of the steps taken by the Managing Director were also in response to the findings included in the report issued by the Senate Committee on Energy and Utilities of the Washington State Legislature.

For further discussion of this report see"Washington Senate Inquiry" under the caption"Legislauve Developments".

Projects ln Operation The Supply System owns and operates the Packwood Lake Hydroelectric Project with a nameplate rating of 27,500 kilowatts.

The Supply System has sold 313,700,(,00 Packwood Lake Hydroelectric Project Revenue Bonds, of which$11,809,000 remain outstanding as cf July 1, 1981.The Supply System owns and operates an 860,000 kilowatt electric generating plant and associated facilities (the"Hanford Project")located on the Hanford Reservation of DOE, one of the successor agencies to the AEC.The Hanford Project was constructed pursuant to agreements between the Supply System, Bonneville, the AEC and 76 Pacific Northwest utility participants.

Under these agreements Bonneville acquired the capability of the Hanford Project in exchange for power from 37 the Federal System.By-product steam is provided for the Hanford Project from the New Production Reactor owned and operated by DOE for national defense purposes.In 1963, the Supply System issued$122,000,000 Hanford Project Electric Revenue Bonds (the"Hanford Project Bonds"), of which$46,045,000 remain outstanding as of July 1, 1981.(See"Hanford Project and its Relationship to Project No.1" under the caption"Project No.1".)Projects Under Construction The Supply System has under construction five nuclear electric generating plants.Projects Nos.1, 2 and 4 are located near Richland, Washington, on the Hanford Reservation of DOE.Projects Nos.3 and 5 are located near Satsop, in Grays Harbor County, Washington.

See the captions"Project No.1","Project No.2" and"Project No.3".Project No.4 will be a duplicate of Project No.1, and is scheduled for commercial operation in June 1987.Project No.5 will be a duplicate of Project No.3, and is scheduled for commercial opera-tion in December 1987.Project iVo.5 is jointly owned, with the Supply System owning a 90%share and the Pacific Power&Light Company owning a 10%share.Construction on Project No.4 was approximately 23%complete, and on Project No.5 was approximately 14%complete as of July 1, 1981.The Supply System has issued$2,250,000,000 principal amount of revenue bonds to pay a portion of the costs of acquiring and constructing these projects.On June 18, 1981, the Supply System instituted a slowdown of construction of Projects Nos.4 and 5.The Supply System and the participants in Projects iVos.4 and 5 are currently proceeding with the prepa-ration of a bond issue for Projects Nos.4 and 5 for sale in October.See"Status of Projects Nos.4 and 5 and Possible Effect on iVet Billed Projects" under the caption"Recent Developments".

The bond issues for these projects are secured by agreements with 88 public agencies and electric cooperatives.

Under these agreements the Supply System's share of the capabiTity of these projects has been sold to these parties.Bonneville is not purchasing any power from Projects Nos.4 and 5 and is not a pmty to these agreements.

Schedules and Budgets Schedule Revisions:

In the course of preparing the 1982 project Supply System adopted revised schedules for each of its nuclear projects as 1981 Budget Schedule Commercial Extension Nuclear Prolect Operatloa Date 11 10nma No.1."..............

June 1985 12 No.2 January 1983 13 No.3....~.~...~~...June 1986 6 No.4...........,...

June 1986 12 No.5, June 1987 6 construction budgets, the follows: 1982 Budget Commercial Operation Date June 1986 February 1984 December 1986 June 1987 December 1987 The schedules were extended as a result of: (a)labor stoppages at the Hanford site during the period between June and iVovember 1980 which are estimated to have caused delays of eight months at Projects Nos.1, 2 and 4;(b)quality assurance problems at Project No.2 which affected construction progress;(c)a crane accident and labor stoppage which are estimated to have caused delays of three months at Projects Nos.3 and 5;and (d)increased commodity quantities, manhours and construcuon durations resulting from a comprehensive evaluation of quantities of materials to be installed and reevalu-ation of achievable producuon rates.Project and Consrrucrion Completion Percentages:

Traditionally, the Supply System has used construction completion percentages to measure and report project construction progress.In order to more accurately monitor and control construction of its projects, the Supply System will report two completion percentages, the traditionally reported construction completion percentages and total project completion percentages.

Total project completion percentages incorporate the following five elements: 38 (1)program management; (2)architect-engineer engineering; (3)prepurchased equipment; (4)coa-struction; and (5)operations and startup.The reporting of the two completion percentages is expected to be adopted and implemented in the near future.Project Construction Budgets: The Supply System project construction budgets are updated annually by the Supply System and incliide the estimate of the cost to completion for each of its projects.The construction budgets consist of five major elements: (1)direct construction, including architect-eagineer and construction manager services costs, (2)owner's administrative costs, (3)nuclear fuel, including reload fuel paid for prior to commercial operation, (4)iaterest, financing and reserves and (5)project contingencies.

Major improvements have been incorporated into the 1982 budget process including delineation of budgeting responsibilities of the construction managers for construction costs, architect-engineers for engineering costs and the Supply System for fuel and administrative costs and strict accountability there-for and implementation of a"zero-base" budgeting concept.The following table summarizes the increases in the 1982 project construction budgets from the 1981 project construction budgets: Project No.1(4)No.2...'.No.3....Nos.4 and Totals.Total Estimated 1982 Budget(2)3 4,268 3,216 4,532 5 (5)11,771 323,787 1981 Budget$2,736 2,467 3,130 7,615$15,948 Incr casa$1;532 749 1,402 4,156$7,839 1982~Bud~t(2)$3,190 2,506 21458 11,179$19,333 1981.Budget$2,155 1,986 1,822 7,231$13,194 (ueeeute 81,033 520 636 3,948$6,139 Budget Comparisons (Dollars In Mllions)Costs at Completion(1)(2)

Supply System Fhancing Requirements(2)(3)

(8)15 100%39 (I)Includes Supply System financing requiretnents for its projects, payments by the investor~wned utilities which are part owners of Projects dVos.3 and 5 and the debt service on bonds issued for Projects Nos.I, 2 and 3 and cermin reserves which have been or will be paid by Bonneville prior to the projected commercial operation dates.(2)Does not include any possible impacts which may result from a terminaiion of either Project Vdo.4 or Project No.S.(3)Includes 56,095 million of bonds issued to date.(4)Does not refiect the fuel acquisition from Projects Nos.4 and 5 discussed under"Nuclear Fuel" under the caption"Project No.1".(5)Does not refiect any possible acuons that may be taken by the participants in projects Nos.4 and S.See-Status of projectsNos.

4 and 5 and possible Eifect on Net Billed projects'nder the caption"Recent Developments".

The following table reflects the percentage and amounts (in millions of dollars)of the total increase in financing requirements of each Supply System project by category in the 1982 project coastruction budgets from the 1981 project coastruction budgets: Prefect eVO.1 Profect Vo.2 Prolect No.3 Protects Noe.4 4(S Donar pcrceolace Donar perceatace Dollar percentage Donar perccotace t tt t lt t tt I tt Direct Construction Costs Additional Amounts of Craft Labor and urfaterials

.......5 580 56%5260 50%5337 53%5711 18%Higher Vdon-))fanual Manhours 269 26 182 35 204 32 474 12 Higher Assumed Iniladon of Longer Duration..........

114 11 26 5 38 6 197 5 (Vet interest During Construc-tion(1)Higher Assumed Interest Costs Capitalized for Longer Per.iods.....(83)(47)(9)'64)(10)1,895 48 Reserves and Financing Costs..155 99 19 121 19 671 17 Totals 51.035 5520 100%5636 100%53.948 100%(1)For the Vget Billed projects.Net Interest During Construction decreased as a result of an increase in estimated investment income deposited to the Net Billed Projects'onstruction Funds.All interest expense, to the extent not capitalized, for the Net Billed projects will be paid by Bonneville prior to thc projected commercial operation dates.

The following table summarizes the estimated project annual costs for each of the Net Billed Projects based on the costs and schedules in the 1982 project construction budgets: Summary of Net Billed Projects'stimated Annual Costs Fiscal Year Eadlae lune 30 198'I 1988 1989 1990 Project No.1 Total Project Annual Cost ($000)......Annual Energy Generation (G4VH).....Annual Cost (mills/KWH)

$433,791$467,604$482,349$499,061 6,615 7,163 7,665 7,665 65.6 65.3 62.9 65.1 Project No.2 Total Project Annual Cost ($000)......Annual Energy Generation (GWH).....Annual Cost (mins/KWH)

$379,955 6,745 56.3$397,189 6,745 58.9$414,887 6,745 61.5$435,901 6,745 64.6 Project No.3 (Supply System's Ownership Share)Total Project Annual Cost ($000)......$182,608 Annual Energy Generation (G4VH).....2,650 Annual Cost (mills/KWH)

...........

68.9$351,907 4,783 73.6$366,794 5,163 71;0$386,817 5,323 72.7 Factors Ajjecring Project Corrstrucrion Budgets and Schedules:

The Supply System has expe-rienced, in varying degrees, certain problems which are common among electric utilities including (a)increasing costs of fuel, wages, materials, equipment and licensing requirements, (b)substantially in-creased capital outlays and longer construction period for the larger and more complex new generating units, (c)compliance with changing environmental, safety and licensing requirements, (d)litigation and proposed legislation designed to delay or prevent construction of nuclear electric generating and other facilities, (e)work stoppages resulting from contractor labor problems, (f)increased financing require-ments resulting from the foregoing'and (g)uncertainties associated with the development of a national energy policy.The basic factors utilized by the Suoply System in estimating construction costs are subject to change.To the extent that these factors, such as productivity levels, manhour requirements and escala-tion rates, are found on the basis of actual experience to be less favorable than current assumptions, or other factors adversely affect construction, the schedules of the projects may be extended and the costs of the projects may increase proportionately.

The NRC has approved reports that consolidate corrective ac:ions derived from its own and other studies of the Three Mile Island accident.Certain requirements remain to be defined either by additional study or future NRC rulemaking.

Other agencies of government are conducting, and may be expected to conduct in the future, reviews relating to nuclear electric generation as a result of this accident.The Supply System has incorporated all known and some anticipated requirements into the designs and budgets of its nuclear projects.However, the Supply System cannot predict future findings, recommendations and other results of these or any future studies and hearings, whether any recommended legislation will be adopted, or whether governmental regulations affecting nuclear generation will be significantly modified.While the Supply Svstem cannot predict the effect of any of the fore oing on it or its projects, facilities under construction may be subjected to changes in regulatory requirements and to closer reg-ulatory scrutiny, which in turn may increase exposure to licensing related impacts on schedules, design and operating requirements.

40 e Construction iVlnnagement Consrracrion Management Services: The Supply System has entered into an agreement with Bechtel to provide construction management services for Projects Nos.1 and 4, other than the containment vessel.A copy of Bechtel's report, with respect to Project No.1 is attached as Exhibit C.Until January 1981, engineering and construction management were performed jointly by Supply System and United Engineers&Constructors Inc.("UE&C").Joint management was ended during the period January through May 1981.The transfer of responsibility for primary construction management services from UE&C to Bechtel was completed on May 1, 1981.UE&C continues to be responsible for engineering services and construction management services for the containment vessel for Projects Nos.1 and 4.The Supply System is in an overview management role.Bechtel has also been assigned responsibility for construction management at Project No.2.At the same time Burns and Roe, Inc.has been assigned independent responsibility and authority for management of engineering to support plant construction.

A copy of Burns and Roe, Inc.'s report is attached as Exhibit D.Until October 1980 engineering and construction management at Projects Nos.3 and 5 were being performed through a merged site organization of Supply System and Ebasco personnel.

A copy of Ebasco's report is attached as Exhibit E.This merged site organization has been dissolved and in early 1981 Ebasco reassumed its role as an independent site organization to perform the engineering and construction management services for those projects.Contract Realignment:

Construction contracts were initially awarded on the basis of a fixed unit of work performed, such as quantity of materials installed.

This unit price included all materials used;all craft, non-manual and Quality Assurance+uality Control (QA/QC)labor employed;as well as contractor's overhead and profit.In addition, the contractors were awarded a fixed amount to cover such costs as mobilization and demobilization.

The Supply System is constructing the projects on a"fast-track basis", whereby construction begins on each phase of system design as that design phase is complete, rather than upon design completion of the entire system.Changes in schedule, primarily due to the fact that the design and engineering was not proceeding rapidly enough to maintain the anticipated lead over construction, prevented con-tractors from commencing or completing work according to the schedule assumed when the fixed unit prices were developed, and contractors began to experience financial difficulties.

In 1978, construction contracts were initially realigned.

Under the realigned contract format the contractor received fixed amounts for each hour of craft labor utilized, plus a fixed percent to cover the balance of the items that had previously been included in the fixed unit prices, such as profit and overhead.In addition, if the contractor was able to complete a quantity of work using less manhours than a targeted amount, the contractor received an incentive fee of 3-15~io.This contract format, however, did not lead to the expected levels of craft manhour productivity, and the Supply System also experienced a rc!uctance on the part of the contractors to retain the needed non-manual and QA/QC personnel.

In late 1980 the Supply System began the realignment of a number oi major construction contracts covering construction activity at the projects.These realignments werc unoertaken to update and recognize the current scope of the contracts, to enhance the contractors'bility to respond to changes in schedule and scope in an efiicient and cost-effective manner, to eliminate contract incentives which could discourage productivity and!ead to cost overruns, and to increase the Supply System's ability to monitor and control costs.

Under the realigned contract format, the contractor receives fixed amounts for each hour of labor utilized for both craft and non-manual and QA/QC personnel, with non-manual and QA/QC rates subject to adjustment.

The Supply System has the ability to control the amount of both the craft and non-manual labor employed.The balance of the items are structured as fixed fees per contract, pai as follows: elements such as equipment, site overhead, home office direct charges, additional site overhead for changes and extended schedules, and profits are broken into schedules to allow partial payments;and home office overhead and profit are paid at a fiat monthly payment through contract dura-tion, with the amount of home office overhead renegotiable.

In addition, incentive features are included in the contract for early completion of work which allows the contractor to receive additional profits.To date, twelve major contract realignments have been completed.

Labor Relations:

New five-year labor agreements with the unions representing the carpenters and millwrights, operating engineers, and painters for the projects at Hanford have recently been completed.

Wages are fixed for the first three years after which wage reopener negotiations are subject to binding arbitration.

The agreements also contain no-strike no-lockout clauses which are expected to increase labor stability.

Other labor agreements at the Hanford site and the Satsop site, most of which contain no-strike no-ockout clauses, expire between September 1982 and May 1985.The Supply System is optimistic that no-strike no-lockout provisions will be contained in future labor agreements.

Sire Labor Agreements:

A site labor stabilization agreement for Projects Nos.3 and 5 has recently been negotiated between all of the unions representing site craftsmen and all site contractors.

The agree-ment contains uniform procedures for the resolution of grievances and jurisdictional disputes and also contains a no-picketing, no-strike, no-lockout clause.The agreement took effect on March 2, 1981, and continues to the end of construction.

This agreement is expected to increase labor stability and produc-tivity and reduce lost craft time at the Projects Nos.3 and 5 site.The Supply System assigned labor relations responsibility to Bechtel as an integral part of its construction management responsibilities of Projects Nos.1, 2 and 4.On March 26, 1981, Bechtel formally requested approval from Mr.Robert A.Georgine, President, Building and Construction Trades Department of the AFL-CIO to undertake negotiation of a project agreement for the above mentioned projects.~.4o PROJECT NO.1 The following is a general description of Project No.i.For additional information, reference is made to the reports of the Consulting'Engineer and Bechtel, appended hereto as Exhibits B and C, respectively.

Location Project No.1 is located on the Hanford Reservation of DOE approximately 12 miles north of the City of Richland, Washington, and about 3 miles west of the Columbia River.The site has been leased from DOE for a term of 30 years commencing July 1, 1975, and ending June 30, 2005, with an option granted to the Supply System to extend the lease for an additional 10 years.The Supply System has leased from the Washington State Department of Natural Resources the part of the bed of the Columbia River where the cooling water intake and discharge structures will be located.The Supply System is also constructing Project No.4 on the same site.Project No.4 is being designed and constructed as a twin to Project No.1 and will share some common facilities with it.Description Projec: No.1 will consist of a pressurized water nuclear steam supply system, turbine-generator, associated auxiliary equipment and facilities having a net generating capacity of 1,250,000 kilowans together with the nec ssary transformation, switching and transmission faci'ities to interconnect Project No.1 with the facilities of the Federal System.42 The basic structures comprising the overall power plant are the reactor containment building, general services building, turbine-generator building, cooling towers and circulating water pump house, and river makeuo water plant.The turbine condensers will be cooled by a mechanical draft evaporative cooling tower system.The river makeup water plant will be shared by Nuclear Project No.4 and Project No.1.Makeup water for the condenser cooling system will be obtained from the Columbia River.Emergency power will be supplied to Project No.1 from diesel generators sized to sustain all essential plant loads without the need for outside power sources.The Supply System has entered into an agreement with Bechtel to provide primary construction management services for Projects Nos.1 and 4.These construction management services have replaced those of UE8cC who formerly provided both construction management and engineering services.The transfer of responsibility for primary construction management services from UEAC to Bechtel was completed on May 1, 1981.UE8cC will continue to provide engineering services and certain construc-tion management services for Projects Nos.1 and 4.Permits and LIcenses The State of Washington has entered into a site certification agreement with the Supply System approving the site and has issued a National Pollutant Discharge Elimination System permit.On December 23, 1975 the Supply System received a construction permit from the NRC under which construction is proceeding.

This permit expires January 1, 1982.A request for extension to June 1986 has been filed with the NRC, and, based on prior practice of the NRC, it is expected that the extension will be granted.Under NRC regulations construction may continue during the pendency of the request.The Supply System has received a permit from the U.S.Army Corps of Engineers to construct cooling water intake and discharge structures in the Columbia River.These structures have been completed.

There are no other major permits required for construction of Project No.1.In due course, an application for an operating license will be filed with the NRC.Dung 1980 additional evidence was discovered relating to the time of geologic fault activity on the Hanford Reservation.

The identified fault location nearest to the sites of Projects Nos.1, 2 and 4 is at a distance of approximately seven miles.Ongoing geologic studies, initiated in late l979 as part of the Final Safety Analysis Report ("FSAR")preparation process for Project No.2, have been expanded to evaluate these findings.Preliminary results of the current studies do not indicate that the seismic designs for the three projects are inadequate.

Contracts and SchednIe As of July 1, 1981, procurement of services and equipment for Project No.1 was approximately 97~ro complete.The Supply System had entered into 178 equipment and construction contracts as of that date, including contracts for the nuclear steam supply system with the Babcock and Wilcox Com-pany and for the:urbine-generator and accessories with the Westinghouse Electric Corporation.

The total amount of all these contracts was$905,342,865 as of that date.Major civil work is approximately SOlo complete on the reactor containment building,'.he general services building and the turbine-generator building.All major nuclear steam supply system equip-ment has been installed in the reactor containment building.Piping work, mechanical work and electrical work are in the early stages of installation.

Construction of the cooling towers is complete.Construction of Project No.1 was approximately 41'omplete as of July 1,,1981.The initial fuel loading is currently scheduled for August 1985 and commercial operation is scheduled to begin in June 1986.43 nuclear Fuel The nuclear fuel cycle consists of four basic activities prior to insertion of the fuel assemblies in a nuclear reactor.These activities include acquisition of the uranium concentrates, conversion of the uranium concentrates to uranium hexafluoride, enrichment of the uranium hexaffuoride and fabrication of the enriched uranium into fuel assemblies.

The Supply System has a contract for uranium hexaffuoride with the Kerr McGee Co.orat'i c e orporation (err ifcGee)and a contract for uranium concentrates with western Viuclear, Inc.which are sufficient for the initial core.The latter contract, in conjunction with a contract with Rio Algom Ltd.of Canada, will provide sufficient uranium for approximately four years of operation.

Deliveries under the Kerr McGee contract have been completed and uranium sufficient for the initial core fuel loading has been converted and enriched.The Western Nuclear Inc.contract provides fo th d 1 f 55 0 , 0,000 pounds of uranium concentrates over the period 1979 to 1984 and approximately 2,675,000 pounds have been delivered as ot June 30, 1981.For the time period beyond that covered by these contracts the Supply System has entered into a contract with Gardinier, Inc.and Gardinier Big River, Incproviding for the sale to the Supply System of uranium concentrates expected to be produced as a by-product of phosphate-based fertilizer production.

Under this contract, deliveries of uranium concentrates started in October 1979.Production of such concentrates is subject to continued operation of the fertilizer production facilities.

Should the production program continue to go forward as currently contetnplated, this contract is projected to supply the Supply System with more than 6 million pounds of uranium concentrates over the period 1980 to 1994.Approximately 30%of these uranium concen-trates has been allocated to Project V<o.1.As of June 30, 1981, 376,000 pounds have been delivered.

These contracts are estimated to meet the full requirements for operation of Project No.1 through 1994 under present scheduling assumptions and a portion of the requirements thereattcr through 1997.Recently, Project No.1 acquired from Project No.4 and Project No.5, approximately 2.5 million pounds of uranium concentrates and a substantial quantity of enrichment services.These uranium concentrates are sufficient for operation of the plant through the year 2000.The enrichment services can substitute for services that would have been ordered for delivery in the years 1989 to 1991.The Supply System has a contract with DOE for furnishing enrichment services from 1980 until 201Q.Conversion services, adeouate for operation of project No.1 through 1990, have been contracted for with Kerr McGee.Fabrication services for the initial core have been contracted for with the Babcock and Wilcox Company.The Supply System anticipates no difficulty in obtaining fabrication services to produce the reload nuclear fuel assemblies.

At the present time, no operating facilities for the reprocessing of spent fuel are available, and no facilities are expected to be available in the near future.The President of the United States has recently released a draft policy statement caHing for, among other things, the lifting of the ban on reprocessing spent nuclear fuel and the development of solutions to the problems of radioactive waste disposal.The effects of these policies cannot be predicted at this time.The design of Project No.1 as proposed to the'i'fRC for approval includes on site spent fuel storage capacity for Project No.1 sufficient to accommodate all spent fuel discharges until about the year 2000.It is expected that by then an appropriate progmm will have been implemented to accept spent fuel for placement in a suitable repository.

Zsnmated Financing Requirements The total Supply System ffnancing requirements for Project~to.1, based on the 1982 Project Yo.1 construction budget, are estimated to be S3,190,000,000, of which S1,455,000,000 has been Gnanced to date.and are shown in the following table.The Supply System's current cash ffow projections indicate that monies currently available together with investment income thereon and the proceeds from the Project No.1 1981 Bonds will be sufficient to meet cash ffow requirements of Project No.1 until April 1982.In addition to the Project No.1 1981 Bonds, additional Project No.1 Bonds necessary to complete the ffnanc'P j planned to be issued as the need arises.e nancing o rojectÃo.1 are.e.

Estimated Project No.1 Financing Required (Dollars hr Thousands)

Equipmeat and Material Contracts(1)

.Construction Contracts(1)

Construction Management(2)

Architect-Engineer(3)

Total Plaat Construction Cost Owner's Cost(4)Contingeacy(5)

Nuclear Fuel(6)Total Construction and Fuel Cost Working Capital(7)

Reserve Account in the Boad Fund(8).Bond Discount aad Financing Costs(9)Net Capitalized Interest During Construction(10)

Total Finaacing Required(11)

$336)188 1,472,511 192,636 199,185$2,200,520 315,790 204,918 247,290$2,968)518 22,000 144,618 88,119 (33,255)$3,190,000 (1)Estimated by Bechtel.(2)Estimated by Bechtel except for certain civil work on the coataiament superstructure which is uader the management of UE&C.(3)Estimated by UE&C.(4)Estimated by the Supply System.Includes$6,286,000 for DOE Settlement Costs (see"Hanford Project and tts Relaaonship to Project No.1" below).(5)Estimated by the Supply System.Includes aa appropriate allowance for potential cost and schedule impacts which have a high probability of occurrence but are not presently considered as part of the defined scope of Project iVo.1.(6)Estimated by the Supply System.Includes sales tax on the initial core at 5.0%and S157,800,000 for reload fuel.Does not refiect the fuel acquisition from Projects Nos.4 aad 5 discussed under"Nuclear Fuel" above.(7)Estimated by the Supply System.$3,000,000 is required by the Project No.1 Resolution.

(8)An amount equal to the largest semi-annual interest payment on the Project No.1 Bonds, as required by the Project iVo.1 Resolution.

Based on actual interest rates for outstanding Project No.!Bonds and assumed interest rates of 11.5%for additional project No.1 Bonds issued in fiscal year 1982 and 10.0%for additional Project No.1 Bonds issued thereafter.

(9)Includes actual discounts and finaacing costs for the outstanding project No.1 Bonds and estimates of 4.5%of the principal amount oi additional project No.I Bonds issued in fiscal year 1982 and 3.0%of the principal amount of additional Project iVo.1 Bonds thereafter.

(10)Does not include interest after September 1, 1980 which is subject to payment pursuant to the project No.I iVet Billing Agreements and the project No.1 Exchange Agreements.

Computed as-follows based on the same interest rates as in Footnote (8).Gross Interest Duriag Construction

...............

$232,810,000 Estimated Iavestmeat Income (266,065)000)

Net Interest During Construction

.;...........

'.S(33,255,000)

Includes actual income through May 1981 and estimated future interest earnings oa amounts in the Constructioa Fund at assumed rates of 12.0%for fiscal year 1982 and 10.5%thereafter.

(!!)Does not include any possible impacts which may result from a termination of either project No.-4,or Projec'.Vo.5.See"Status of Projects iVos.4 aad 5 and Possible Effects on Vet Billed Project" under the caption"Recent Developments".

45 Power Production Based upon the estimated net genenting capability of 1,250,000 kilowatts, Project No.1 is expected to produce approximately 7.665 billion kilowatt-hours annually after initial operation tests and adjust-ments are made in the early years.Although there is not yet sufjicient historical operating information available on large nuclear plants to establish an expected plant factor for Project No.1, annual costs are based on an assumed 60fo plant factor in thc f!1st year of commercial operation, 65Fo in the second year and 707o thereafter.

During certain periods, surplus water will be available to generate additional power at existing hydroelectric projects,'.hereby permitting a reduction in the total amount of energy produced at thermal electric projects in the region.The extent oj this reduction and its ejfect, if any, on the operation of Project No.1 will depend upon conditions at the time of the availability of such hydroelectric energy and its relative cost compared to the cost of energy from Project No.1.~.Estimated Project No.1 Annual Costs and Payments The Project No.1 Net Billing Agreements and the Project No.1 Exchange Agreements provide for the payment of all the Supply System's annual cost associated with the ownership and operation of Project No.1 including payment of costs relating to the Hanford Project as more fully described in"Hanford Project and its Relationship to Project No.1" below.Estimated annual costs of Project No.1 and estimated annual payments by the Project No.1 Companies and the Project No.1 Participants are given in the fo!!owing table.Estimated Project No.1 Annual Costs and Payments (Dollars in Thousands)

Fiscal Year Ending June 30, PRoJEGT AN?EQUAL CosT Payment to Hanford Project(l)

.....Other Project Costs: Interest and Amortization(2)

.....Payment to Reserve end Contin-gency Fund(3)...............

Subtotal Operation nnd Msintensnce(4)

Decommissioning(4)

Fuei(5)Taxes(6)Subtotal...................

Surplus from Prior Year's Payment to Reserve and Contingency Fund(7)Investment Income(8)...........

Totel Other Project Costs....Total Project Annual Cost...........

Annual Energy Generation (G%H)(9).Annual Cost (mills/KWH)(10)(II)

...ANNUAL PAYstshD's To THE SUPPLY SYsTEst: Companies(12)

.................

Participants Toml Annual Payments......1987 1988 1989 1990 1991 1992 30,713 30,713 30,713 30,713 30.713 32.384 47.582$337,843 72,359$,668 60,184 6.411 S337,843 77,511 5,66&68,430 6,910$337.843 82,615$,668 76,233 7,128$337,843 88,008 5,668 83,959 7.375$337,843 93,806 5,668 9$,573 7,629$339,$14 100,033 5,668 109,159 7.958$354,712 138,$62 5,668 219,649 10.4$6$144,622$158,$19$171,644$185,010$202,676$222,818$374,335 (28,$40)(23.246)(8,673)(6,910)(23.211)(23.222)($,006)(2,949)(23,13$)(23.094)(728)(23.118)0 (21.544)$430.679$464.478$479.355$494.712$514.476$538.486$707,503$433,791$467,604$482,349 6,61$7,163 7,665 6$.6 6$.3 62.9$499,061$516.228 S53 8.486 7,665 7,665 7,665 65.1 67.3 703 S707,503 7,665 92.3 S Sl,Q59 5 86,733 352,732 380.871 5 92,804 389.$4$5 99.301$167.619$174.,S46 399.760 348.609 363.640 s 707.$03$433,791$467,604$482,349 5499,061 S516,2 8$538 486$707,$03$3,112$3,126$2,994$4,349 S 1,752 5 307,13Q 307,130 307 130 307 130 307,130 307,130 307,130~e (1)Based on the debt service on the outstanding Hanford Project Bonas aud reauircd Reserve ard Contingency

.und payments less investment income and surplus Reserve and Candu"cncy t.nd payments.Paymenis to the Hanford Projec: are estimated to cease in nscal ye r 199!(Faamores earalaued aa.'cl!ma/ng page)

(2)Based on assumed level debt service on the project No.1 Bonds to 2017 at actual interest rates on outstanding Project No.1 Bonds and interest rates ranging from 11.5%to 10.0%on the Project No.1 1981 Bonds and on additional Project No.1 Bonds.(See letter of R.W.Beck and Associates attached hereto as page B-l to Exhibit B for information as to effect of higher actual interest costs of the 1981 Net Billed Bonds.)(3)The greater of 10%of annual debt service as required by the Project No.1 Resolution or estimated renewals and replacements.

(4)Estimated by the Supply System.(5)Estimated by the Supply System based on the expected cost of fuel.(6)Calculated at 1.5%of the wholesale value of the energy produced by Project No.1.(7)Computed as follows (dollars in thousands):

1987 1988 1989 1990 1991 1992 1997 Payments to Reserve and Con-tingency Fund, Prior Year Renewals and Replacements, Prior Year'...........

Net Surplus"........S30,241$30,713 ((.701)(2-,040)528,5'0 3 8,673$30,713$30,713$30,713$30,713$44,058 (23,803)(5,707)(27,764)(29,985)(44.058)5 6,910$5,006$2,949 S 7-8 5 0'stimated by the Supply System.Some costs in the early years may be funded from Project No.1 Bond proceeds.'he Net Surplus may be used for purposes other than reduction in power costs in accordance with the Project No.1 Resolution.

(8)Based on assumed investment rates on the balance of funds in the Reserve Account in the Bond Fund of 9.0%and the Reserve and Contingency Fund of 8.25%.(9)Based on an assumed 60%plant factor in the first year of operation, 65%in the second year and 70%thereafter.

(10)Total Project Annual Cost divided by the Annual Energy Generation.

(11)The cost of providing certain reserves and of providing interest and principal on the Project No.1 Bonds between September 1, 1980 and the scheduled commercial operation date of June 1986 not paid by the Companies to the Supply System under the Project No.1 Exchange Agree-rnents is assumed to be paid as incurred from Bonneville revenues pursuant to the Project No.1 Net Billing Agreements.

In addition, Bonneville's total revenues will be reduced by an amount equal to payments by the Companies to the Supply System under the Project No.1 Ex-change Agreements.

For the purpose of demonstrating the.total annual cost per kilowatt-hour of the Project No.1 if the above costs were capitalized, the cost to Bonneville of$777,273,000 including the effect of reduced revenues, has been annualized over 35 years at an assumed interest rate of 10.85%per annum, which is an approximate average of Bonneville's current long term interest rates for borrowings from the Federal Treasury,,as follows (dollars in thousands):

1987 1988 1989 1990 1991 1992 1997 ADDITloNAL CosTs To BDNNEVILLE:

Annualized Prepaid Project Cost....S 86.690 S 86,690 S 86.690 S 86.690 S 86.690 S 86,690 S 86,690 Total Annual Cost..........

$520,481$554,294$569,039$585,751$602,918 S625,176$794,193 Annual Cost (mills/KWH)

...78.4 77.4 74.2 76.4,: 78.7 81.6 103.6 (12)Companies'ayments for the period July 1986 through June 1990 are estimated based on Bonne-ville's estimate of its wholesale power rate to its preference customers through fiscal year 1985 and escalated thereafter at an average rate of 7%per year.Companies'ayments for that period may differ from those shown as they are subject to the rate schedules finally adopted by Bonneville and may be increased by up to approximately

$2,000,000 per year pursuant to a letter agreement dated May 8, 1974.Companies'ayment for the period July 1990 through June 1996 are estimated based on the provisions of the Project No.1 Exchange Agreements.

Companies'ay-ments for that period mav be increased by up to approximately S700,000 per year pursuant to a letter agreement dated May 8, 1974.

Hanford Project and its Relationship to Project No.1 The following is an explanation of the reason for including the costs of the Hanford Project in the costs of Project No.1.The Hanford Project has been delivering power to the Federal System since 1966.In 1971 the AEC notified the Supply System that it was ceasing operation of its New Production Reactor ("NPR")at that time.The contractual arrangements related to the Hanford Project provided for conversion and licensing of the NPR by the Supply System for power only operation.

However,'his would have required an extensive shutdown period and caused a severe power shortage in the region.As a result a task force of Pacific Northwest utilities and industries was formed which negotiated with ,the AEC for operation of the NPR for three additional years.O.The additional three ye r operation was viewed as an interim step while the feasibility of power only operation was studied by Bonneville and the Supply System against other alternatives.

Bonneville in early 1972 notified the Supply System that it had determined that power only operation of the NPR was not economical.

Bonneville'and the Supply System then developed a proposal for Project No.1 which encompassed a nuclear stcam supply system and an additional turbine-generator to be constructed adja-cent to and operated in conjunction with the existing turbine-generators of the Hanford Project.This.proposal was the basis for the Project No.1 Net Billing, Exchange and Project Agreements as executed in 1973.These Agreements provided that the costs of the Hanford Project after July 1, 1980, including debt service on the Hanford Project Bonds, should be included as costs of Project No.1 and should be the first charge on the revenues of Project No.1.Once these agreements were executed and the Supply System's construction schedule was confirmed, arrangements werc concluded with the AEC for operation of the NPR until fall 1977 when the continued operation of the Hanford Project was expected to confiict with construction of Project No.1.In 1974 it became evident that two important changes had occurred with regard to planning for Project No.1.First, the forecast lead time for new thermal generating projects had to be lengthened over those forecast in 197, thereby creating estimated energy deficits in the region in the late 1970s and early 1980s.Second, the economies of combining Project No.1 and the Hanford Project were sub-stantially less than originally anticipated due to the major revisions necessary to the Hanford Project to meet licensing requirements.

Bonneville, in consulmtion with the region's utilities, determined that (1)the Hanford Project was a valuable resource to the region which should be available after 1977 to meet shortages which might occur due to delay in construction of other regional generating projects and (2)Project No.1 could be constructed as a separate unit not using the Hanford Proiect turbine-generators at an overall cost to Bonneville and its customers equal to or lower than Project No.1's cost of operation in conjunction with the Hanford Project.Therefore, the Project No.1 Net Billing, Exchange and Project Agreements were amended to provide for the separation of Project No.1 from the Hanford Project.As so amended, such Agreements continue to provide that the Hanford Project costs, to the extent not otherwise provided for, will be treated as Project No.1 costs having a first claim on the revenues of Project No.1.As a result of these transactions the Supply System entered into agreements with DOE for operation of the Hanford project in conjunction with the NpR until June 30, 1983 and for the payment of 56,286,000 in settlement of DOE's costs of deactivating the NPR.The Project No.1 Net Billing Agree-ments provide that the Supply System and Bonneville shall not enter into agreements for continued operation of the Hanford Project after October 31, 1977, if such continued operation would increase the payments of the Project No.1 Participants under the Project No.1 Net Billing Agreements.

The Supply System, Bonneville.

the utility participants in the Hanford Project and certain of Bonneville's industrial customers have executed agreements which provide for the payment of the increased Hanford Project costs related to extending operation through June 30, 1983, from amounts other than amounts paid under t'he Project No.1 Net Billing Agreements.

48 PROXECZ NO.2 The following is a general description of Project No.2.For additional information, reference is made to the reports of the Consulting Engineer and Burns and Roe, Inc.(" Burns and Roe"), appended hereto as Exhibits B and.D, respectively.

Location Project No.2 is located on the Hanford Reservation of DOE approximately 12 miles north of the City of Richland, Washington and about 3 miles west of the Columbia River.The site has been leased from DOE for a term of 50 years commencing July 1, 1972, with options to extend the lease for two consecutive ten year periods.The Supply System has leased from the Washington State Department of Natural Resources the part of the bed of the Columbia River where the cooling water intake and discharge structures are located.Description Project No.2 wiH consist of a single-unit, boiling water reactor ("BWR")electric generating station of proven design having a net generating capability of approximately 1,100,000 kilowatts together with the necessary transformation, switching and related 500 kV facilities to interconnect Project No.2 with the Federal System.The basic structures comprising the overall power plant are the reactor, radioactive waste, turbine-generator, diesel generator and service buildings (together comprising the main plant), six mechanical draft cooling towers, the circulating water pumphouse, and the river makeup water plant.Makeup water to replace the evaporative losses of the circulating water cooling system will be obtained from the Columbia River by means of three makeup water pumps.The turbine condensers will be cooled by a mechanical draft evaporative cooling tower system.Makeup water for the condenser cooling system will be obtained from the Columbia River.Emergency power will be supplied to Project No.2 from diesel generators sized to sustain all essential plant loads without the need for outside power source.Project No.2 also includes an administrative service building located away from the site in Richland, Washington, which has been completed and provides administrative space for Project No.2 and other Supply System activities.

The Supply System has entered into an agreement with Bechtel to provide primary construction management services for Project No.2.At the same time Burns and Roe continues to have inde-pendent responsibility and authority for management of engineering to support plant construction.

To further strengthen the Supply System's ability to manage and control the work process on.this project, it has realigned contractor responsibilities; the Bechtel Power Corporation has been given the responsibility to manage the construction activity on the project;Burns and Roe has been assigned undivided responsibility for engineering of the project.This clarifies individual organizational responsi-bilities and authorities and more clearly defines organizational interfaces to the benefit of project comple-tion.For a discussion of these contractor responsibility changes see"Management Actions Since August 1980" under the caption"The Supply System".Permits and Licenses The State of Washington has entered into a site certification agreement with the Supply System approving the site and has issued a National Pollutant Discharge Elimination System permit.The AEC, a predecessor agency to the'NRC, granted a construction permit in March 1973.This permit expires December I, 1981.A request for extension to February 1, 1984 will be filed with the NRC, and, based on prior practice ot the NRC, it is expected that the extension will be granted.Under NRC regulations construction may continue during the pendency of the request.There are no major permits required for construction of Project No.2 which have not been obtained.The Final Safety Analysis Rcport was sent to the NRC in March 1978 and t?ie application for an operating license was accepted for review by the NRC in June 1978.Presently, primary emphasis 49 in the licensing area consists of answering NRC review questions, preparing amendments to the FSAR, participating with other BKVR owners in review and discussion with the iVRC of generic BKVR safety issues and submitting revised analyses and subsequent assessments of the containment vessel and associated systemsiand structures.

The sixteenth amendment to the FSAR was issued in June 1981.The operating license will be required before fuel loading, presently scheduled for September 1983.During 1980 additional evidence was discovered relating to the time of geologic fault activity on the Hanford Reservation.

The identified fault location nearest to the sites of Projects Nos.1, 2, and 4 is at'a distance of approximately seven miles.Ongoing geologic studies, initiated in late 1979 as part of the FSAR preparation process for Project No.2, have been expanded to evaluate these findings.Pre-liminary, results of the current studies do not indicate that the seismic designs for the three projects are inadequate.

A revision to the FSAR regarding geology and seismic issues is scheduled to be submitted to the NRC in September 1981.The containment vessel was designed and constructed in accordance with basic design criteria furnished by the General Electric Company ("GE").GE subsequently obtained testing and design information which necessitated changes in basic design criteria.Project No.2 design was changed and physical changes are being completed on certain structures and systems to insure that they will be able to withstand the new loads resulting from revised criteria.All known design changes have been issued by Burns and Roe to the contractors and no additional changes to design are anticipated.

This containment vessel retrofit program continues as a risk to the Project No.2 schedule with regard to the licensing basis for the loads.Programs have been implemented by the BKVR owners, GE and Burns and Roe to resolve questions concerning these loads.NRC approval for fuel load depends on acceptance of these programs, sine=the NRC must approve the final design of all safety related aspects of Project No.2.The NRC has raised questions in regard to the design of all light water reactors concerning possibLc Anticipated Transient without Scram ("ATWS").At the present time systems for mitigation of ATAVS are not a licensing requirement for Project No.2.In order to impose such a requirement the NRC wi!1 have to go through a rule-making process, which would not be expected to be final until late 1981.It is anticipated that many changes resulting from this process will be installed in Project No.2 after fuel load during a subsequent plant outage but some changes may be required prior to fuel load.Provisions have been designed and constructed into Project No.2 for adding certain systems and components that are considered most likely to be required.The fire protection system for Project No.2 is designed to be in accordance with NRC guidelines tor nuclear plants of similar vintage.In July 1980, the NRC issued a proposed rulemaking which is applicable to operating plants and plants under construction and would impose new and expanded requirements.

The rule became effective in February 1981 but only applied to operating plants.In ofay l981 the NRC formallv imposed the requirements of the new rule on ProjectÃo.2.Burns and Ro" is currently conducting a study and performing the engineering necessary to comply with the new rule.Although present plant design substantially complies with most of the proposed guidelines, additional fire oarriers and other minor changes are likely to be required.The full impacts of the proposed require-ments will be determined when the eny'neering evaluation is completed.

Additional NRC Actions Smrting in November of 1979, the Supply System began to encounter a number of difficulties related to quality of installed equipment, and this eventually led to work stoppages on all safe'ty-related equipment at its Nuclear Project No.2.In addition, the project was assessed civil penalties totalling$59,500.ln the intervening period, Supply System efforts on these quality-related issues have resulted in an essentially complete release of the imposed work stoppages, and removal of related constraints to completion oi this project.The NRC formally concurred in this work reiease on ivfay 31, 1981.In addition.the NRC has agreed to continue their ettorts to prepare thc Nuclear Project No.2 Safety Evalu-ation Report on the current schedule for a March 1982 report completion.

The Supply System has pled ed its support for that NRC effort.50 The NRC has completed their review of the inspection and repair plans relating to the abovemen-tioned difiiculties and fully released the Supply System to proceed with the necessary repairs.The major portion oi the repair, including repair of the mth weld on the sacrificial shield wall, has been successfully completed.

The NRC also required the Supply System to submit a plan and schedule for completion of review of completed safety-related work accomplished by those contractors not having an NRC-reviewed quality assurance program to determine whether the quality assurance program was adequate to assure such work was properly performed.

The plan is also required to include provisions for evaluating the quality assurance programs at each Supply System nuclear project based on lessons learned, from the review., The NRC has reviewed the Supply System's plan and released the Supply System to resume work on all Quality Class I and II systems, except for certain minor items for which release has not yet been requested.

Contracts and Schedule As of July 1, 1981 the Supply System had entered into 164 equipment and construction contracts, including contracts for the nuclear steam supply system with the General Electric Company and for the turbine-generator and accessories with the westinghouse Electric Corporation.

The total amount of these contracts was S1,013,631,000 as of that date.Construction of Project No.2 started in August 1972.Major structural and civil work on Project No.2 is complete.The bulk of mechanical, electrical and instrumentation work is installed and the emphasis is being placed on the completion of systems to support the plant test and startup program.Construction of the cooling towers is complete.Construction of Project No.2 was approximately 86Io complete as of July 1, 1981.The initial fuel loading is currently scheduled for September 1983 and commercial operation is scheduled to begin in February 1984.Nuclear Pnel The nuclear fuel cycle consists of four basic activities prior to insertion of the fuel asseinblies in a nuclear reactor.These activities include acquisition of the uranium concentrates, conversion of the uranium concentrates to uranium hexafiuoride, enrichment of the uranium hcxafiuoride and fabrication of the enriched uranium into fuel assemblies.

The uranium for the initial fuel core has been delivered, converted and enriched, and now awaits fabrication.

The Supply System has contracted with the General Electric Company for fabrication services for the initial fuel core.Fabrication of the nuclear fuel assemblies is expected to begin in November 1981.For reload fuel the Supply System has a contract with Exxon Nuclear Company, Incorporated

(" Exxon")for uranium concentrates and for fuel fabrication services estimated to be sufficient for fourteen years of operation based on annual refueling.

Recent disputes between the Supply System and Exxon over the enforceability of the contract have resulted in the Supply System commencing litigation to ensure Exxon's performance of the contract.For a discussion of the litigation see"Fuel Liti-gation" under the caption"Litigation".

Any increase in the costs of this contract would not have a significant impact on the financing requirements for Project No.2, but could have an impact on the cost of power.The Supply System has a contract with Kerr McGee Corporation for conversion services adequate for the operation of Project No.2 through 1987, and with DOE for enrichment services for a period of 30 years which commenced on October 1, 1977.At the present time, no operating facilities for the reprocessing of spent fuel are available, and no faciliues are expected to be available in the near future.The President of the United States has recently released a draft policy statement calling for, among other things, the lifting of the ban on repro-cessing spent nuclear fuel and the development of solutions to the problems of radioactive waste disposal.The effects'of these policies cannot be predicted at this time.The design of Project No.2 as proposed to the NRC for approval includes on site spent fuel storage capacity for Project No.2 sufiicient to accommodate all spent fuel discharges until about 1995;It is expected that by then an appropriate program will have been implemented to accept spent fuel for placement in a suitable repository.

51 Estimated Financing Requirements 1 The total Supply System Qnancing requirements for Project iVo.2, based on the 1982 Project No.2 construction budget, are presently estimated to be$2,506,000,000, of which Sl,485,000,000 has been financed to date, and are shown in the following table.The Supply System's currem cash Qow projections indicate that monies currently available together with investment income thereon and the proceeds from the Project No.2 1981 Bonds will be sufiicient to meet the cash Qow requirements of Project No.2 until April 1982.In addition to the Project No.2 1981 Bonds, additional Project No.2 Bonds necessary to complete the Qnancing of Project No.2 are planned to be issued as the need arises.Estimated Project No.2 Financing Required (Doitars in Thousands)

Equipment and hiaterial Contracts(1)................

$199,641 Construction Contracts(1)

............

',213,170 Construction Management(1)....

134,322 Architect-Engineer(1).........

257,578 Total Plant Construction Cost.$1,804,711 Owner's Cost(2)405,806 Contingency(3)

.....119,000 Nuclear Fuel(4)92,505 Total Construction and Fuel Cost.$2,422>022 IVorking Capital(5)....................

16,000 Reserve Account in the Bond Fund(6)................

68,782 Bond Discount and Financing Cost(7)................

55,502 Vlet Capitalized Interest During Construction(8)

........(56,306)Total Financing Required...........

$2,506,000 (1)'Estimated by Burns and Roe and Bechtel.(2)Estimated by the Supply System.(3)Estimated bv the Supply System.Includes an appropriat" allowance for potential cost.impacts which have a high probability of occurrence but are not presently considered as part of the defined scope of Project No.2.Includes$38,337,000 of bond discount and Qnancing costs which were not included in the 1982 Project No.2 construction budget estimate.The Supply System has a program to eliect cost reductions in the construction costs of Project No.2.Pending further review of the results of that program the S38,337,000 of bond discount and financing costs are assumed to be funded from Contingencies.

In the event that the cost reduction program is not successful the total estimated cost of Project iVo.2 may be increased.

(4)Estimated by the Supply System.'Includes sales tax on the initial core at 5.0'nd$34,546,000 for reload fuel.(5)Estimated by the Supply System.$3,000,000 is required by the Project No.2 Resolution.

(6)An amount equal to the largest semi-annual interest payment on the Project No.2 Bonds, as required by the Project iVo.2 Resolution.

Based on actual interest rates for outstanding Project No.2 Bonds and assumed interest rates of 11.5'or additional Project No.2 Bonds issued in fiscd year 1982 and 10.0~go for additional Project iVo.2 Bonds issued thereafter.

(7)Includes actual discount and Qnancing costs for the outstanding Project No.2 Bonds and estimates of 4.5'f the principal amount ot additional Project No.2 Bonds issued in Qscal year 1982 and 3.0'f the principal amount of additional Project No.2 Bonds thereafter.

Does not include S38,337,000 of bond discount and financing costs which have been included in Contingency above.See Footnote (3).(8}Does not include interest after September 1, 1977 which is subject to payment pursuant to the Project No.2 Net Billing Agreements.

Computed as follows based on the same interest rates as in Foomote (6).Gross Interest During Construction

.............,..S120,517,000 Estimated Investment Income.................'.....

(176,823,000)

Net Interest During Construction

..............

S(56,306,000)"Includes actual income through ivlay 1981 and estimated future interest earnings on amounts in the Construction Fund at assumed rates of 12.0%for fiscal year 1982 and 10.5'hereafter.

52 Power Production Based upon the estimated net generating capability of 1,100,000 kHowatts, Project No.2 is expected to produce approximately 6.745 billion kilowatt-hours annually after initial operational tests and adjust-ments are made in the early years.Although there is not yet sufficient historical operating information available on large nuclear plants to establish an expected plant factor for Project No.2, annual costs for Project No.2 are based on an assumed 60%plant factor jn the first year, 65'7o in the second year and 70%thereafter.

During certain periods, surplus water will be available to generate power at regional hydroelectric projects, thereby permitting a reduction in the total amount of energy produced at thermal electric projects in the region.The extent of this reduction and its effect, if any, on the operation of Project No.2 will depend upon conditions at the time of the availability of such hydro-electric energy and its relative cost compared to the cost of energy from Project No.2.Estimated Project No.2 Annual Costs Based upon the financing and operating assumptions previously discussed and certain other estimated costs, the following table shows the estimated annual and unit costs of power from Project No.2: Estimated Project No.2 Annual Costs (Dollars ln Thousands)

Fiscal Year Ending June 30, 1984 1985 1986 1987 1988 1989 1990 interest and Amortization(1)

Payment to Reserve and Contingency Fund(2)Subtotal...................

Operation and Maintenance(3)

Decommissioning(3)

Fuel(4)Taxes(5)Subtotal...................

Surplus from Prior Year's Payment to Re-serve and Contingency Fund(6).....Investmcnt Income(7)Total Project Annual Cost...........

Annual Energy Generation(GWH)(8)

Annual Cost (miUs/KWH)

(9)(10)5 93,618$231,110$231,110$231,110$231,110$231,110$231,110 9,362"3.111 23.111 23.111 23.803 25,707 27.764$102,980 21,898 2,025 20,578 1.959$254,221 60,380 4,860 52,064 5,105$254,221 66,687 4,860 52.959 5.378$254,221 70,829 4,S60 63,109 5.615$254,913 76,536 4,860 72,056 5.870$256,817 82,112 4,860 80,999 6.131$258,874 88,451 4,860 93,363 6 442$46,460$122,409$129,884$144,413$159,322 IS 174,102$193,116 (S,898)(15,178)(4,215)(2,704)(1,071)(7,961)(16,019)(15.998)(15,975)(15,979)(16,032)(16.089)$132,5S1$345,433$363,892$379,955$397,185$414,887$435,901 2,376 5,980 6,461 6,745 6,745 6,745 6,74S SS.S S7.S S6.3 56.3 S8.9 61.5 64.6$23,111 (18.896)$4,215 (9'1 040)5 1,071'otal payment by BonneviHe in fiscal year 1983.~~Estimated by the Supply System.Some costs in the early years may be funded from Project No.2 Bond proceeds."'redit for Reserve and Contingency Fund pa'yments irom July 1, 1983 to February 1, 1984."*~Net Surplus may be used for purposes other than reduc:ion in power cost in accordance with the Project No.2 Resolution.(Footnotes on/ollowing page.)53 (1)Based on assumed level debt service on the Project No.2 Bonds to 2012 at actual interest rates on outstanding Project No.2 Bonds and interest rates ranyng from 11.5'o 10.0eo on Project No.2 1981 Bonds and on additional Project No.2 Bonds.(See letter of R.KV.Beck and Associates attached hereto as page B-1 to Exhibit B for information as to effect of higher actual interest costs of the 1981 Net Billed Bonds.)(2)The greater of 10'f annual debt service as required by the Project No.2 Resolution or estimated renewals and replacements.

(3)Estimated by the Supply System.(4)Estimated by the Supply System based on the expected cost of fuel.(5)Calculated at 1.5'i the wholesale value of energy produced by the Project No.2.(6)Computed as follows (dollars in thousands):

1984 1985 1986 1987 1988 1989 1990 Payment to Reserve and Contingency Fund, Prior Year...............

$21,354~$22,468$23,111$23,111$23,803$25,707 Renewals and Replace-ments, Prior Year..(12.456)"-(7.290)f 20.407)(23.803)(25.707)Vict Surplus""$8,898$15,178$2,704$0$0 (7)Based on assumed investment rates on the balance of funds in the Reserve Account in the Bond Fund of 9.0%and the Reserve and Contingency Fund of 8.25%.(8)Based on an assumed 60%plant factor in the first year of operation, 65%in the second year and 70%thereafter.

(9)Total Project Annual Cost divided by the Annual Energy Generation.

(10)The cost of providing for interest and principal on the project iNo.2 Bonds and certain reserve funds between September 1, 1977 and the date of commercial operation is assumed to be paid as incurred from Bonneville revenues pursuant to the Project No.2 iNet Billing Agreements.

For the purpose of demonstrating the total annual cost per kilowatt-hour of Project No.2 if the above costs were capitalized, the cost to Bonneville of S710,000,000 has been annualized over 35 years at an assumed interest rate of 10.85%per annum which is an approximate average of Bonneville's current long term interest rates for borrowing from the Federal Treasury, as follows (dollars in thousands):

1984 1985 1986 1987 1988 1989 1990 Additional Costs to Bonnevillet Annualized Prepaid Project Cost..~$32,995$79,187$79,187$79,187$79,187$79,187$79,1S7 Total Annual Cost..........

$165,576$424,640$443>079$459,142$476,372$494,074$515,088 Annual Cost (mills/KEVH)

...69.7 71.0 68.6 68.1 70.6 73.3 76 4 PROJECT NO.3 The following is a general description of Project No.3;for additional information, reference is made to the reports of the Consulting Engineer and Ebasco, appended hereto as Exhibits B and E, respectively.

The Supply System has entered into an agreement with four investor-owned utilities which provides that Project No.3 will be owned 70%by the Supply System and 30%by such utilities.

For a summary of certain provisions of the Project iNo.3,Ownership Agreement see the caption"The Project No.3 Ownership Agreement".

Location Project No.3 is located in southeastern Grays Harbor County, Washington, along the south bank of the Chehalis River approximately 1 mile southeast of its confiuence with the Satsop River.The site is approximately sixteen miles east of the City of Aberdeen, Washington and approximately 66 miles southwest of Seattle.The Supply System is also constructing its Project No.5 on the same site.Project No.5 is being designed and constructed as a twin to Project No.3 and will share some com-mon facilities with Project No.3.The site consists of approximately 2,300 acres, of which approximately 800 acres are devoted to the core area upon which Project No.3 and Project No.5 are to be located.The land in the core area has been acquired.Surrounding the core area there is to be approximateiy 1,500 acres of land subject to an exclusion zone easement.Easement agreements have been obtained for approdrnateiy 85%of this area and easement agreements for the balance are being sought.In addition the Supply System has acquired the necessary land for railway and road access to Project No.3 and for a barge slip and water intake facilities.

A lease of a portion of the bed of the Chehalis River for the water discharge facilities has been acquired.Description Project No.3 will consist of a pressurized water nuclear steam supply system, turbine-generator, associated auxiiiary equipment and facilities having a net generating capability of 1,240,000 Hlowat:s together with the necessary transformation, switching and transmission facilities to interconnect Project No.3 with the'acilities of the Federal System.54 The basic structures comprising the overall power plant are the reactor containment and shield structure, the reactor auxiliary building, the fuel handling building and the control room area, all sup-ported on a common foundation mat and referred to collectively as the Combination Structure; the turbine-generator building and a 500 foot high natural draft hyperbolic cooling tower.A ground-water intake system wiH provide the makeup water to replenish the evaporative losses in the cooling~tower.Emergency power will be supplied to Project No.3 from diesel generators, sized to sustain all essential plant loads without the need for outside power sources.Permits nnd Licenses The State of washington has entered into a site certification agreement with the Supply System approving the site and has issued a National Pollutant Discharge Elimination System permit.On April 11, 1978 the NRC issued a construction permit for project No.3 under which construction is proceeding.

This permit expires on January 1, 1985.There are no other major permits required for construc-tion of Project No.3.In due course, an application for an operating license will be filed ivith the NRC.Contracts and Schedule As of July 1, 1981 engineering activities were 82%complete, prepurchased equipment and material procurement activities were 97%complete.Preliminary site work commenced in April 1977 and major Project No.3 site excavation activities are complete.The installation of the Combination Structure foundation mat and the reactor building concrete shield wall has been completed.

The turbine building concrete and structural steel work are complete.The cooling tower has been essentially completed.

Vifork on the reactor building concrete and the Combination Structure walls and slab concrete has been started and the steel containment vessel erection has been completed, with the exception of the domed top of the vesseL The piping, electrical and HVAC installation in the reactor auxiliary, fuel handling and turbine building began during 1980.The major pressure vessels of the nuclear steam supply system were placed in the reactor building during August 1981.Construction of Project No.3 was approximately 32%%uo com-plete as of July 1, 1981.The initial fuel loading is presently scheduled for June 1986 and commercial operation is scheduled to begin in December 1986.Nudear Fuel The nuclear fuel cycle consists of four basic elements prior to insertion of the fuel assemblies in a nuclear reactor.These elements include acquisition of the uranium concentrates, conversion of the uranium concentrates to uranium hexaQuoride, enrichment of the uranium hexafiuoride and fabrication of the enriched uranium into fuel assemblies.

For the initial fuel core, the Supply System has contracts with Allied Chemical Corporation for uranium hexafiuoride (eliminating the need for acquisition of uranium concentrates), with DOE for enrichment services, and with Combustion Engineering, Inc.for fabrication services.The uranium hexaQuoride has been delivered and will be enriched during September 1981.The Supply System has contracted with DOE for enrichment services for a period of 30 years and with the Kerr iMcGee Corporation for all conversion services required for operation of Project No.3 through 1988.The Supply System anticipates no difficulty in obtaining conversion services thereafter.

For reload fuel the Supply System has a contract with Exxon for uranium concentrates and for fuel fabrication services, estimated to be sufficient for fourteen years of operation based on annual refueling.

Recent disputes between the Supply System and Exxon over the enforceability of the contract have resulted in the Supply System commencing litigation to ensure Exxon's performance of the contract.For a discussion of the litigation see"Fuel Litigation" under the caption"Litigation".

Any increase in the costs oi this contract would not have a significant impact on the financing requirements for Project No.3, but could have an impact on the cost of power.55 At the present time, no operating facilities for the reprocessing of spent fuel are available, and no facilities are expected to be available in the near future.The President of the United States has recently released a draft policy statement calling for, among other thin~, the lifting of the ban on reprocessing spent nuclear fuel and the development of solutions to the problems of radioactive waste disposal.The effects of those policies cannot be predicted at this time.The design of Project No.3 as proposed to the NRC for approval includes on site spent fuel storage capacity for Project No.3 suflicient to accommodate all spent fuel discharges until sometime after 1996, while maintaining full core dis-charge capability.

It is expected that by then an appropriate program will have been implemented to accept spent fuel for placement in a suitable repository.

O.Estimated Financing Requirements The total Supply System financing requirements for the Supply System's Ownership Sharc of Project No.3, based on the 1982 Project No.3 construction budget, are presently estimated to be$2,458,000,000, of which$905,000,000 has been financed to date, and are shown in the following table.The Supply System's current cash tlow projections indicate that moneys currently available together with investment income thereon and the proceeds from the Project No.3 1981 Bonds will be suflicient to meet cash flow requirements of Project iVo.3 until April 1982.In addition to the Project No.3 1981 Bonds, additional Project No.3 Bonds necessary to complete financing of the Supply System's Ownership Share of Project No.3 are planned to be issued as the need arises.Estimated Project No.3 Financing Required tDotlars tn Thousttads)

Equipment and immaterial Contracts(1)

...............

Construction Contracts(1)

...........

Construction Management(l)

Architect-Engineer(1)

Total Plant Construction Cost.............

Owners Cost(2)Contingency(3)

Nuclear Fuel(4)Total Construction and Fuel Cost...........

Working Capital(5)

Reserve Account in Bond Fund(6).Bond Discount and Financing Costs(7)..............

Net Capitalized Interest During Construction(8)

......Total Financing Required(9)

S 323,818 1,083,442 106,658 98,276$1,612,194 257,850 255,500 89,067$2,214,611 20,000 114,891 69,772 38,726$2,458,000 (1)Estimated by Ebasco.(2)Estimated by the Supply System.(3)Estimated by the Supply System.Includes an appropriate allowance for potential cost and schedule impacts which have a high probability of occurrence but are not presently considered as part oi the defined scope of Project No.3.<Footnotes continued on following poge.)56 (4)Estimated by the Supply System.Includes sales tax on the initial core at 5.2%and$36,446,000 for reload fuel.(5)Estimated by the Supply System.$3,000,000 is required by the Project No.3 Resolution.

(6)An amount equal to the largest semi-annual interest payment on the Project No.3 Bonds, as required by the Project No.3 Resolution.

Based on actual interest rates for outstanding Project No.3 Bonds and assumed interest rates of 11.5%for additional Project No.3 Bonds issued in fiscal year 1982 and 10.0%for additional Project No.3 Bonds issued thereafter.

(7)Includes actual discount and financing costs for the outstanding Project No.3 Bonds and estimates of 4.5%of the prin'cipal amount of additional Project No.3 Bonds issued in fiscal year 1982 and 3.0%of the principal amount of additional Project No.3 Bonds thereafter.

(8)Does not include interest on the Project No, 3 Bonds which is subject to payment pursuant to the Project No.3 Net Billing Agreements from September 1, 1982 to date of commercial operation.

Computed as follows based on the same interest rates as in Footnote (6).Gross Interest During Construction

.............

S 315,079,000 Estimated Investment Income~................

(276,353,000)

Net Interest During Construction

............

S 38,726,000

'ncludes actual income through May 1981 and estimated future inter-est earnings on amounts in the Construction Fund at assumed rates of 12.0%for fiscal year 1982 and 10.5%thereafter.

(9)Does not include any possible impacts which may result from a termination of either Project No.4 or Project No.5.The committee established pursuant to the terms of the Project No.3 Ownership Agreement has recently approved a 1982 cash fiow requirements budget by a vote of committee members having combined Ownership Share voting rights of more than 80%.For a discussion of requirements for the approval of budgets see"Committee" under the caption"The Project No.3 Ownership Agreement".

Power Prodnctioa Based upon the estimated net generating capability of 1,240,000 kilowatts, Project No.3 is expected to produce approximately 7.604 billion kilowatt-hours annually after initial operational tests and adjust-ments are made in the early years.Although there is not yet suKcient historical operating infor-mation available on large nuclear plants to establish an expected plant factor for Project No.3, annual costs for Project No.3 are based on an assumed 60%plant factor in the first year, 65%in the second year and 70%thereafter.

The Supply System's Ownership Share would be approximately 5.323 billion kilowatt-hours annually.During certain periods, surplus water will be available to generate power at regional hydroelectric projects, thereby permitting a reduction in the total amount of energy produced at thermal electric projects in the region.The extent of this reduction and its eKect, if any, on the operation of Project No.3 will depend upon conditions at the time oi the availability of such hydroelecmc energy and its relative cost compared to the cost of energy from Project No.3.57 Estimated ProjectÃo.3 Annual Costs Based upon the financing and operating assumptions previously discussed and certain other estimated costs, the following table shows the estimated annual and unit cost of power from Project No.3: Estimated Project iso.3 Annual Costs (Dollars in Thousands)

Fiscal Year Ending June 30, interest and Amortization(1)

Payment to Reserve and Contingency Fund(2).Subtotal Operation and Maintenance(3)

.....Decommissioning(3)

Fuel(4)TL~es(S).Subtotal Surplus from Prior Years Payment to Reserve and Contingency Fund(6)Invesunent Income(7)Total Project Annual Cost.........Annual Energy Generation (GWH)(8)Annual Cost (mills/KWH)(9)(10)

.1987$138,732 13,873 5152,605 21,324 2,315 30,646 530$54,815 (13,463)(11,349)$182,608 2,650 68.9 1988$243,364 24,336 5267,700 53,439 3,968 57,709 957$116,073 (14,783)(1'7,083)$351,907 4,783 73.6 1989$243,364 24.336$267,700 51,727 3,968 67,097 1,033 5123,825 (7,674)(17,057)$366,794 5,163 71.0 1990$243,364 24,336$267,700 55,055 3,968 82,399 1.065 5142,487 (6,341)(17,029)$386,817 5323 74\7 1991$243,364 24,336 5267,700 58,663 3,968 97,299 1.065$160,995 (4,901)(17,000)$406,794 5,323 764 1992$243,364 24.316$267,700 62,569 3,968 107,553 1.065$175,155 (3,346)(16,969)$422,540 5,323 79.4 1989 1990 1991$24,336$24,336$24,336 1992 Payments to Reserve and Contin-gency Fund, Prior Year......Renewals and Replacements, Prior Year"$23,079$23,783$24,336 (16,662)(17,995)(19,435)$7,674 5 6341$4,901 (20,990)$3,346 (9,616)'9,000)$13,463 514,783 V8et Surplus"'*Total payment by Bonneville in fiscal year 1986.Estimated by the Supply System.Some costs in the early years may be funded from Project No.3 Bond proceeds.*'~Credit for Reserve and Contingency Fund payments from July 1, 1986 to December 1, 1986," The Net Surplus may be used for purposes other than reduction in power costs in accordance with the Project No.3 Resolution.

(1)Based on assumed level debt service on the Project No.3 Bonds to 2018 at actual interest rates on outstanding Project No.3 Bonds and interest rates ranging from 11.5'o 10.0'n the Project No.3 1981 Bonds and on additional Project No.3 Bonds.(See letter of R.W.Beck and Associates attached hereto as page B-1 to Exhibit B for information as to effect of higher actual interest costs of the 1981 Net Billed Bonds.)(2)The greater of 10'f annual debt service as required by the Project iNo.3 Resolution or estimated renewals and replacements.

(3)Estimated by the Supply System.(4)Estimated by the Supply System based on the expected cost of fueL (5)Calculated at 0.2 mills per kilowatt-hour of the energy produced by Project iNo.3.(6)Computed as follows (dollars in thousands):

1987 1988 (7)Based on investment rates on the balance of funds in the Reserve Account in the Bond Fund of 9.0%and the Reserve and Contingency Fund of 8.25%.(8)Based on an assumed 60%plant factor in the Qrst year of operation, 65%in the second year and 70%thereafter.

(9)Total Project Annual Cost divided by the Annual Energy Generation.

(10)The cost of providing certain reserves and of providing interest and principal on the Project No.3 Bonds between September 1, 1982 and the scheduled commercial operation date of December 1986 is assumed to be paid as incurred from Bonneville revenues pursuant to the Project No.3 Net Billittg Agreements.

For the purpose of demonstrating the total annual cost per kilowatt-hour of Project No.3 if the above costs were capitalized, the cost to Bonneville of$756,971,000 has been annualized over 35 years at an assumed interest rate of 10.85%per annum, which is an approxi-mate average of Bonneville's current long term interest rates for borrowing from the Federal Treasury, as follows (dollars in thousands):

Additional Costs to BonnevQIe:

1987 1988 1989 1999 1991 1992 Annualized Prepaid Project Cost Total Annual Cost.......Annual Cost (mills/KV/H)

.2 69,-69$231,857 87.5$S4.426$436,333 91.2 2 26.626$451,220 87.3$84,426$471.243 88.5$84.426$491,220 92.3$84,426$506,966 95.2' NUCLEAR INSUK4 tCE From the time nuclear fuel is brought on a project site for each of its nuclear electric generatiag projects, except the Hanford Project, the Supply System is required to protect itself from public liability claims arising from a nuclear incident through a three layer combination of insurance, self-insurance and government indemnity.

The first layer is nuclear liability insuraace, the current maximum amount avail-able being$160 million.The next layer is a mandatory industry-wide program of self-insurance, under which nuclear unit owners could be assessed, for each operational reactor owned, not to exceed$5 million per each nuclear incident, and not to exceed$10 million per year in the event of more than one inci-dent.The third layer is a federal government indemnity that makes up the difference between the total of the available liability insurance and the self-insurance, and$560 million, which is currently the maximum liability per occurrence under the Price-Anderson Act.If the number of reactors increases, the govern-ment indemnity will gradually be phased out.In the Price-Aaderson Act, Congress expressed the intent that this$560 million limitation will be increased if'assessments available under the self-insurance program exceed that amount.Any assessments allocable to the i%et Billed Projects, once it becomes subject to the self-insurance system, would be billable under the ifet Billing Agreements.

The Supply System's maximum exposure with.respect to all its nuclear projects would be$46,000,000 per year under this legislation,$27,000,000 of which would be allocable to the iNet Billed Projects.Property irsurance for the Supply System's projects will be secured from the nuclear insurance pools or from other available sources including self-insurance arrangements.

Currently a maximum limit of$375,000,000 per site is available through the nuclear insurance pools.Except for the earth-quake peril the Supply System is carrying$300,000,000 on each of Projects 1, 2 and 4.Earthquake coverage is S300,000,000 for Project No.2 and$300,000,000 for Projects Nos.1 and 4 combined.Coverage, including earthquake coverage, is$300,000,000 for Projects Nos.3 and 5 combined.It has been the general policy and practice of the insurance pools, following siting criteria established by the NRC, that adjacent nuclear units are covered under a single policy limit.The Supply System anticipates that the nuclear property insurance coverage for Projects Yios.3 and 5 will as at present be uader a single policy limit.It is Jso possible that at some future date Projects Nos.1, 2 and 4 may be treated as a single site and be under a single policy limit.LEGISLATIVE DEVELOPMEi (IS Washington Senate Inqairy In January, 1981, the Senate Committee on Energy and Utilities of&e Washington State Legislature issued a report on its inquiry, held during the period, of ivlay 1980 to November 1980, into the causes of cost overruns and schedule delays relatiag to construction of the Supply System's nuclear projects.The Committee concluded that the Supply System had failed to develop realistic, disciplined budget.and schedule processes and any effective mechanisms to use budget and schedules in the management of the projects.The Committee also concluded that, while some cost increases were attributable to factors beyond thecontrol of the Supply System, mismanagement by the Supply System of the projects was the most significant cause of cost overruns and schedule delays on the projec:s.However, the Committee also stated that a number of the deficiencies it found had already been, or werc in the process of being remedied by the new managing director.State Leg'sIative Developments As a result of the Senate Committee on Eaergy and Utilities inquiry, the Washington State Legisla-ture enacted several bills affecting the Supply System.Washington Laws 1st Ex Sess 1981, ch.3 requires the Supply System's Executive Committee to be recons ituted as an eleven member Executive Board by October 26, 1981.The Board of Directors will select seven members of the Board from its membership and four additional members, who must be representative of policy makers in business, finance or science or be recognized experts in corstruction or management oi nuclear electric generating facilities.

Until its nuclear projects arc completed, the 60 powers and duties of the Supply System will be vested in the new Executive Board except for certain specified functions, including acquisition or sale of facilities', bond sales, budget approvals, appointment of the treasurer and executive board and the compensation of the outside directors.

Washington Laws 1st Ex Sess 1981, ch.1 authorizes the Supply System to seH revenue obligations by negotiation as well as by competitive bidding and permits the Board to delegate to the managing director or the treasurer the authority to sell obligations maturing within one year from the date of issuance.'washington Laws 1st Ex Sess 1981, ch.4 requires the joint energy research center of the Uni-versity of Washington and Washington State University to conduct a study of Projects Nos.4 and 5 and appropriates S1,500,000 for this purpose.The study shall be conducted under the supervision of a nine member steering committee.

Six members of the steering committee shall be selected by the Chairman of the Senate and House Energy and Utilities Committees and must be experts in one or more fields related to energy, electric utilities, public works construction, business or municipal finance.The Supply System, the publicly owned p'articipants and Pacific Power 8: Light Company may each appoint one member.Among other matters, the study must determine the need for Projects Nos.4 and 5, the ultimate cost and schedule of Projects Nos.4 and 5, the cost of power from Projects iNos, 4 and 5, the outside market for the power from Projects Nos.4 and 5, and the cost ejfectiveness of reliable available alternatives to Projects Nos.4 and 5 as compared with Projects Nos.4 and 5.The study must also evaluate whether projects Nos.4 and 5 can be financed, estimate the effect of projects Nos.4 and 5 on the average electric power rates of a representative group of participants and the cost impact of a temporary power supply deficit as compared to a temporary power supply surplus.The study must be completed by March 15, 1982.The legislation provides that the Supply System and Pacific shall reimburse the State for the cost of the study as part of the cost of construction of Projects Nos.4 and 5.Washington Laws 1981, ch.173 provides that the Supply System may negotiate a contract for completion and start up of a nuclear plant when it is approximately eighty percent complete.THE PARTICIPAiVI'S, COi>IPAib1ES Ai 6)OWNERS Of the 116 preference customers of Bonneville, 104 are Project iNo.1 Participants, 94 are Project No.2 Participants and 103 are Project No.3 Participants.

The number of Participants by category in each Net Billed Project are as follows: Category of Parttcl pant Pro lect No.1 Project No.Z Project%i'o.3 Municipalities Districts Cooperatives Total~~~~~~28 29 47 104 27 22 45 94 28 28 47 103 The Project No.1 Participants have contracted to purchase 67.53%of the capability of Project No.1 during the period 1980 to 1996 and 100%of the capability of Project No.I thereafter.

The Project No.1 Companies (The Montana Power Company, Pacific Power 8c Light Company, Portland General Electric Company, Puget Sound Power Si: Light Company, and The washington Water Power Company)have contracted to purchase 32.47%of the capability of Project No.l,during the period 1980 to 1996.The Project No.2 Participants have contracted to purchase 100%of the capability of Project No.2.The Project No.3 Participants have contracted to purchase 100%of the Supply System's Owner-ship Share of the capability of Project No.3.The Project No.3 Owners (Pacific Power&Light Company, Portland General Electric Company, Puget Sound Power&Li~gt Company and The Washing-ton Water Power Company)own 30%of Project No.3 pursuant to the Project No.3 Ownership Agreement.

61 The net billing arrangements between the Supply System, the Participants and Bonneville for the Net Billed Projects and the other net billed projects will increase the amount of capacity and energy available to the Federal System by the amount of their output.This, in turn, will make more capacity and energy available from Bonneville to all of its customers, including the Participants.

Each of the Participants is a statutory preference customer of Bonneville and, as such, has a priority over non-preference customers on power sold by Bonneville from the Federal System.In 1980, the Participants in all Nfet Billed Projects served approximately 1,363,000 power customers with total sales of energy of approximately 53 billion kilowatt-hours.

Operating revenues of the Par-ticipants totaled$759,345,085.

Of that amount, districts'evenues were$330,262,152, municipalities'evenues were S295,037,697 and the cooperatives'evenues were$134,045,236.

The centerfold map shows the areas served by the Participants.

Exhibit A attached hereto shows the number of customers and power sales in 1980 for each Partici-pant, Company or Owner, and indicates its share of each Net Billed Project capability.

THE NET BILLING AGREEMENTS On February 6, 1973, the Supply System, Bonneville and each Project No.1 Participant entered into a Project No.1 Net BiUing Agreement under the terms of which the Project No.1 description, as set forth in Exhibit B thereto, included the use of the generating facilities which are a part of the Hanford Project.Subsequently, on May 31, 1974, the Supply System, Bonneville and each Project No.1 Par-ticipant entered into Amendatory Agreement No.1 to each Project No.1 Net Billing Agreement (the"Project No.1 Amendatory Agreements").Under the terms of the Project No.1 Amendatory Agreemcnts, among other things, the Project No.1 description was changed so that it no longer includes the use of the Hanford Project generating facilities.

However, the provisions relating to the obligations incurred with respect to the Hanford Project after July 1, 1980, remain in effect.On January 4, 1971, the Supply System, Bonneville and each Project No.2 Participant entered into a Project No.2 Net Billing Agreement.

On September 25, 1973, the Supply System, Bonneville and each Proiect No.3 Participant entered into a Project Vto.3 Net Billing Agreement.

Many of the provisions of the Net Billing Agreements have been summarized under the caption"Security for the Net Billed Bonds".A summary of certain additional provisions of the Net Billing Agreements, as amended, follows.Except where the text indicates otherwise, reference to Project No.1 Net Billing Agreements is to such Agreements as amended by the Project No.1 Amendatory Agreements.

The full text of the form of the Net Billing Agreements, as amended, may be obtained from the Supply System.The summary describes the common features of, and highlights the diiierences among, the Net Billing Agreements for each Net Billed Project.The Net Billing Agreements for the same Net Billed Project are identical except as to the Participants'hares.

The capitalization of any word or words which are not conventionally capitalized (c.g.Project, Participants) indicates that such words are defined in the Net Billing Agreements.(The same pracuce is followed in the summaries of the project Agreements, the project No.3 Ownership Agreement and the Net Billed Resolutions which follow.)Term Fach Net Billing Agreement became effective upon execution and delivery and will terminate as provided therein.See"Termination", below.62 0 Although the Net Billing Agreements may be terminated prior to the maturity of any respective Net Billed Bonds, the obligation of each of the respective Participants thereunder to pay its propor-tionate share of debt service on any respective Net Billed Bonds shall continue until the respective Net Billed Bonds have been retired, and BonneviHe wiH continue to be obligated to offset or credit these payments against paymentspursuant to the respective Participant's Bonneville contracts.

Ownership and Operation With respect to each Project No.1 and Project No.2 Net Bifiing Agreement, the Supply System will use its best efforts to arrange for'the financing, design, construction, operation and maintenance of Projects Nos.I and 2, respectively.

With respect to each Project No.3 Net Billing Agreement, the Supply System will perform its duties, and exercise its rights under the Project No.3 Ownership Agree-ment.For a discussion of such rights and duties see the caption"The Project No.3 Ownership Agreement".

Sale, Purchase and Assignment The Supply System sells, and each Participant purchases, its Participant's Share of the respective Net BiHed Project Capability and each Participant in turn assigns its Participant's Share of such capabil-ity to Bonneville.

Such shares in each Net Billed Project for selected years are shown in the last four columns of Exhibit A attached hereto.With respect to Project No.3 Participants, the Project No.3 Participant's Share in each contract year is the percentage of the Supply System's Ownership Share of Project No.3 Capability specified for such year in Exhibit A to the Project No.3 Net Billing Agreements.

Two or more Project No.3 Participants may agree to a reallocation of their Participant's Shares so long as, among other requirements, the abnegate of the increases is equal to the aggregate of the decreases and the reaHocation does not cause BonneviHe's estimate of the payments to be made by a Project No.3 Participant to the Supply System to exceed 86.9S%of Bonnevifie's estimate of its billings to the Project No.3 Participant.

The provisions of the Net Bifiing Agreements with respect to payments are summarized under the caption"Security for the Net Billed Bonds" above.If Bonneville is unable to satisfy its obligation to an affected Participant by net bHling, assignment or cash payment and determines that this condition will continue for a significant period, the affected Participant may direct that aH or a portion of the energy associated with its Participant's Share be delivered by the Supply System for the Participant's account at a specified point of delivery, either for the expected period of such inability or the remainder of the term of the Net Billing Agreement, whichever is specified by the Participant when it elects to have such energy delivered to it.The amount of energy delivered will be limited to the amount of the Participant's Share for which payment by BonneviHe cannot be made.Termination With respect to Project No.I and Project No.2, if either such Project is ended pursuant to Sec-tion 15 of the respective Project Agreement, as described below, Supply System will give notice of termina-tion of the affected Net BiHing Agreements effective upon the date of termination of the respective Project Agreement.

The Supply System shaH then terminate aH activities relating to construe:ion and operation of such Project and shall undertake the salvage and disposition or sale of such Project as provided in the respective Project Agreement.

After such termination, the Supply System shall provide monthly accounting statements to Bonneville and each Participant in such Project of aH costs associated with such termination.

The monthly accounting statements wiH credit against such costs aH amounts received by the Supply System from the disposition of Project assets, including in the case of Project No.1, amounts payable under the Project No.1 Exchange Agreements., Such monthly accounting statements wiH continue until all respective Net BiHed Bonds are paid or funds are set aside for such 63 payment.If the monthly accounting statements show that such costs exceed such credits, such Partlc.'-pant will pay its portion of such excess costs to the Supply System.The, payments will be made at tbrtes and in amounts sufhcient to discharge on a current basis such Participant's Percentage or Share, as the case may be, of the amount which the Supply System is required to pay into the various funds provided in the respective Net Billed Resolution for debt service and all other purposes.KVith respect to Project No.3, if the Supply System is unable to participate in ownership, con-struction, or operation of such Project due to licensing, financing, construction or operating conditions which are beyond its control, or if the Supply System is in default under the Project No.3 Ownership Agreement and has been requested by Bonneville to give notice of termination, or if the owners of Pro-ject No.3 invoke the procedure to end such Project set forth in the Project No.3 Ownership Agreemc+the Supply System shall give notice of termination of the project No.3 Net Billing Agreements effective on the date of such notice.The Supply System shall then terminate its activities relating to construction and operation of Project No.3 and shall undertake the salvage, discontinuance, decommissioning and disposition or sale of its ownership interest in such Project, all in accordance with the Project No.3 Ownership Agreement.

After such termination, the Supply System will make monthly accottnting statements to Bonneville and each Project No.3 Participant of all costs associated with such termina-tion, including debt service.The monthly accounting statements will credit against such costs all amounts received by the Supply System from the disposition of the Supply System's Ownership Share of Project No.3 assets.Such monthly accounting statements will continue at least until all Project No.3 Bonds have been paid or funds are set aside for their payment.If the monthly accounting state ments show that such costs exceed such credits, the Project No.3 Participant will pay its portion oi such excess costs to the Supply System.The payments will be made at times and in amounts suQicient to discharge on a current basis the Project No.3 Participant's Share of the amount which the Supply System is required to pay into the various funds provided in the Project No.3 Resolution for ggb)service and all other purposes.The costs of termination for each Net Billed Project include all of Supply System's accrued costs and liabilities resulting from Supply System's ownership, construction, operation (including cost of fuel)and maintenance of and renewals and replacements to the tmnmating Project,&other Supply S~m costs resulting from its ownership of such Project and the salvage, discontinuance, decommissioning, and disposition or sale thereof, and all amounts which Supply System is required under the respective Net Billed Resolution to pay in each year into the various funds provided in such Resolution for debt service and all other purposes.Under the terms of the Net Billing Agreements, Bonneville is obligated to pay the Participants in each Net Billed Project, and such Participants are obligated to pay the Supply System, the total annual costs of such Project, including costs associated with termination of such Project.See also the caption"Security for the Net Billed Bonds".~e Modi6catlon of Agreement The Net Billing Agreements shall not be amended, modi6ed or otherwise changed by agreement of the parties in any manner that wiH impair or adversely affect the security afforded by its provisions for the payment of the principal, interest and premium, if any, on the Net Billed Bonds.Provisions Required by Statute or Executive Order The Net Billing Agreements contain provisions required by Statute or Executive Order relating to contract work hours and safety standards, convict labor, equal opportunity employment and the interest of a member of Congress.Under the provisions of Fxecutive Order 11246 of September 24, 1965 and the Rules and Regulations and relevant Orders of the Secretary of Labor thereunder, the Supply System has been granted by the Director, Office of Federal Contracts Compliance, U.S.Department 64 of Labor, a limited exemotion from the provisions permitting cancellation, termination, and suspension of the Net Biiling Ao eements in the event of noncompliance with the equal opportunity clause contained in said Agreements.

THE PROJECT AGREEMENTS On February 6, 1973, the'Supply System and Bonneville entered into an agreement (the"Project No.1 Agreement")which, among other things, provides standards for the design, licensing, financing, construction, fueling, operation and maintenance of Project No.1, and for the making of any replace-ments, repairs or capital additions thereto.Subsequently on May 31, 1974, the Supply System and Bonneville entered into Amendatory Agreement No.1 to the Project No.1 Agreement for'he purpose of changing:he Project No.1 description to conform to the changes made in the Project No.1 Net Billing Agieements.

On January 4, 1971, the Supply System and Bonneville entered into an agreement (the"Project No.2 Agreement", which, among other things, provides standards for the design, licensing, financing, construction, fueling, operation and maintenance of Project No.2, and for the making of any replace-ments, repairs or capital additions thereto.On September 25, 1973, the Supply System and Bonneville entered into an agreement (the"Project No.3 Agreement" and, together with the Project No.1 Agreement and the Project No.2 Agreement, the"Project Agreements")which, among other things, contains provisions with respect to the financing, construction, operation and maintenance of the Project No.3, and the making of any replacements, repairs or capital additions thereto, and budgeting under the Project No.3 Net Billing Agreements.

A summary of some of the provisions of the Project Agreements follows.Copies of the Project Agreements may be obtained from the Supply System.The Project No.1 and Project No.2 Agreements became effective each upon its execution and delivery and will terminate when the respective Net Billed Project is terminated as provided in Secuon 15 of the respective Project Agreement.

Section 15 in each of the Project No.1 and Project No.2 Agreements provides that the respective Net Billed Project shall terminate and the Supply System shall cause such Project to be salvaged, dis-continued, deconunissioned and disposed of or sold in whole or in part to the highest bidder or bidders, or disposed of in such other manner as the parties may agree when: (a)Supply System determines it is unable to construct, operate, or proceed as owner of the respective Net Billed Project due to licensing, financing, or operating conditions or other causes which are beyond its controh (b)The parties determine'he respective Net Billed Project is not capable of producing energy consistent with Prudent Utility Practice or, if the parties disagree, the Project Consultant so deter-mines, or (c)Bonneville directs the end of such Project pursuant to the provisions of Section 11(a), which provides that if the estimated cost of a replacement or repair or capital addition required by a governmental agency after the Date of Commercial Operation exceeds 20 percent of the then depreciated value of the respective Net Billed Project, Bonneville may direct that the Supply System end the respective Net Billed Project in accordance with Section 15.The Project No.3 Agreement became effective uoon its execution and delivery and will terminate when the Project No.3 Net Billing Agreements terminate.

65 For a discussion of contract provisions relating to the end of Project No.3, see"End of Project" under the caption"The Project No.3 Ownership Agreement".

Design, Licensing and Construction of the Projects With respect to the Project No.1 and Project No.2 Agreements, the Supply System agrees among other things (i)to perform its duties and exercise its rights under such agreement in accordance with Prudent Utility Practice (ii)to use its best efforts to obtain aH licenses, permits and other rights and regulatory approvals necessary for the ownership, construction, and operation of the respective Net Billed Project;(iii)to construct the respective Net Billed Project in accordance with Prudent Utility Practice;(iv)to keep Bonneville informed of aH significant matters with respect to planning and con-structive of such Project;and (v)to use its best efforts to schedule the Date of Conunercial Operation for each respective Net BiHed Project as near as possible to the date set forth therein.With respect to Project No.3 Agreement, the Supply System agrees among other things (i)to perform is duties and exercise its rights under such agreement and the Project No.3 Ownership Agreement in accordance with Prudent Utility Practice;and (ii)to keep BonneviHe informed of all significant matters with respect to construction or operation of Project No.3 where practicable in time for BonneviHe to comment thereon before decisions are made, and (iii)to confer with Bonneville during the development of the Supply System's proposals for such matters when practical to do so.For a more complete discussion of the Supply System's duties with respect to project No.3, see the caption"The Project No.3 Ownership Agreement"."Prudent Utility Practice" at a particular time means any of the practices, methods and acts, including those engaged in or approved by a significant proportion of the electrical ufility industry prior to such time, or any of the pract.es, methods, and acts which, in the exercise of reasonable judg-ment in light of the facts known at the time the decision was made, would have been expected to accom-plish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition.

In evaluating wheth'er any act or proposal conforms to Prudent Utility Practice, Bonneville and the Supply System and any project Consultant shaH take into account the fact that the Supply System is a municipal corporation with statutory duties and responsibilities, and the objective to integrate the entire Project CapabiHty with the, generating resources of the Federal Columbia River Power System in order to achieve optimum utilization of the resources of that system taken as a whole and to achieve efficient and economical operation of that system.Bonneville will use its best efforts to construct, operate and-maintain necessary facilities to inter-connect each Net Billed project with the Federal System so as to be ready to receive generation from such Project on or before the initial test and operation of such Project.Financing With respect to each Net Billed Project the Supply System shall use its best efforts to issue and seH respecuve Net Billed Bonds to finance the cost of such Project and the completion thereof, as such costs are defined in the respective Net Billed Resolution, and to finance the cost of any capital additions, renewals, repairs, replacements or modifications to such Net Billed Project;provided, however, that such Net BiHed Bonds may then be legaHy issued and sold.Net Billed Resolutions are subject to approval by Bonneville, and Bonneville has approved each such Net Billed Resolution and the Net Billed Supplemental Resolutions.

Representation by Bonneville on the Committee Established Pursuant to the Project No.3 Chvnership A~cement The Supply System wiH appoint a member designated by Bonneville to the Committee established pursuant to the Project No.3 Ownership Agreement, who shall have the right to vote the lesser of 50%66 of the Supply System's Project No.3 Ownership Share or the sum of the Project No.3 Participant's Shares assigned to Bonneville under the Project No.3 Net Billing Agreements at the beginning of the Contract Year.The Supply System wiH not proceed with the following elective items under the Project No.3 Ownership Ageement without.,the concurrence of BonneviHe's representative on the Committee: (i)notice to repair Project No.3 if the cost of repair is in excess of 207o of the depreciated value of Project No.3, (ii)renewals and replacements not necessary to assure design capability and additions not re-quired by governmental agencies, (iii)construction of Project No.3 if any other party to the Project No.3 Ownership Agreement does not participate for the reasons set forth in such Project No.3 Owner-ship Agreement..

Budgets Separate Construction Budgets and Annual Budgets, for each Net BiHcd Project, will be prepared annually.Both the Construction Budgets and the Annual Budgets and any revision thereof are to be submitted to Bonneville and are subject to its approval.In the absence of any objection by Bonneville a budget wi}1 become effective within 30 days after submittal, in the case of the Construction and Annual Budgets, and within 7 days, in the case of any revision thereof.AH accounts shaH be kept so as to pernut conversion to the applicable system of accounts pre-scribed for electric utilities by the Federal Power Commission.

Operation and Maintenance The Supply System shall operate and maintain the Net Billed Projects in accordance with Prudent Utility Practice and in accordance with the requirements of government agencies having jurisdiction.

Bonds for Replacements, Repairs and Caplta1 Additions If in any Contract Year the amounts in any Net Billed Project's Annual Budget for renewals, repairs and replacements and for capital additions and betterments necessary to achieve design capability or required by governmental agencies (" Amounts for Extraordinary Costs"), whether or not such amounts are costs of operation or costs of construction, exceed the amount of reserves, if any, maintained for such purpose pursuant to the respective Net BiHed Resolution plus the proceeds of insurance, if any, available by reason oi loss or damage to the respective Net Billed Project, by the lesser oi: (I)$3,000,000 or (2)an amount by which the amount of Bonneville's estimate of the total of the net billing credits available in such Contract Year to the Participants in such Project and the amounts of such reserves and insurance proceeds, if any, exceeds the Annual Budget for such Contract Year exclusive of Amounts for Extraordinary Costs, the Supply System wiH, in good faith, use its best efforts to issue and sell respective Net Billed Bonds to pay such excess.Bonneville's Approval and Project Consultant If any proposal or item subject to approval by Bonneville is disapproved by Bonneville and an alternative proposal or item is suggested by Bonneville, the Supply System shall adopt such suggestion or within seven days after receipt of such disapproval, shall appoint a Project Consultant acceptable to Bonneville to review the proposal or item.Proposals or items found by the Project Consultant to be consistent with Prudent Utility Practice shall become immediately ePective.Proposals or items found bv the Project Consultant to be inconsistent with Prudent Utility Practice shall be modified to conform 67 to the recommendation of the project Consultant or as the parties otherwise agree and shall become effective as and when modified.If any proposal or item referred to the Project Consultant has not been resolved and will affect the continuous operation of the respective iNet Billed Project, the Supply Sys',em shaH continue to operate such Net Billed Project and may proceed with the item as proposed by the Supply System, or as proposed by Bonneville, or as modified by mutual agreement of the Supply System and Bonneville.

If the Supply System proceeds with the item as proposed by it, and the item is determined by the project Consultant to be inconsistent with prudent Utility practice, the Supply System shall bear any net increase in the cost of construction or operation of the respective Net Billed project resulting from such item without charge to such Net Billed Project to the extent such item is found bi the Project Consultant to be inconsistent with Prudent Utility Practice.Provisions Required by Statute or~executive Order Each Project Agreement contains certain provisions required by Statute or Executive Order relating to contract work hours and safety standards, convict labor, equal opportunity employment and the interest of a member of Congress.Under the provisions of Executive Order 11246 of September 24, 1965 and the Rules and Regulations and relevant Orders of the Secretary of Labor thereunder, the Supply System has been granted by the Director, Office of Federal Contract Compliance, U.S.Depart-ment of Labor, a limited exemption from the provisions permitting cancellation, termination, and sus-pension of each Project Agreement in the event of non-compliance with the equal opportunity clause contained in each Agreement.

THE PROJECT iM.3 OWNERSHIP AGRKKAKNT The following is u summary of certain provisions of the Project No.3 Ownership Agreement and does not purport to be complete.A copy of the Project No.3 Ownership Agreement may oe obtained from the Supply System.Ownership of Project No.3 Project No.3 shaH be owned by the Parties as tenants in common.The Supply System has an undivided interest of 70%and Pacific Power&Light Company, Portland General Electric Company, Puget Sound Power&Light Company and The washington KVater Power Company have undivided interests of 10%, 10%, 5%and 5%respectively.

A Party's Ownership Share may be adjusted upon the occurrence of certain events, as described below.Each Pa~i promptly and with due diligence shall take aH necessary actions and seek aH reydatory approvals, licenses and permits to carry out its obligations under the Project No.3 Ownership Agreement.

The Parties w've the right to partition of Project No.3.The duties, obligations and liabilities of the Parties are several and not joint or coHective, and none of the Parties shaH be jointly or severally liable for the acts, omissions, or obligations of any of the other Parties.The Supply Syst m shaH construct, operate and maintain Project No.3 and sh~JI have possession and control of Project No.3 for aH the Parties.Committee There shaH be a Committee composed of seven members, three to be appointed by Supply System (one of whom wiii be designated by Bonneville pursuant to the Project No.3 Agreement), and one member to be appointed by each other Party.Each Committee member shaH have the right to vote that part of the Ownership Share of the Party aopointing him as designated in the notice of appointment, 68 0 and the member appointed by Bonneville shall have the right to vote the portion of the Supply System's Ownership Share provided in the Project No.3 Agreement.

The total voting rights of the members of the Committee appointed by each Party shall be equal to such Party's Ownership Share.The-Supply System shall keep aH members of the Committee informed of aH significant matters with respect to planning, construction, operation or maintenance of Project No.3, and when practicable, in time for members to comment thereon before decisions are made, and shall confer with the Committee, or separately with members thereof, during the development of the Supply System's proposals regarding such matters when practicable to do so.Upon request of any Cotnmittee member, the Supply System shaH furnish or make available to aH members of the Committee, with reasonable promptness and at reasonable

'times, any and aH other information relating to the planning, construction, operation or maintenance of Project No.3.The Supply System shall submit each of the matters listed below to the Committee for approval, which approval must be by a vote of Committee members having combined Ownership Share voting rights of more than 80 fo.'etermination of the Minimum Capability of Project No.3.Any proposal made by Committee members, appointed by Parties other than Supply System, having Ownership Share voting rights of 20fo or more, or by the Committee member designated by Bonneville Construction budgets and budgets of Annual Costs and changes therein Any increase in the working fund in the Construction Trust Account or in the Operating Trust Account described below Award of any contract or approval of any change order, in either case in excess of$500,000 Fuel Plan, changes therein and determinations relating thereto Scheduled autages Insurance coverage, including limits and choice of insurers Estimate of cost of repair or damage to Project No.3 if in excess of$1,000,000, and estimate of the value of Project No.3 without repair Sales of salvage materials in excess of such minimum amount as is established by the Committee.

If any of the above matters cannot be resolved by the required vote of the Committee, procedures have been established to resolve the issue in accordance with Prudent Utility Practice."Prudent Utility Practice" means any of the practices, methods and acts, which, in the exercise of reasonable judgment in the light of the facts (including practices, methods and acts engaged in or approved by a significant portion of the electrical utility industry prior thereto)known at the time the decision was made, would have been expected to accomplish the desired result at the lowest reasonable cost consistent with reliability, safety and expedition.

Prudent Utility Practice is not limited to the optimum practice, method or act, but rather a spectrum of possible practices, methods or acts.In evaluating whether any matter conforms to Prudent Utility Practice there shall be tak'en into account (i)the fact that Supply System is a municipal corporation and operating agency under the laws of the State of Washington; and (ii)the objective to integrate the Project Capability with the generating resources of the Federal System and the generating resources of other systems operated by the Parties to achieve optimum utiHzation of the resources of such systems.Supply System shall submit the following additional matters to the Committee and shall proceed on such matters only upon unanimous approval of the Committee: (i)Selection of the site of the Project No.3 (ii)Selection of the type of nuclear steam supply system 69 (iii)Selection of the method of heat disposition (iv)Award of contracts for nuclear steam supply system and turbine-generators (v)Selection of an architect-engineer (vi)Extension of insurance to any additional unit or generating project (vii)Capital additions to Project No.3 after the Date of Commercial Operation which are not necessary to assure design capability, or are not required by governmental agencies.If the Committee is unable to reach unanimous agreement within sixty days after submission by Supply System of any of the matters (i)through (v)listed above, then unless the Committee unanimously agrees otherwise, Supply System shall notify the Parties in writing and they shall then terminate Project No.3, or one or more of the Parties may elect to proceed with Project No.3 upon reimbursing the non-electing Parties for their Costs of Construction and Fuel.Upon such reimbursement, the interest of the non-electing Parties in Project No.3 shall vest in the electing Parties.Each of the Parties has agreed to the Supply System's determination of the matters listed in (i)through (v)above.Construction, Licensing, Operation and Maintenance The Supply System shall (a)take whatever action is necessary or appropriate to seek and obtain all licenses, permits and other rights and regulatory approvals necessary for the construction, operation and maintenance of Project No.3;(b)prosecute construction of Project No.3 in accordance with Prudent UtHity Practice, NRC licensing requirements, any applicable Federal or State laws and regulations thereunder, and plans and specifications for Project No.3 prepared or recommended by Project No.3 architect-engineer, and so as to schedule the Date of Commercial Operation as near as may be to September 1, 1981;(c)operate and maintain Project No.3 in accordance with Prudent Utility Practice, giving due consideration to the recommendations of the Committee and the manu-facturer's warranty requirements and in such a manner as to meet the requirements of the NRC and other government agencies having jurisdiction, to safeguard the health and safety of persons and safety of property, and, as necessary in the normal course of business, to assure the continued operation and maintenance of Project No.3.Construction nnd Operating Payments Construction Budgets and budgets of Annual Costs, except Fuel costs, and revisions thereof shalt be submitted to the Committee for approval at the times specified in the Project iVo.'3 Ownership Agreement.

Costs of Construction and Annual Costs, including Fuel costs, shaH be paid from the Construction Trust Account and Operating Trust Account, respectively, which the Supply System is required to establish and maintain as separate accounts in a bank located in washington meeting aH requirements impo'sed upon depositories for any of the Parties.All moneys received by the Supply System under the Project No.3 Ownership Agreement shall be deposited in the appropriate Trust Account.Payments by the Pariies shall be made at the times specified in the'Project No.3 Ownership Agreement.

The Supply Systein shall keep up-to-date books and records oi all financial transactions and other arrangeinents in carrying out the terms of the Project No.3 Ownership Agreement.

All accounts shall be so kept as to permit conversion to the system of accounts prescribed for electric utilities by FERC.The Supply System shall cause aH books and records to be audited by independent certified public accountants of national reputation acceptable to all the Parties at approximately annual intervals and when accounts are closed.Copies of such audits shall be supplied to each Party.Each Party shall have the right to examine and copy all plans, specifications, bids and contracts relating to Project No.3.70 FueI and Scheduling The Supply System shall arrange for Fuel in amounts so that each Party may utilize its Ownership Share of Project No.3 in a manner which such Party estimates is best suited to its individual system needs.Each year the Supply System will prepare and submit to the Committee for approval a ten-year fuel management plan, which shall be revised as reasonably required to reflect changes in conditions.

Each Party shall furnish to'the Supply System forecasts of its generauon requirements from Project No.3 to be used in preparing each Fuel Plan.At the time of each fueling, the Supply System shall submit to the Committee for approval its determination of the next fueling date (the"Forecast Refueling Date"), the kilowatt-hours of net energy available to each Party to such Date (the"Energy Entitlement")and the cost per Mowatt-hour of its Energy Entitlement.

Each Party's Energy Entitlement shall equal as nearly as practicable such Party'forecasted generation requirements.

Generally each Party shall be entitled to receive, as scheduled by it, its Ownership Share of the Project Capability, and each Party shall schedule energy from the Project in such a manner that its Energy Entitlement is adequate to maintain such Party's Ownership Share of Minimum Capability until the next Forecast Refueling Date.Each Party shall order at least its Ownership Share of the Fuel necessary to insure operation at idinimum Capability to the Forecast Refueling Date.Any Party may (i)order less than its Ownership Share of the Fuel necessary to insure operation at iVrinimum Capability to the Forecast Refueling Date, (ii)require that such Date be advanced or delayed, (iii)use the Energy Entitlement of other Parties, or (iv)require that Project No.3 not be operated, upon arranging for equivalent alternate capacity and energy for the other Parties, but any such action shall not adversely affect the availability of capacity and energy to which any other Party is entitled from Project No.3 or any other Party's costs for such capacity and energy.The Supply System shall schedule Project outages, other than fueling outages, and submit them to the Committee for approval as far in advance as practicable, but may shut down Project No.3 to meet governmental requirements or to avoid hazard to Project No.3 or any person or property.Insurance Supply System shall procure at the earliest practicable time and thereafter maintain in force for the benefit of the Parties such insurance coverage for the construction, operation, maintenance and repair of Project No.3 as the Committee may determine, but not less than shall be required under the contract to be executed with the Project Architect Engineer, and not less than will satisfy the require-ments of the NRC, and conform to Prudent Utility Practice.Liabilities; Waiver of Subrogation Each of the Parties releases each of the other Parties from any claim for loss or damage, including consequential loss or damage, arising out of the construction, operation, maintenance, reconstruction, and repair of the Project due to negligence, including gross negligence, but not any claim for loss or damage resulting from breach of any contract relating to Project No.3 including the Project No.3 Ownership Agreement, or for willful or wanton misconduct.

Any loss or expense to the Parties or any Party, other than damages to any Party res'ulting from loss of use and occupancy of Project No.3 or any part thereof, resulting from Project No.3 and based upon injury to or death of persons or damage to or loss of Project property and property of other parties, to the extent not covered by collectible insurance, shall be charged to Costs of Construction or Annual Costs, whichever may be appropriate.

C 71 Each Party shall cause its insurers to waive any rights of subrogation against each of the other Parties, its agents and employees, for losses, costs, damages or expenses arising out of the construction, operation, maintenance, reconstruction or repair of Project No.3..Uncontrollable Forces No Party shall be considered to be in default in the performance of any of the obligauons under the Project No.3 Ownership Agreement other than the obligation to pay its Ownership Share of costs and expenses, if faiiure of performance shall be due to uncontrollable forces, defined in the Project No.3 Ownership Agreement as any cause beyond the control of the Party affected and which, by the exercise'of reasonable diligence, the Party is unable to overcome.Any Party rendered unable to fulfill any obligation by reason of uncontrollable forces shall exercise due diligence to remove such inability with all reasonable dispatch.Damage to Projects.3 If Project No.3 suffers damage resulting from causes other than ordinary wear, tear or deterioration to the extent that the Supply System's estimate of the cost of repair is less than 20%of the then depre-ciated value of Project No.3, and if the Parties do not unanimously agree that Project No.3 shall be ended (see"End of Project" below), the Supply System shall promptly submit a revised Construction Budget or budget of Annual Costs, as appropriate, and shall proceed to repair the Project, and each Party shall pay its Ownership Share of the cost of such repair.If Project iVo.3 suffers damage to the extent that the Supply System's estimate of the cost of repair exceeds 20%of the then depreciated value of Project No.3, computed according to the Project No.3 Ownership Agreement, the Supply System shall determine the estimated fair market value of Project No.3 if it is then terminated without repair.Thereafter, each Party which gives notice in writing to each of the other Parties of its desire that Project No.3 be repaired, shall pay a par't of the total cost of repair in the proportion that its Ownership Share bears to the total of the Ownership Shares of all Parties giving such notice.If any Party has given such notice, the Ownership Share of each Party which has not given notice shall be reduced at the end of each month to an Ownership Shar determined by multiplying such Party's Ownership Share prior to such loss by a fraction the numerator oi which is the estimated fair market value of Project No.3 if it is terminated without repair, and the denominator of which is said fair market value plus the actual expenditures for repair.The amount of such reduction shall be proportionately added to the Ownership Share of each Party giving such notice.If Project No.3 suffers damage to the extent that the Supply System's estimated cost of repair exceeds 20%of the then depreciated value of Project No.3 and no Party gives the nonce referred to above, Project iVo.3 shall be ended.~i Default Upon failure of a Party to make any payment when due, or to perform any obligation herein.any other Party may make written demand upon said Party, and if said failure is not cured within 10 days from the date of such demand, it shall constitute a default at the expiration of such period.Any nondefaulting Party may take any action, in law or equity, including an action for specific performance, to enforce the Project No.3 Ownership Agreement and to recover for any loss, damage or payment advances incurred by reason of such default.Assignment The Project No.3 Ownership Agreement shall be binding upon and shall inure to the benefit of successors and assigns of the Parties;provided, however, that no transfer or assignment of other than all of a Party's interest in Project No.3 to a single entity shall operate to give the assignee or transferee the status or rights of a Party under the Project No.3 Ownership Agreement, and no transfer or assign-ment thereunder shall operate to increase the number of members on the Committee.

Transfer or 0 assignment shall not relieve a Party of any obligation under the Project No.3 Ownership Agre."ment except to the extent agreed to in writing by the other Parties.'End of Project When Project No.3 can no longer be made capable of producing electricity consistent with Prudent Utility Practice or the requirements of governmental agencies having jurisdiction or is no longer licensed by the NRC, or when Project No.3 is ended as a result of damage thereto as described above, the Supply System shaH sell for removal aH saleable parts of Project No.3, exclusive of Fuel, to the highest bidders.After deducting aH costs of ending Project No.3, the Supply System shall close the appropriate Trust Account and, if there are net proceeds, distribute to each Party its Ownership Share of such proceeds.The Supply Sys:em shall liquidate the Fuel, and after making aH required payments and receiving all due receipts, shall disburse the proceeds to the owners as their interests appear.In the event the costs of eading Project No.3 exceed available funds, each Party shaH pay its Ownership Share of such excess as tacurred.If one or more of the Parties is rendered incapable of proceeding with its obligations under the Project No.3 Ownership Agreement by reason of (i)iaability to finance or (ii)failure to obtain necessary legal authorizations, including regulatory approvals, which condition is beyond the ability of such Party to remedy by reasonable means within a reasonable time, one or more of the other Parties may, within 90 days after notice by a Party of the occurrence of the conditioa, elect to proceed with Project No.3 without the disabled Party;provided, however, that if the disabled Party is proceeding with aH due diligence to remove such disability, the election shaH not be made until 90 days after final order or other final disposition of the matter;provided further, that if delay would cause substantial additional costs to be incurred if the election were so postponed, the electing Parties may proceed as necessary to avoid or minimize delay, preserving the rights of the disabled Party untH fiaal order or other final disposition.

The Parties so electing shall promptly reimburse each non-electing Party for its Costs of Construction and costs of Fuel, if any, incurred under the.Project No.3 Ownership Agreement.

Upon such reimbursement, the non-electing Parties'nterest in Project No.3 shaH forth-with vest in the electiag Parties in such proportioa as the electing Parties may agree, J DESCIUPTION OF 1981 NET BILLED BONDS The Project Nlo.1 Bonds and the Project No.1 1981 Bonds The Project No.1 Resolution creates and establishes an issue of Project No.1'onds of the Supply System which may be issued from time to time to pay the Cost of Construction of Project No.1 and to establish reserves as therein provided.The Project No.1 1981 Bonds are part of such issue.The Project No.1 1981 Bonds wHI be dated September 1, 1981, and will be issued in coupon form in the denominauon of$5,000, registrable as to principal only, and in fully registered form in denomina-tions of$5,000 and any multipies thereof.Principal and semi-annual interest (January 1 and July 1, commencing January 1, 1982)on coupon Project No.1 1981 Bonds and principal on fuily registered Project No.1 1981 Bonds wiH be payable at the option of the holder at Seattle-First National Bank, Seattle, Washington, The First National Bank of Chicago, Chicago, Illinois, and Manufacturers Hanover Trust Company, New York, New York.Payment of interest on fully registered bonds will be made by Morgan Guaranty Trust Company of Ncw York, New York, New York, which has been appointed the Bond Fund Trustee for Project No.1.Coupon Project No.1 1981 Bonds and fuHy registered project No.1 1981 Bonds are interchangeable at the principal office of the Bond Fund Trustee.Description of Project No.1 1981 Bonds The project No.1 1981 Bonds will mature$20,000,000 principal amount on July 1, 2001,$30,000,000 principal amount on July 1, 2003 and$265,000,000 principal amount on July 1, 2017, bearing interest at the rate of 14,~s~o,"'8N go and 15', respectively.

Sinking Fund Installments.

The Project No.1 1981 Bonds due July 1, 2001 shall be retired by July 1 of each year in accordance with the following schedule: Year 1997 1998 1999 Prindpal Amount S 4,000,000 4,000,000 4,000,000 Year 2000 2001 Principal Amount S 4,000,000 4,000,000 The Project No.1 l981 Bonds due July 1, 2003 shall be retired by July 1 of each year in accordance with the following schedule: Year 1999 2000 2001 Principal Amount S 6,000,000 6,000,000 6,000,000 Year 2002, 2003 Priacipal Amount S 6,000,000 6,000,000 The Project No.1 1981 Bonds due July 1, 2017 shall be retired by July 1 of each year in accordance with the following schedule: Year 2004 2005 2006 2007 2008 2009 2010 Principal Amount S 4,650,000 5,560,000 6,605,000 7,815,000 9,205,000 10,810,000 10,660,000 Year 2011 2012 2013 2014 2015 2016 2017 Prindpal Amount$12,725,000 15,955,000 34,8S0,000 52,560,000 20,420,000 27,550,000 45,655,000 Redemption:

The Project No.1 1981 Bonds due July 1, 2017 wiH be subject to redemption prior to maturity at the option of the Supply System on and after July I, 1996, in whole at any time, or in part by lot on any interest payment date, at the respective redenlption prices (expressed as percentages of the principal amount)set forth below, together with accrued interest to the date fixed for redemption:

Period Daring RMch Redeemed Redemption (Both Dates Indusire)Pricea July 1, 1996 to June 30, 1997......July 1, 1997 to June 30, 1998......July 1, 1998 to June 30, 2003......July 1, 2003 and thereafter

.103 fo 102 101 100 The Supply System further reserves the ript to redeem prior'to maturity the project No.1 1981 Bonds (a)due July 1, 2001, July 1, 2003 and July 1, 2017, in part by lot on any sinking fuad install-ment date aad the immediately preceding January 1, upon payment of the principal amount thereof from the respective sinking fund installtnents, and (b)due July 1, 2017 in part by lot oa any interest payment date on and after July 1, 1986 upon payment of 101%of the principal amount thereof from excess con-struction fund proceeds, in each case;ogether with accrued interest to the date fixed for redemption.

The Supply System also reserves the right to redeem the project No.1 1981 Bonds at any time prior to maturity, in whole at any time, or in part on any interest paymeat date in inverse order of their mamrities and by lot within a maturity, from proceeds received from the sale or disposition of propertv or in the event Project No.1 is terminated as provided in the Project No.1 Agreement, upon paymeat of the principal amount thereof together with accrued interes: to the date fixed for redemption.

74 The Project No.2 Bondsand the Project No.2 1981 Bonds The Project No.2 Resolution creates and establishes an issue oE Project No.2 Bonds of the Supply System which may be issued from time to time to pay the Cost of Construction of Project No.2 and to establish reserves as therein provided.The Project No.2 1981 Bonds are part of such issue.The Project No.2 1981 Bonds will be dated September 1, 1981 and will be issued in coupon Eorm in'he denomination of$5,000, registrable as to principal only, and in fully registered form in denominations of$5,000 and any multiplcs thereof.Principal and semi-annual interest (January 1 and July 1, com-mencing January 1, 1982)on coupon Project No.2 1981 Bonds and principal on Re~o'ered Project No.2 1981 Bonds will be payable at the option of the holder at Peoples National Bank of washington in Seattle, washington, American National Bank and Trust Company of Chicago in Chicago, Illinois, and Manufacturers Hanover Trust Company in.New York, New York.Paymeat of interest oa fully registered Project No.2 1981 Bonds will be made by Continental Illinois National Bank and Trust Company of Chicago, Chicago, Illinois,.

which has been appointed the Bond Fund Trustee for Project No.2.Coupon Project No.2 1981 Bonds and fully registered Project No.2 1981 Bonds are inter-changeable at the principal offic of the Bond Fund Trustee.Prind pal Amoua!$6,195,000 6,920,000 7,740,000 8,650,000 9,675,000 10,820,000 Year 2007 2008 2009 2010.2011.2012.Redempriort:

The Project No.2 1981 Bonds due July 1, 2006 and July 1, 2012 will bc subject to re-demption prior to maturity at the option of the Supply System on and after July 1, 1996, in whole at any time, or in part on any interest payment date in inverse order of their rnaturities and by lot within a matur-ity, at the respective redemption prices (expressed as percentages of the principal"mount)set forth below, together with accrued interest to the date fixed for redemption:

S Descriptioa of Project No.2 1981 Bonds The Project No.2 1981 Bonds will mature$30,000,000 principal amount on July 1, 2001,$100,000,000 principal amount on July 1, 2003,$30,000,000 principal amount on July 1, 2006 and$50,000,000 principal amount on July 1, 2012, bearing interest at the rate of 14Ys%, SN%, 14Yi%and 13t/4%, respectively.

Sinking Fund Insula!lmelt ts: The Project No.2 1981 Bonds due July 1, 2001, 2003, 2006 and 2012 shall be retired by July 1 of each year in accordance with the following schedule: Bonds Due 2001 Bonds Due 2003 Bonds Due 2006~Bonds Due 2012 Mndpal Amount Prind pal Year Amount Year Prindpal Year Amount 1997...$6,000,000 1999..$20,000,000 2004..$10,000,000 1998...6,000,000 2000..20,000,000 2005..10,C00,000 1999...6,000,000 2001..20,000,000 2006..10,000,000 2000...6,000,000 2002..20,000,000 2001...6,000,000 2003..20,000,000 Period During Which Redeemed tBoth Dates Inclusive)

July 1, 1996 to June 30, 1997 July 1, 1997 to June 30, 1998 July 1, 1998 to June 30, 2003 July 1, 2003 and thereafter

.Redemption Prlees 1035o 102 101 100 The Supply System further reserves the right to redeem prior to maturity the Project No.2 1981 Bonds (a)due July 1, 2001, July l, 2003, July I, 2006 and July 1, 2012, in part by lot on any sinking fund installment date and the immediately preceding January 1 upon payment of the principal amount thereof from the respective sinking fund installmeats, and (b)due July 1, 2012, in part by lot on any interest 75 payment date on and after July 1, 1983 upon payment of 101'fo of the principal amount thereof from excess construction fund proceeds, in each case together with accrued interest to the date fixed for redemption.

0 The Supply System further reserves the right to redeem the Project No.2 1981 Bonds at any time prior to maturity, in whole at any time, or in part on any interest date in inverse order of their maturities and by lot within a maturity, from proceeds received from the sale or disposition of property or in the event Project iNo.2 is terminated as provided in the Project No.2 Agreement, upon payment of the principal amount thereof together with accrued interest to the date fixed for redemption.

Redemption ar the Opriort of rite Folder.The holder of each Project No.2 1981 Bond due July 1, 2012 will have the right to payment on July 1, 1991, or on any July 1 thereafter and prior to the stated maturity date thereof, of thc principal amount of such Bond;provided that such holder shall have exer-cised such right by completing and executing in person or by attorney authorized in writing, the notice provided on such Bond and presenting such Bond at the principal oflice of the Bond Fund Trustee for the Project No.2 Bonds during the July 1 to January 2 period which immctHatcly precedes the July 1 on which the holder wishes payment.Any exercise of such right shall be irrevocable.

FoHowing the exercise of such right, such Bond Fund Trustee shall sign the acknowledgement on such Bond and shall thereafter as soon as is reasonably practicable return it to the holder at its address appearing on such notice.In the case of fully registered Project iVo.2 1981 Bonds due July 1, 2012 in a denomination in excess of S5,000, the owner may exercise such right as to any portion thereof which is an integral multiple of$5,000.In the case of coupon Project No.2 1981 Bonds due July 1, 2012, aH unmatured interest coupons must be attached when such Bonds are presented for payment.The Project No.3 Bonds and the Project No.3 1981 Bonds The Project No.3 Re-olution creates and establishes an issue of Project No.3 Bonds of the Supply System which may be issued from time to time to pay the Supply System's Cost of Construction of Project No.3 and to establish reserves.The Project No.3 1981 Bonds are a part of such issue.The Project iVo.3 1981 Bonds will be dated September 1, 1981, and will be issued in coupon form in the denomination of S5,000, registrable as to principal only, and in fully registered form in denominations of$5,000 and any multiples thereof.Principal and semi-annual interest (Janu~~1 and July 1, commencing January 1, 1982)on coupon Project No.3 1981 Bonds and principal on regis-tered Project No.3 1981 Bonds will be payable at the option of the noldcr at Rainier National Bank, Seattie, Washington, Harris Trust and Savings Bank, Chicago, Illinois, and Chemical Bank, New York, New York.Payment of interest on fully registered Project No.3 1981 Bonds will be made by Seattle-First National Bank, Seattle, Washington, which has been appointed the Bond Fund Trustee for Project No.3.Coupon Project No.3 1981 Bonds and fuHy registered Project No.3 1981 Bonds are interchangeable at the ofIice of the Bond Fund Trustee.Year 1999 2000 2001 Description of Project No.3 1981 Bonds The Project No.3 1981 Bonds will mature$20,000,000 principal amount on July 1, 2003, S20,000,000 principal amount on July 1, 2006 and S185,000,000 principal amount on July 1, 2018 bearing interest at the rate of 8V~Uzo, 14%7o and 15%, respectively.

Sinking Fund Insralbnenrs:

The Project No.3 1981 Bonds due July 1, 2003 shall be reared by July 1 of each year in accordance with the foHowing schedule: PIiaCltSUl PrlnC!PU!A SIOUX Year Aalaulll S4,000,000 2002...............

S4,000,000 4,000,000 2003.4,000,000 4,000,000 The Project SVo.3 1981 Bonds due July I, 2006 shall be retired by July 1 of each year in accordance with the following schedule: Priad pa Amoum 56,670.000 Prondpai Year*mouut Year 2004 S6,665,000 2006.2005 6,665,000 The Project No.3 1981 Bonds due July I, 2018 shall be retired by July 1 of each year in accord-ance with the following schedule: Period During Which Redeemed Redemption (Both Dates Inclusive)

Prices July I, l996 to June 30, 1997~103%July 1, 1997 to June 30, 1998.....102 July I, l998 to June 30, 2003.......101 July I, 2003 and thereafter......

~100 The Supply System further reserves the right to redeem prior to maturity the Project iVo.3 1981 Bonds, (a)due July I, 2003, July I, 2006 and July I, 2018, in part by Iot on any sinking fund installment date and the immediately preceding January I, upon payment of the principal amount thereof from the respective sinking fund installments and (b)due July I, 20I8, in part by lot on any interest payment date on and after January I, 1986, upon payment oi IOI%of the principal amount thereof from excess construction fund proceeds, in each case together with accrued interest to the date lixed for redemption.

The Supply System further reserves the right to redeem the Project No.3 1981 Bonds at any time prior to maturity, in whole at any time, or m part on any interest payment date in inverse order of their maturities and by lot within a maturity, from proceeds received by the Supply System from the sale or disposition of properties t>f Project No.I ii iii the event the Project No.3 iVet Billing Agree-ments are terminated as provided therein, upon payment of the principal amount thereof together with accrued interest to the date lixed for redemption.

Prind pat Prindpal Year Amount Year tttuouut 2011 516,580,000 2015.......

S28,765,000 2012 19,025,000 2016....~..33,030,000 2013 21,835,000 2017..18,975,000 2014 25,065,000 20 I 8~...21,725,000 Redemption:

The Project No.3 l98l Bonds due July I, 2006 and July I, 2018 will be subject to redemption prior to maturity at the option of the Supply System on and after July I, 1996, in whole at any time, or in part on any interest payment date in inverse order of their maturities and by lot within a maturity, at the respective redemption prices (expressed as percentages of the principal amount)set forth below, together with accrued interest to the date fixed for redemption:

iNotice of Redemption Notice of redemption of 1981 iVet Billed Bonds is to be y'ven by publication of a notice at least once on any business day of tlie week in a daily financial paper or in a daily newspaper of general circulation printed in'.he English language, published in each of the cities of Seattle, 5>Vashington, Chicago, Illinois', and>Vew York, New York, the date of publication to be not less than 30 nor more than 60 day~prior tu thc date fixed for redemption.

The appropriate Bond Fund Trustee may approve substitute publication if a required publication cantlot be made.Notice of redemption of 1981 Net Billed Bonds is also to be mailed not less than 25 days nor more than 60 days before the redemption date to the icgi~tcrcd owners oi i98l fuct Biikd Bonds which are to be redeemed, but such mailing shall not bc a condition pieced;>ii iu icdemotion and f ilure to mail or receive any such notice shall not atfec: the validity oi the redcn!ct":o:t proceedin 2s.77 SUMibiARY OF CERTAPf PROVISIOl'lS OP TIIE NET BILLED RESOLUTIONS A%i'D SUPPLEMENTAL RESOLUTIOiVS The following summary is a brief outline of certain provisions contained in the Net Billed Resolu-tions and the Supplemental Resolutions and'is not to be considered as a full statement thereof.This summary is qualified by reference to and is subject to the Net Billed Resolutions and the Supplemental Resolutions, copies of which may be examined at the principal oflices of the Supply System and the respective Bond Fund Trustees and Paying Agents for the Net Billed Bonds.Subsequent Series of i4t Billed Bonds The Supply System covenants to issue additional series of Project No.1, Project No.2 or Project No.3 Bonds to the extent required to pay the Supply System's Cost of Construction of each Net Billed Project and to establish the reserves required by each Net Billed Resolution to the extent such reserves are not funded from other sources.Such Bonds may be issued upon compliance with the following principal conditions:

(1)There shall have been delivered to the Supply System a certificate of the issuing Project's Bond Fund Trustee that no default exists in the payment of principal of and interest on any outstanding Net Billed Bond for the issuing Project, and there has been delivered to such Bond Fund Trustee a certificate of the Secretary of the Board of Directors of the Supply System that in the case of Project iVo.1, the Net Billing Agreements, Exchange Agreements and Project Agreement are in full force and effect and have not been amended in any manner adversely affecting the Supply System and the holders of Project No.1 Bonds, or in the case of Projects Nos.2 and 3 that the Net BiUing Agreements and Project Agreements are in full force and elfect and have not been amended in any manner adversely affecting the Supply System and the holders of Project No.2 or Project No.3 Bonds.(2)Such Project No.1, Project iVo.2 or Project No.3 Bonds shall be either serial or term bonds or a combination thereof, with the final niaturity date to be no later than July 1, 2017, on July 1, 2012 or no later than July 1, 2018, respectively.

(3)There shall have been filed with the issuing Project's Bond Fund Trustee and Con-struction Fund Trustee and with the Supply System, a certificate of such Project's Construction Engineer as to the amount expended fo.-, and the amount remaining available to pay, Cost of Construction and the times funds will be required to pay such Cost, and, if the estimated Cost of Construction has increased, the reasons for such increase.Additional Obligations Other Than Net Billed Bonds The Supply System may also issue additional bonds ranking on a parity with the Project No.1, Project iVo.2 or Project No.3 Bonds and secured by an equal charge and lien on the revenues of the appropriate Project or, in the case of Project No.3, the Supply System's Ownership Share of the Project (" additional bonds"), for the following purposes: (1)to comply with an order of any governmental agency with authority to issue, make or enforce an order or decision requiring the installation of additional facilities or modifications at or in the related Net Billed Project;(2)to comply with requirements oi the related Project Agreement for the issuance of addi-tional bonds to pay for renewals, repairs and replacements and for capital additions and bet terments necessary to achieve design capability or required by governmental agencies;(3)With respect to Projects No.1 or No.3, and subject to the respective Proiect Agree-ment, to provide funds for capital additions and bettermcnts to such Project which in the opinion of the respective Consulting Engineer are necessary or desirable to improve operadng reliability or to reduce unit power costs; (4)With respect to Projects Nos.1 and 3, and subject to the respective Project Agreement, to provide funds for the purchase of Fuel for such Project;and (5)to refund at any time any Net Billed Bonds or additional bonds.The Supply System may not issue any additional bonds pursuant to the Net Billed Resolutions unless prior to or simultaneously with the issuance of such bonds the Supply System has in eftect'valid written contracts for the sale of capability, power and energy of the issuing Project or, in the case of Project No.3, the Supply System's Ownership Share of the Project, which, in the opinion of the Supply System and of the Consulting Engineer, will produce revenues at least sutficient to enable the Supply System to meet all of its obligations under the issuing Project's Resolution.

Such contracts (1)must bc for terms extending at least to the Qnal maturity date of the Project No.1, Project No.2 or Project No.3 Bonds, (2)unless such contracts are with the parties to the Net Billing Agreements and, in the case of Project No.1, the Project No.1 Exchange Agreements, must in the opinion of the Consulting Engineer provide a sound basis for the issuance of such additional bonds or, in the case of Project No.2, must be with purchasers which, in the opinion of the Consulting Engineer, have the ability and financial responsibility to meet their obligations under such contracts, and (3)must contain terms with respect to payments for such Project (or the Supply System's Ownership Share of Project No.3)capability, power and energy and the items of annual power costs to be included in the price for such capability, power and energy which are no less favorable to the Supply System than the terms of the Net Billing Agree-ments and, in the case of Project No.1, the Net Billing Agreements and Project No.1 Exchange Agree-ments.Additional bonds for each Net Billed Project may be either serial or term bonds or a combination thereof, with the Qual maturity date to be not later than the respecfive final maturity date of the Net Billed Bonds or additional bonds to be refunded in the case of refunding bonds or a date which is not later than the expiration of the service life of the facilities or Fuel, as the case may be, being Qnanced in the case of all other additional bonds, provided that additional bonds for Project No.2 for refunding pur-poses must mature on July 1, 2012, and for other purposes'may mature on July 1, 2012.A separate bond fun'd"is to be created for each project and payments into such bond fund for the retiremient of such additional bonds are to commence within 5 years from the date thereof or, in the case of refunding bonds, at the time when payments with respect to the retirement of the refunded Project No.1, 2 or 3 Bonds or additional bonds would be required if such Bonds or additional bonds were not refunded.From the proceeds of sale of additional bonds or revenues of the Supply System available at the time of issuance, an amount equal to the maximum amount of interest to become due on such bonds in any six-month period is to be deposited in the reserve account in such bond fund, and such account is to be maintained at such amount;provided that such amount, in the case of refunding bonds, may be so deposited at the time when the refunded Project No.1, 2 or 3 Bonds or additional bonds are no longer deemed outstanding and may be accomplished at that time from transfers from the Reserve Accour;t for the Project No.1, 2 or 3 Bonds or the reserve account for the additional bonds being refunded.Effect of Amendments Adopted March 21, 1978 and August 5, 1980 (Project No.1)Resolution No.963 adopted by the Board of Directors of the Supply System on March 21, 1978 amends the project No.1 Resolution to delete the requirements with respect to the Qnal maturity date of Project No.1 Bonds set forth in"Subsequent Series of Bonds".Such amendment will become effective when consented to by the holders of 66M%of the outstanding S535,000,000 principal amount of project No.1 Bonds issued prior to 1978 or when such project No.1 Bonds are no longer outstanding.

Resolution No.1111 adopted by the Board of Directors of the Supply System on August 5, 1980, amends the Project No.1 Resolution to delete the provisions with respect to the final maturity date of refunding bonds set forth in"Additional Obligations other than Bonds".Such amendment will become effective when consented to by the holders of 66%Fo of the outstanding

$1,045,000,000 principal amount of Project No.1 Bonds issued prior to 1980 or when such Bonds are no longer outstanding.

79 Kffect of Amendment Adopted October 21, X980 (Project No.2)Resolutioa iVo.1117, adopted by the Board of Directors of the Supply System on October 21, 1980, amends the Project iVo.2 Resolution to delete the provisions with respect to the fiaal maturity date of Project No.2 Bonds set forth in"Subsequent Series of Bonds" and with respect to the final maturity date of refunding bonds set forth in"Additional Indebtedness other than Bonds".Such amendmeat will become effective when consented to by the holders of 66Va lo of the Project No.2 Bonds issued prior to 1980 or when such Project No.2 Bonds are no longer outstanding.

EfFect of Amendment Adopted February XX, X98X (Project No.3)Resolution iVo.1142, adopted by the Board of Directors of the Supply System on February 11, 1981, amends the Project No.3 Resolution to delete the provisions with respect to thc final maturity date of Project No.3 Bonds set forth in"Subsequent Series of Bonds" and with respect to the final maturity date of refunding bonds set forth in"Additional Obligations other than Bonds": Such amendment will become effective when consented to by the holders of 66Ya~ro of the Project No.3 Bonds issued prior to 1981 or when such Project No.3 Bonds are no longer outstanding.

Construction Fund;Application of Bond Proceeds The Project No.1 Resolution establishes a washington Public Power Supply System Project Vio.1 Construction Fund and a Fuel Account therein, to be held by the Construction Fund Trustee.Morgan Guaranty Trust Company of New York is Construction Fund Trustee under the Project No.1 Resolution.

The proceeds of the sale of the Project No.I 1981 Bonds will be applied as follows: (a)An amount equal to the accrued interest on the Project No.1 19Sl Bonds will be credited to the Interest Account in the Project No.I Bond Fund.(b)An amount equal to one-half of the maximum annual interest on the Project No.1 1981 Bonds will be credited to the Reserve Account in the Project No.1 Bond Fund..(c)The sum of$79,192,000 will bc credited to the Fuel Account ia the Project No.1 Construction Fund, (d)The balance of the Project No.1 l981 Bond proceeds wiil be deposited in the Project No.1 Construction Fund.The Project iVo.2 Resolution estab!ishcs a washington Public Power Supply System Nuclear Project No.2 Construction Fund and a Fuel Account therein, to bc held by the Construction Fund Trustee.Continental Illinois Bank and Trust Company of Chicago is Construction Fund Trustee under the Project No.2 Resolution.

The proceeds of sale of the Project No.2 1981 Bonds will be applied as follows: (a)An amount equal to the accrued interest on the Project No.2 1981 Bonds from their date to the date of their delivery to the initial purchasers will be credited to the Interest Account in the Project No.2 Bond Fund.(b)An amount equal to one-half of the maximum annual intcrcst on the Project No.2 1981 Bonds will be credited to the Reserve Account in such Bond Fund.'(c)The sum of$12,629,000 will be credited to the Fuel Account in the project No.2 Construction Fund.(d)The balance of Project No.2 1981 Bond proceeds will be deposited in Project No.2 Construction Fund.The Project No.3 Resolution establishes a Washington Public Power Supply System Nuclear Project No.3 Construction Fund to be held in trust by the Supply Systera.The proceeds of sale of the Project No.3 1981 Bonds will be aaplied as follows: (a)An amount equal to the interest on such Project Vo.3 Bonds from their date to Sep-teraber 1, 19S2, will be credited to the Interest Account in the Project No.3 Bond Fund.80 (b)Such amount as the Supply System determines to be necessary to provide for the Reserve Account requirement will be credited to the Reserve Account in the Project No.3 Bond Fund.(c)The balance of the Project No.3 Bond proceeds will be deposited in the Project No.3 Construction Fund.The Project No.3 Resolution provides that if working capital is not provided for by September 1, 1982, or if a Reserve and Contingency Fund requirement of S3,000,000 is not provided for by the Date of Commercial Operation, through revenues received pursuant to the Project iNo.3 Net Billing Agreements, such amounts will be provided from Project No.3 Bond proceeds.'he proceeds of sale of subsequent series of Project No.1, Project No.2 or Project No.3 Bonds will be applied as follows: (a)An amount equal to the interest accrued on such series of Net Billed Bonds from their date to the date of their delivery to the initial purchasers wiU be credited to the Interest Account in the Bond Fuad for the respective Project.(b)An amount equal to one-half of the maximum annual interest on such series of Net Billed Bonds will be credited to the Reserve Account in the Bond Fund for the respective Project it such amount is not funded by payments under the Net BiUing Agreements relating to such Project.(c)Such amounts, if any, as the Supply System determines will be credited to the Fuel Account in the Construction Fund for Project No.1 and Project No.2.(d)The balance of such Bond proceeds will be deposited in the Construction Fund for the respective Project, provided a part of such proceeds may be deposited in the Reveaue Fund for such Project as required for additional working capital.Moneys in each Net Billed Project Construction Fund are to be used to pay the Supply System's Cost of Construction of each respective Project, which includes costs (or in the case of Project No.3, the Supply System's Ownership Share of costs)of constructing and acquiring such Project, obtaining permits and licenses and acquiring property and Fuel, trustees'nd paying agents'ees, taxes and insurance pre-miums, the cost of engiaeering services and administrative and overhead expenses of the Supply System allocable to the acquisition and construction of such Project.The cost of acquiring Fuel for each Project will be paid from such Project's Fuel Account.Each iNet Billed Resolution prescribes certaia procedures designed to safeguard payments or transfers from each Project's Construction Fund, including, among others, certi6cates by the appropriate Coastruc-tioa Engineer aad, for Projects Nos.1 and 2, a detailed itemization by the Supply System of the amounts to be paid aad the purposes ther of.Moneys remainiag in a iNet B10ed Project Constructioa Fuad after providiag for payment of all Cost of Construction in the case of Project No.1 or'2, and all oi the Supply System's Cost of Con-struction ia the case of Project No.3, and after required payments, if aay, to other accounts, are to be transferred to such Project's Bond Retirement Account.'I Other Funds Established by the iVet Billed Resolutions; Flow of Revenues Each Net Billed Resolution also establishes a separate project Revenue Fund, Bond Fund (including an Interest Account, a Principal Account, a Bond Retirement Account and a Reserve Account), Fuel Fund and Reserve aad Contingency Fund.All such funds are to be held by the Supply System, except for the Bond Funds, each of which is to be held by the appropriate Bond Fund Trustee.Projec!~Vo.I Revenue Fuird: The gross revenues derived by the Supply System from its owner-ship and operation of Project Nlo.1 are to be paid iato the Project No.1 Reveaue Fund.Moneys in such Revenue Fund are to be used for the purpose of making required payments into the Hanford Project Revenue Fund and the Project No.1 Bond Fund and any special funds for additional, bonds, paying for the costs of operating and maintaining Project No.1, making required payments into the Project No.1.

Fuel Fund and the Reserve and Contingency Fund, making repairs, renewals, replacements, additions, bctterments and improvements to and extensions of Project No.1 and paying all other charges or obligations against the revenues pledged to the Project No.1 Revenue Fund.The Supply System covenants and agrees that, for so long as any bonds issued pursuant to Resolution iVo.178 are outstanding and unpaid, it will pay from the Project iVo.1 Revenue Fund into the Hanford Project Revenue Fund amounts sufficient to enable the Supply System to pay from the Hanford Project Revenue Fund all obligations of the Supply System payable froin moneys on deposit in said Fund as the same become due and payable, to the extent such obligations are not otherwise provided for, including amounts sufficient to enable the Supply System (a)to make when due the payments from the Hanford Project Revenue Fund to the Hanford Project Revenue Bond Fund and Hanford Project Reserve and Contingency Fund required by Resolution No.178, (b)to maintain working capital for the Hanford Project in an amount at least equal to$1,000,000 and (c)to pay all other Project Annual Costs (as defined in the Hanford Project Exchange Agreements providir.g for the sale by the Supply System of power and energy from the Hanford Project to thc Hanford Project Participants and the exchange thereof with Bonneville for firm power and energy).So long as any bonds issued pursuant to Resolution No.178 are outstanding and unpaid, such payments shall constitute a prior and paramount charge and lien over all other charges or claims what-soever against the Project No.1 Revenue Fund and the revenues pledged thereto.The Supply System and Bonneville have agreed in the Project No.1 Agreement that the Supply System shall not agree to the continued operation of the Hanford project if such operation will increase the amounts which otherwise would have been payable by the Project No.1 Participants under the Project No.1 Net Billing Agreements.

Copies of Resolution No.178 and the form of the Hanford Project Exchange Agreements may be obtained from the Supply System.Project No.1 Bond Fund: From the revcnucs theretofore paid into the Project iNo.1 Revenue Fund, the Supply System is to pay monthly into thc project No.1 Bond Fund, for the creciit of the Interest Account and thc Principal Account, respectively, afte.making the required pay-ments to the Hanford Project Revenue Fund, fixed amounts sufficient in the aggregate to pay the prin-cipal of and interest on the Project iVo.1 Bonds as the same become due and payable.Payments to the Interest Account in the Project No.1 Bond Fund began in Septcrnber 1980.Monthly payments to the principal Account are to bc sufficient to pay outstanding serial project No.1 Bonds as they mature.Monthly payments to the Project No.1 Bond Retirement Account to retire any term Project iVo.1 Bonds are to be made at the times and in the amounts specified in thc supplemental resolution providing for the issuance of such term Bonds.Moneys in said Bond Retirement Account are to be applied by the Project No.1 Bond Fund Truste" to the purchase or redemption of outstanding Project No.1 Bonds.There is required to be paid into and maintained in the Project iVo.1 Reserve Account, for each series oi Project No.1 Bonds outstanding, an amount equal to the largest amount of interest on such Bonds durmg any six month period from the date of such Bonds to the final maturity date thereof.Upon the delivery of the Project No.1 1981 Bonds, the amount required for the outstanding Project No.1 Bonds and the Project No.1 1981 Bonds will have been deposited in said Reserve Account.The Reserve Account requirement for additional Project No.1 Bonds shall be deposited therein from Project No.1 Bonds proceeds or revenues available therefor at the time of issuance of such Bonds.The Supply System is required to maintain the required amount in said Reserve Account by payments from the Project No.1 Revenue Fund.Project Ho.1 Fuel Fund: Beginning on the Date of Commercial Operation, all payments for Fuel for Project No.1 will be made from the Project No.1 Fuel Fund.After the Date of Commer-82 cial Operation, after magog the required payments into the Hanford'Project Revenue Fund and the Project No.1 Bond Fund and into any separate bond fund for additional bonds and after paying or making provisions for payment of the reasonable and necessary costs of operating and maintaining Project Yo.1, including taxes or payments in lieu thereof, the Supply System will transfer from he Project No.1 Revenue Fund to said Fuel Fuhd the following amounts:~(1)the amount included in thc annual budget for Fuel adopted pursuant to the Project No.1 Project Agreement, (2)all amounts rcccived as Fuel credits, including the proceeds of the sale of Fuel, and (3)any additional amounts necessary to avoid a deficieacy in the Project No.1 Fuel Fund.Project No.1 Reserve and Contingency Fund: Beginning on September 25, 1980, the Supply System is required to pay monthly out of thc Project No.1 Revenue Fund into the Project No.1 Reserve and Contingency Fund, after making the required payments into the Sanford Project Revenue Fund and the Project No.1 Bond Fund, any separate bond fund established for additional bonds and the Project No.1 Fuel Fund, and after paying or making provision for payment of the reasonable and necessary costs of operating and maintaining Project No.1, including taxes or pay-ments in lieu thereof, an amount equal to 10/o of the aggregate of the amounts.required to bc paid during such month into the Interest, Principal and Bond Retirement Accounts in the Project Yo.1 Bond Fund and into any special funds for interest, principal and bond retirements in respect of addi-tional bonds.In any event, by the Date of Commercial Operation the Supply System will deposit in said Reserve and Contingency Fund the sum of S3,000,000 either through the aforesaid payments into said Fund or from revenues otherwise available therefor in the Project No.1 Revenue Fund or, to the extent such moneys are not availablc, from Project Yo.1 Bond proceeds.project Fo.2 Revenue Fund: The gross revenues derived by the Supply System from its ownership and operation of Project No.2 are to be paid into the Project No.2 Revenue Fund.Moneys in such Revenue Fund are to be used for the purpose of making required payments into the Project No.2 Bond Fund and any special funds for additional bonds, paying for the costs of operating and maintaining Proj-ect No.2, making required payments into the Project No.2 Fuel Fund and the Project No.2 Reserve and Contingency Fund, making repairs, renewals, replacements, additions, bettermeats and improve-ments to, and extensions of, Project No.2, and payiag all other charges or obligations against such revenues.Project No.2 Bond Fund: From the revenues theretofore paid into the Project No.2 Revenue Fund, the Supply System is to pay monthly into the Project No.2 Bond Fund, for the credit of the Interest Account and the Principal Account, respectively, fixed amounts sufficient in the aggregate to pay the principal of and interest on thc Project No.2 Bonds as the same become due and payable.Pay-ments to the Interest Account began in September 1977.Monthly payments to the Principal Account began in September 1977, and are required to be sufficient to pay outstanding serial Yrojcct No.2 Bonds as they mature.Monthly payments to the Project No.2 Bond Retirement Account to retire any term Project No.2 Bonds are to be made at the times and in the'amounts specifie in the supplemental resolution providing for the issuance of such term Bonds.Moneys in said Bond Retirement Account are to be applied by thc Project No.2 Bond Fund Trustee to the purchase or redemption of outstanding Project No.2 Bonds.There is required to be paid into and maintained in the Reserve Account for each series of Project Yo.2 Bonds outstanding, an amount equal to the largest amount of interest on such Bonds during any six month period from the date of such Bonds to the final maturity date thereof.The requirement for the presently outstanding Project No.2 Bonds was deposited from payments received pursuant to the Project No.2 Net Billing Agreements and Project Yo.2 Bond proceeds, and the requirement fo the 1981 Project No.Bonds will be deposited from such Bond proceeds.The Reserve Account require-ment for additional Project No.2 Bonds shall be deposited in the Reserve Accouat at the time of issuance 83 of Project No.2 Bonds from such Boad proceeds or revenues available therefor.The Supply System is required to maintain the required amount in the Reserve Account by additional payments from said Revenue Fund.Project iVo.2 Fuel Fund: Beginning on the Date of Cornmerical Operation, all payments for Fuel for Project No.2 will be made from the Project No.2 Fuel Fund.=After the Date of Commercial Operation, after making the required payments into the Project No.2 Bond Fund and into any separate bond fund for additional bonds and after paying or making provision for payment of the reasonable and necessary costs of operating and maintaining Project No.2, including taxes or payments in lieu thereof, the Supply System will transfer to said Fuel Fund the following amounts: (1)the amount included in the aanual budget for Fuel for Project No.2, (2)all amounts rec ived as Fuel credits, including the proceeds of the sale of Fuel, and (3)any additional amounts necessary to avoid a deficiency in the Fuel Fund.Project No.2 Reserve and Contingency Fund: Thc Supply System has deposited in the Project No.2 Reserve and Contingency Fund the sum of S3,000,000 from moneys received pursuant to the Project No.2 Net BiHing Agreements.

In each month the Supply System is required to pay out of the Project No.2 Revenue Fund into the Project No.2 Reserve and Contingency Fund, after making the required payments into thc Project No.2 Bond Fund, any separate bond fund established for additional bonds and the Project No.2 Fuel Fund, and after paying or maLtng provision for payment of the reasonable and necessary costs of operating and maintaining thc Project No.2,,an amount equal to 10 lo of the aggregate of the amounts required to be paid during such month into the Interest, Principal and Bond Retirement Accounts in said Bond Fund and into any special funds for interest, nrincipal and bond retirements in respect of additional bonds.Project iYo.3 Revenu Fund: The gross revenues derived by the Supply System from its owner-ship and operation of the Suoply System's Ownership Share of Project No.3 are to be paid into the Project No.3 Revenue Fund.The sum of S3,000,000 of worl"ing capital for the Supply System's Ownership Share of project No.3 mill be provided prior to September 1, 1982, either through revenues of the Supply System's Ownership Share of Project iso.3 or Project No.3 Bond proceeds.Additional working capital may bc provided by mutual agreement between the Supply System and Bonaevilie.

Moneys in the Project Vio.3 Revenue Fund are to be used for the purpose of making required pay-meats into the Project iVo.3 Bond Fund and any special fuads for additional bonds, paying for the Supply System's Ownership Share of the costs of operating and maintaining Project No.3, making required payments into thc Project No.3 Fuel Fund and the Project No.3 Reserve and Contingency Fund, paying the Supply.System's Ownership Share of the costs oi repairs, renewals, replacements, additions, betterments and improvements to, and extensions of, project iVo.3, aad paying ail other charges or obligations against such revenues.<<Project iVo.3 Bond Fund: From the revenues theretofore paid into said Revenue Fund, the Supply System is to pay monthly into the Project No.3 Bond Fund, for the credit of the Int rest Account and the Principal Account, respectively, fixed amounts suincient in the aggregate to pay the principal of and interest on the Project iVo.3 Bonds as the same become due and payable.Interest on said Bonds will be capitalized to September 1, 1982;monthly payments to the Interest Accouat wi!l com-mence on September 25, 1982.Monthly payments to the Principal Account are to commence in the twelfth month prior to the due date of aay serial Project No.3 Bonds and be sufficient to pay sucn outstanding serial Bonds as they mature.Monthly payments to the project No.3 Bond Retiremeat Account to retire any term project iVo.3 Bonds are to be made at the times and in the amounts specified in the supplemental resolution providing for the issuance of such term Bonds.Moneys in said Bond Retirement Account are to be app!icd by the Bond Fund Trustee to the purchase or redemption of oustandiag Project No.3 Bonds.

There is required to be paid into and maintained in the Project No.3 Reserve Account for each series of Project No.3 Bonds outstanding, an amount equal to the largest amount of interest on such Bonds during any six month period from the date of'such Bonds to the Qnal maturity date thereof.By September 1~1982, the Supply System will deposit the required amount in said Reserve Account either from Project No.3 Bond proceeds or amounts received under thc Project No.3 Net Billing Agreements and deposited in the Project No.3 Revenue Bond.The Supply System is required to maintain the required amount in said Reserve Account at all times thereafter by additional payments from said Revenue Puad.If any Project No.3 Bonds are issued after September 1, 1982, the additional amount required to be deposited in said Reserve Account shall be deposited therein from such Bond proceeds or revenues available therefor at the time of issuance of such Boads.Project No.3 Fuel Fund: Beginning oa the Date of Commercial Operation, all payments for Fuel for Project No.3 will be made from the Project No.3 Fuel Fund.After thc Date of Commercial Operation, after making the required payments into said Boad Fund aad into any separate bond fund for additional bonds and after payiag or making provision for payment of the Supply System's Owner-ship Share of the reasonable and necessary costs of operating and maintaining Project No.3, including taxes or paymeats ia lieu thereof, the Supply System will transfer to said Fuel Fund thc foHowing amounts: (1)the amount included in the annual budget for Fuel adopted pursuaat to the Project No.3 Project Agreement, A (2)aH amounts received by thc System from Fuel credits, including the proceeds of the sale of Fuel, aad (3)any additional amounts necessary to avoid a de6ciency in said Fuel Pund.Project No.3 Reserve and Contingency Fund: Beginning on September 25, 19&2, the Supply System is required to pay monthly out of the Project No.3 Revenue Fund into the Project No.3 Reserve and Contingency Fund, after making the required paymeats into the Project No.3 Bond Fund, any separate bond fuad established for additioaal bonds and the Fuel Fund, aad after payiag or making provisioa for payment of the Supply System's Ownership Share of the reasoaable and necessary costs of operating and maintaining Project No.3, an amount equal to 10%of the aggregate of the amounts required to be paid during such month from said Revenue Fund into the Interest, Principal and Bond Retirement Accounts in said Bond Fund and.into any special funds for interest, principal and bond retirements in respect of additional bonds.In any event, by the Date of Commercial Operation, the Supply System will deposit ia said Reserve aad Contingency Fund the sum of S3,000,000 either through the aforesaid payments into said Fund or revenues otherwise available therefor in said Revenue Fund or, to the extent such moneys are aot available, from Project No.3 Bond proceeds.Moneys in each Net Billed Project's Reserve and Coatingency Fund arc required.to be used to make up de6cieacies in the respective Project Bond Fund or in any boad fuads established for additional bonds for which funds arc not available in the respective Project's Construction Fund or Reserve Account or in the construction fund or reserve account in respect of additional bonds, respectively.

To the extent not required for any such de6ciency, moneys in each Project's Reserve aad Contingency Fund may be used after the respective Date of Commercial Operatioa for any one, or'more of the followiag purposes: (i)to pay the cost of renewals, replacements and normal additions to aad extensions of such Net Billed Project;aad (ii)to pay extraordinary operation aad maintenance costs.or the Supply System's Share of such costs in the case of Project No.3, including extraordinary costs of Fuel and the cost of preventing or correcting aay unusual loss or damage (including major repairs)to such Project.Invesrmen!

of Funds: The term"Investment Securities" for each of the Net Billed Projects means (i)direct obligations of, or obligations the principal of and interest on which are uaconditionaHy guaran-85 teed by, the United States of America;(ii)general obligation bonds of any state of the United States rated by a nationally recognized bond rating agency in either of the two highest rating categories assigned by such rating agency;(iii)bonds, debentures, notes or participation certificates issued by the Bank for Cooperatives, the Federal Intermediate Credit Bank, the Federal Home Loan Bank System, the Export-Import Bank of the United States, Federal Land Banks or the Federal National Mortgage Asso-ciation or of any agency of or corporation wholly owned by the United States of America;(iv)Pub-lic Housing Bonds or Project Notes issued by Public Housing Authorities and fully secured as to the payment of both principal and interest by a pledge of annual contributions to be paid by the United States of America or any agency thereof or in the case of Project No.3, New Housing Authority Bonds or Project Notes issued by public agencies or municipalities and fully secured as to the payment of both principal and interest by a pledge of annual contributions to be paid by the United States of America or any agency thereof.In addition, for Projects Nos.1 and 3, the term"Investment Securities" means (a)bank time deposits evidenced by certificates of deposit, and bankers'cceptances, issued by any bank, trust company or national banking association authorized to do business in the State of Washington, which is a.member of the Federal Reserve System, provided that the aggregate of such bank time deposits and bankers'cceptances issued by any bank, trust company or banking association do not exceed at any time fifty per centum (50%)of the aggregate of the capital stock, surplus and undivided, profits of such bank, trust company or banking association; and (b)bank time deposits evidenced by certificates of deposit, and bankers'cceptances, issued by any bank, trust company or national banking association authorized to do business in any state of the United States of America other than the State of Washington, which is a member of the Federal Reserve System, provided that the aggregate of such bank time deposits and bankers'cceptances issued by any bank, trust company or banking association do not exceed at any one time twenty-five per centum (25%)of the aggregate of the capital stock, surplus and undivided profits of such bank, trust company or banking association and provided further that such capital stock, surplus and undivided profits shall not be less than Fifty Million Dollars ($50,000,000);

while for Project No.2, the term"Investment Securities" includes bank time deposits evidenced by certificates of deposit issued by any bank, trust company, or national banking association authorized to do business in the State of Washington, which is a member of the Federal Reserve System, provided that such bank time deposits in any bank, trust company, or banhng association do not exceed at any one time in the aggregate twenty-five per centum (25%)of the total of the capital stock and surplus of such bank, trust company or banking association.

For Project No.1 only, the term also includes evidences ot indebtedness issued by any corporation organized and existing under the laws of any state of the United States of America rated by any nationaHy recognized bond rating agency in either of the two highest rating categories assigned by such rating agency: Moneys in the Project No.1 Revenue Fund not required for immediate disbursement are to be invested in Investment Securities described in clauses (i)through (iv)above maturing or redeemable at or prior to the estimated time for disbursement of such moneys.Moneys in the Project No.1 Interest Account, Principal Account and Bond Retirement Account are to be invested in Investment Securities described in clauses (i)through (iv)above maturing on or before the respective dates when such moneys will be required for the purposes intended.Moneys in the Project No.1 Reserve Account not required for immediate disbursement are to be invested in Investment Securities described in clauses (i)through (iv)above maturing or redeemable within 7 years from the date of investment.

Moneys in the Project No.1 Fuel Fund and Reserve and Contingency Fund not required for inmtediate disbusement are to be invested in Investment Securities maturing or redeemable within 7 years from the date of invest-ment.Moneys in the Project No.1 Construction Fund are to be invested by the Project No, 1 Construc-tion Fund Trustee in Investment Securities maturing or redeemable within 5 years of the date of investment.

Moneys in the Project No.2 Revenue Fund not required for immediate disbursement are to be invested in Investment Securities described in clauses (i)through (iv)above maturing or redeemable at or prior to the estimated time for the disbursement of such moneys.Moneys in the Project No, 2 Interest Account, Principal Account and Bond Retirement Account are to be invested in Investment Securities described in clauses (i)through (iv)above maturing not later than 2 days prior to the respective dates when such moneys will be required for the purposes intended.Moneys in the Project No.2 Reserve Account not required for inunediate disbursement are to be invested in Investment Securities described in clauses (i)through (iv)above maturing or redeemable within 7 years from the date of investment.

Moneys in the Project No.2 Fuel Fund and Reserve and Contingency Fund not required for immediate disbursement are to be invested in Investment Securities maturing or redeemable within 2 years and 7 years, respectively, from the date of investment.

Moneys in the Project No.'Con-struction Fund are to be invested by the Construction Fund Trustee in Investment Securities maturing or redeemable within 5 years of the date of investment..

Moneys in the Project No.3 Revenue Fund not required for immediate disbursement are to be invested in Investment Securities maturing or redeemable at or prior to the estimated time for the dis-bursement of such moneys.Moneys in the Project No.3 Interest Account, Principal Account and Bond Retirement Account are to be invested in Investment Securities described in clauses (i)through (iv)above maturing on or before 30 days after the respective dates when such moneys wiH be required for the purposes intended, provided that any such investment of moneys in the Interest Account repre-seating interest capitalized from the proceeds of Project No.3 Bonds may be in Investment Securities.

Moneys in the Project No.3 Reserve Account not required for immediate disbursement are to be invested in Investment Securities described in clauses (i)through (iv)above maturing or redeemable within 7 years from the date of investment.

Moneys in the Project No.3 Fuel Fund and Reserve and Contingency Fund not required for immediate dtsbursement are to be invested in Investment Securities maturing or redeemable within 7 years from the date of investment.

Moneys in the Project No.3 Construction Fund are to be invested in Investment Securities maturing or redeemable within 7 years of the date of investment.

Excess Moneys: For each of the Net BHled Projects moneys and the value of Investment Securities in each Project's Reserve and Contingency Fund in excess of$3,000,000 plus the commitments or obligations incurred by or the requirements of the Supply System for any of the purposes for which such Reserve and Contingency Fund may be used constitute"excess moneys" in respect of such Fund;for Project Nos.1 and 2, moneys and the value of Investment Securities in each Project's Reserve Account in excess of the amounts required to be maintained in such Reserve Account constitute"excess moneys" in respect of such Account;for Project No.3, moneys and the value of Investment Securities described in clauses (i)through (iv)set forth in"Investment of Funds" in the Project No.3 Reserve Account in excess of the amounts required to be maintained in said Reserve Account constitute"excess moneys" in respect of such Account.If as of any June 30 excess moneys exist in the Reserve and Contingency Fund for any Net Billed Project, such moneys shall be paid proportionately into such Project's Reserve Account and the reserve account for any series of additional bonds to the extent of any deficiency therein, and the balance of such excess moneys shall be paid into such Project's Revenue Fund.If as of any June 30, excess moneys exist in the Reserve Account for any Net Billed Project, such moneys shall be paid proportionately into such Project's reserve account for any series of addi-tional bonds to the extent of any de6ciency therein and the balance of such excess moneys shall be paid into such Project's Revenue Fund;except that, prior to September 1, 1982, excess moneys in the Project No.3 Reserve Account shall be paid into the Project No.3 Construction Fund.If as of any June 30 or, in.the case of Project No.3, any June 30 foHowing September 1, 1982, there shall exist in any Net BiHed Project's Revenue Fund, after giving effect to any transfer of excess moneys from such Project's Reserve Account and Reserve and Contingency Fund to such Fund, an amount which exceeds the Supply System's required amount of working capital for such Project, the amount of such excess is to be applied to reduce annual power costs under the Net Billing Agreements.

For Projects Nos.1 and 3, the"required amount of working capital" shall be$3,000,000 or such greater 87 amount as may be decided upon by the Supply System and Bonneville with the approval of the Con-sulting Engineer.For Project No.2, the"required amount of worhng capital" shall be$3,000,000 or such lesser amount (not less than$2,000,000) or such greater amount as may be decided upon by the Supply System and Bonneville with the approval of the Consulting Engineer.In addition, if the Supply System and Bonneville agree, all or any part of such excess over required working capital for a Net Billed Project may be applied to the making of repairs, renewals, replacements, additions, betterments and,improvements to, and extensions of, such Project, or in the case of Project No.3, the Supply System's Ownership Share of such items, the purchase or redemption of Bonds for such Project or for other purposes in connection with such project or the Supply System's Ownership Share of project No.3.Certain Covenanh Certain covenants of the Supply System with the holders of the Net Billed Bonds and the holders of additional'bonds are summarized as follows: The Hanford Project: Under the Project No.1 Resolution, the Supply System (a)will not issue any,.evidences of indebtedness under Resolution No.178 so long as the obligations of said resolution are satisfied under the Project No.1 Resolution, (b)will discharge all of its duties and obHgations under Resolution No.178, (c)will make all payments and deposits to be made under the provisions of Resolution No.178 from moneys to be provided pursuant to the Project No.1 Resolution if and to the extent such obligations are not otherwise provided for, (d)will, on each December 31, apply any excess of amounts in the Hanford Project Revenue Fund over the required amount of working capital to reduce the amounts required by the Project No.1 Resolution to be deposited in the Hanford Project Revenue Fund, and (e)will not amend Resolution No.178 in any manner which adversely affects the rights of Bondholders under the Project No.1 Resolution.

The Ne!Billed Projects: The Supply System will, subject to the Project Agreements for each of the Net Billed Projects and the Ownership Agreement for Project No.3, complete construction of the Net Billed Projects at the earliest practicable time, operate such Projects and the business in connection therewith in an efficient manner and at reasonable cost, maintain such Projects in good condition and make all necessary and proper repairs, renewals, replacements, additions, extensions and betterments to such Projects.Rates: The Supply System will dispose of all capability of and power and energy from Project No.1 solely for the benefit and account of such Project and pursuant to the provisions of the Project No.1 Net Billing Agreements and the Project No.1 Exchange Agreements; and the Supply System will main-tain and collect rates and charges for capability, power and energy and other services, facilities and commodities sold, furnished or supplied through such Project, which will be adequate, whether or not the generation or transmission of power by such Project is suspended, interrupted or reduced for any reason whatever, to provide revenues sufficient, among other things, (i)to make the requirai payments into the Hanford Project Revenue Fund, (ii)to pay the expenses of operating and maintaining Project No.1, (iii)to make the required payments into the Project No.1 Bond Fund and any special funds for additional bonds and (iv)to make the required payments into the Project No.1 Fuel Fund and Project No.1 Reserve and Contingency Fund.The Supply System will dispose of all capability of and power and energy from Project No.2 solely for the benefit and account of such Project and pursuant to the provisions of the Project No.2 Vet Billing Agreements; and the Supply System will maintain and collect rates and charges for capability, power and energy and other services, facilities and commodities sold, furnished or supplied through such Project, which will be adequate, whether or not the generation or transmission of power by such Project is suspended, interrupted or reduced for any reason whatever, to provide revenues suiiicient, among other things, (i)to pay the expenses of operating and maintaining such Project, (ii)to make the required payments into the Project No.2 Bond Fund and any special funds for additional bonds, and (iii)to make the required payments into the Project No.2 Fuel Fund and Project No.2 Reserve and Contin-gency Fund.88 The Supply System will dispose of all capabiTity of and power and energy from the Supply System's Ownership Share of Project No.3 solely for the benefit and account of the Supply System's Ownership Share of such Project and pursuant to the provisions of the Project No.3 Net Billing Agreements and the Project No.3 Power Sales Agreement; and the Supply System will maintain and collect rates and charges for power and energy, including capability, and other services, facilities and commodities sold, furnished or supplied through such Project, which will be adequate, whether or not the generation or transmission of power by the Project is suspended, interrupted or reduced for a'n y reason whatever, to provide revenues suQicient, among other things, (i)to pay the Supply System's Ownership Share of the expenses of operating and maintaining such Project, (ii)to make the required payments into the Project No..3 Bond Fund and any special funds for additional bonds, and (iii)to make the required payments into the Project No, 3 Fuel Fund and Project No.3 Reserve and Contingency Fund.Net Billing Agreements, Exchange Agreements and Profect Agreemenr:

The Supply System will not voluntarily consent to any amendment or permit any rescission of or take any action under or in connection with any of the Project Agreements, the Net Billing Agreements, the Project No.1 Exchange Agreements or the Project No.3 Ownership Agreement which will in any manner impair or adversely affect the rights of the Supply System or any of its Bondholders; or take any action under or in connection with the Net Billing Agreements or the Project No.1 Exchange Agreements which will reduce the pay-ments provided for therein.Disposition of Propern'es:

The Supply System will not sell, mortgage, lease or otherwise dispose of any properties of Project No.1 unless (a)simultaneous provision is made for the retirement in full of the Project No.1 Bonds and any additional bonds and the Hanford Project Bonds or (b)the properties to be disposed of are unserviceable, inadequate, obsolete or no longer required for use in connection with Project No.1, in which case$100,000 of the moneys received therefor are to be transferred to the Project No.1 Reserve and Contingency Fund and the balance is to be paid proportionately into the Project No.1 Bond Retirement Account and bond retirement accounts created for additional bonds, unless such disposition is'in connection.

with the replacement of such properties or the disposition of Fuel, in which case all moneys received from such disposition are to be transferred to the Project No.1 Reserve and Contingency Fund or the Project No.1 Fuel Fund, respectively, or (c)the transfer of such properties in whole or in part is by operation of law, in which case moneys received therefor are to be paid proportionately into said Bond Retirement Account and bond retirement accounts for additional bonds.'The Supply System will not sell, mortgage, lease or otherwise dispose of any properties of Project No.2 unless (a)simultaneous provision is made for the retirement in full of the Project No.2 Bonds and any additional bonds or (b)the properties to be disposed of are unserviceable, inadequate, obsolete or no longer required for use in connection with Project No.2, in which case$50,000 of the moneys received therefor are to be transferred to the project No.2 Reserve and Contingency Fund and the balance is to be paid proportionately into the Project No.2,Bond Retirement Account and bond retirement accounts created for additional bonds, unless such disposition is in connection with the replacement of such prop-erties or the disposition of Fuel, in which case all moneys received from such disposition are to be transferred to the Project No.2 Reserve and Contingency Fund or the Project No.2 Fuel Fund, respec-tively, or (c)the transfer of such properties in whole or in part is by operation of law, in which case moneys received therefor are to be paid proportionately into said Bond Retirement Account and bond retirement accounts for additional bonds.The Supply System will not sell, mortgage, lease or otherwise dispose of its Ownership Share of any properties of project No.3 unless (a)simultaneous provision is made for the retirement in full of the project No.3 Bonds and any additional bonds or (b)the properties to be disposed of are unserviceable, inadequate, obsolete or no longer required for use in connection with Project No.3, in which case S100,000 of the moneys received therefor are to be transferred to the Project No.3 Reserve and Con-tingency Fund and the balance is to be paid pioportionately into the project No.3 Bond Retirement Account and bond retirement accounts created for additional bonds, unless such disposition is in con-I 89 nection with the replacement of such properties or the disposition of Fuel, in which case all moneys received from such disposition are to be transferred to the Project No.3 Reserve and Contingency Fund or the Project No.3 Fuel Fund, respectively, or (c)the transfer of such properties in whole or in part is by operation of law, in which case moneys received therefor are to be paid proportionately into said Bond Retirement Account and bond retirement accounts for additional bonds.Notwithstanding the provisions of clauses (b)and (c)above with respect to each Net Billed Project, moneys received by the Supply System prior to the Date of Commercial Operation for a Net Billed Project as a result of any sale, lease, transfer or other disposition specified therein shall be transferred to such project's Construction Fund.Insurance:

The Supply System will keep Project Nos.1 and 2 and its Ownership Share of Project No.3 insured, to the extent such insurance is available at reasonable cost against risks of direct physical loss or damage to or destruction of each such Project, accidents, casualties, or negligence, including liability insurance and employer's liability, at least to the extent that similar insurance is usually carried by private utility corporations operating like properties.

In the event that any loss or damage to the properties of any Net Billed Project occurs during the Period of Construction of such project, the Supply System is to transfer the insurance proceeds, if any.in respect of such loss or damage to such Project's Construction Fund;any insurance proceeds received by the Supply System in respect of such loss or damage occurring thereafter are to be transferred into such Project's Reserve and Contingency Fund, or, in the case of insurance covering loss or damage to Fuel, to such Project's Fuel Fund.Books of Account: The Supply System will keep proper books of account, showing Project Nos.1 and 2 and its Ownership Share of Project No.3 as separate utility systems, in accordance with the rules and regulations of the Division of Municipal Corporations of the State Auditor's office of the State of Washington and in accordance with the Uniform System of Accounts prescribed by the Federal Power Commission.

Such books of account are to be audited annually by a firm of independent certified public accountants of national reputation.

Bondholders may obtain copies of the annual financial statements showing the financial condition of the Project and the annual audit report by sending a written request therefor to the Supply System.Consulting Engineer: The Supply System will retain a nationally recognized independent con-sulting engineer or engineering firm to render continuous engineering counsel in the operation of each Net Billed Project.In addition to his other duties, the Consulting Engineer shall prepare not later than 18 months after the respective Date of Commercial Operation of each Project, and each 3 years there-after, a report for each such Project based upon a survey of such Project and the operation and mainte-nance thereof.Each report is to show, among other things, whether the Supply System has satisfactorily performed and complied with certain covenants in such Project's Resolution.

The Consulting Engineer is also required to report to the respective Bond Fund Trustee and the Supply System upon the economic soundness and feasibility of all contemplated renewals, replacements, additions, better-ments and improvements to, and extensions of, Project Nos.1 and 3 involving an expenditure of$500,000 or more, and Project No.2 involving an expenditure of$100,000 or more.The Consulting Engineer is also required to file annually a certificate with each Bond Fund Trustee describing the insurance then in effect for the respective Project and stating whether or not such insurance compHes with the requirements of the respective Resolution.

In the event of any loss or damage in excess of$500,000 (or in the case of Project No.2, in excess of$100,000), whether or not covered by insurance, the Consulting Engineer is to ascertain the amount of such loss or damage and deliver to the Supply System a certificate setting forth the amount and nature of such loss or damage, together with rec-ommendations as to whether or not such loss or damage should be replaced or repaid.Copies of any such triennial report, annual certificate as to insurance or certificate in respect of any such loss or damage will be sent to Bondholders filing with the Supply System written requests therefor.90 0 Events of Default;Remedies Under each Net BiHcd Resolution, the happening of onc or more of the foHowing events con-stitutes an Event o!Default: (i)default in the performance of any obligation with respect to pay-ments into the respective Revenue Fund;(ii)default in the payment of the principal of or default for 30 days in the payment of interest on any of the respective Net BiHed Bonds or additional bonds, or any sinking fund installment on any Project No.1 or Project No.2 Bonds or additional bonds;(iii)default for 90 days in the observance and performance of any other of the covenants, conditions and agreements of the Supply System in the respective Resolution;(iv)the sale or conveyance of any properties of the respective Net Billed Project except as permitted by the respective Resolution or the forfeiture through fault of the Supply System of any license, franchise, permit or other privilege necessary or desirable in the operation of such Project;(v)the entering by any court of competent jurisdiction of an order, judgment or decree (a)appointing a receiver, trustee or liquidator for the Supply System or thc whole or any substantial part of the respective Net BiHed Project, (b)approving a petition filed against the Supply System under Federal bankruptcy laws, or (c)assuming custody or control of the Supply System'or of the whole or any substantial part of the respective Net Billed Project under the provisions of any other law for the relief or aid of debtors and such order, judg-ment or decree shall not be vacated or set aside or stayed (or, in case custody or control is assumed, by said order, such custody or control.shall not be otherwise terminated), within (60)days from the date of the entry of such order, judgment or decree;and (vi)the Supply System (a)admits in writing its inability to pay its debts incurred in the ownership and operation of thc respective Net Billed Project generally as they become due, (b)files a petition in bankruptcy or scehng a compo-sition of indebtedness, (c)consents to the appointment of a receiver of its creditors, (d)consents to the appointment of a receiver of the whole or any substantial part of the respective Net BiHed Project, (c)files a petition or an answer seeking relief under Federal bankruptcy laws, or (f)con-sents to the assumption by any court of competent jurisdiction under the provisions of any other law for the relief or aid of debtors of custody or control of the Supply System or of the whole or any substantial part of the respective Net Billed Project.In case an Event of Default has occurred which has not been cured, each trustee appointed by or pursuant to thc provisions of the Net Billed Resolution governing the project in default is required to exercise such of the rights and powers vested in it by such Resolution and usc thc same degree of care and shll in the exercise thereof as a prudent man would exercise or use under the circumstances in the conduct of his own aihirs.If an Event of Default shall have occurred and shall not have been remedied, the respective Bond Fund Trustee or the holders of 20%in principal amount of the respective Bonds and additional bonds then outstanding against the project in default, may declare the principal of aH such Bonds and additional bonds and the interest accrued thereon to be immediately due and payable, but such declaration may be annulled under certain circumstances.

After the occurrence of an Event of Default and prior to the curing of such Event of Default, the Bond Fund Trustee of the Net Billed Project in default, may, to the extent permitted by law, take posses-sion and control of such Net BiHed Project and operate and maintain the same, prescribe rates for capability or power sold or supplied through the facilities of such Project, collect the gross revenues resulting from such operation and perform aH of the agreements and covenants contained in any contract which the Supply System'is then obligated to perform.Such gross revenues, after payment of operating expenses, and in the case of Project No.1, after additional payment of the amounts required by the Project No.I Resolution to bc paid into the Hanford Project Revenue Fund, shall be applied to the payment of principal of and interest on the defaulting Net BHlcd Project's Bonds and additional bonds.After,aH sums then due in respect of such Bonds and additional bonds have been paid, and after all Events of Default have been cured or secured to the satisfaction of the defaulting Net BiHed Project's Bond Fund Trustee, such Bond Fund Trustee is required to relinquish possession and control of such Net BiHed Project to the Supply System.I 91 The Resolutions empower each Bond Fund Trustee to file proofs of claims for the benefit of the holders of the defaulting Net Billed Project's Bonds and additional bonds in bankruptcy, insolvency, or reorganization proceedings and to institute suit for the collection of sums due and unpaid in connection with such Bonds and additional bonds, to enforce specific performance of covenants contained in the Net Billed Resolution governing the project in default or to obtain injunctive or other appropriate relief for the protection of the holders of such Net Billed Bonds and additional bonds.The holders of a majority in principal amount of the defaulting Net Billed Project's Bonds and addi-tional bonds at the time outstanding have the right to direct the time, method and place of conducting any proceeding for any remedy available to the defaulting Net BiHed Project's Bond Fund Trustee, or exercis-ing any trust or power conferred upon such Bond Fund Trustee, but such Bond Fund Trustee must be pro-vided with reasonable security and indemnity and also may decline to follow any such direction if it shall bo advised by counsel that the action or proceeding so directed may not lawfully be taken or if in good faith determines that the action or proceeding so directed would involve it in personal liability or that the action or proceeding so directed would be unjustly prejudicial to the holders of such Bonds or addi-tional bonds not parties to such direction.

No holder of any Net Billed Bond has any right to institute suit to enforce any provision of the respective Resolution or the execution of any trust thereunder (except to enforce the payment of principal or interest installments as they mature), unless the respective Bond Fund Trustee has been requested by the holders of not less than 20%in aggregate principal amount of such Bonds and additional bonds then outstanding to exercise the powers granted it by such Resolution or to institute such suit and unless such Bond Fund Trustee has refused or failed, within 60 days after the receipt of such request and after having been offered adequate security and indemnity, to comply with such request.In the event a Bond Fund Trustee has failed or refused to comply with the aforesaid request, each Net Billed Resolution provides for the creation of a"Bondholders'ommittee".

Amendments; Supplemental Resolutions Any amendment to a Resolution may be made by the Supply System with the consent of the holders of 66Fa%in principal amount of the Net Billed Bonds issued pursuant to such Resolution and additional bonds then outstanding and with the consent of the holders of 66%a%in principal amount of such outstanding Bonds and additional bonds which are adversely affected by an amendment which does not equally affect all other such outstanding Bonds and additional bonds, provided that no such amendment shall permit a change in the date of payment of principal of or any installment of interest on any such Bond or additional bond or a reduction in the principal or redemption price thereof or the rate of interest thereon without the consent of each such Bondholder so affected.Without the consent of any Bondholder, the Supply System may adopt supplemental resolutions:

to authorize the issuance of subsequent series of project No.1, project No.2 or project No.3 Bonds or additional bonds;to add to the covenants of the Supply System contained in, or to surrender any rights reserved to or conferred upon it by, a Net Billed Resolution; to add to the restrictions contained in a Net Billed Resolution upon the issuance of additional indebtedness; to confirm as further assurance any pledge under a Resolution of the revenues of the respective Net Billed project or other moneys;otherwise to modify any of the provisions of a Resolution (but no such modification may be effective while any of the Bonds or additional bonds theretofore issued pursuant to such Resolution are outstanding);

or to cure any ambiguity or defect or inconsistent provision in such Resolution, or to insert such provisions clarifying matters or questions arising under such Resolution as are necessary or desirable in the event any such modifications are not contrary to or inconsistent with such Resolution, provided that the appropriate Bond Fund Trustee shall consent thereto.Supplemental Resolution No.804 Under the provisions of Supplemental Resolution No.804 adopted April 13, 1976, the Supply System has reserved the right to convert Project No.3 from a nuclear thermal generating plant to a fossil fuel generating plant consisting of one or more units of a maximum rated capacity not to sub-stantially exceed the rated capacity of Project No.3.This change would be.subject to the approval of Bonneville and each Project No.3 Participant and Project No.3 Company as well as the consent of 66%%of the holders of the$150,000,000 Series 1975 Bonds heretofore issued for Project No.3, and review by the appropriate committees of Congress.The holders of the project No.3 1981 Bonds and other bonds would not be required to approve such change in Project No.3.The Supply System has covenanted that it will not authorize the change if it would affect the tax exempt status of the Project No.3 Bonds.Defeasance Thc obligations of thc Supply System under the Project No.1 and Project No.2 Resolutions shall be fuHy discharged and satisfied as to any Project No.1 or Project No.2 Bond, respectively, and such Sond shall no longer be deemed to bc outstanding thereunder when payment of the principal of and the appHcable redemption premium,'f any, on such Bond plus interest to the due date thereof (a)shall have been made or caused to be made in accordance with the terms thereof, or (b)shall have been provided by irrevocably depositing with the respective Bond Fund Trustee or the Paying Agents therefor irt trust solely for such payment (i)moneys sufficient to make such payments or (ii)nonwaHable securities listed in clauses (i)through (iv)under the caption"Investment of Funds" maturing'as to principal and interest in such amounts and at such times as will insure the availability of sufficient moneys to make such payment, and, except for the purposes of such payment, such Bond shaH no longer be secured by or entitled to the benefits of the.Resolution pursuant to which such Bond was issued, provided that, with respect to Project No.1 or Project No.2 Bonds which by their terms may be redeemed or otherwise prepaid prior to the stated maturitics thereof but are not then redeemable, no deposit under (b)above shall constitute such discharge and satisfaction unless such, Bond shaH have beta irrevocably called or designated for redemption on the first date thereafter such Bond may be ,redeemed in accordance with thc provisions thereof and notice of such redemption shall have been'iVett or irrevocable provision shall have been made for the giving of such notice.'ke obligation, of the Supply System under the Project No.3 Resolution shall be fully discharged anti satlsfied as to any Project No.3 Bond and such Bond ahaH no longer be deemed to be outstanding theieunder when payment of the principQ of and the applicable'redemption premium, if any, on such Bond plus interest to the due date thereof (a)shall have been made or caused to be made in accordance with the terms thereof, or (b).shall have been provided by irrevocably depositing with the Bond Fund Trustee or thc Paying Agents therefor in trust solely for such payment (i)moneys sufficient to make such payments or (ii)Investment Securities listed in clauses (i)through (iv)under the caption"Invest-meht of Funds" maturing as to principal and interest in such amounts and at such times as will insure the availability of sufficient moneys to make such payment, and, except for the purposes of such payment, sttch Bond shall no longer be secured by or entitled to the benefits of the Project No.3 Resolution; provided that,.with respect to Project No.3 Bonds which by their terms may be redeemed or otherwise ptepaid prior to the stated maturities thereof but are not then redeemable, no deposit under (b)above shall constitute such discharge and satisfaction unless such Bond shaH have been irrevocably called or designated for redemption on thc first date thereafter such Bond may be redeemed in accordance with the provisions thereof and notice of such redemption shall have been given or irrevocable provision shall have been made for the giving of such notice.LTXXGATION Supply System Except as set forth in the immediately foHowing subcaptions there is no litigation pending or, to the knowledge Supply System, threatened, questioning the corporate existence of the Supply System, or thc title of the officers of the Supply System to their respective offices, or the validity of the 1981 Net Billed Bonds, or thc power and authority of the Supply System to issue the 1981 Net Billed Bonds, or the validity of thc Net BiHing Agreements and Project Agreements for the Net Billed Projects, mclud-ing'each such agreemcnt as amended by Amendatory Agreement No.1 thereto for Project No.1, or the 93 validity of the Project No.1 Exchange Agreements, each as amended by Amendatory Agreement No.1 thereto for Project No.1, or the validity of the Ownership Agreement for Project No.3, or the power and authority of the Supply System to fix, charge and collect rates for the sale of power and energy, including capability, from the Net Billed Projects as provided in the Net Billed Resolutions, for each Net Billed Project.Corporate Existence and Powers On July 12, 1978 an Answer and Counterclaim were filed by the defendants in a lawsuit brought by the Supply System in the Superior Court for Grays Harbor County, (Washington Public Power Supply System v.Dare er al., No.70423).In such lawsuit the Supply System obtained a temporary restraining order, and sought a permanent injunction, enjoining the defendants from trespassing on the site of Projects Nos.3 and S.The defendants are 22 individuals and four branches of an organiza-tion caHed the CrabsheH AHiance.In their Answer and Counterclaim the defendants pray that the Supply System be enjoined from continuing construction and operation of the Net Billed Projects and Projects Nos.4 and S.In addition to claims of false arrest allegedly resulting in damages of at least$1,500,000, the defendants claim, among other things, (i)that the Washington statutes providing for the creation of the Supply System and its powers and their interpretation by the Supply System violate the Constitution of the State of Washington, (ii)that the Supply System is not a properly con-stituted municipal corporation and joint operating agency, (iii)that the Supply System has exceeded its legal authority by constructing nuclear reactors, (iv)that the Net Billed, Projects and Projects Nos.4 and 5 constitute takings of property without just compensation and due process of law and wHI cause radiation harmful to the defendants, their children and their property for which they are entitled to sub-stantial damages and (v)that such projects will cause a twelvefold increase in the cost of electricity to defendants, depriving them of property without due, process to their damage in the amount of$40,000,000,000.

Bond Counsel and Special Counsel to the Supply System are of the opinion that such enumerated claims of the defendants are without merit.Equal Employment Opporhudty Several claims are presently pending before the United States Equal Employment Opportunity Com-mission (" EEOC')alleging race or sex discrimination in violation of Title VII of the Civil Rights Act of 1964, as amended.Additionally, some of these claimants have filed similar charges with the Qifice of Federal Contracts Compliance Programs ("OFCCP")aHeging race and sex discrimination in violation of Executive Order 11246.On February 20, 1979 in a civil action brought by one of the claimants against the Supply System in the United States District Court, Eastern District of Washington, the Court found violations of Federal civil rights statutes relating to race or sex discrimination with respect to that claimant and awarded damages to the plaintiE The Supply System has appealed this decision.This same claimant has brought a second action against the Supply System in the same court aHeging additional violations of state and Federal civil rights statutes relating to race or sex discrimination.

Eight claimants who had previously filed EEOC charges have filed civil actions in the same court alleging violations of the various State and Federal civil rights statutes and seeking equitable reHef and damages in the amount of$625,000.On June 1, 1981 an additional claimant commenced an action in Federal Court aHeging race discrimi-nation and seeking$1,200,000 in general damages and punitive damages equaHing 1%of the Supply System's annual operating budget from 1976 through 1980.The Director of OFCCP has granted the Supply System a limited exemption from the cancellation, termination and suspension provisions contained in the Net Billing Agreements, the Project No.1 Exchange Agreements and the Project Agreements.

The Supply System does not have such a limited exemption from the corresponding provisions contained in its leases of the project No.I and project No.2 sites from DOE.In the opinion of Bond Counsel and Special Counsel to the Supply System, the obligations of Bonneville, the Participants, the Companies and the Supply System under the afore-mentioned Agreements would remain in full force and effect regardless of any action taken by QFCCP and DOE.94~s Project No.2 Contractor Litigation In February 1976, Bovee&Crail Construction Company ("Bovee")filed a lawsuit against the Supply System in the United'States District Court for the Eastern District of Washington, Northern Division (Cause No.C-7&43), in connection with the termination by the Supply System of a civil construction contract for Project No.2.Subsequently the Supply System filed its answer and a counter-claim against Bovee and against Maryland Casualty Company (Bovee's surety}and General Energy Resources, Inc, (the company of which Bovee is'a wholly owned subsidiary).

In its complaint, Bovee prays for damages of not less than$24,500,000 together with interest thereon and attorneys fees and other undetermined amoun'ts.The answer and counterclaim of the Supply System denies liability and seeks direct damages of$13,970,000 and substantial consequential damages.A trial date, originaHy set for August 3, 1981, has been temporarily postponed pending the outcome of settlement discussions recently initiated among all parties to the suit.In July 1976 Livermore Rebar, Inc., ("Livermore")

a subcontractor of Bovee under the above-mentioned civil construction contract, filed a lawsuit against the Supply System, Bovee and others in the Superior Court for Benton County, Washington (No.30704).In its complaint, Livermore prays for damages of more than$31,900,000 including'$20,000,000 punitive damages.Further proceedings have been stayed by agreement of the parties pending the outcome of the action pending in federal court described immediately above.In the opinion of Special Counsel to the Supply System there is no merit to the claim for punitive damages but at this stage it is not possible to determine the probable outcome of any other portion of the claim.In June 1980, the Supply System filed a lawsuit in the Superior Court of King County against Bovee&rail/GERI, Maryland Casualty Co.(Bovee's surety}and several of its subcontractors (including

.the Leckenby Co.)and their sureties in connection with certain work performed prior to October 1977, by Bovee-Crail/GERI including work on the sacrificial shield wall for Project No.2.The Supply System seeks$118,000,000 in damages for the repair and correction of deficiencies discovered in the work performed by these contractors.

The defendants have entered an appearance in the lawsuit and pre-liminary discovery is underway.Fuel Litigation On March 13, 1981, the Supply System commenced a lawsuit in the Superior Court for King County, Washington, against Exxon Nuclear Co., Inc.(" Exxon"), Exxon Enterprises, Inc, and the parent corporation, Exxon Corporation (Cause No.81-23850%).

The Supply System aHeges that Exxon breached two reload fuel supply contracts, one for Project No, 2 and one for Project No, 3.For a discussion of the contracts see"Nuclear Fuel" under the captions"Project No.2" and"Project No.3".The litigation arose out of Exxon's refusal to give assurances that it would perform in accordance with the terms of the contracts.

The Supply System is seeking judicial enforcement of the contracts.

Exxon has filed an answer alleging, in part, that the contracts are no longer enforceable due to delays and changes in performance.

The litigation is in the discovery phase and a trial date is not expected before October 1982.At this stage it is not possible to predict the outcome of the litigation.

Threatened Litigation In a press release dated April 21, 1981, United States Representative James Weaver of Oregott stated that"cost overruns at[Projects Nos.1, 2 and 3]have been so great that[BonneviHe]

has ex-ceeded its statutory authorizations to pay for them".Mr.Weaver's position appeared to be that Bonne-ville does not have the authority to make cash payments to the Supply System when net billing deficiencies occur as described in the Otficial Statement under the section"Security t'or the Net Billed Bonds".He stated that"he would take action" to block a proposed Bonneville rate increase, to block BonneviHe's payments to the Supply System under the Net BiHing Agreements and to stop the Net Billed Projects.Among the steps he said he could take to do so were to sue BonneviHe to block its proposed July 1, 1981, rate increase and to sue the Supply System to block further issuance of bonds.To date, no such litigation has been commenced and Mr.Weaver has identified no legal basis for blochng further issuance of bonds.95 Vh~~nttttftl a orris e eocu~e ia qatar (Qlttta~I N NUCLEAR PR 0 Qpt Qp ha Vancouver"~t+..., 4l T-r" C3 a.*al'JECT NO.3 Jttte (Sttttff I~th NUCLEAR PROJECT NO.d)l 4'w~Ži~at, f;p TRO n 4).gta l l~,:'CAISTP;"j~

.-.~~th-h ht'a ELECTRIC UTILITY PARTICIPANTS SERVICE AREAS Washington Public Pawer Supply System NUCLEAR PROJECTS NOS.1, 2, AND 3 Partlclpants Private Utllltles Pacific Power 8, Light Co.Partland General Electric Co.Puget Sound Power d Light Co.Washington Water Power Co.Montana Power Co Federal Hydra a Canadian Treaty Storage Pra)eats Nuclear Power Plant (operating)(under construction)

Fossil Fueled Power Plant (operating)

B.P.A.TransTnlsslon Facllltles A b.-r z.0 MIH G ((COLO~HANFORO~NANFCRO I LIN W COUNTY RKSERYATION NUCgf AR SENTQN COUNTY+PROJECT NUCLEAR PROJECT NO.2 J 1f b NUCLEAR PROJECT NO.1 SOR Late City Rcslos4 R YAK proposed by R.W.BECK ond ASSOCIATES In the opinion of Bond Counsel and Special Counsel to the Supply System, and General Counsel to BonnevHle, (a)Mr.Weaver's apparent position is without merit and Bonneville does have the authority to make cash payments under the Net BiHing Agreements, (b)Bonneville is authorized and is obligated to pay the total costs of the Net Billed Projects whether or not such projects are completed or operable or operating and notwithstanding the suspension, reduction or curtailment of the output of such projects, (c)by law BonneviHe's rates must be adequate to produce revenues sufflcient to pay BonneviHe's obligations under the Net Billing Agreements as weH as its other obligations, and (d)the Supply System is authorized to issue bonds to finance its projects.UNDERWRITING The Underwriters have jointly and severaHy agreed, subject to certain conditions, to purchase the 1981 Net Billed Bonds from the Supply System at an aggregate underwriting discount from the initial public ofering prices set forth on the cover page of this Official Statement equal to 2.997%of the principal amount of the 1981 Net Billed Bonds and to make a bona fide public offering of the 1981 Net BHled Bonds at not in excess of such public oKering prices, plus accrued interest.The Under-writers will be obligated to purchase aH such 1981 Net Billed Bonds if any such 1981 Net BiHed Bonds are purchased.

The 1981 Net Billed Bonds may be overed and sold'o certain dealers (including Underwriters and other dealers depositing such Bonds into investment trusts)at prices lower than such public oEering prices, and such public offering prices may be changed, from time to time, by the Underwriters.

Wood 8t Dawson, New York, New York, Bond Counsel to the Supply System, and Houghton Clue/Coughlin&, Riley, Seattle, Washington, Special Counsel to the Supply System, will render opinions with respect to the validity of the 1981 Net Billed Bonds and the Net BiQing Agreements and the Project Agreements for the Net Billed Projects, including each such agreement as amended by Amendatory Agreement No.1 thereto for Project No.1, and the Project No.1 Exchange Agreements, each as amended by Amendatory Agreement No, 1, and the Project No.3 Ownership Agreement.

Copies of the opinions they propose to render are appended hereto as Exhibit F.Copies of such opinions will be furnished to the original purchasers without charge.Certain legal matters will be passed upon by General Counsel to the BonneviHe Power Administration.

Certain legal matters will be passed upon for the Underwriters by Mudge Rose Guthrie&Alexander, New York, New York, Counsel to the Underwriters.

TAX EXEMPITON In, the opinion of the above named Bond Counsel and Special Counsel, the interest on the 1981 Net BiHed Bonds will be exempt from taxation by the United States of America under existing laws, regulations and rulings issued by the Internal Revenue Service.A copy of the proposed opinion of Wood&Dawson with respect to the exemption from Federal income taxation of amounts attributable to original issue discount on the 1981 Net Billed Bonds maturing on July 1, 2003 is also contained in Exhbit F.As noted on the cover page of this Official Statement, Moody's Investors Service, Inc.and Standard 8c, Poor's Corporation have given the 1981 Net Billed Bonds ratings of Aaa and AAA, respectively.

Ratings 96 were applied for by the Supply System and certain information was suppHed by the.";upplv System to such rating agencies to be considered in evaluating the 1981 Net Billed Bonds.Such ratings reflect only the respective views of such rating agencies, and an explanation of the significance of such ratings'may be obtained only from the rating agency furnishing the same.There is no assurance that eithe" or both of such ratings will be retained for any given period of time or that the same will not be revised downward or withdrawn entirely by the rating agency furnishing the same if, in thet judgment, circum-stances so warrant.Any such downward revision or withdrawal of such ratings, or either of them, may.have an adverse effect on the market price of the 1981 Net Billed Bonds.MSCELLANEOUS The references, excerpts and summaries contained herein of the Net Billed Resolutions, Net Billing Agreements and the Project Agreements for the Net Billed Projects, including each such agreement as amended by Amendatory Agreement No.1 thereto for Project No.1, the Project No.1 Exchange Agreement, each as amended by Amendatory Agreement No.1 thereto for Project No.1, the Project No.3 Ownership Agreement for Project No.3, and the Net Billed Resolutions, do not purport to be complete statements of the provisions of such documents and reference should be made in such docu-ments for a full and complete statement of all matters relating to the 1981 Net Billed Bonds, the basic agreements securing the 1981 Net Billed Bonds and the rights and obligations of the holders thereof.Copies of the forms of the Net Billed Resolutions, Project No.1 Exchange Agreements, Project No.3 Ownership Agreement, Net Billing Agreements and Project Agreements for the Net Billed Projects, including copies of the forms of such agreements as amended for Project No.1, are available upon request at the office of the Supply System in'Richland, Washington.

The authorizations, agreements and covenants of the Supply System are set forth in the Net Billed Resolutions, and neither this Official Statement nor any advertisement of the 1981 Net Billed Bonds is to be construed as a contract with the holders of the 1981 Net Billed Bonds.Any statements made in this Official Statement involving matters of opinion or of estimates, whether or not expressly so identified, are intended merely as such and not as representations of fact.Bonneville has furnished the information contained under the caption"Bonneville Power Adminis-tration" and the information pertaining to BonneviHe under the caption"Power Supply in the Pacific Northwest" and in Exhibit H., The Consulting Engineer has furnished the balance of the information contained under the latter caption.The delivery of this Official Statement has been duly authorized by the Supply System.WASHINGTGN PUBLlc PowER SUPPLY SYsTEM By/s/STANTGN H.CAIN President By/s/RoBERT L.FERGUsoiv Managing Director J'p r>

WASHINGTON PUBLIC POWER SUPPLY SYSTZM 4 Participants, Companies and Owners, their 0 Parrtcfpaat City of Albion, Idaho City of Bandon, Oregon Public Utility District No.1 of Benton County, Washington Benton Rural Electric Association, Inc..........

Big Bead Electric Cooperative, Inc.............

Bfachly-Lane County Cooperative Electric Association

~City of Blaine, Washington

...................

City of Bonners Ferry, Idaho.................

City of Burley, Idaho.City of Canby, Oregon City of Cascade Locks, Oregon...............

Central Electric Cooperative, Inc..............

City of Ccatralia, Washington

................

Central Lincoln Peoples UtlHty Dhtrict.........Public Utility Dhtrict No.1 of Chelan County, Washington

~~~~~~~~~~City of Cheney, Washington

..................

Public Utility Dhtrict No.1 of ClaHam County, Washington

~~~~~~~~~Public UtlHty Distric No.1 of Clark County, Washington Ciatskanie Peoples UtlHty Dhtrfct.............

Clearwater Power Company.......~..~......Columbia Basin Electric Cooperative, Inc.......

Columbia Power Cooperative Association, Inc...Columbia Rural Electric Association, Iac.......

ConsoHdated Irrigatfon Dhtrict No.19.........Consumers Power, Inc.Coos~Electric Cooperative, Inc..........

City of Coulee Dam, Washington

............Public Utility Dhtrict No.1 of CowHtz County, W ashfngton~~~~~~~~t~~~~~~~~~City of Declo, Idaho.Public UtiTity District No.1 of Douglas County, Washington

~~~~~Douglas Electric Cooperatlve0

!nct~~~~~~~~~~~~City of Drain, Oregon......................

East End Mutual Electri Co., LtrL...........

~City of EHcnsburg, Washington

...............

City of Eugenet Oregon.Fall River Rural Electrfc Cooperative, Inc.......

Farnlcrs Electric Co~Ltdt~~~~~~~~~~~~~~~~~~Public UtiHty Dhtrict No.1 of Ferry County, Washington

.................,............

Flathead Electri Coopcrat{ve, Inc.............

City of Forest Grove, Oregon................

Public UtiHty Dhtrict No.1 of FrankHn County, W ashington~~~~~~~~~~~~~~~~~~~Public UtiHty District No.2 of Grant County, Washington

~~~~~~~~~~(1)Shares'vary slightly between 1982 and 1986.(2)July 1, 1986 and thereafter.

PIO)ect cnp.lhiirtyt Share of Shor." of S0iofeer Pro/Ocr No.S tfo.s Capab44Lr C;raol'btrfs) 0.002 0.101 0.016 0 253 30360 8438 5,756 2,683 1,$6$10904 4,415 3472 77D 11,524 7,114 24,Z22 17',712 4,620,405 5,425,68S 1360,421 684,971 837,401 1,$02,586 1,453,675 445,301 7,112,489 2,532.243 14,901,636 3.353 0208 0.121 0.158 0.074 0.078" 0.121 0.200 0.050 0.312 0.201 2.815 4.96$0.308 0.179 0.2340.109 0.115 0.179 0.296 0.074 0.462 0.298 4.169 5.3$0 0.666 1.610 02,72 0.18$0.'182, 0.694 O.C90 0.0$4 0.5$6 0.739 4017 3.COS 0.451 0.262 0 344 0.071 0.069 0.108 0.179 0.045 0.67fi D.181 2.$25 23,768 3,04S 17,614 12,601,015 1,396,283 0338 0345 7,713,120 0.781 0.$01 0.511 0.539 0:303 0.309!.157 1.769 0.701 79,764 3471'401 3,57$1,403 2,446 1 13,887 11,171 S68 36~7 107 10,174 7352 626 4$0 4,992 60g32 6,124 237 2,060 6,581 5,707 39,877,9Z8 5,616,488 3,393,468 2,3571887 691,424 2,315~2 493,923 7,627,472 6,032,965 289,188 34,$8~41 44,986 71073,426 3,348,587 426,418 203,$44 2,319,373 40,817,662 3860,710~49,428 1,400,544 2,608,367 1,938,556 9.883 0.414 0.185 0.109 0.028 0.419'.003 0.721 0252 0.032 4.9S3 0.01$0.030 0.223 0.065 0.007 0.527 0.041 0.127 0.003 0.071 0.083 031714.ii35 0.613 0.274 0.161 0.042 0.621" D.DOS 1.068 0.373 0.043 7.379 D.026 0.044 0331 0.096 0.011 0.7$0 0.061 0.188 O.DOS 0.105'.123 0.470 6.151 1.996 0.775 0.673 0.143 0.761 0.4$3 1.634 0.137 5.525 0.014 0.363 0.2!S 0.033 1.02$0.409 0.041 0.171 0.370 0.181 9.543 0.371 0.401 0.237 0.062 0.909 0.004 l.569 0.547 0.029 ZA23 0.016 0.034 0.484 0.058 0.015 0.472 0.27$0.008 0.064 0.180'.064 14,636 26,736 7,706,611 25,763,617 0.898 1.330 2.370 0.805 0.328 OAS6 0294 A-I CnStOmerS and arm reVennes, and Sit~s Os Share ot ttrofecr rfo.l lsae Sfatfcrtes Capabiutrill 0 1464I444 26 0 162 0 16,101 0.00 0.004 Zw21 909,S59 0.112 0.166 EXHIBIT A (Cojtthttted)

WASHINGTON PUBLIC POWER SUPPLY SYSTEM participattts, Companies and Otvners, theh'ttstomers and gross revettttes, aad Shares of project capability.

ao s Prottcttyaot Public Utility District No.I of Grays Harbor County, Washington

..~~~Harney Electric Cooperative, Inc.........,..., City of Heyburn,!daho

.Hood River Hectrlc Cooperauve

~e~~~~~~~~~~~~Idaho County Light dc Power Cooperative Associations Inca~~~~~~~~~~~~~~~~~~~o o~~o o City of Idaho False Idaho~~~~~~~~~~~~~~~~o~o Inland Power gt Light Company...............

Public Utility District No.sl of Kittitas County, Washington

.Public Utility District No.I of Klickitat County, Washington

.~~~~Kootenai Electric Cooperative, Inc.............

Lane Hectric Cooperative, inc...~~~~~~~~~~~Public Utility District No.I of Lewis Countyo Washington

..~~~~~~~Lincoln Hectric Cooperative, Inc.(Montana)...Lincoln Electric Cooperative, Inc.(Washington)

Lost River Hectric Cooperative, Inc..~.........

Lower Valley Power 8c Light, Inc..............

Public Utility District No.I of Mason County, Washington

.Public Utilhy District No.3 of Mason County, ashmgton e~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Town of McCleary, Washington

.............,.

City of McMinnvillee Oregon...........

~....Midstate Electric Cooperauve, Inc.............

City of Milton-Frecwater, Oregon.............

City of Minidoka, Idaho.....................

Missoula Hectric Cooperative, Inc...~.....~...City of Monmouth, Oregon........,.....,...

Ncspctem VaHey Electric Cooperative, Inc......Northern Lights, Inc.Northern Wasco County Peoples Utility District..Ckanogan County Electric Cooperative, Inc.....Public Utility District No.I of Okanogan County, Washingmn." Orcas Power and Light Company..............

Public Utility District No.2 of Paci6c County, W eLSINlgtcn

~~~e~~~~~~~~~~~~~Public Utility District No.I of Pend Oreille Countyy Washmgton,~~~a City of Port Angeles, Washington

.........,...

Prairie Power Cooperative, Inc................

Raft River Rural Hectric Cooperative, Inc.~.~..Ravaiii County Hectric Cooperative, Inc......~~Ctty of Richland, Washmgton e e~~~~~~~~~~~~~Riverside Electric Company, Ltd...............

City of Ruperte idaho~~~~~~~~~~~~~~~~~~~~~~~Rural Hectric Company..33,824~09 1,056 2,666~0 16rj52 19~9 1499 7,637 7,4$1 9,753 19/41 2,068 1,8$6 I+84 10,146 3,456 17,019 119 7,701 8,4$6 3,951 5$6419 2,447 1479 8,648 8,37$1,4$$1$,639$,635 13,442 3857 8@$4 S23 Zy279 3,802 13JSO 255 2,492 2,438 21,181,611 2,7~73 835,480 1,447,820 868,824 7,462,159 10,100g56 8S?,703 4405/06 3,198,107 4322,408 9403,600 1471,819 1,897497 1~6,186 7,081,74$1413,687 7+84,323 473,964 4499,731 3,68?P4I 1,132,211 12,612 2,809,99$911y9?8 635,100 4,285,301 4,256,SS9 467493 6,847854 2,61$yj62 4,749,604 1,690934 6,727,760 321,440 2/12+40 1,646,192 9,196,883 131,112 I~OJ9$1,1~9 1.862 0.071 0.113 0.1$1 0.032 0.613 0881 0.161 0349 0.143 0363 0.862 0,0$9 0.038 0.038 0.180 0.126 0887 0.047 0.608 022?0.161 0.001 0.113 0.4SS 0.040 0.158 0.166 0.026 0.174 0237 Ze?S8 0.10$0.167 022A 0.047 0808 0860 0238 OSI?Oe212 0837 1.276 0.087 0.056 0.0$6 0266 0.186 1.462 0.069 0.900 0336 0298 0.001 0.168 0.679 0.059 0.234 0.246 0.038 OM?Q,351 Q,679 0.037 OA49 0.00$0.1$1 0.132 1.230 0.00$0.083 0.140 1.006 Q.QSS 0.66$0.007 OM4 0.195 1.821 0.007 0.123 0208 SjLero ot Project No.1 Caoebujtrtl) 3.07$0.719 0804 0802 0.186 2376 1222 I.670 0.1$$0.101 0328 0.069 0351 1259 0220 0.144 1.009 0391 1.452 LZ?4 ASS 0202 0.820 0231 1.446 0234 1,227 Q.488 0.$83 0.00$0294 0.236 0.149 OASS 0.0$1 0.190 1.042 0.72S 0314 0310 0,786 0.772 O.IZ?0.082 0.083 0390 0.113 0.88$0.041 0383 OA93 0.001 0.001 0.246 0.412 0.086 0342 0.149 O.OSS.0.100 0319 ISQ3 Q.609 2.416 0.019 O.SS3 0301 2.761 0.020 0.348 0262 Q.039 OA09 0.011 0.328 0286 1.109 0.011 0.074 0305 Shore ot Sboro ot Project Pro ject No a No a Ceeabunr Ceaebujtrta>

(1)aasses esyy sysahsly aesaeea 1982 aad 198S's (2)July I, 1986 and thereafter.

A4

.EXHIBIT A (Conthned)

WASHINGTON PUBLIC POWER SUPPLY SYSTEM Participants, Companies and Ovrners, their cnstomers and gross revennes, and Shares of Project capability.

1900 Stanruea Cocromere Beccooce Share or Pro)ccr No.1 Ceeabullrt 1)1906 1990 Thcreartcr Share or 49hare or pro jeer pto Jeer iVo 2 4Vo 2 Caeablntr Cariabturr(2)

Salem Electric Salmon River Electric Cooperative, Inc..;.....

City of Seattle, Washington

...................

Public Utility District No.I of Skamania County,'ashington

~~~~~~~~~Public Utility District No.I of Snohomish County.Washington

~~~~~~4~South Side Electric Lines, Inc.................

City of SpringQeld, Oregon...~..~..~.........

City of Sumas, Washington

..........'.........

Surprise Valley ElectriQcation Corporation

......City of Tacoma, Washington

.................

Tanner Electric~~~~~~~~~~~~~Tillamook Peoples Utility District.............

Umatilla Electric Cooperative Association

......Unity Light and Power Company..............

Vera Irrigation District No.IS........~.~.....Vig0ante Electric Cooperative, Inc.............

Public Utility, District No.I of Wahkiakum County, Washington Wasco Electric Cooperative, Inc...............

Wells Rural Electric Company................

West Oregon Electric Cooperative1 Inc.........

Public Utility District No'.I of Whatcom County, Washington ToTAL PAETtctPANTs (104)...............

11,814 1,699 288@05 S ASS,785 OA47 1,011,120'.031 115,460g70 S.811 0.662 0.046 8.605 0.453 0.170 7.193 0.969 0.068 5.043 4,093 M26,722 0217 0921 0347 0.195 142,751 661 20,139 378 31952 103,482 1,304 15,614 8,192 1,631 5,085 4/08 78,669J40 449,198 11492,078 160,944 2,2829440 79,318,841 733,408 6,679,086 10,053,937 80Sg84 2,0952.IO 2,1459918 1322$0.022 0.186 0.014 0.033 4.032 0.034 0.650 0.673 0.076 0313 0,028 19.584 0.032 027$0,021 0.049 5.971 0.050 0.963 0.997 0.112 0.464 0.042 15.363 0.073 0.363 0.048 0.323 0.122 1.729 0.036 0.204 0.701 0.294 13332 0.047 0.167 0.013 0.071 4.062 0.073 0883 1.475 0.165 0.281 0.062 1,754 3/07 2,482 3,341 870,819 1/83~6 1,771,728 1810,458 962.815 0.15$0.078 0.069 0.082 0261 0229 0.116 0.102 0.121 0.387 0.328 0342 0.182 0.139 0.171 0.150 0.176 0.235 70.000 1363,161 8 759345,085 67330 100.000 100.000 Co3ooaar or OSroer The Montana Power Company................

PaciQc Power&Light Company..............

Portland General Electric Company...........

Puget Sound Power&, Light Company..........

The Washington Water Power Company........ToTAL CoMPANIE$ToTAL 224,482 690,350 484,127 534,086 223.538 193 N?76,003 S89,191,019 490/36,876 358,321326 ISXBSS, I S7 6.494 0.000 6.494 0.000 6.494 0.000 6.494 0.000 6.494 0.000 2.136,383 01.383,980,381 32.470 0.000 3,519,744$29543,32$,466 100.000 100.000 10.000 10.000 S.000 5.000 , 30.000 100.000 (I)Shares vary slightly between 198Z and 1986.(2)July I, 1986 and thereafter.

A-3 gl'l~,!

.R.W BECK AND ASSOCIATES ENGINEERS ANO CONSULTANTS RLANNINC OESCH RATES ENVIRONMENTAL ECONOMCS MANACQAENT TOWER bUILOINC 1TH AVENUE AT O UVE WAY SEATTLE, WASH INCTO N 9 0 I 01 E06422 5000 CENE RAL Of TICE SEATTLE WASHINCTON Ebb41E.S000

'LE HO.September 4, 1981 Board of Directors Washington Public Power Supply System Post Offlce Box 968 Richland, Washington 99352 Supplemental Letter to Consulting Engineer's Report Washington Public Power Supply System Projects Nos.1, 2 and 3 Gentlemen'ur Report dated September 4, 1981 relating to the issuance of the Project No.1 Series 1981D Bonds, the Project No.2 Series 1981A Bonds and the Project No.3 Series 1981B Bonds utilized assumed interest rates on said 1981 Net BiHed Bonds and future bonds for the Net Billed Projects at 11.5%for bonds issued through June 30, 1982 and 10.0%for bonds issued thereafter.

To the extent actual interest rates are higher than those assumed and are not offset by lower interest rates on subsequent financings, the costs paid by Bonneville for the Net Billed Projects will be higher.We are of the opinion that the higher actual interest costs of the 1981 Ne>Billed Bonds are not of a magnitude that would cause a material change in the assumed wholesale power rates to Bonneville's preference customers, and will not adversely affect the conclusions stated in our Report.Respectfully submitted, R.W.Bmcm ANn AssoctAms R.W.BEcK ANo AssoctATEs ENGINEERS ANO CONSULTANTS FLANNINC DES LCM RATES ENVIRONMENTAL ECONOMKS MANAGEMENT TOWER SUILOINC 7TH AVENUE AT OLIVE WAY SEATTLE.WASHINCTON TEI01 20$4EE.S000 CENERAL OFFKE SEATTLE.WASHINCTON E0641X S000 FILE NO.Board of Directors Washington Public Power Supply System Post Olfice Box 968 Richland, Washington 99352 September 4, 1981 Snbjectt Consulting Enghteer's Report 9'nshhtgton Pnme Power Supply System'rojects Nos.1, 2 and 3 Gentlemen:

Presented herewith is a summary of our analyses, investigations and studies with respect to the proposal by the Washington Public Power Supply System (the"Supply System")to issue$315,000,000 aggregate principal amount of its Washington Public Power Supply System Nuclear Project No.1 Revenue Bonds, Series 198ID (the"Project No.1 1981 Bonds"),$210,000,000 aggregate principal amount of its Washington Public Power Supply System Nuclear Project No.2 Revenue Bonds, Series 1981A (the"Project LVo.2 1981 Bonds")and$225,000,000 aggregate principal amount of its Washington Public Power Supply System Nuclear Aoject No.3 Revenue Bonds, Series 1981B (the"Project No.3 1981 Bonds")(collectively, the"1981 Net Billed Bonds").The Project No.1 1981 Bonds are proposed to be issued pursuant to Resolution No.769, as amended, and a supplemental resolution (the"Project LVo.1 Resolution"), for the purpose of paying a portion of the cost of acquiring and constructing a nuclear-fueled electric generating plant with a net generating capability of approximately 1,250,000 kilowatts and related facilities known as Washington Public Power Supply System Nuclear Project No.1 (" Project No.1").The Supply System has issued for the same purpose a total of$1,455000,000 of its Project No.1 Revenue Bonds in ten series: Series 1975 through Series 1981C.The Supply System's present financing program provides that additional Project No.1 Bonds (which together with the Project No.1 1981 Bonds and previously issued Project No.1 Bonds are hereinafter referred to as the"Project No.I Bonds")will be issued at later dates and in amounts" necessary to pay the cost of completing Project No.1 and placing it into operation.

After the issuance of the Project No.1 1981 Bonds, and based upon the Supply System's 1982 Project No.1 construction budget, the estimated amount of additional Project No.1 Bonds expected to be issued in the future to finance Project No.1 is$1,420,000,000 for a total estimated financing requirement of$3,190,000,000.

The 1982 Project No;1 construction budget does not reliect any possible impacts of a termination of Project No.4 or Project No.5.For a discussion see"The Supply System" under the caption"The Supply System and the Participants".

The Project No.2 1981 Bonds are proposed to be issued pursuant to Resolution No.640 and a supplemental resolution (the"Project No.2 Resolution")for the purpose of paying a portion of the cost of acquiring and constructing a nuclear-fueled electric generating plant with a net generating capa-bility of approximately 1,100,000 kilowatts and related facilities known as Washington Public Power Supply System LVuclear Project No;2 (" Project No.2").The Supply System has issued for the same purpose a total of$1,485,000,000 of its Project No.2 Revenue Bonds in ten series: Series 1973 through Series 1980.The Supply System's prcseat Qnaacing program'provides that additional Project No.2 Bonds'(which, together with thc Project No.2 1981 Borids and previously issued Project No.2 Bonds, are hereinafter referred to as the"Project No.2 Bonds")will bc issued at later dates and in amounts neces-sary to pay the cost of completing Project No.2 and'placing it into'operation.

After the issuance of the Project No.2 1981 Bonds the estimated amount of additional Bonds.expected to be issued in the future to Qnance Project No.2 based on the Supply System's 1982 Project No.2 construction budget, is$811,000,000 for a total estimated Qnancing ieqtzircmeat of$~06,000,000.

The Project No.3 1981 Bonds are proposed to bc issued pursuant to Resolution No.775 and a supplemental resolution (thc"Project No.3 Resolution"),'foi,the purpose of paying a portion of thc Supply System's Ownership Share of the costs of acquiring aad constructing a auclear-fueled electric generating plant with geaerating capabBity of approximately.

1440,000 kilowatts and related faciTities known as Washington Public Power Supply System Nuclear Project No.3 (" Project No.3").The Supply System has issued for the same purpose a total of$905,000,000 of its Project No.3 Revenue Bonds in Qve series: Series 1975 through Series 1981A.Thc Supply System's present Qnancing program provides that additional project No.3 Bonds (which togcthcr with thc project No.3 1981 Bonds and previously issued Project No.3 Bonds are hereinafter referred to as the Project No.3 Bonds")will bc issued at later dates and in amounts necessary to pay thc Supply System's share of the cost of completing Project No.3 and placing it into operatioa.

After the issuance of'the project No.3 1981 Bonds, the estimated amount of additional Project No.3 Bonds expected'to be issued ia thc future to Qnance the Supply System's Ownership Share of Project No.3, based on the Supply System's 1982 Project No.3 con-struction budget, is$1,328,000,000 for a total estimated Qaanciag requirement of$2,458,000,000.

The 1982 project No.3 construction budget does not refiect any possible impacts of a tcrmiaation of project No.4 or Project No.5.For a discussion scc'"Ihe Supply System" under the caption"The Supply System and the Participants".

POWER SUPPLY IN THE PACIFIC NORERVBHZ Historical

Background

Planaing of power supply facilitics in thc Pacific Northwest (the states of Washington, Oregon, Idaho, and Montaaa west of thc Continental Divide plus small adjacent portions of California, Montana, Nevada, Utah and Wyoming)has beea undertakea with a high degree of cooperation for many years.The Northwest Power Pool, a voluatary organization of public, investor-owned and federal power sup-pliers, was established in 1942 to coordinate power operations in the Pacific Northwest aad continues to assist in this function.The Pacific Northwest Utilities Coafcrcncc Committee (the"PNUCC"), con-sisting of essentially all electric power generating interests m'he region, was formed in the late 1940's to extend the functions established in the Northwest Power Pool into other areas including the advanced planning of power resources oa a coordiaated basis.Thc Public Power Council, representing over 100 publicly owned utilities and cooperatives, was formed, in the late 1960's, to coordinate the activities of publicly owned utilities in the further development of'thc region's electric power supply.The Bonneville Power Administration

(" Bonneville")was established by the Bonacvillc Project Act of 1937.Under thc Bonneville Project Act and the Federal Columbia River Transmission System Act of 1974, Bonneville constzucts and operates transmission faciHties and markets power from 30 federal hydroelectri generating resources and from generating resources acquired from non-federal sources in the Pacific Northwest.

Boancville's transmission facilities, together with its geaerating resources, comprise the Federal Columbia River Power System (the"Federal System").Bonneville sells electric power at wholesale to 146 utihty, industrial aad government customers in the Pacific Northwest including 116 public and cooperative utility customers, and sells any available surplus electric power to wholesale power purchasers within and outside the region.Bonneville is required by statute to establish rates sufiicient to recover thc costs of acquiriag and transmitting electric power.Uatil the late 1960's, aearly all the power supply in'thc Pacific Northwest was obtained from the hydroelectric resources of the region.By that tim~most of the poteatial hydroelectric resources remaiaiag to be developed were peaking resources with only limited base load energy generating cap.abilities.

Since the electric eaergy loads in the region werc coatiauing to increase, base load thermal generating resources were necessary to supply the region's increasing energy needs.

In 1968, a Ten-year Hydro Thermal'Power Program was adopted which was to provide for the construction of hydro and thermal generating resources to meet the region's power requirements and to guide the region in its transition from a.hydroelectric power supply base to a mixed base of hydro and thermal generating resources.

This program provided'or eight large thermal plants scheduled for commercial operation at various times through the early 1980's, including the Supply System's Projects Nos.1 and 2 and the Supply System's Ownership Share of Project No.3 (collectively, the"Net Billed Projects").Under this program and its then existing statutory authority and in order to provide for addi-tional power supply to its preference customers and industrial loads, Bonneville acquired the capability of certain publicly owned generating facilities by purchase under a"net billing" concept.'Early in the 1970's, it became apparent that the Ten-year Hydro.Thermal Power Program would not provide adequate generating resources beyond the early 1980's.Consequently, as part of a regional cooperative power supply effort Bonneville's public and cooperative utility customers undertook to provide their own additional generating resources, such as the Supply System's Projects Nos.4 and 5, without the acquisition of the capability thereof by Bonneville.

On December 5, 1980, federal legislation was enacted entitled the"Pacific Northwest Electric Power Planning and Conservation Act", Pub;.I 96-501 (the"Regional Power Act").This legislation substan-tially cfianged the power supply program of the Pacific Northwest utilities, Bonneville and Bonneville's direct service industrial customers.

Provisions.

of the Regional Power Act: (i)require Bonneville to offer to sell power to each requesting Pacific Northwest utility to meet its firm power loads in the region in excess of such utility's own committed resources;(ii)require Bonneville to offer to exchange power with Pacific Northwest utilities for residential and farming uses and to establish rates for such power that are the same as the rates paid by.public bodies, cooperatives and federal agencies, and require such utilities to pass the cost benefits of any such exchanges through to these consumers;(iii)require Bonneville to offer to sell power to its existing direct service industrial customers under new long-term contracts;(iv)require Bonneville to meet its obligations to provide power through conservation to the extent that conservation is cost effective;(v)require Bonneville to meet such obligations to the extent that conservation'measures are insufficient by acquisition of cost effective electric power first from renewable resources, then from generating resources utiliiing waste heat or of high fuel conservation efficiency and then from other resources;(vi)authorize Bonneville to provide financial assistance for conservation measures and construction of renewable resources and to borrow from the Federal Treasury to obtain funds for such assistance; and (vii)establish a Pacific Northwest Electric Power and Con-servation Planning Council composed of two representatives from each of the states of Washington, Oregon, Idaho and Montana, which Council shall prepare a regional electric power and conservation plan.Bonneville must offer each requesting Pacific Northwest utility a net requirements power sales contract by September 5, 1981, and each utility wiH have one year from the date of such offer to accept.Under such contracts Bonneville will be required to meet each utility's firm power loads in excess of such utility's own committed resources.

For a detailed discussion of the provisions of the Regional Power Act see"The Regional Power Act" under the caption"Bonneville Power Administration" in the Official Statement to which.this, report is attached (the.Official Statement").Regional Power Requirements and Resources In past years, a load and resource analysis for the utilities comprising the West Group of the Northwest Power Pool has been developed.

by the PNUCC.Because of the passage of the Regional Power Act, the PNUCC West Group Forecast was discontinued in 1981 and in its place PNUCC has published the Northwest Regional Forecast of Power Loads and Resources (the"Regional Forecast")~The Regional Forecast is a-compilation of the forecasts submitted by, or for, each of the utilities in the region.The Northwest Regional Area energy load is approximately 10'arger than that of the West Group Area.The 1981 Regional Forecast shows that a.deficiency of estimated energy resources exists in all years and a deficiency of estimated peaking resources exists in ten of the eleven years included in the forecast.However, these deficiencies are smaller than the deficiencies shown in the 1980 West Group Area Forecast.The reduction of the deficiencies are due primarily to three factors: first, the inclusion, by utilities, of additional conservation savings and cnd-use reaewable resource potential; second, a one-time reduction by Bonneville in the load forecasts estimated by some of its customers; and third, an increase in the rate of additioa of conventional resources ia the later years.Resource planning in the region is based on a multi-year critical period for hydroelectric resources, which is the historical water year period that, when augmented with stored water, is the most critical with respect to system load requirements.

During portions of most years substaatial secondary energy, resulting from more favor-able water conditions, is expected to be available.

The PNUCC load and resource analysis has historically provided the basis for loag-range regional resource plaaaing by th.utilities.

The data in the following table shows an average annual increase in peak requirements of 3.4%per year and an increase in energy requirements of 3.2%per year over the period 1982 through 1992.Other groups have undertaken studies of the projected electric utility loads in the region.Some of these studies indicate lower future requiremeats for power thaa those showa in the table above and some higher depending oa the assumptions made in the study.The Regional Power Act includes stroag conservation elements.Although present load forecasts reQect some energy conservation efforts, a report prepared for thc PNUCC by Hittman Associates Iac., a coasultiag firm, released in July 1981 states that growth in PaciQc Northwest electric energy re-quirements wiH be substantially reduced as a result of coaservation and customer-owned generation.

The report indicates that the current Regional Forecast reQects about 2,990 average megawatts of con-servation savings in fiscal year 1990 and that an additional 1,600 average megawatts of conservation saviags are likely in 1990 as a result of conservation strategies which are cost effective at 50 mills per kilowatt-hour, in 1980 dollars, plus a 10%premium for conservation as provided for uader the Regional Power Act.The following table summarizes the estimated electric power requirements of the region, the estimated resources available to meet those requirements and the estimated surpluses or deficiencies that will exist during the period of the forecast as published in the 1981 Regional Forecast.REGIONAL LOADS AND RESOURCES ESTD>IATED RE UIRE~O)EST%HATED RESOURCESI3)

Year Eadlaa Jane 30 Pahllc snd Direct Pedcral Serrlca A eeoc)es Indastrtes In rector Total O>>aed Rc>)alee Utllltles tacats Pahllc Aaeacr I>ed erst O>>a Other Total Srste>a Rcsoarccs Rcsoorces Resoarees Percent Sar)>tas or Sar)>tas or Dettett(31 DettcN3)19&2 1983 1984 198$1986 1987 1988 1989.......1990......~1991 1992 12,452 13,045 13,587 14,083 l4,631 15,116 1$,655 16,237 16,848 17,47$18,064 3,603 3,641 3,820 3,997 4,015 4,038 4,067 4,098 4,118 4,124 4,128 14,377 15,037 IS,642 16,283 16,908 17,467 18,014 18,617'19,228 19,800 20,350 pet)It CttpabIIIty Mega)vatts 30,432 13>428 3>473 31,723 13,337 3,679 33,049 13~1 3,79$34,363 14,147 3,799 35,$54 1$,702 3,832 36,621 18,026 3,793 37,736 18,754 5,771 3&g$2 18,680 5/49 40,194 18,631 5,298 41,399 18/75$,287 4~42 18,619 5,182 13,341 12,923 12,918 12,800 12,863 13,351 13@29 14,209 13,840 14,733 14,944 30,242 29,939 30,064 30,746 32,397 35,170 38,4$4 38,438 37,769 38,$95 38,745 (190)(0.6)(1,784)($.6)(2,985)(9.0)(3>617)(10.$)(3,1S7)(89)(1,451)(4.0)718 1.9 (514)(13)(2,42S)(6.0)(2,804)(6.8)(3>797)(88)1982..~~~~~1983.~~~~~~1984.~..~~~1985 1986 1981 1988 19&9...~~"~1990.....~~1991 1992 7,056 7,408 7,778 8,043 8,338 8,605 8,885 9,191 9,518 9,851 10,194 3>521 3456 3,683 3,906 3,924 3,945 3g74 4,006 4,02$4,031 4,035 Energy 8,321 8,687 9,024 9,370 9,690 9,993 10,293 10,609 10,93$11,249 11,546 Capabttfty

-Average 18,898 7,872 19,651 8,033 20,485 8,102 21,319 8,489 21,952 8,568 22>543 9,481 23,152 9,543 23,812 9,498 24,478 9475 2$,131 9,595 25,775 9,595 Megttrratts 1,870 1,911 2,069 2,141 2,184 2+$9 3,351 3,6$4 3,844 3,900 3,906 1,769 7,934 7,809 7,939 8,193 8,473 8979 9,197 9,172 9,554 10,097 17,511 (1,387)(7.3)17,878 (1,173)(9,0)17>980 (2,505)(IX2)18,569 (2,150)(12,9)18845 (3,001)(13.7)20,213 (2,330)(10 3)21,873 (1+79)(Sd)22349 (1,463)(6.1)2" S91 (1,887)(7.7)23,049 (2,082)(83)23,598 (2,177)(8.4)(Foornordr ott folio)N(ttg page)

(1)Estimated requirements are by type of wholesale power user in the region.For a discussion of Bonneville's potential obligation to serve regional requirements under the Regional Power Act see"The Regional Power Act" under the caption"Bonneville Power Administration" in the Official Statement.

(2)After deducting reserves under PNUCC planning guidelines.

Peak reserve requirements are based on 12%of the total area load for the first year, increasing at a rate of 1%per year up to 20%, and remaining at 20%thereafter.

Reserves also include allowance for load growth reserves equal to one-half of the area load growth for utility-type loads during that year.Assumes-critical water conditions.

Substantial secondary energy is expected to be available under most stream fiow conditions.

All resources forecasted under these guidelines are licensed for construction except Puget Sound Power 0 Light Company's Skagit Nuclear Unit No.1 and The Washington Water Power Company's Creston Coal Units Nos.1, 2 and 3.(3)After supplying all area interruptible loads (including Bonneville's industrial interruptible loads)which range from 1,002 to 1,249 megawatts on peak and 1,057 to 1,301 average megawatts of energy, not including associated line losses.Parentheses denote deficit values.The following graph depicts the regional loads and resources shown in the above table.In order to show the region's resource mix and the extent of the hydroelectric base, the resources have been divided into hydroelectric resources and thermal and miscellaneous resources, with the Supply System's projects each shown separately.

REGIONAL ENERGY REQUIREMENTS AND RESOURCES 22 TOTAL ESTIMATEO REOUIREMENTS

'TOTAL ESTlMATKO RESOIAICES

"'vW:?":4?2

'Q'?x.".2 OEPICIENCY,,~?.;

x?'""y'?>'S~2PRO~CT'NOPr~AC~I,%.:.

'?""+%PROJECT:NO.

1'-""'" y lgwP.??(?.1~?o2l 12 1?2 2 IIYOR CTRIC RE S 1224 I 222 IOOO l 1222 f224 1222 1220 YEARS ENCPIO AP%SO 1221 1222 B>>6 The schedule of thermal generating plants planned or under construction as utilized in the table, is shown belowo previous Principal ppoosor Idaho Power Company The Montana Power Company Washington Public Power Supply System Idaho Power Company Thc Montana Power Company Washington Public Power Supply System Washington Public Power Supply System Washington Public Power Supply System Washington Public Power Supply System R'o lect PROJECTS Valmy No.I Coistrip No.3 Project No.2 Valmy No.2.Colstrip No.4 Project No.I Project No.3 Project No.4 Project No.S rereads II UNDER CONSIRUCTION Winnemucca, NV Colstrip, MT Hanford, WA Winnemucca, NV Colstrip, MT Hanford, WA Satsop, WA Hanford, WA Satsop, WA Probable Energy Coal Coal Nuclear Coal Coal Nuclear Nuclear Nuclear Nuclear 2SO Oct.1981 700 Jan.1984 1,100 Pcb.1984 2SO Oct.1984 700 JQL 198S IQSO Jun.1986 1/40 Dec.1986 1,2SO Jun.1987 I~Dcc.1987 Rated Capacity Type P BVi PROJECTS PLANNED BUT NOT LICENSED Creston No.I Creston, WA Coal The Washington Water Povrer Company The Washington Water Power Crcston No.2 Coal Company Puget Sound Power Sc Light Skagit No.I Vhuciear Company The Washington Water Power CtestonNo.3 CrestonoWA Coal Company (')The prababie eaerpy dates are ths tater ai ths sehedoied operatioa dates established by the piaat sooasor or tbs dates determined by applicanon of Milestones.

Milestone dates are determined from a standardized schedule reQecting anticipated average planning and construction timer.SOO JuL 1987 Craton, WA SOO Jan.1989 Hanford, WA Ip288 Jan.1991 SOO Jan.1992 Average Annual Residential Bills atP Regional Comparison of Energy Costs The Pacific Northwest has consistently had low rates for electric service in comparison with.most other regions of the country.A comparison of residential rates for representative utilities, both public and investor~wned, in several regions has been made to show this relationship.

The rates shown in the foHowing table arc averages based on a United States Department of Energy ("DOE")report.The use of other schedules applicable to particular customers or the choice of different representative utilities will yield different results.Average residential usage of electricity in the Pacific Northwest of approximately 16,000 kilowatt-hours annuaHy is nearly twice the national average of approximately 9,000 hlowatt-hours annuaHy, due primarily to the more extensive use of the electric space heating.In order to show the general effect of different levels of usage, average rates at usages of 6,000 hlowatt-hours per year and 12,000 kilowatt-hours per year dave been calculated for each region as shown.Region Pacific Northwest.............

Pacific Southwest.............

Northeast/New England........S outheast e~~~~~~~~~~~~~~~~~~~Mi dwcst o~~~~~~~~~~~~~~~~~~~S outh e~~~~~~~~~~~~o$132$327$460$325$323$289 6,000 RWh/yr.22 55 77 54 54 48 Cost$233$667$795$607$504$521 12,000 LWh/yr.19 56 66 51 42 43 s'ource: "Energy Data Report: Typical Electric Bills-January 1, 1980";U.S.Department of Energy, December 1980.

THE SUPPLY SYSTE(>I AND THE PARTICIPANTS The Supply System The Supply System is a municinal corporation and a joint operating agency oqpnized under the laws of the State of EVasi:ington and has, as members, 19 public.utility districts and 4 municipalities all located within the State of>sashjngton.

The Supply System has the authority to acquire, construct'nd operate plants, wore an'ac!iitics for the generation and transmission of electric power and energy, as well as to make surveys, plans, investigations or studies in connection therewith.

'The Supply System is operating a 27,500 kilowatt hydroelectric project and a 860,000 hlowatt stmnwlectric generating project and has under construction five large nuclear electric generating projects including the Net Billed Projects.The following table shows the status, schedule and estimated financing required based on the 1982 project construction budgets for the Supply System's projects: Locauoo Packwood l>soicct Hanford Hunford Hanford Sattop Hanford Suttop Puef(wood...........,....

Haaford(2)

Project Noo 1~~~~~~~~~~~~~Project No.2.............

Project No.3(6)..........

Project No.4.............

Project No, 5('7)"~~~~~~~~Totah Comm sec(al Oocsauoo Da(c(l)June 1964 Nov.1966 Junc 1986(3)Feb.1984(3)Dcc.1986(3)Junc l987(3)Dcc.1987(3)noods Issocd Slsc to Data I>I>>l 150001 Esumatcd Add(uooal Total Haasdsg Ce>(o(ccd (5000)27.5$13,700 860.0 122,000 1450.0 1,455,000 1.100.0 1,485,000 868.0 905,000 1~0.01)2"50,000 1,735,000(4) 1,021,000(4) 1453,000(4) 8g29,000$13,700 122,000 3>190,000IS) 2,S06,000(5) 2,458,000(5) 11,179,000(5) 6 471e5$6>230>700$13>238>000

$19 468>700 (1)Hanford and Packwood Projects actual, other projects estimated.

(2)Turbine-generated facility using steam from a nuclear reactor owned and operated by the United States Department of Energy.(3)Under construction.

(4)Includes this issue.(5)Based upon'.he Supply System's 1982 project construction budgets.(6)Supply System's 70%ownership share.Four investorwwned utilities own 30%.(7)Supply System's 9l)%ownership share.Pacific Power 8(Light Company owns 10%.The 1982 project construcuon budgets for each of the five projects were prepared in early 1981 and adooted by the Suoply System's Board of Directors in July 1981.The 1982 project construction budgets refiect several factors that have affected the projects'chedules and costs.The schedules were extended as a result of: (a)labor stoopages at the Hanford site during the period between June and November 1980 which are estimated to have caused delays of eight months at Projects Nos.1, 2 and 4;(b)qualis)(asswmce problems at Project No.2 which affected construction progress;(c)a B-8 0 crane accident and labor stoppage, which are estimated to have caused delays of three months at Projects Nos.3 and 5;and (d)increased commodity quantities, manhouts and construction durations resulting from a comprehensive evaluation of quantities of materials to be instaHed and reevaluation of achievable production rates.Other factors, including higher assumed inflation rates, interest rates and financing costs and increased requirements for materials and manhours, have increased the estimated costs of all the projects.On June 18, 1981, a slowdown of construction work was implemented by the Supply System at the Supply System's Nuclear Projects Nos.4 and 5 (" Projects Nos.4 and 5").The Supply System does not currently have sufficient funds to pay for invoices being received and for site work being performed, and the Supply System must depend upon additional funds becoming available.

In order to provide such additional funds, the Supply System is proceeding with the preparation of a bond issue for Projects Nos.4 and 5-for sale in October.There can be no assurance that such bonds can be sold, and if such bonds are not sold, there is a likelihood that both Projects Nos.4 and 5 will be terminated.

'uch termination would result in increased costs and possible schedule delays on the Net Billed Projects.For a further discussion see"Status of Projects Nos.4 and 5 and Possible Effect on Net Billed Projects" under the caption"Recent Developments" in the Official Statement.

The Supply System's Packwood Lake Hydroelectric Project, its Hanford Project, Project No.1,~Project No.2 and its Ownership Share of Project No.3 are each financed and operated or will be financed and operated as a separate utility system with the revenues of each system pledged solely'to the obligations of such system.The Supply System is financing and will operate Project No.4 and its 90go ownership share of Project No.5 together as a single separate system.The Participants'roject No.1.The Supply System has entered into an agreement'(the"Project No.I Project Agreement")with Bonneville which provides for the acquisition, construction, operation and owner-ship of Project No.I by the Supply System.The Supply System has also entered intc agreements (the"Exchange Agreements")with Bonneville and five investor-owned utilities which are participants in the Hanford Project (the"Companies"), for the sale and disposition of a portion of the capability of Project No.I from July I, 1980 through June 30, 1996, and agreements (the"Project No.I Net Billing Agreements")with BonnevBle and 104 statutory preference customers of Bonneville (the"Project No.I Participants")for the sale and disposition of the remainder of Project No.I capability.

Table I attached hereto presents certain financial and statistical data for Project No.I Participants and the Companies summarized from reports prepared by them.The Project No.1 Net Billing Agreements provide that each Project No.I Participant purchase its Participant's Share of Project capability and pay to the Supply System its share of the total annual costs of Project No.I less the amounts paid by the Companies under the Exchange Agreements or received from other sources.Under the Project No.1 Net Billing Agreements each Participant's Share so purchased is, in turn, sold to Bonneville.

Bonneville will pay the Project No.I Participants in the form of credits on their power bills from Bonneville, or otherwise, amounts equal to the Project No.I Participants'bligations to the Supply System for Project No.I capability.

The Exchange Agreements provide that each Company purchase a 6.494%share of Project No.I capability during the period July I, 1980 through June 30, 1996 and exchange with Bonneville the capability of Project No.I so pur-chased for 80,000 kilowatts of capacity and 68,000 average kilowatts of energy (595,680,000 kilowatt-hours annually)from Bonneville.

During the period July I, 1980 through June 30,"1990.the Compa-nies will pay the Supply System under the Exchange Agreements amounts equal to the amounts the Com-panies would have paid to Bonneville, under BonneviHe wholesale power rates then in effect, for theamount of capacity and energy received by the Companies under the Exchange Agreements.

During the period July I, 1990 through June 30, 1996 the Companies will pay to the Supply System a portion of project No.1's annual costs, as defined in the Exchange Agreements, equal to the percentages of project No.I capability made'available to the Companies.

The Exchange Agreements terminate on June 30, 1996, after which all of Project No.1's capability is sold pursuant to the Project No.1 Net Billing Agreements and the Project No.1 Participants agree to pay all of Project No.1's annual costs and receive credits for those costs on their power bills from Bonneville.

Project No.2.The Supply System has entered into an agreement (the"Project No.2 Project Agreement")with Bonneville which provides for the acquisition, construction, operation and ownership of Project No.2 by the Supply System.The Supply System has also entered into agreements (the"Project No.2 iVet Billing Agreements")with Bonneville and 94 statutory prefeience customers of Bonneville (the"Project No.2 Participants")for the sale and disposition of Project No.2 capability.

Table II attached hereto presents certain financial and statistical data for Project No.2 Participants summarized from reports prepared by them.The Project No.2 Net Billing Agreements provide that each Project No.2 Participant purchase its Participant's Share of Project capability and pay to the Supply System its share of the total annual costs of Project No.2.Under the Project No.2 Net Billing Agreements each Project No.2 Participant's Share so purchased is, in turn, sold to Bonneville.

Bonneville is paying the Participants in the form of credits on their power bills from Bonneville, or otherwise, amounts equal to the Project No.2 Participants'bligations to the Supply System for Pxoject No.2 capaMity.Projecr No.3.The Supply System has entered into an agreement (the"Project No.3 Ownership Agreement")with Pacific Power&Light Company, Portland General Electric Company, Puget Sound Power 4 Light Company and The Washington Water Power Company (the"Project No.3 Owners")which provides for the acquisition, construction, operation and ownership, as tenants in common, of Project No.3.The Supply System's Ownership Share of Project No.3 capability has been sold to 103 statutory preference customers of Bonneville (the"Project No.3 Participants").Under the Project No.3 Ownership Agreement each party will be responsible for providing for its ownership share of the costs of construction and operation of Project No.3 and will be entitled to its ownership share of Project No.3's capability.

Table III attached presents certain financial and statistical data for Project No.3 Participants and the Project No.3 Owners summarized from reports prepared by them.The parties to the Project No.3 Ownership Agreement have-designated the Supply System to act as their agent to construct, operate and maintain Project No.3.Under the Project No.3 Ownership Agreement the parties have ownership shares as follows: Percentage Chrneaddp Washington Public Power Supply System............

70%Pacific Power 8t Light Company.Portland General Electric Company.........~~~~~~~~~10%10%Puget Sound Power Ec Light Company...................

The Washington Water Power Company.................

5%S%%uo The project No.3 Viet Billing Agreements provide that each project No.3 participant pay the Supply System its share of the total annual costs the Supply System incurs for its Ownership Share of project No.3.The project No.3 participants have, in turn, assigned their shares of project No.3 capa-bility to Bonneville.

Bonneville pays each Project No.3 Participant, in the form of credits on its power=bills from Bonneville, or otherwise, amounts equal to the Project No.3 Participant's obligations to the , Supply System for Project No, 3 capability.

The Supply System and Bonneville have entereg into a project No.3 project Agreement which, among other things, provides standards for the design, construction and operation of Project No.3 by the Supply System.

Summaries of the Project No, 3 Ownership Agreement, the Net Billing Agreements and the Project Agreements for each of the Net Billed Projects are included in the Oflicial Statement.

The percentage shares"of projectrcapability purchased by each category of participant (districts, municipalities and cooperatives), Companies and Project No, 3'wners are shown in the following table: Project No.1 1996 aud 1980 to 1996'hereafter Districts.............

44.030%64.869%Project No.2 Project No.3 After July 1, 1986 56.868%, 39.828%Municipalities

.........16.080 Coopererjves

..........

2.420 Subtotal.........67,530%24.145 10.936 100.000%22.639 20.493 100.000%14.059 16.113 70.000%Companies...........

32.470-0 presser No.3 Owners..Total.......,....

100,000%100.000%100.000%30.000 100'.000%Exhibit A to the Ojjicial Statement lists each Participant and each Company or Owner with their respective 1980 statistics on customers and revenues and their shares of each of the Net Billed projects.PRGBECT NO.I Description Project No.1 is located about 140 miles southeast of Seattle, Washington, on the Haniord Reserva-tion of DOE near the site of Project No.2.The Supply System is also constructing its Project No.4 on the same site.Project No.4 is being designed and constructed as a twin to Project No.1 and will share some common facilities with Project No.1.~Project No.1 will include a nuclear steam supply system manufactured by the Babcock and Wilcox Company employing a pressurized water reactor and associated facilities.

Project No.1 is expected to have a net electrical output of approximately 1,250,000 hlowatts.'Ihe nuclear steam supply system will deliver superheated steam to the turbine generator system which is rated at 1,413,000 kVA.Cooling for the turbine condenser will be provided by means of mechanical draft cooling towers.Approximately 1.5 miles of 500 kV and 2.0 miles of 230 kV transmission line is planned for construction by Bonneville to interconnect Project No.1 with the Federal System.Permits and Hcenne On August 8, 1975, the State of Washington entered into a site certification agreement approving the Project No.1 site and issued a National Pollutant Discharge Elimination System permit.On August 1, 1975, the United States Nuclear Regulatory Commission

("NRC")issued a limited work authorization under which certain preliminary construction work was begun.On December 23, 1975, the Supply System received a construction permit from the NRC under which construction of Project No.1's proceeding.

This permit expires January 1, 1982.A request for extension has been filed with the NRC and, based on prior practice of the NRC, it is expected that the extension will be granted.In due cours'e, an application for an operating license will be filed with the NRC.

Project No.1 Nuclear Fuel The Supply System has contiacted with Kerr McGee Corporation

(" Kerr McGee")for uranium hexafiuoride for the initial core.Deliveries under the Kerr McGee Contract have been completed and uranium for the initial core fuel loading has been converted and enriched.Remaining require-ments for the initial core and for approximately four years additional operation will be provided by Rio Algom Ltd.and Western Nuclear, Inc.Additional uranium concentrates are under contract from Gardinier, Inc.and Gardinier Big River, Inc, ("Gardhtier").

Production of uranium concentrates as a by-product by Gardinier depends upon its operation of its fertilizer facilities.

Such companies have constructed the facilities necessary to produce uranium concentrates and have begun deliveries to the Supply System.The Supply System has secured enrichment of the uranium hexafiuoride for a period of 30 years for Project No.1 through a fixed commitment contract with the DOE.The Supply System has contracted with the Babcock and Wilcox Company for initial core fuel fabrication services..Recently, Project No.l acquired from Project Nos.4 and 5, approximately 2,5 million pounds of uranium concentrates and a substantial quantity of enrichment services.These uranium concentrates are sufiicient for operation of the plant through the year 2000.The enrichment services can substitute for services that would have been ordered for delivery in the years 1989 to 1991.At the present time, no operating facilities for the reprocessing of spent fuel are available and no facilities are expected to be available in the near future, The President of the United States has recently released a draft policy statement cauing for, among other'hings, the lifting of the ban on reprocessing spent nuclear fuel and the development of solutions to the problems of radioactive waste disposal.The effects of these policies cannot be predicted at this time.In the absence of these facilities, the Supply System is providing on site spent fuel storage capacity for Project No.1 sufiicient to accommodate aH spent fuel discharges until about the year 2000.It is expected that by then an appropriate program will have been implemented to accept spent fuel for placement in a suitable repository.

Project No.1 Construction Program The Supply System has employed Bechtel Power Corporation to provide primary construction management services for project No.l.These construction management services have replaced those of United Engineers&Constructors Inc.who formerly provided both construction management and engineering services.The Supply System continues to retain United Engineers&Constructors Inc.to provide engineering services and certain construction management services for Project No.1.Con-struction was reported by the Supply System to be approximately 41%complete as of July 1, 1981.The initial fuel loading is currently scheduled by the Supply System for August 1985 and commercial opera-tion for June 1986.As of July 1, 1981 equipment and construction contracts totaling$905,342,865 had been let.Estimated Project No.i Financhtg Required The Supply Systent estimates that the proceeds from the Project No.1 1981 Bonds together with monies currently available and investment income thereon will be sufficient to meet cash Bow require-ments of Project No.1 until April 1982 prior to which time it is planned to issue additional Project.No.1 Bonds.Construction cost estimates are based on a scheduled commercial operation date of June 1986.

Based on the Supply System's 1982 Project No.1 construction budget, the estimated financing requirements for Project No;1 are shown in the following table: Estimated Project No.1 Financing Required Construction Management(2)

Architect-Engmeer(3)

Total Plant Construction Cost........Owner's Cost(4)Coritingency(5)

Nuclear Fuel(6)Equipment and Material Contracts(l)

............

Construction Contracts(1)

$336,188,000 1,472,511,000 192,636,000 199,185,000

$2,200,520,000 315,790,000 204,918,000 247,290,000 Total Construction and Fuel Cost........$2,968,518,000 Working Capital(7)

Reserve Account in the Bond Fund(8)............

Bond Discount and Financing Costs(9)Net Capitalized Interest During Construction(10)

...Total Financing Required(11)

..........

22,000,000 144,618,000 88,119,000 (33,255,000)

$3,190,000,000 (1)Estimated by Bechtel Power Corporation.

(2)Estimated by Bechtel Power Corporation except for certain civil work on the containment super-structure which is under the management of United Engineers 4 Constructors Inc.(3)Estimated by United Engineers&Constructors Inc.(4)Estimated by the Supply System.Includes$6,286,000 for DOE Settlement Costs (see"Hanford Project and its Relationship to Project No.1" below).(5)Estimated by the Supply System.Includes an appropriate allowance for potential cost and schedule impacts which have a high probability of occurrence but are not presently considered as part of the defined scope of Project No.1.(6)Estimated by the Supply System.Includes sales tax on the initial core at 5.0%and$157,800,000 for reload fuel.Does not refiect the fuel acquisition from Projects Nos.4 and 5 discussed under"Project No.1 Nuclear Fuel" above.(7)Estimated by the Supply System.$3,000,000 is required by the Project No.1 Resolution..

(8)An amount equal to the largest semi-annual interest payment on the Project No.1 Bonds, as required by the Project No.1 Resolution.

Based on actual interest rates for outstanding Project No.1 Bonds and assumed interest rates of 11.5%for additional Project No.1 Bonds issued in fiscal year 1982 and 10.0%for additional Project No.I Bonds issued thereafter.

(9)Includes actual discounts and financing costs for the outstanding project No.1 Bonds and esti-mates of 4.5%of the principal amount of additional Project No.l Bonds issued in fiscal year 1982 and 3.0%of the principal amount of additional project No.1 Bonds thereafter.(Foomotcs comlnucd on following page)B-13 (10)Docs not include interest after September 1, 1980 which is subject to payment pursuant to the Project No.1 Net Billing Agreements and the Exchange Agreements.

Computed as follows based on the same interest rates as in Footnote(8).

Gross Interest During Construction

..........

$232,810,000 Estimated Investment Income~..............

(266,065,000)

Net Interest During Construction

....$(33,255,000)

'ncludes actual income through May 1981 and estimated future interest earnings on amounts in the Construction Fund at assumed rates of 12.0%for fiscal year 1982 and 10.5%thereafter.

(1 1)Does not refiect any possible impacts which may result from the tcrmiaation of Project No.4 or Project No.S.Based on the assumptions used in developing the 1982 Project No.1 construction budget, a sum-mary of the total financing actually accomplished and contemplated for the future by the Supply System for Project No.1 is shown in the following table: Summary of Project No.1 Hnandng ($000)088tst8I8th3g 1981 hddmonal nsads noads asads Tslst Totai Construction Casts........$1,172,718$208,637$1,339,873$2,721,228 Nuclear Fuel................., 126,791 79,192 41,307 247,290 Bond Discount and Financing Costs 27,775 23,028 37,316 88,119 Interest During Construction

.....232,810 232,810 Reserve Requirements~

.........57,104 22,550 86,964 166,618 Gross Requirements

.....'...$1,617,198$333,407$1,505,460$3,456,065 Less: Estimated Investment Income (162,198)(18,407)(8S,460)(266,065)Net Requirements

.........$1,455,000$315,000$1,420,000$3,190,000'Includes deposits to thc Reserve Account in the Bond Fund and to the Revenue Fund for worhng capitaL In addition to the foregoing amounts to be obtained through issuance of Project No.1 Bonds, funds to make payments prior to the date of commmercial operation as required by the Project No.1 Resolution to the Interest and Principal Accounts in the Bond Fund and to fund the Reserve and Contingency Fund will be obtained, to the extent not otherwise provided for, from Bonneville under the Project No.1 Net~Billing Agreements and the Exchange Agreements.

The following table shows the estimated amounts of'such payments until the scheduled date of commercial operation of June 1986: Payments Under the Exchange Agreements

..........

$300,727,000 Net Payments Under the Net Billing Agreements

...777,273,000 Total Payments$1,078,000,000 Povrer Production Based upon the estimated net generating capability of 1,250,000 hlowatts, Project No.1 is expected to produce approximately 7.665 billion hlowatt-hours annually after initial operation tests and adjust-ments are made in the early years.Although there is not yet sufiicient historical operating information available on large nuclear plants to establish an expected plant factor for Project No.1, annual costs arc based on an assumed 60%plant factor in the first year of commercial operation, 65%in the second year'and 70%thereafter.

During certain periods, surplus water will be available to generate additional power at existing hydroelectric projects, thereby permitting a reduction in the total amount of energy produced at thermal electric projects in the region.The extent of this reduction and its eifcct, if any, on the operation of Project No.1 will depend upon conditions at the time of the availability of such hydroelectric energy and its relative cost compared to the cost of energy from Project No.1.

Esthnated Project No.1 Anaual Costs aad Payments Based upon the financin aad operating assumptions previously discussed aad certain other esti-mated costs, the foHowing table shows the estimated annual aad unit cost of power from Project No.1 aad iadicates the annual payments to the Supply System by the Companies and thc Project No.1 Partici-paats in the years shown.Esthnated Project No.1 Anaual Costs aad Payments ($000)Etsccl Yccc Ea6uaa Jaac SO, 19sa 1909 1990 1991 1992 1999 PRoJEcT ANNUaL CosT Payment to Hanford Project(1)

....Other Project Costs: Interest and Amortization(2)

Payment to Reserve and Contin-gency Fund(3)...............

Subto1411 4~~~~~~~~~~~~Operation and Maintenance(4)

...Decomnussionmg(4) 4~~~~~~~~~Fuel($)Taxes(6)" Subtotal...................

Surplus from Prior Year's Payment to Reserve and Contingency Fund(7).4~~~~~~~~~......Investment Income(8)Total Other Project Costs....Total Project Annual Cost...........

Annual Energy Generation (GWH)(9).Annual Cost (mills/KWH)

(10)(11)ANNUAL PAYssENta To THE SUPPLY SYETEM: Conlpanles(12) 4'~~~~~~~~~~~~Participants

~~~~~~~~~~~~~~~~~~~Total Annual Payments......-$3,112$3,126 S 2,994$4,349$1,752$-$$337,843 72,359 5,668 60,184 6.411$337,843 71,511 5,668 68,430 6,910$337,843 82,615 5,668 76,233 7,128$337,843 88,008 5,668 83,959 7.375$337,843 93,806 5,668 9$,573 7,629$339,514 100,033 5,668 109,1S9 7,958$354,712 138,562 5,668 219,649 10,456$144,622$158419$171,644$185,010$202,676$222,818$374,335 (28,540)(8,673)(6,910)($,006)(2,949)('728)0 (23446)(23.2(l)(23,222)(23.135)(23,094)(23,118)(2(,$44)$430.679$464.478$479,355$494,712$514,476$538,486$707,503$433,791$461,604$482,349$499,061$S 16~8 SS38,486$707,503 6,615 7,163 7,6657,665 7,665 7,665 7,665 65.6 6$9 62.9 6$.1 67.3 70.3 92.3$81,0S9$86.733$92.804$99301$161,619$174,846$3S2.732 3$0.871 3$9.$45 399,760 348.609 363,640 70'7.503$433,791$467,604$482,349$499,061$516,228$538,486$701,503$307>130$307>130$301>130$307>130$307>130$307,130$307>130 30,713 30,713 30.713 30,713 30.713 32.384 47,$82 (1)Based on the debt service on the outstanding Haaford Project Bonds and required Reserve aad Contingeacy Fund payments less investment income aad surplus Reserve and Contingency Fund payments.Payments to the Haaford Project are estimated to cease ia fiscal year 1991.(2)Based on assumed level debt service on the Project No.1 Bonds to 2017 at actual interest rates on outstanding Project No.1 Bonds aad interest rates ranging from 11.5%to 10.0%on the Project No.1 1981 Bonds and on additional Project No.I Bonds.I (3)Me greater of 10%of annual debt service as required by the Project No.1 Resolution or estimated renewals and rcphccments.

(4)Estimated by the Supply System.(5)Estimated by the Supply System based on the expected cost of fuel.(6)Calculated at 1.5%of the wholesale value of the energy produced by Project No.1~(Foornores continued on following page)

(7)Computed as follows ($000): 1987 198$Payment to Reserve and Con-tingency Fund, Prior Year$30~1$30,713 Renewals and Replacements, Prior Year>>............

(1.101)(22,040)Net Surplus>>>>..'.....$28,540$8,673 1989 1990 1991 1992$30,713$30,713$30,713$30,113$44,058~(23,803)(25,707)(27,764)(29,985)(44,058)$6'O$5,006$2,949$728$0>>Estimated by the Supply System.Some costs ia the early years may be funded from Project No.1 Bond proceeds.>>>>The Net Surplus may be used for purposes other than reduction in power costs in accordance with the Project No.1 Resolutioa.

(8)Based on assumed investment rates on the balance of funds in the Reserve Account in the Bond Fund of 9.0%and the Reserve and Contingency Fund of 8.25%.(9)Based.on an assumed 60%plant factor in the first year of operation, 65%ia the second year and 70%thereafter.

(10)Total Project Annual Cost divided by the Annual Energy Generation.

(11)The cost of providing certain reserves and of providiag interest and principal on the Project No.1 Bonds between September 1, 1980 and the scheduled commercial operation date of June 1986 not paid by the Companies to the Supply System under the Exchange Agreemeats, is assumed to be paid as incurred from Bonneville revenues pursuant to the Project No.1 Net Billing Agreements.

In addition, Bonneville's total revenues will be reduced by an amount equal to payments by the Com-panies to the Supply System under the Exchange Agreements.

For the purpose of demonstrating the total anaual cost per kilowatt-hour of Project No.1 if the above costs were capitalized, the cost to Bonneville of$777,273,000, including the effect of reduced reveaues, has been annu-alized over 35 years at an assumed iaterest rate of 10.85%per annum, which is an approxi-mate average of Bonneville's current long term interest rates for borrowing from the Federal Treasury, as follows ($000): trar tora lrtr taro tart tora trrr Annmottjtt.

Cosrs m BoNNavtu3:

Aouuallrad Pra9ald rSj otaCtost..., S 86.690$86,690 5 86.690 S 86,690 S 86,690$86,690 3 86,690 Tatal Aaaual Crat..........

S$20,481$3$4A94 SS69,039 SSSS,7S1$602,918 5625,176$794,193 Annual Cost (mills/KWH)

..78.4 77.4 74.2 76.4 78.7 81.6 103.6 (12)Companies'ayments for thc period July 1987 through June 1990 are based on Bonneville's esti-mate of its wholesale power rate to its preference customers through fiscal year 1985 and escalated thereafter at an average rate of 7.0%per year.Companies'ayments for that period may diffe from those shown as they are subject to the rate schedules finally adopted by Bonneville and may be increased by up to approximately

$2,000,0DO per year pursuant to a letter.agreemeat dated May 8, 1974.Companies'ayments for the period July 1990 through June 1996 are estimated based oa the provisions of the Exchange Agreemeats, Companies'ayments for that period may be increased by up to approximately

$700,000 per year pursuant to a letter agreemeat dated May 8, 1974.Hanford Project aad Its Relationship to Project No.I Pursuant to agrcemcnts between the Supply System, Bonneville, 76 participants and the Atomic Energy Commission, the Supply System constructed the 860,000 kilowatt Hanford Project which began commercial operation in 1966.Under these agrcemcats, Boanevillc acquired thc capabiTity of the Han-ford Project from the 76 participants in exchaage for power from Bonneville.

In 1963 the Supply Sys-tem issued$122,000,000 of Hanford Project Electric Revenue Bonds (the"Hanford Project Bonds"), of which$46,045,000 were outstanding as of July 1, 1981.By-product steam is provided for the Han-ford Project from the New Production Reactor ("NPR")owned and operated by DOE for national defense purposes.The annual cost of Project No.1 includes, as one of its elements, a0 of the annual costs of the Han-ford Project not otherwise provided for, including debt service on the Hanford Project Bonds, after July 1, 1980.Thc existing Haaford project Exchaage Agreements will remain in effect after that date but so long as all annual costs of the Hanford Project are paid from reveaues of the Haaford Project aad Project No.1, no billings arc contemplated under the Hanford Project Exchaage Agreements.

The Sup-ply System has entered into an agreement with DOE for the operation of the NPR aad thc Haaford Project through June 301983.The Project No.1 Net Billing.Agreements provide that the Supply System and Bonneville shall not enter into agreements for continued operation of the Hanford Project after October 31, 1977, if such continued operation would increase.the payments of the Project No, 1 Participants under the Project No.1 Net Billing Agreements..

The Supply System, Bonneville, the 76 participants in.the Hanford Project and certain of Bonneville's industrial customers have executed agree-ments which provide for the payment of the increased Hanford Project costs related to extending operation through June 30, 1983, from amounts other than amounts paid under the Project No.1 Net Billing Agreements.

The agreements with the industrial customers provide for payment of certain relocation costs associated with Project No.1 based upon the amount of energy the industriaI customers actually receive.(See"Hanford Project and its Relationship to Project No.1" under the caption"Project No, 1" in the Ofiicial Statement.)

PROJECT NO.2 Description Project No.2 is located about 140'miles southeast of Seattle,:Washington on the Hanford Reserva-tion of DOE near the site of the Supply System's Projects Nos.1 and 4.Project No.2 will include a nuclear steam supply system mattufactured by the General Electric Company employing a boiling water reactor:and is expected to have a net generating capability of approximately 1,100,000 kilowatts.

The nuclear steam supply system will include the necessary auxiTiary systems required to control, contain and service the'nuclear reactor core.After driving the turbine, steam wiH be exhausted into a condenser which will be cooled with circulating water from mechanical draft cooling towers.Water used for makeup of the circulating water cooling system will be drawn from the Columbia River and suitably treated'>The main generating unit is a Westinghouse generator rated at 1,231,700 kVA.Main power transformers will step up the generator voltage to 500 kV for delivery into the Federal System;An 18.3'mile"500'kV transmission line has been con-structed by Bonneville between Project No.2 and Bonneville's,Hanford Substation to effect such delivery.Permits and Licenses The State of Wasington has entered into a site certification agreement approving the Project No.2 site and has issued a National Pollutant Discharge Elimination System permit.On March 19, 1973 the Atomic Energy Commission issued a construction permit for Project No: 2 under which construction is proceeding.

There are no major permits required for construction of Project No.2 which have not been obtained.An operating license must be obtained from the NRC before fuel loading, presently scheduled for September 1983.The Final Safety Analysis Report was submitted to the NRC in March, 1978 and the application for an operating license was accepted for review by the NRC in June 1978.Project No.2 Nuclear Fuel\The uranium for the initial fuel core has been delivered, converted'nd enriched, and now awaits fabrication.

The Supply System has contracted with the General Electric Company for fabrication services for the initial fuel core.Fabrication of the nuclear.fuel assemblies is expected to begin in November 1981.For reload fuel the Supply System has a contract with Exxon Nuclear Co., Inc.(" Exxon")for uranium concentrates and for fuel fabrication services estimated to be sufficient for 14 years of operation based on annual refueling.

Recent disputes between the Supply System and Exxon over the enforceability of the contract have resulted in the Supply System commencing litigation to ensure Exxon's performance of the contract.For a discussion of the litigation see"Fuel Litigation" under the caption"Litigation" in the Official Statement.

Any increase in the costs of this contract would not have a significant impact on the financing requirements for Project No.2, but could have an impact on the cost of power.Kerr McGee has a comract to convert'uranium'concentrates to uranium.hexafiuoride in sulficient quantities for operation of Project No.2 through 1987.The Supply System has secured enrichment of the uranium hexafiuoride for a period.of 30 years for Project No.2 through a fixed commitment contract with DOE.

At the present time, no operating facilities for the reprocessiag of spent fuel are available, and no facilities are expected to be avaihblc in tho near future;The President of the United States has recentlyreleased a draft policy statemeat calling for, among other things, the lifting of the ban on'reprocessiag spent nuclear fuel and the development of solutioas to the problems of radioactive waste disposal.The effects of these policies cannot bo predicted at this time.In the absence of these faciTities, the Supply System is providing onmte spent fuel storage capacity for Project No.2 sufficieat to accommodate storage of the discharges of all spent fuel until about 1995.It is expected that by then an appropriate program will have been implemented to accept.spent fuel for placemeat in a suitable repository.

4 Project No 2 Construction Proyam Cons'(zuction of Project No.2 was reported by Burns and Roe, Inc.to be approximately 86%com-plete as of July 1, 1981.As of that date, equipment and construction contracts totaling$1,013,631,000 had been let.The construction schedule, as prepared by the Supply System, calls for initial fuel loading by September 1983 and commercial operation of Pmjcct No.2 in February 1984.1'Esthnated Project No.2 Hnanchi Raze@Thc Supply System's current cash ffow.projections indicate that the proceeds from the Project No.2 1981 Boads together with other funds availablo and invcstmeat income thereon will bc sufficicnt to meet cash ffow requirements of Project No.2 antH April 1982, prior to which time it is planned to issue additional Project No.2 Bonds.Based upon thc Supply System's 1982 Pmjcct No.2 construction budget aad a commercial operation date of February 1984, the total estimated Project No.2 financing required is set forth below.44 4 Estheafal Pzojecf No, 2 Phtiachig Required Equipment and Material Contracts(l)

Coastructioa Contracts(l}

................,.............

Construction Management(1)'~o t~~~>~~~~~~~~~~~~Archit~nmn o cer(I)~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Total Plant Construction Cost...Owa cr s Cost(2)>~~~~~~~~~~~~~~~~'1~~~'~~~~~~~~~~~~~~~Contingeacy(3)

Nuclear Fuel(4)$199,641,000 1@13,170,000 134,322,000 257,578,000

$1,804,711,000 405,806,000 119,000,000 92,505,000 Total Construction and'Fuel Cost...Worhag Capital($)Reserve Account in tho Bond Fund(6)........Bond Discouat aad Financing Cost(7)Net Capitalized Interest During Construction(8)

Total Financing Required....~~~1~~~~~$2,422,022,000 16,000,000 68,782,000 55,502,000 (56,306,000)

$2,506,000,000 (1)Estimated by Burns aad Roe, Iac.and Bochtel Poi'or Corporation.

(2)Estimated by the Supply System.(3)Estimated by the Supply System.Includes an appropriate allowance for potential cost impacts which have a high probability of occizrzenco but arc not preseatly considered as part of the dcflned scope of Project No.2.Includes$38,337,000 of bond discount and financiag costs which were not included in the 1982 Project No.2 construction budget estimate.The Supply System has a program to effect cost reductioas in" the construction costs of Pmject No.2.Pending further review of the results of that program the$38437,000 of bond discount and financing costs are assumed to be funded fmm Contingencies.

Ia'ho event that thc cost reduction program is uot successful the total estimated cost of Project No.2 may be increased.

0 (Eoottto!ee eort&ued ott following page)3-18.

.(4)Estimated by the Supply System.Includes sales tax on the initial core at 5.0%and$34,546,000 for reload fueL (5)Estimated by the Supply System.$3,000,000 is required by the Project No.2 Resolutioa.

(6)An amount equal to the largest semi-aanual iaterest payment on Project No.2 Bonds, as required by the Project Vio.2 Resolution.

Based on actual interest rates for outstanding Project No.2 Bonds and assumed interest rates of 11.5%for additional Project No.2 Bonds issued in fiscal year 1982 and 10.0%foi additional Project No.2 Bonds issued thereafter.

(7)Includes actual discount and financing costs for the outstanding project No.2 Bonds aad estimates of 4.5%of the principal amount of additional Project No.2 Bonds issued in fiscal year 1982 and 3.0%of the principal amount of additional, Project No.2 Boads thereafter.

Does not include$38,337,000 of bond discouat and financing costs which have been included in Contingency above.See Footnote (3).(8)Docs not include interest after September 1, 1977 which is subject to payment pursuant to the project No.2 Net Billing Agreements.

Computed as follows based on the same interest rates as in Footnote (6).Gross Interest During Construction

.~..'...$120,517,000 Estimated Investment Income'.......

(176,823,000)

Net Interest During Construction....

$(56,306,000)

, 8'ncludes actual income through May 1981 aad estimated future interest earnings on amounts in the Construction Fund at assumed rates of 12.0%for fiscal year 1982 and 10.5%thereafter.

Based on the assumptioas used in developing the 1982 Project No.2 construction budget, a sum-mary of the total financin for Project No.2 actually accomplished and contemplated for the future by the Supply System is showa in the following table: Summary of Project No.2 Flnancutg ($000)Ontstnn ding Additional Bonds Bonds Total$1,428,555$2,329,517 33,571*92,505 17,472 55,502 120,517 120,517 13,959 84,782$1,614,074 (129,074)$1,485,000$750,770 (2)46,305 (2)59,054 5846,463 (35,463)5811,000'otal Construction Costs..............

Nuclear Fuel Bond Discount and Financing Costs......Interest During Construction

...........

Reserve Requirements(3)

Gross Requirements

...........,..Less: Estimated Iavestment Income......Net Requirements

..........

~.....$2,682,823 (176,823)$2,506,000 (1)Additional bond discount aad financing costs of$9,656,700, resulting from the actual costs associated with the Project No.2 1981 Bonds, were not included in the Supply System's 1982 Project No.2 construction budget estimate.The Supply System has a program to effect cost reductions in the construction costs of Project No.2.Pending further review of the results of that program such costs have been assumed by the Supply System to be funded from project contingencies.

In the event that the cost reduction program is aot successful the total estimated cost of Project No.2 may be ltlcr eased.(2)Additional bond discount and financing costs of$28,680,000, resulting from the actual costs associated with the Project No.2 1981 Bonds, for additional Project No.2 Bonds were aot included in the Supply System's 1982 Project No.2 construction budget estimate.See Footnote (1).(3)Includes deposits to the Reserve Account in the Bond Fund and to the, Revenue Fuad for worhag capitaL In addition to the foregoing amounts obtained and to be obtained through the issuance of Project No.2 Bonds, initial deposits into the Revenue Fund for working capital and into the Reserve and Con-'ingency Fund, each in the amount of$3,000,000, and deposits into the Interest, Priacipal and Reserve Accounts in the Bond Fund have been provided by Bonneville under the project No.2 iVet Billing Agreemeats since January 1, 1977.Additional funds will be required'prior to the date of commercial operation of Project No.2 to make additional payments into the Interest and Principal Accounts and into the Reserve and Contingency Fund.Such funds will be obtained, to-the extent aot available from Project No, 2 Bond proceeds or otherwise, from Bonneville under the Project iVo.2¹t Billing Agree-ments.The estimated amount of such paymeats until the scheduled commercial date of February 1984 is$710,000,000.

B-19 Power Producffon Based upon the estimated net geaeratiag capability of 1,100,000 hlowatts, Project No.2 is expected to produce approximately 6.745 billion kilowatt-hours annually after initial operatioaal tests and adjust-meats are made in the early years.Although there is not yet sufficien historical operating information available oa large nuclear plants to establish.

an expected plant factor for Project No.2, annual costs are based on an assumed 60%plant factor ia the first year of commercial operation, 65%ia the second year and 70%thereafter.

During certain periods, surplus water will be available to generate power at regional hydroelectric projects, thereby permitting a reduction in thc total amouat of energy produced at thermal electric projects in the region.The extent of this reduction and its effect, if any, on the operatioa of Project No.2 will depend upon conditions at the time of the availability of such hydro-electric energy and its relative cost compared to the cost of energy from Project No.2.Estimated Pmject No.2Anaual Costs Based upon the financing and operating assumptions previously discussed and certain other esti-mated costs, the following table shows the estimated annual and unit costs of power from Project No.2: Estimated Project No.2 Annual Costs ($000)S>t2c>II Ycst E>8>u>0c J>>>w Se, tssr lsss Interest and Amorthathn(1)

.........Paymeat to Reserve sad Contingency Fund(2)Su btorsl>>~~~~~~~~>>~~~~~~~~~Operation and Maintenance(3)

.......Decomaussroruag(3)

>>~>>~~.~Fuel(4)Taxes(S)Subtotal~~~~~~~~~~~~~~~~Surplus from Prior Year's Paymeat to Rc-scrve sad Contiageacy Fund(6)....~lavestment Iacome(7)Total Project Annual Cost............

Annual Energy Gcncrarion (GRH)(8)Annual Cost (mills/KWH)(9)(10)

...~9362$102580 21,898 2,02S 20/78 1,959$46,460 D,III 23,111 23,111&,803 25.707$2$4Wl 60,380 4,860 52,064 5.10$$2S4$21 70,829 4,860 63,109 5,615$256417 82,112 4,860 80499 6,131$254~1 66,687 4,860$~59$37$$2S4,913 76436 4,860 72.056 5.870 27.764$258,874 88,4$1 4,860 93363 6,442$122,409$129>884$144>413$159>322$174,102$193>116 (8,898)I>5>I I$13~81 2j?6 55.8 (1$>178)(4>215)(20704)(1 071)(16,019)(1589$)(15875)(15,979)(16.032)(16.089)$345,433$363>892$379gSS$397,18$$414,887$43'1 S$80 6,461 6,7456,74S 6,74S 6,74S 57.$56.3$6.3 58.9 61 8 64.6$93>618$231>110$231>110$231>110$231>110$231>110$2310110 (1)Based on assumed level debt service on the project No.2 Boads to 2012 at actual interest rates on outstanding Project No.2 Bonds aad interest rates ranging from 11.5%to 10.0%on the Project No.2 1981 Bonds and on additional Project No.2 Bonds, (2)The greater of 10%of annual debt service as required by thc Project No.2 Resolution or esti-mated renewals aad replacements.

(3)Estimated by the Supply System.(4)Estimated by the Supply System based on the expected cost of fuel.(5)Calculated at 1.5%of thc wholesale value of energy produced by the Project No.2.(Footnotes conttnttcd on folhwtng page)B-20

" (6)Computed as follows ($000): 1984 1985 Paymeat to Reserve and Contingency Fund, Prior Yent................

$21354$22,468 Rene wa1s and Rephce-meats, Ptior Year..112,4161~(7,Z90 Net Surplus~~~&'8,898

$15,178$23,111 (18,896)$4@15$23,111 (20,407)$$2,704 1986 1987 1988 1989, 1990$23,111$23,803$25,707 (22,040)'23,803)(25,707)$1,071$0$0 e Total payment by BonaeviHe in fiscal year 1983.'~Estimated by the Supply System.Some costs in the ear1y years may be funded from Project No.2 Bond proceeds."'redit for Reserve and Contingency Fund payments from July 1, 1983 to February 1, 1984."~Net Surplus may be used for purposes other thaa reduction in power cost in accordance with the Proiect No.2 Resolution.

(7)Based on assutned iavestment rates on the balance of fuads in the Reserve Account in the Bond Fund of 9.0%and the Reserve and Contingency Fund of 8.25%.(8)Based on an asssumed 60%plant factor in the first year of operation, 65%in the secoad year and 70%thereafter.

(9)'otal Project Annual Cost divided by the Aanual Energy Geaeration.

(10)The cost of providing for iaterest aad principal oa Project No, 2 Bonds and certain reserve funds between September 1, 1977 and the date of commercial operation is assumed to be paid as incurred from Bonneville revenues pursuant to the Project No.2 Net BiHiag Agreements.

For the purpose of demonstrating the total annual cost per kilowatt-hour of Project No.2 if the above costs were capitalized, the cost to Bonneville of$710,000,000 has been annualized over 35 years at an assumed interest rate.of 10.85%per anaum which is an approximate average of BonneviHe's current loag term interest rates for borrowing from the Federal Treasury, as follows ($000): 1984 19861986 1987 1988 1989 3990 Additional Costs to Bonnerille:

Annualired Prepaid Pra-iser Ctat...........

8 31.99$$19,1&?3 79,1&7 S 79,1&Z Yetsl ssaaast Cast..$16$,S76$424,640 S443.079$4s9,142 Annual Cost (mills/KWH)

.....69.7 70.6 73.3 76.4 8 79.1&Z S 79,187 1494,074 Ssi$,088 8 79.187$476,372 71.0 68.6 68.1 PROXECT NO.3 Location Project No.3 is located about three miles south of the community of Satsop in Grays Harbor.County, Washington, approximately 16 miles east of the City of Aberdeen, and 66 miles southwest of the City of Seattle.The Supply System is also constructing its Project No.5 oa the same site.Project No.5 is being designed aad constructed as a twin to Project No.3 and wiH share some common facilities with Project No.3.Project No.3 nuclear steam supply system, to be supplied by Combustion Eagiaeering, Ince9 is rated at 3,817 megawatts thermal and includes reactor control systems, steam generators, and other auxiliary systems.The waste heat from the turbine condenser will be dissipated in'a closed cycle condenser cooling system that will utilize a natural draft cooling tower.The turbine-generator unit, to be supplied by Westinghouse Electric Company, will have a net electrical generating capability of approximately 1,240,000 hlowatts.project No.3's output will be delivered into the Federal System transmission grid in the vicinity of Project No.3.Permits and Liceases The Supply System has received site certification and a National Pollutant Discharge Elimiaation System permit from thc State of Washington.

On April 11, 1978, the NRC issued a construction permit for project No.3 under which construction is proceediag.

In due course, an application for an operating license will be Bled with the NRC Pmject No.3 Nuclear Pael The Supply System has contracted with Allied Chemical Corporation for uranium ore concen-trates for the initial core and with Exxon for uranium ore concentrates estimated to bc sulBcient for 14 years of operation.

Kerr i<cGee has coatracted to convert uranium concentrates to uranium hexafiuoride in sufiicient quantities for operation of Project No.3 through 1988.Thc Supply System has secured enrichmen of the uranium hexaffuoridc for a period ot 30 years for Project No.3 through a fixed commit-ment contract with DOE.Thc Supply System has contracted with Exxon for reload fuel fabricatioa services sufficient for 14 years of operation.

Receat disputes betweea thc Supply System and Exxon over the enforceability of the contract have resulted in the Supply System commeacing litigation to ensure Exxon's performance of the contract.For a discussioa of the litigation see subcaption"Fuel Litigation" under the caption"Litigation" in the Official Statement.

Any increase in the costs of this contract would not have a significant impact oa the finaacing requirements for Project No.3, but could have an impact on the cost of power.At the present time, ao operating facilitics for the reprocessing of spent fuel are available, aad no faciTities are expected to be available in the near future.The President of the United States has l recently released a draft policy statement calling for, among other things, the lifting of the ban on!reprocessing spent nuclear fuel aad the dcvclopment of solutions to the problems of radioactive waste disposal.The efects of these policies cannot be predicted at this time.In the absence of these , facilities, the Supply.System is providiag on site spent fuel storage capacity for Project No.3 sufficient to accommodate all spent fuel discharges until some time after 1996, while maintaining full core dis-charge capability.

It is expected that by then an appropriate program will have been implemeated to accept speat fuel for placement ia a suitable repository.

Project No.3 Construction Program The Supply System has employed the firm of Ebasco Services Iacorporated to design and supervise.the construction of Project No.3.Construction was reported by Ebasco Services Incorporated to be approximately 32%complete as of July 1, 1981.Thc iaitial fuel loading is currently scheduled for Juae 1986 and commercial operation for December 1986.As of July 1, 1981, equipment and construction contracts totaling$1,047,362,000 have been let.Estimated Project No.3 Fmanchig Rcqtiircd The Supply System's 1982 Project No.3 constructioa budget indicates that thc total financing require-ments for the Supply System's Owaership Sharc of Project No.3 are estimated to be$2,458,000,000.

Thc present estimates of thc Supply System indicate that the proceeds from the project No.3 1981 Bonds together with other funds available and investment income thcrcon will be sufficient to meet cash ffow requirements of Project No.3 until April 1982, prior to which time it is planned to issue addi-tional Project No.3 Bonds.Construction cost estimates arc based oa a scheduled commercial operation date of December 1986.Based on the Supply System's 1982 Project No.3 construction budget and a commercial operation date of December 1986 the estimated total financing requirements for the Supply System's Ownership Share of Project No.3 are shown in the following table: Estimated Project No.3 Hmmciag Required Equipment and Material Contracts(1)

.Construction Contracts(1)

Construction Managemeat(1)

Architect-Engiaeer(1)

Total Plant Construction Cost Owners Cost(2)~~~~~~~~~~Contingency(3)

Nuclear Fuel(4)Total Construction and Fuel Cost Worhag Capital(5)

Reserve Account in Boad Fund(6)....Bond Discount aad Financing Cost(7).Net Capitalized Interest During Construction(8)

.Total Financing Required(9)

~~~$323,818,000 1,083,442,000 106,658,000 98,276,000

$1,612,194,000 257,850,000 255,500,000 89,067,000

$2,214,611,000 20,000,000 114,891,000 69,772,000 38,726,000

$2,458,000,000 (1)Estimated by Ebasco Services Incorporated, (2)Estimated by the Supply System.B-22 (Footnotes cont(nut'd on fol(ow(ng pttgt)

(3)Estimated by the Supply System.Includes an appropriate allowance for poteatial cost and schedule impacts which have a lngh probability of occurence but are not presently considered as part of the defiaed scope of Project No.3.(4)Estimated by the Supply System.Includes sales tax on the initjal core at 5.2%and$36,446,000 for reload fueL (5)Estimated by the'Supply System.$3,000,000 is required by the Project No.3 Resolution.

(6)An-amount equal to the largest semi-annual interest payment on the Project iVo.3 Bonds, as required by the Project No.3 Resolutton.

Based on actual interest rates for outstanding Project No.3 Boads and assumed interest rates of 11.5%for additional Project No.3 Bonds issued in fiscal year 1982 and 10.0%for additional Project No.3 Bonds issued thereafter.

(7)Includes actual discount aad financing costs for the outstanding Project No.3 Bonds and estimates of 4.5%of the principal amount of additional Project No.3 Bonds issued in fiscal year 1982 aad 3.0%of the principal amount of additional Project No, 3 Bonds thereafter.

(8)Does not include interest on the project No.3 Bonds which is subject to paymeat pursuaat to the project No.3 Net Billing Agreements from September 1, 1982 to date of commercial operation.

Computed as follows based on the same interest rates as in Footnote (6).Gross Interest During Construction

~.$315,079,000 Estimated Investmeat Income'276,353,000)

Net Interest During Construction

.................

$38,726,000

>>Includes actual income through May 1981 and estimated future interest earniags on amounts in the Construction Fund at assumed rates of 12.0%for fiscal year 1982 and 10.5%thereafter.

(9)Does not refiect aay impacts which may result from the termination of project No.4 or project iVo.53 , Based on the assumptions used in developiag the 1982 project No.3 construction budget, a summary of the total fiaancing actually accomplished aad contemplated for the future by the Supply System for its Ownership Share of Project No.3 costs is shown in the following table: Sammary of Project No.3 Haaacing ($000)Outstanding Construction Cost...........

~.......$781,431 Nuclear Fuel t~~~~~~~~~~~~~~~~~~~~~~27,389 Bond Discount and Financing Costs.....15,720 Capitalized Interest During Construction 193,457 Reserve Requirements>>

..............

25,000 Gross Requirements

.............

$1,042,997 Less: Estimated Investment Income.....(137,997)Net Requirements

........~......$905,000 Includes deposits to the Reserve Fund in the Bond capital.198I Boada$148,806 16,402 16,077 32,300 24,791$238,376'13,376)3223,000 Addttfoaal Boadi$1,195,307 45,276 37,975 89,322 85,100$1,452,980 (124,980)Total$2,125,544 89,067 69,772 3150079 134,891$2,734,353 (276,353)$1,328,000$2,458,000 Fund and to the Reveaue Fund for working Ia addition to the foregoing amounts to be obtained through issuance of Project No.3 Bonds, funds to make payments prior to the date of commercial operation as required by the Project No.3 3-23 Resolution to the Interest and Principal Accounts in thc Bond Fund and to fund the Reserve and Contingency Fund will be obtained, to the extent not otherwise provided for, from Bonneville under the Project No.3 Net BiQing Agreements during the period beginning July 1, 1982 and extending to the date of commercial operation.

The estimated amount of such payments is$756,971,000.

Power Production Based upon the estimated net generating capabiTity of 1,240,000 kilowatts, Project No.3 is argected to produce approximately 7.604 billion kilowatt-hours annuany atter initial operation tests and adjustments are made in the early years.Although there is not yet sufilcient historical operating infor-mation avaiiable on large nuclear plants to establish an expcctcd plant factor for Project No, 3, annual costs for Project No.3 are based on an assumed 60%plant factor ln the Qrst year of commercial operation, 65%in the second year and 70%thereafter.

The Supply System's Ownership Share would be approximately 5.323 billion kilowatt-hours annually.During certain periods, surplus water will be available to generate power at existing hydroelectric projects, thereby permitting a reduction in the total amount of energy produced at thermal electric projects in thc region, The extent ot this reduction and its effects, if any, on the operation of Project No.3 will depend upon conditions at the time oi the availability of such hydroelectric energy and its relative cost compared to the cost of energy from Project No.3.Zsiimnted Project No.3 Annual Costs Based upon the financin and operating assumptions previously discussed and certain other esti-mated costs, the following table shows the Supply System's Ownership Share of the estimated annual and unit cost of power from Project No.3.Ksthnated Project No.3 ($000).Annual Costs Pt$cal Yeas E28$une SIme SO.interest and Amortization(t)

Payment to Reserve and Contingency Fund(2).Sub:otal Operation and Maintenance(3)

..Decommissioning(3)

Fuel(4)Taxes(S)Subtotal Surplus from Prior Years Payment to Reserve and Contingency Fund(6)Investment Income(7)Total Project Annual Cost.........Annuai Energy Generation (GWH)(8)Annual Cost (mills/KWH)

(9)(10)..198T$138,732 13.873$152.605 21,324 2,315 30,646 530$54,815 (13,463)(11,349)$182,608 2,6$0 68.9$243,364 24.336 5267,700 53,439 3g68 57,709 957$116,073 (14,783)(17.083)$351,907 4,783 73.6 l949$243,364 24,336$267,700 51,727 3,968 67,091 1.033$123,82$(7,674)(17,057)$366,794 5,163 71.0$243,364 24.316$267,700 5$,055 3968 82,399 1.065$142,407 (6,341)(17.029)$386,$17 5,323 72.7 1991$?43,364 24.336$267,700 58,663 3,968 97,299).065$160,99$(4,901)(17.000)$406,794 5,323 16.4 24.336$267,700 6~69 3,968 10705 S3),065$175,15S (3,346)(16,969)$422,$40$,323 19.4~o (1)Based on assumed level debt service on the Project No.3 Bonds to 2018 at actual interest rates on outstanding project No.3 Bonds and interest rates ranging from 11.5%to 10.0%on the project No.3 1981 Bonds and on additional Project No.3 Bonds.(2)The greater of 10%of annual debt service as required by the Project No.3 Resolution or estimated renewals and replacements.

(3)Estimated by the Supply System.(4)Estimated by the Supply System based on the expected cost of fuel.(Footnotes on folio~in(t page)B-24 (4)Calcuhtcd at 0.2 miHs per kilowatt-hour of the energy produced by (6)Computed as follows ($000): Project No.3.Paymeat to Reserve and Cantia-Fgado Prier Yeer s~~~~~Re end Rettheements, Prier Ycar-~~~~~~~~~~~~~~~~~~~~~~OeeoospeeuOO 0~Oeeoospeeu

~~~~~~~~~~~(9616)" (9000>~(16662$13,463$14,783$7,674 (17,99$)(19,43$)$6341$4/01 (20,990)$3/46$23,079~$23,783,$24,336$24336$24336$24/36~'rota(pay(nant by Bonn(NiUo in&aoai year 19&6.,ee Qtitttatcd by tho Supply System.Some costs ia the eady years may be funded from Project No.3 Bond proce e'e Credit for Reserve aad Contingency Fuad paymeats from July 1, 1986 to December 1, 1986.ee" The Net Surplus may be used for purposes other than reduction in power costs in accord aaco vrith tho Project No.3 Bond Resolution.

(7)Based oa investment rates on thc balaaco of funds in thc Reserve Account in the Bond Fund of 9.0%and the Reserve aad Contingency Fund of 8.25%.(8)Based oa an assumed 60%phnt factor in:tho Qzst year of operation, 65%in the second year aad 70%thereafter.

(9)Total Project Annual Cost divided by the Annual Energy Generation.

(10)Tho cost of providing certain reserves and of providing interest and principal on thc Project No.3 Bonds between September 1', 1982 and the scheduled commercial operation date of December 1986 is assumed to be paid as incurred from Boancvillc reveaues pursuant to the Project No.3 Nct B10ing Agzocmeats.

For thc purpose of demonstrating the total annual cost pcr kilowatt-hour of Project No.3 if thc above'costs wero capitalized, the cost to BonneviQe of$75699711000 has boca annualixcd over 35 years at an assumed interest rate of 10.85%per annum, which is aa approximate average of BoaaeviGc's curreat long term interest rates for borrowiag from.tho Fcdcral Trcasuzy, as follows ($000): hdditionat Costs to BoanevQIe:

Aoauantso ptsoaio ptoiest cost 5 49n49 Total Aaauat Cost..........

323(,SS7 haaual Cost (mills/KWH)

..87.5 tees tsso tact test 8 84.426 5 84,426 3 84,426 3 84,426 5 84,426$436A33$45(n20 547tn43$49tn20$506A66 91.2 87.3 888 923 952 Aesttatptiozl In tho preparation of this rcport aad in the opinions which follovr it has been necessary to make certaht assumptioas with respect to conditions which may occur ia tho future.While vre believe thcso asltmptions arc reasonable for the purposes of this report, we make no represeatatioa that they vrill h fact occur.To the extent that actual future conditions differ from the assumptions contained herein, tho actual results will differ from the results obtained from use of thc assumptions.

Certain major assumptioas used in this rcport include: I.The Net Billed Projects and Projects Nos.4 aad 5 will be completed withia the cost estimates in the Supply System's 1982 project construction budgets and that Projects Nos.4 and 5 will aot be tezminatecL 2.Project No.I will begin commercial operatioa in June 1986, Project No 2 will begin com-mercial operation in February 1984, aad Project No.3 will begin commercial operation in December 1986.3.Annual costs of the Net BiHed Projects are based on actual iatercst rates on outstanding Project No.1, Project No.2, and Project No.3 Bonds issued through April 1981 and assumed interest rates on future bonds for those projects at 11.5%through Junc 30, 1982 and 10.0%thereafter.

B-25 4.Investment income in the Net BiHed Projects 1982 construction budgets is based on actual income to May 1, 1981 and estimated future income at assumed reinvestment rates of 12,0%through 3une 30, 1982 and 10.5%thereafter.

Investment income for the Supply System's annual cost estimates is based on an assumed interest rate of 9.0%on long term funds and 8.25%on short term funds.5.Annual operating costs of the Net Billed Projects including Operation and Maintenance, Decommissioning, and Renewals and Replacements are as estimated by the Supply System.Nuclear fuel costs are estimated by the Supply System based on fuel contracts, an enrichment o plant taGs assay of 0.20%and no recycle of uranium and plutonium.

5.The Net Billed Projects will operate at an average annual plant factor of 60%in the first year of operation of each plant, 65%in the second year and 70%thereafter.

7.Amounts required to initially fund the Reserve Account in the Bond Fund and working capital, to the extent not already funded by Bonneville, will be obtained from the proceeds of future bond issues for each of the Net Billed Projects.8.Interest and principaL on the Project No.1 Bonds between September 1, 1980 and 3une 1986, together with net payments into its Reserve and Contingency Fund and payments to the Hanford Project will continue to be obtained under the Project No.1 Net Billing Agreements and the Exchange Agreements.

Interest and principal on the Project No.2 Bonds between September 1, 1977 and February 19&4, together with net payments into its Reserve and Contingency Fund, wiH continue to be obtained under the Project No.2 Net BHling Agreements.

Interest 0 and principal on the Project No.3 Bonds between September 1, 1982 and December 1986, together with net payments into its Reserve and Contingency Fund, wHL be obtained under the Project No.3 Net Billing Agreements.

9.Rates for Bonneville power will be as projected by BonneviHe through fiscal year 1985 and will increase each year thereafter at an average rate of 7.0%per year through 1990.Conclusions Based on our studies and analyses of the Supply System's program for the Net Billed Projects, we are of the opinion that: The output of the Net Billed Projects is required to meet the load growth of the utility systems of, the Pacific Northwest and can readily be marketed by Bonneville when the Net Billed Projects are scheduled for initial operation.

2.The provisions of the Net BiHing Agreements, the Exchange Agreements and the Project Agree-ments provide a sound foundation for proceeding with financing the construction of the Net BiHed Projects.3.The estimated cost of the output of the Net Billed Projects is comparable to costs expected from similar projects to be developed within the same time frame.We have furnished to you information for the following subcaptions: "Estimated Project Financing Requirements","Estimated Project Annual Costs and Payments", and"Power Production" under the captions"Project No.1","Project No.2" and"Project iVo.3";and information other than that relating to Botnteville under the caption"Power Supply in the Pacific Northwest" in the Official Statement and Exhibits A and G thereto.In our opinion, the information furnished by us is correct.Respectfully submitted, R.W.Bacx um Assocmvss TABLE I WASIIINGTON PUBLIC POWER SUPPLY SYSTEM PROJECT NO.1 PARTICIPANTS AND COMPANIES

SUMMARY

OF FINANCIAL AND STATISTICAL DATA Dlctctctc Maatctsatttta lSSS Coo pccat t ceo Cocsoaatca Total tars gtaltcua Tolal hvtxttCS: Customers:

Rcsidcntial T otal Energy Sales: kWh (000)..........

~.......Energy Purchases:

kWh (000)....~..~......Bonneville (Hanford Project Exchange)..Bonneville 0 ther.~~~~~~~~~~~~~~~~~~Total Energy Purchase kWh (000)..Energy Generated:

kWh (000).............

Total Energy Requirements kWh (000)Peak Demands: kW.OeeaaTtoNs:

Income: Total Operating Rcvcnucs..............

Other Income (Non-Operating)

Total Income....................

OezaavtNo ExeeNses: Purchased Power: Ilonncville (Hanford Project Exchange)..Itonnc ville Other Total Purchased Power Expense....Gcncrating Expense fotal Power Supply Expcnsc........Dcprcciation Other Expense (including Taxes)...........

Total Operating Bxpcnscs..........

CONneNsen IIALaNce St!eat hsscts: Net Utility Plant Other Property and Investments

........Current hsscts Dcfcrfcd Debits~~~~~~~~~~~~~~~~~~~~Total hsscts Liabililicsl Long Term Debt Current Ltabilitles

....................

Deferred Credits.Reserves Contribution in hid of Construction

......Relaiaed Earnings fetal Llalnlitlcs

~~~~~~~~~~~~~~~~~~4S&,001 562,20$24,469,4&6 1,23$,449 19,481,840 3,688,253 24,405,$42 877,894 2$,283,436$,610,382$03,703$67,326 21,212,821 166,472 9,917,750 343,037 10,427,259 10.493,999 20,921,2$8 4,465,140 197,1$2 233,630 7,29$,92$293,328 6,088,716 257,200 6,639,244.

14,88$6,6$4,129 1,&48,68$1,853,814 2,156,583 6S,12$,147 32$,42$4,409,358 24,506,405 29,241,18$

44,804,666 74,045,854 14,014,862 3,042,700 3,S19,744 121,103,379 2,020,674 39,897,664 28,794,89$

70,713,233 56.191,444 126,904,671 25@39,069 2,941,894 3,410,671 115,748,763 1,586,914 42,406,$92 26,069,684 70,063,190 53,207,314 123,270,504 24,320,698

$330,262,152 9,621,841$29$,037,697 10,749.$49$134,04$,236 2,&&1,764$1,783,980,381 16$.827.796$2,$43,32$,466 1&9,0&0,9$

0$2,013,0$8,388 153,856,452

$339,883893

$30$,787,246$136,927,000

$1,949,80$,177$2,732,406,416

$2,166,914,840

$7,942,449 129,600,089 23,357,907

$2,360,318$3,009,630 24,395,S77 1,9S2,21$46,511,494 0$1,238,300 46,322,2$0 280,896,711 13,$23,28$275,443,493 328,6$0,195$$,262,857 180,$44,048 206,969,463

$79,765,525 33.893,$18$4$,493,712 152,035$160,900,44$

11,882,$62$328,457,291 376,81$,730 617,616,973 422,743,905

$392,776,36&

356,3$1,620$172,783,001 24,168,060 87,501,142

$113,659,103 31,346,$48 109,228,225

$48,645,747 1$,19$,645 44,54$,722$70$,273,021 16$,2&1,596 46$,278,212$1,040,360,878 23$,991,849 709,$53,301 749,163,988 20$,$60,604 603,240,993

$284,4$2,209$254,233,876

$108,387,114

$1,338,832,829

$1,98$,906,02&$1,S61,265,5&S

$1,042,523,122 89@23,589 140,00$,300 48292,894$673,&44,080 S2,682,12$

143,95$,194 26,712,610

$44$,718,614 18,220,644

$2,141,108 3,416,623$9,028,733,164 692,208,148

&61,995,750 218,434,188

$6,863,647,348 531,381,790

$8,205,414,103 615,049,084 734,063853 178.303,$41 52$,894,148 140,012,061

$S97,194,009

$1,320,744,90$

$522,496,989

$8,060,93$,347$10,801,371/$

0$9,732,8298&

1$379,703,786 25,901,$66 3,238,149 860,69$514,052 112,878,741

$260,672,15$

I I SP16,027$/52@62 3,404,1$3 40,266,691 4713&ISl&$$676,371,277

$9,663,731$8,982,630 17372,802 28,121,013 4&0,333,452

$3,4&Sf 3S,178 930,623,428 306,706,23$

6,40&899 0 3,331,&S&404$4,802,08$,399 1,131404,752 374,479,979 27/46,679 6&/01,7S6 4,396,452,68$

$4,494,363,0$

8 932,99),093 331,464,&07 1$,415,162 61,154,244 3,&91,433,617

$897.194,009

$1@20,744,90$

$522,496@&9

$8,060P3$P47$10,801/71,250

$9,732,829,981 TABLE II'WASHINGTON PUBLIC POWER SUPPLY SYSTEM PROJECT NO.2 PARTICIPANTS

SUMMARY

OF HNANCIAL AND STATISTICAL DATA STa'rtsrtcs Customers:

Res Mcniial r~~~~~~~~~~~~~~Total~~~~~Energy Sales: kWh (000)..........

Energy, Purchases:

kWh (000)......Bonneville (Hanford Project Ex-change)*~~~~~~~~~~~~~~~~~Boaa cvillc~~~~~~~~~~~~~~~~~~~Other~~Total Eaergy Purchases kWh (000)~~~~~~~~~~~~~~~~~Energy Gcacrated:

kWh (000)......Total Energy Requirements kWh (000)~~~Peak Demandst kW~~~~~~~~~>~~~436356 498>16&20456,677 1,189401 1S~1,640 924,893 20,405,834

&73,003 21478,837 4817,750 355,427 402jl12 12/20,099 130,139 5,744,851 389344 6464+34 6,727,444 1M91>778 2/08/46 193,72S 229~2 7,148,048 293>328 SP26,179 257400 6,476,707 14,885 6,491492 1,807,746 985408 l>130/72 40,024,824 l>612,768 29462,670 1.571.437 33,146,87S 7,61S 332 40>76~07 9,633,842 1Ã9 stattauta Total 950,851 1,092,144 38,608,163 6S2,009 31>173>770 1,122,168 33>747+47 6,644,437 40,392,384 8,893,79$O>EaaTroNs Incomct',Total Operating Revenues......'Other Income (Nonoperating)

.Total Income.............

OrgaaTnto Etrrgttszst Purchased Power: Bonaevillc (Hanford Project Ex-chan ge)r~~~~~~~~~~~~~~~~~~B OancVlHC~~~~~~~~~~~~~~~~~~'ther.Total Purcllased Power Ex-Total Power Supply Expense Depreciation

~~~~~~~~~~Other Expense (Including Taxes)....Total Operating Expenses..CottnaNszn BataNcs Stmttr Assets 1 Nct Utility Phn!..............

Other Property and Iavestments

.Currcat Assets Deferred Debits..............

Total Assets.............-

Liabiiitics:

Long'Term Debt.............

Current Liabilities Deferred Credits..............

Rcsclves Contributions in Aid of Construc-tion Retained Earnings............

Total LiablUtics

..........

$174,901, 194 4,446494$2S 1,676,422 7.48$,263$130375gl 1 2 781,612$586453/27 14,713,469

$289,161,685

$I79,347,788

$133>157423

$601,666g96

$458,817,721 15,523,SZS

$474,341749 e$7899,484 121+20,061 13.741887$143,061432 11,845460$154,906,792 20,612,477 7436L380$1,669 121 36,076,889 306,600$38,052,610 15,174849$53,226,959 20,847,400 SX287,278$14&Wig 4$,41Q>118 0$47,392336 152,035$47,544,371 14,813>$04 42867,872 5 11,050,823 203,401,06&

14.048,5&7

$228/06,478 27,171,644

$255,678,122

$6,273,381 199,617,$30$2,478,420 124,668,129 3,444.230$130,590,779 23,665,031

$154455,816 53,698,654 163,601, 189$557.693,835 48~1,786 124430,548 25.033,425

$493,821,671 26,874,389 66,417,87$

25858,88$$438,88$,666 17,750,372 50,004>279 3,393,747$1,490,401,172 92,876+47 240,952,702

$4,386,057$13 S&,476,434 174,137,470 198,849,18$

42,145,964

$755,509494

$613,072.820

$510,034,064

$1,878,616,478

$1,773,609,0S3

$22Q,001421 101,161/47 S,Q&1457 3,404,183 34,081,773 391,772.613

$2&OQSSJOl 32.615~6,407/67 6$9$,156~88~3 264,607,040

$311,127>632 24811470 M32,&04 860,69$514,0$2 109,687,511

$871,688,054 158,688,440 14,422,728 10,860,034 56,890,058 766,067,164

$886495,423 98;198,068 14493,118 2,100,192 50436,84S 721,&S$,407$7S5,509,594

$613,072,820

$510,034,064

$1,878,616,47&

$1,773,609,0$

3 B-28$249>881>649

$156>361 637$105>325>747

$51 1>569>033$371 555 659 TABLE III NASIIINGTON PUBLIC PO'IVER SUPPLY SYSTEM PRO3ECI'O.

3 PARTICIPANTS AND OWNERS SUhMARY OF FINANCIAL AND STATISTICAL DATA SVAVtS11CS Customers:

Rcsidcntlal

.Total Energy Sales: ItWh (000)..Energy Purchases:

k'Wh (000)..................

Bonneville (Hanford Project Exchange)......Bonncvilic Other Total Energy Purchase ItWh (000)......Energy Ocncrated:

ItWh (000).....,............

Total Energy Retiuircmcnts ItWh (000)..Peak Demands: ItW OPRRAxtoNs Income: Total Operating Rcvcnucs..................

Other Income (Non-Operating)

.............

Total Income OPRRATlNO EXPRNSRS: Purchased Power: Bonncvilic (Hanford Project Exchange)......Bonn cvillc Other Total Purchased Power Expcnsc.........Generating Expcnsc Total Power Supply Expense............

Dcprcciation Other Expense (including Taxes)...............

Total Operating Expcnscs..............

CONDRNsan BALANcR St!MT Assets: Nct Utility Plant..........................

Other Property and lnvcstmcnts

.............

Current Assets.Defcrrcd Debits Total Assets Liabilities:

Long Term Debt Current Liabilities Deferred Credits..........

~...............

Reserves Contributions in Aid of Construction

.........Retained Earnings..............,.........

Total Liabilities

......................

Dttltkta hfootttpouttos 1910 CoopttottYco Oitotls Totot 1919 Stotttucs rolal 4&8,001 562,20$24,469,486 1,23$,449 19,481,840 3,688,2$3 24,405,542 877,&94 25,283,436

$,610,382 449,524 506,394 18,779,91$

136,439 8,376,345 (78,$93)8,434,191 9843,714 18,377,90$

3,898,140 197,182 233,630 7,295825 293,328 6,088,716 2$7,200 6,639,244 14.88$6,654,129 l,&48,68$1,662,789 1,932,101 60,384,127 260,340 3,827,141 24.957,671 29,04$,152 36.32$,1SS 6$,370,307 12,885,862 2,797,496 3,234,330 110,929,456 1,92$,$$6 37,774,042 28.&24.531 68,524,129 47,161,648 11$,68$,777 24,243,069 2,701,00S 3,130,761 106,397,099 1,400,797 40,352,920 27.012,782 68,766,499 44,208,254 112,974,753 22,672,698

$330,262,152 9,621,841$134,04$,236$1,S90,704,378 2,881,764 136,637,782

$254,220,03$

7,483,906$2,309,231,801 156,62$,293$1,830,934,797 131,272,234

$339.883,993

$261.703,941

$136,927,000

$1,727,342,160

$2,46$,857,094$1,962,207,031

$7,942,449 129,600,089 23,357,907

$160500,44$

11,882.562

$172,783,007 24,168,060

&7,501,142

$2,1&4,90$52,102,638 13,957,141

$68,244,684 27,590.907

$95,835,591 27,468,772 95,614,659

$1,982,218$982,100 46,S11,494 41,999,976 0 258,974.964

$48,493,712

$301P57,040 152,035326,236,348

$48,645,747

$628,193,388 IS,19$,64S 151,62$,793 44,545,722 412,188,156

$13,091,672 270,214,197 296.290.012

$579,59S,881 365,861,8$

2$945,457.733 218,458,270 639,849,679

$4913,067 171,&39,126 194,781,040

$371,333,233 316,275,227

$687,608,460 192,529,457 546,916,855

$284,452,209

$218,919,022

$108,387.114

$1,192,007,337

$1,803,765,682

$1,427,054,772

$673,844,0&0 S2,682,12$

143,95$,194 26,712,610

$780,$98,8&4 71,993,970 119,097,1S4 30,90o,7S9

$448,718,614

$6,150,363,441 18,220,644 400,369,877 52, I 41,108 458,373,057 3,416,623 120,010,531

$8,053,52$,019$43,266,616 773,566,513 181,046,523

$7,318,147,419 483 9746,830 651,418,935 143,032,72$

$897,194,009

$1,002,596,767

$522,496,9&9

$7,129,116,906

$8,$96 34$,909$9,$51,404,671

$4,288,190,781 1,00$,958,244 242,272,885 27,446,679 68,901,755 3,918,634,326

$260,672, I S8 115,916,027 5,$52,962 3,404,183 40,266,691 47 I,381,98S$379,703,786 25301,566 3,238,149 860,69$514,052 112,878,741

$3,973,S84,013 829,163,241 219,282,931 15,093,162 61,154,244 3,498.068,318

$S00,813,901 47,269,936

$3,147,000,936

$17.470,715 226,803,183 S,90&,999'0 2,931,933,073 6,678,$91 I7,272,ti02 28,121,013 102.440,S24

$897,194,009

$1,002,596,767

$522,496,989

$7,129,116,905

$9,551,404,671

$8,596>4S,909

~.0 EXIBBIT C Bechtel Power Corporation.

Engineers-.Constructors Fifty Beafe Street San Francisco.

California Mail Addnxar P, Q.Box 3965.San Francisco.

CA 94tt9 1 September 4, 1981 Board of Directors Washington Public Power Supply System 3000 George Washington Way Richland, Washington 99352

Subject:

WAsHINGTGN PUBLIC PowER SUPPLY SYsTEM NUcLEAR PRQJEGT No.1 Gentlemen:

In January 1981 Bechtel Power Corporation

("BPC")was retained by Washington Public Power Supply System (" Supply System")to assume certain duties of the construction engineer and to provide construction management services for Washington Public Power Supply System Nuclear Project No.1 (" Project No.1")being constructed on the Hanford Reservation of the United States Department of Energy ("DOE"), near Richland, Washington.

BPC is also to assume the"same duties of the con-struction engineer for Washington Public Power Supply System Nuclear Project No.4 of similar design and located adjacent to the Project No.I.These'responsibilities for both projects were previously per-formed by United Engineers&Constructors Inc.("UE&C").Transfer of-these responsibilities was completed on May 1, 1981.BPC's responsibilities for Project Nos.1 and 4 include: (a)management of all site construction contractors and contract administration activities;(b)implementation of the BPC quality assurance pro-gram;(c)implementation of systems for project control including cost engineering, estimating services, quantity tracking and performance measurement;(d)provision of project accounting functions;(e)application of a project labor relations program;and (f)assistance in project testing and startup, Under a separate contract with the Supply System, UE&C has been retained as an independent engineer to perform the functions necessary for the design of Project Nos.1 and 4,and the duties of con-tainment constructor under the provisions of ASViK Pressure Vessel Code,Section III, Division 2.UE&C wiH continue to be directly responsible for performance of the duties of construction engineer set out in Resolution No.769 of the Board of Directors of the Supply System which relate to the design of Project No.1 and the duties of containment constructor under the provisions of ASME Pressure Vessel Code,Section III, Division 2.

Current Estimated Projeds Costs and Construction Contracts A construction cost estimate-for Project No.1 has been developed jointly by BPC, UEkC and the Supply System on an equitable cost basis which takes into consideration that both Project No.4 and Project No.1 benefit from the economics of dual unit construction and, therefore, share certain costs on the basis of the proportion of respective benefit.This estimated cost of$2,398,438,000 was presented to the Supply System in May 1981 and is the basis for the Supply System's 1982 project construction budget which was approved by the Board of Directors in July 1981, and is set forth in Attachment A.This estimate reQects an increase of$822,505,000 over the May 1980 estimate.This increase results from: a.a 12 month extension from June 1985 to June 1986 of the commercial operation date ($131,000,000);

b.revisions to refiect actual experience for the factors used to establish the May 1980 estimate (such as productivity levels, manhour requirements, escalation rates and material quantities)

($614,000,000);

c.changes to plant structures, systems and equipment necessitated by development of the design in certain areas (including

'compliance with the designs of vendor furnished equipment and consideration of regulatory changes)($74,462,000);

and d.transfer of operational spare parts (-$74,000)and plant relocation costs ($8,579,000) and station equipment costs (-$5,462,000) from other construction costs in the May 1980 estimate to owner's cost in the May 1981 estimate as set forth in Attachment A.The estimated cost presented above was developed utilizing UE&C provided design definitions which were adequate for estimating purposes.This cost estimate included a reassessment of project No.1 scope and schedule, labor productivity, revised future escalation rates from the May 1980 estimate and the variables described below.Included in the May 1981 estimate is escalation of material and labor costs computed in accordance with specific terms for contracts already placed.The annual rate used for escalation computations was provided by the Supply System at an 11%average per year which is acceptable for estimating purposes.Escalation is applied to the total direct construction cost plus the sales tax, less the funds actually ex-pended.The May 1981 estimate includes$187,196,000 for future escalation and$197,918,000 for con-tingencies to cover normal estimating variations.

The estimate excludes (a)land;(b)nuclear fuel;(c)interest during construction;(d)Supply System administrative costs;(e)Station Equipment costs;(f)plant relocation costs;and (g)operational spare parts procured independently by the Supply System, Items for which BPC is not responsible and which therefore are not included in the estimate are: regu-latory and statutory changes;rising costs of labor and materials (" escalation")beyond the assumed annual rates;abnormal weather;labor productivity and contractor performance problems (beyond a limited extent);labor disputes;significant equipment, material and skilled labor shortages; financing; changes in Project No, 1 scope or design as may be required by the Supply System or regulatory author-ifies;and unforeseeable and extraordinary conditions not included in the usual engineer's estimate of probable construction cost.Items such as those cited above may also result in necessary adjustments to the scheduled Project No.1 completion date.In the event of a further schedule extension, various project No.1 costs will increase because of the effect on the aggregate cost for escalation, contingency, sales tax, construction facilities and engineering and construction management.

BFC is aware of the circumstances discussed under the section"Status of projects Nos.4 and 5 and Possible Effect on Net Billed Projects" under the heading"Recent Developments" appearing in the ofiicial statement to which this letter is attached.The resolution of circumstances concerning the Qnancing of project Nos, 4 and 5 may have an impact on the costs of project No.1;however, the extent of the impact, if any, cannot be determined at present.O.C-2 The total committed costs of equipment and construction contracts awarded as of July 1, 1981 for Project No.1 as provided by the Supply System are shown on Attachment B.Th'ese contract values have not yet been revised to reQect the Supply System's 1982 project construction budget.'s noted on this attachment, these contracts totaled$905,342,865.

For many of the contracts, escalation provisions are included and prices are subject to change on the basis of changes in cost indices published by the Bureau of Labor Statistics or certain other trade indices.The equipment and construction contracts provide materials, equipment and construction services for both Project No.1 and Project No.4.Each such contract provides for the allocation of the costs so incurred between Project No.1 and Project No.4.The Supply System informs us that it awarded these contracts by means of a competitive bidding process which solicited bids for Project No.1 and Project No.4, pursuant to the statutory duties of the Supply System as a joint operating agency of the State of Washington.

Factors considered by the Supply System include price and the responsiveness of the bid to bidding requirements.

The Supply System is also authorized to consider each bidder's experience, quali6cations, available personnel and facilities.

The contractors, in our present judgment, are qualiiled to perform the work within their contract.Project Status and Schedule Construction of Project No.1 started in August 1975 under a limited work authorization granted by the Nuclear Regulatory Commission

("NRC")and a site certification agreement entered into with the State of Washington.

A construction permit was issued by the NRC in December 1975.As of July 1, 1981, the design engineering for Project No.1 was approximately 82%complete for baseline design.Procurement of services and equipment for Project No.1 was approximately 97%complete and construction of Project No.1 was approximately 41%cotpplete.

Major civil work is approximately 80%complete on the Reactor Containment Building, the General Services Building and the Turbine-Generator Building.All major Nuclear Steam Supply System equipment has been installed in the Reactor Containment Building.Piping, mechanical and electrical work is in the early stages.The cooling towers are complete.UE&C advises that the Babcock&, Wilcox Nuclear Steam Supply System for Project No.1 is of a diferent, more current design as compared to the Three Mile Island Plant (TMI-2), which was involved with a nuclear incident.However, UE8cC and the Supply System are proceeding with those design changes which are anticipated to be required by the NRC as a result of the lessons learned from the TMI-2 incident.Labor agreements with some craft unions in the Hanford area expired, and as a result, critical path work on Project No.1 stopped in early June 1980.New agreements were reached, and construction on Project No.1 r'esumed in October 1980.New wage agreements have recently been settled with the pipefitter's union and with the electrical worker's union.As a result of the 1980 work stoppage and a review of the total Project No.1 scope, bulk quantity installation phasing and Project No, 1 schedule, BPC estimates the impact of the above items will revise the previous commercial operation date of June 1985 for Project No.1 to June 1986.Conclusions Based upon the information provided by UEAC and the Supply System and subject to the previous discussion in this letter, it is our present opinion with respect to the Project that: 1.The.present plans and design are suitable for the site, and the site is suitable for Project No.1.2.The program for construction is consistent with those for other installations of similar size~and complexity.

Completion of project No.1 by the date described above and within the total cost estimate described above is reasonable and obtainable.

I C-3 3.All aspects of Project No.1 are of presently proven engineering design or application, or are reasonable extensions thereof.ModiQcations to the design as raquired by TM-2 will be imple-mented as they become lmown.4.Project No.1 is being designed to comply with existing licensing retluirements at state and federal levels.S.Project No.1 is feasible from an engineering and construction standpoint and can be expected to operate reliably with normal maintenance.

Based upon the information provided by UE&C and the Supply System, the description of Project No.1 and statement and summaries of the estimates contained in this letter and in the sections endttled"Location,""Description,""Permits and Licenses" and"Contracts and Schedule" under the heading"Project No.1" appearing in the OEcial Statement to which this letter is attached are properly presentedo Very truly yours, I C.McJQr,m Manager of Projects ATX'ACIIMENT A WASHINGTON PUBLIC POWER SUPPLY SYSTEM NUCLEAR PROJECT NO.1 Coastruction Cost Esthnate'aumatd of May 1980(1)Pfojcct ESdmatd of May 1981(2)Structures and Improvements

.Reactor Plant Equipment.Turbogenerator Unit Accessory Electric Equipment Miscellaaeous Power Plant Equipment Station Equipment.Other Tangible Property Escalation

.Contingeacy and Rounding.Total Direct Construction Cost.......Operational Spare Parts.Sales Tax~~~~~~~~~~Architect-Engineer Construction Manager Owner's Cost Plant Relocation Cost DOE Settlement

.Owner's Contingencies Total Other Construction Cost(3)....Total Construction Cost............

Capitalized Interest During Construction

...............

Total Project Construction Cost.....: Nuclear Fuel Capitalized Interest on Nuclear Fuel Total Nuclear Fuel.....~..........

Financing Cost.$338,802,000 257,302,000 176,526,000 139,248,000 57,521,000 5,462,000 72,004,000 215,681,000 82,314,000

$1,344,860,000 74,000 66,780,000 112,864,000 59,934,000 Not Included (8,579,000)

Not Iacluded Not Included 231,073,000

$1,575,933,000 Not Iacluded$1,575,933,000 Not Included Not Included Not Iacluded Not Included$504,094,000 346,664,000 240,188,000 266,142,000 101,548,000 Not Included 75,878,000 187,'196,000 197,918,000(5)

$1,919,628,000 Not Included 86,989,000 199,185,000 192,636,000 Not Included Not Included Not Included Not Included$478,810,000

$2,398,438,000 Not Included$2,398,438,000 Not Included Not Included Not Included Not Included Total Estimate(4)

................

$1,575,933,000

$2,398,438,000 Norris: (1)Based on a commercial operation date of June 1985.(2)Based on a commercial operatioa date of June 1986.(3)Excludes certain direct construction costs and sales tax estimated and controlled solely by the Supply System.(4)See"Current Estimated project Costs and Construction Contracts" in the letter to which this estimate is attached.(5)Includes$24,308,000 for additional scope growth provided by the Supply System.C-5 ATI'ACIIMENT B WASHINGTON PUBLIC POWER SUPPLY SYSTEM NUCLEAR PROJECI'O.

1 Awarded Project Equipment and Construction Contracts(1)(As of July Q 1981).Item Nuclear Steam Supply System (Less Fuel)............

~.Turbine Generator and Access ones Shop Fabricated Piping.......Stainless Steel Liner..........

General Construction Contract No.1..........., General Construction Contract No.2............

Structural Steel-GSB and Containment General Construction for CWPH, Turbine Building and Associ-ated Structures NSSS-Piping and Equipment Instattation Containment Liner........~.Turbine-Generator and Condensor Installation

.....Heating, Venting and Air Conditionmg Main Electrical Contract......Coohng Towers\~~~~~~~~~~~~Structural Steel-Turbine-Generator Building........Yard Piping................

Containment and Main Steam Isolation Building Structure..Reinforcing Bars (Superstructure)

GSB Superstructure Above First lift and Adjacent Structures

~~~~~~~~~~~~~~~Piping and Mechanical Installation Major Equipment Supports....Fire Protection System.......Construction Services...~....Temporary Electrical F acih ties~~~~~~~~~~~~~~~~One Hundred Fifty-Four Equipm of less than$5,000,000 Caattaelor Babcock&Wilcox Co.Westinghouse Electric B.F.Shaw Co.Boecon Corporation Hoffman Construction Corp.Boecon Corporation Allied/Capital Boecon Corporation J.A.Jones PDM Steel Foley, Wismer&Becker University Mechanical Foley, Wismer&Becker Zurn Industries Amyl Date 12/04/72 7/05/74 I/13/78 9/19/75 8/22/75 10/22/76 10/10/75 7/22/77 2/24/78 8/27/74 8/11/78 7/14/78 6/09/78 12/05/75 Isaacson Steel Co.Peter Iaewit Sons'o.G.F.Athnson/Wright Schuchart-Harbor Co.Klinger Steel Co.G.F.Atkinson/Wright Schuchart-Harbor Co.J.A.Jones Boecon Corporation Cosco Fire Protection Capital Development 6/24/77 10/14/77 5/27/77 4/09/76 11/16/77 3/24/78 10/15/75 3/14/80 6/22/76 Total Power City Electric I/30/75 ent and Construction Contracts, each with a value Present Contract$63,529,351 45,425,565 15,799,365 8,700,427 6,908,533 18,236,207 17,315,191 13,189,652 19,423,052 10,937,613 7,033,792 29,950,569 124,184,606 12,642,995 6,038,840 16,104,518 90,533,489 5,581,434 91,870,980 109,615,321 5,393,525 6,830,709 13,359,644 6,451,090$160,286,382

$905,342,865

~o (I)Costs shown on Attachment B are incremental costs.

Burns and Bee, Inc.185 Crossways Park Drive~Woodbury, New York 11797~Telephone, (516)677~Main ONce 550 Klnderkamack Road Oradell, New Jersey 07649 September 4, 1981 Board of Directors Washington Public Power Supply System Richland, Washington 99352

Subject:

WAsHINGToN PUBLIc PowER SUPPLY SYsTEM NUCLEAR PROJECT NO.2 Gentlemen:

Burns and Roc, Inc.(" Burns&Roe")was selected and retained by the Washington Public Power Supply System (the"Supply System")to provide engineering, desiga and construction maaagement services for the Washington Public Power Supply System Nuclear Project No.2 (" Project No.2")being coastructed on the U.S.Department of Energy's Hanford Reservation, aear Richland, Washington.

From February 1978 to June 1981, the construction of Project No.2 was maaaged by a consolidated project organization consisting of Supply System and Burns aad Roe personneL Burns and Roe's per-sonnel were integrated with the Supply System's persoanel aad acted at the direction and under the control of the Supply System in connection with construction management, contract admiaistration, planning, scheduling, cost estimating, expediting, quality assurance and cost accounting.

Burns and Roe continued to perform the duties of the Construction Engineer as specified in Resolution No.640 of the Board of Directors of the Supply System.In early 1981 the Bechtel Power Corporation

("Bechtel")

was retained by the Supply System as the systems completion contractor.

By June 1,'1981 the bulk construction was essentially complete.Ia order to reallocate resources and focus attention on the remaining engineering, construction, systems completion and turnover leading to project completion, effective Juae 1, 1981, the Supply System dissolved the consolidated project organization.

Bechtel was assigned responsibility for management of the remaining construction, systems completion aad turnover.Burns aad Roe was assigned undivided responsibility for engineering and design.The Supply System retained overall project management responsibility as well as responsibility for startup and testing.Project No.2 Project No.2 will consist of a single-unit, boiling water reactor ("BWR")electric generating station having a nominal capacity of 1,100,000 kilowatts together with the necessary transformation, switchiag and related 500 kV transmission facilities of the Federal Columbia River Power System.The plant layout aad design, which provides for the initial development of a single 1,100,000 hlowatt unit, includes con-sideration of the possible future expansion to a station with another generating unit.Following is a summary description of the electric generating station.D-1 Project No.2 is located on the Hanford Reservation, approximately three miles west of the Colum-bia River and twelve miles north of the City of Richland.The plant will consist of a nuclear steam supply system, turbine-generator, cooling tower and river makeup water pumping and blowdown dis-charge facilities, together with associated structures, auxiliary equipment, instrumentation, controls and other accessories.

There will be seven basic structures comprising the overall power plant.These are the reactor, radioactive waste, turbine-generator, diesel generator and service buildings (together comprising the main plant), cooling towers and circulating pumphouse and river makeup water plant.The nuclear plant will contain a General Electric Company boiling water reactor of proven design, that will have a manufacturer's guaranteed rating of 3,300 megawatts thermal and will supply approxi-mately 14,295,000 pounds per hour of steam at 985 psia with feedwater returned at 420 degrees F.Westinghouse, the turbine-generator manufacturer, guarantees that this steam will produce an output of 1,154,000 kilowatts of generation under expected conditions of operation.

After subtracting the electrical requirements for station operating auxiliaries, the net plant output wiH be approximately 1,093,000 kilowatts.

The turbine-generator is a tandemcompound, 6-fiow unit consisting of a high-pressure turbine section on the same shaft with three low-pressure turbine sections and the electric generator.

The generator is a three-phase, 60 Hertz, 1800 rpm unit rated at 1,231,700 kVA at 0.975 power factor and will generate at 25-kV.The turbine-generator plant will be complete with auxiliary systems, pumps, controls, instrumentation, electric switch-gear and fire protection equipment.

The circulating water pumphouse which provides condenser cooling water, fire system water and service auxiliary cooling water is located south of the plant adjacent to six mechanical draft cooling towers.The condenser cooling water will discharge from the turbine-generator building and return to the cooling towers, Makeup water to replace the evaporativ'e losses of the circulating water cooling system will be obtained from the Columbia River by means of three makeup water pumps.Blowdown from the circulating water system will be discharged to the Columbia River downstream of the makeup water intake.Diesel generators are included for emergency use in the event of loss of auxiliary power.The diesel generators are housed in a separate concrete building located adjacent to the reactor building, The service building adjacent to the turbine-generator and reactor buildings will house offices, laboratories, locker rooms, lobby, first-aid facilities, machine shop and storerooms.

4s Project No.2 Status and Schedule Construction of Project No.2 was started in August 1972 under a site certification by the State of'ashington and an exemption granted by the Atomic Energy Commission

("AEC"), the predecessor organization of the Nuclear Regulatory Commission

("NRC').The construction permit was granted by the AEC in March 1973 at which time construction of the reactor building substructure was started.Construction of the remainder of the main plant vIas started in May 1973.Major structural and civil work on Project No.2 is complete.The bulk of mechanical, electrical and instrumentation work is installed and the emphasis has been placed on the completion of systems to support a plant test and startup program, Construction is approximately 86%complete as of July 1, 1981.Several factors have required revision to the previously scheduled January 1983 commercial opera-tion date: (1)In 1980 a six-month labor dispute had severely curtailed construction activities.

(2)Deficiencies in the quality of contractor documentation or construction work have been identified resulting in a need for rework or modification.

(3)As a result of these deficiencies in the quality of contractor work, a hold had been placed on all safety related work until reverified to the satisfaction of D-2 p l~the Supply System and in certain cases the NRC.This hold was not substantially released until June 1, 1981.(4)Because of the TMI-2 incident, discussed later, key staff of the NRC werc not available for processing of operating licensing applications, and this caused a delay in the operating licensing process.(5)It is expected that because of the ThfI-2 incident and other new regulatory requirements, additional design changes will also be required prior to fuel loatL As a result of these factors, in the second quarter of 1981 a complete reassessment of the remaining work and the time and resources necessary to accom-plish this work was made.The resulting schedule leads to fuel load by September 1983 and commercial operation by February 1984.This schedule has been published and is now the basis of planning and monitoring the progress of Project No.2.In November 1979 the Supply System voluntarily stopped construction work on the sacrificial shield wall and pipe whip restraints in the reactor building because of discrepancies in records and work conformance to design requirements.

The NRC advised the Supply System not to restart work without NRC approval and commenced an investigation of this work.In February 1980 the NRC lifted its stop work order and approved the Supply System's inspection and repair program for the pipe whip restraints.

Some repairs have been completed on the pipe whip restraints.

Additional repairs or replace-ments are planned.Because of the prior stop work order on the sacrificial shield wall, all items designed to be attached to the wall could not be installed.

A report was submitted to the NRC in August 1980 in which the Supply System and Burns and Roe concluded that a limited scope of repair was required for the wall to perform the designed functions.

Based upon this report a release of the stop work order was received from the NRC in the spring of 1981.A major portion of the repairs are now complete.in June 1980 the NRC issued a Notice of Violation to the Supply System alleging failure to assure.that the contractors'uality assurance programs were properly implemented and proposing to impose civil penalties.

The Supply System responded to the NRC Notice of Violation requesting mitigation

'f the civil penalties and proposed a plan for evaluating the quality assurance programs of each con-tractor and reverifying the adequacy of previously completed construcfion work on safety systems.In addition, the Supply System placed a hold on all construction work on safety systems pending this review.Work was resumed on a case-blase basis with the final release of most work on June 1, 1981.The minor outstanding items are anticipated to be released in September 1981.The containment vessel was designed and constructed in accordance with basic design criteria furnished by the General Electric Company ("GE").GE subsqeuently obtained testing or design infor-mation which necessitated changes in basic design criteria.The project design was changed and physical changes are being completed on certain structures and systems to insure that they will be able to withstand the new loads resulting from revised criteria.All known design changes have been issued by Burns and Roe to the contractors.

Additional changes may be required if dictated by the confirmatory analysis using the revised loads but are not expected to result in major construction changes..This containment vessel retrofit program continues as a risk to project No.2 with regard to the licensing basis for the loads.Programs have been implemented by the BWR owners, GE and Burns and Roe to resolve questions concerning these loads, NRC approval for fuel load depends on acceptance of these programs, since the NRC must approve the final design of all safety related aspects of Project No.2.On March 28, 1979, Unit 2 of the Three Mile Island Nuclear Station ("TMI-2")in Pennsylvania operated by the Metropolitan Edison Co.was involved in a nuclear incident.TiiI-2 employs a pres-surized water reactor which diifers from the boiling water reactor being used in project No.2.The NRC has issued requirements for action to be taken by licensees as a result of the lessons learned from the TMI-2 incident.This includes requirements for studies and analysis, design changes, improved training and staffing, and improved procedures.

The Supply System and Burns and Roe have identified the changes necessary and have developed plans of action to meet the presently known revised requirements which have been factored into the schedule.The engineering of the changes is underway.There is still D-3 some uncertainty concerning the NRCs acceptance of these actions as well as whether additional requirements will be imposed at a future date.The diversion of NRC staff due-to the TMI-2 incident had produced a backlog within the NRC which had impacted the time processing of Project No.2's application.

The Supply System and Burns and Roe have established a licensing schedule supporting an accelerated fuel load date.The assistance and support of the NRC were requested and this accelerated licensing schedule has been agreed to by the NRC.Recent geologic findings in and adjacent to the Hanford Reservation have required an investigation of whether these findings affect the present Design Basis Earthquake

("DBE")which governs the seismic design of Project No.2 and Projects Nos.1 and 4.The Supply System and its consultants are presently evaluating these new findings to determine if additional geological information and analysis are required to defend the present DBE.Design and construction are proceeding on the basis of the current plant seismic requirements.

The Fire Protection System for Project No.2 is designed to be in accordance with NRC guidelines for nuclear plants of similar vintage.In July 1980, the NRC issued a proposed rulemaking which is applicable to operating plants and plants under construction and would impose new and expanded requirements.

An assessment of the degree of compliance of the present design to the proposed NRC requirements was performed during the summer of 1980.The rule became effective in February 1981 but only applied to operating plants.In a May 8th letter to the Supply System, the NRC formally imposed the requirements of this rule on Project No.2.Burns and Roe is currently conducting a study and performing the engineering necessary to comply with the new rules.Although the present plant design substantially complies with most of the proposed guidelines, additional fire barriers and other minor changes likely will be required.The impact of these proposed requirements cannot be determined until all the engineering evaluations are completed.

The NRC has raised questions in regard to the design of all light water reactors concerning possible Anticipated Transient Without Scram ("ATWS").At the present time, systems for"mitigation of ATWS are not a licensing requirement for project No.2.In order to impose such a requirement, the NRC will have to go through a rule-making process, which is not expected to be final until late 1981.It is antici-pated that many changes resulting from this process will be installed in project No.2 after fuel load during a subsequent plant outage, but that some changes may be required prior to fuel load.Provisions have been designed and constructed into project No.2 for adding certain systems and components that are considered most likely to be required.The Final Safety Analysis Report was sent to the NRC in March 1978 and the application for an operating license was accepted for review by the NRC in June 1978.Presently, primary emphasis in the licensing area consists of answering NRC review questions, preparing amendments to the Final Safety Analysis Report, participating with other BWR owners in review and discussion with the NRC of generic BWR safety issues, and submitting revised analyses and subsequent assessments of the con-tainment vessel and associated systems and structures.

The sixteenth amendment to the Final Safety Analysis Report was issued in June 1981.The operating license will be required before fuel loading presently scheduled for September 1983.Current Estimated Project No.2 Costs and Construction Contracts The current total.estimated cost of construction as of May 1981 is$2,005,772,000, as shown in Attachment A of this letter.This estimate is based on achieving commercial operation by February 1984.The May 1980 construction cost estimate current at the time of the last bond issue for project No.2, shown in Attachment A, was$1,464,528,000.

The increase results from (1)a thirteen month extension of the commercial operation date to February 1984, as discussed above;(2)increases in the cost of the containment vessel retrofit work;(3)rework of systems and components resulting from contractor quality deficiencies; (4)changes required to comply with designs of vendor furnished DA equipment and consideration of regulatory changes including TMI-2 lessons learned;(5)lower than anticipated productivity on construction contracts; (6)unanticipated escalation; (7)resultant addi-tional architect-engineer and construction management services;(8)the elfects of the labor disruption; and (9)quality assurance hold on safety systems work.This estimate covers all nuclear electric generating plant equipment and construction, including main step-up transformers, engineering, construction management and quality assurance services, con-sultants, contingency and escalation applicable to the aforementioned, and sales tax.An allowance of$119,000,000 is included in the estimated construction cost to cover unforeseen contingency items which may be necessary as the details of design are further developed and as construction progresses.

No allowance has been made specifically for additional schedule slippage.Operational spare parts, nuclear fuel, owner's cost, owner's contingencies, interest during construc-tion, financing costs and any allowances for judgments rendered in litigation discussed in the Official Statement to which this letter is attached as an exhibit are not included in Attachment A.The total cost of equipment and construction contracts awarded to July 1, 1981, is shown in Attach-ment B of this letter.The total amount for these contracts is$1,013,631,000, which, based on the May 1981 cost estimate, is approximately 66%of the currently estimated total value of all construc-tion and equipment contracts for Project No.2.Attachment B includes contracts which contain escalation provisions.

These escalation provisions are based on indices of the Bureau of Labor Statistics or other generally accepted industrial indices.In addition, provision is included in Attachment A for escalation of contracts not as yet awarded at the rate of 11%per annum.I Conclusions On the basis of our current best knowledge, including information furnished by the Supply'ystem and its contractors, and others, and current regulatory criteria, and subject to the previous discussion in this letter wjtich should be read in conjunction with and as part of the following conclusions, it is our considered opinion with respect to Project No.2 that: 1.The present plans and designs are suitable for the Hanford site, and the Hanford site is suitable for Project No.2 provided the seismic requirements do not change significantly.

2.There are no major engineering or construction problems associated with Project No.2 that require any untried design methods.3.The program for construction is consistent with those for other installations of similar type, size and complexity, and the February 1984 commercial operation date is feasible.4.The cost estimate for construction in Attachment A is adequate to complete the work as known at this time.Unforeseen factors delaying the commercial operation date or changing the work could increase costs beyond the present contingency referred to above.5.Project No.2 is feasible from an engineering and construction standpoint, is of acceptable commercial design and can be expected to operate reliably with normal maintenance.

6.The description of Project No.2 and the statements and summaries of our estimates in Attachment A which appear in the Ofiicial Statement in the sections titled"Location","Description","Permits and Licenses", and"Contracts and Schedules" under the heading"Project No.2" to which this report is an exhibit are correct in all material respects and in conformity with, and a fair and adequate presentation of, the information in this report.Uery truly yours, KaNNEm A.Rol Chairman and President D-5 ATTACHMENT A WASHINGTON PUBLIC POWER SUPPLY SYSTEM NUCLEAR PROJECT NO.2 , Construction Cost Esthnate Structures and Improvements

.Reactor Plant Equipment.Turbogenerator Unit Accessory Electric'quipment Miscellaneous Power Plant Equipment Station Equipment..............:.

Other Tangible Property Escalation Contingency Total Direct Construction Cost'Operational Spare Parts Sales Tax Architect-Engineer Construction Manager.Owner's Cost..........

Owner's Contingencies

.Total Construction Cost...Net Capitalized Interest During Construction

......Total Project Construction Cost........Nuclear Fuel Financing Cost Total Estimate..Estbnate of Estbnata of May 1980g)May 1981(l)$252,749,000

~569,796,000 100,052,000

" 171,424,000 140,588,000 2,606,000 64,742,000 121,732,000 119,000,000

$1,542,689,000 Not included 59,342,000 165,476,000(4) 64,032,000 (4)Not included Not included Not included 71,185,000 257,578,000 134,322,000 Not included NTot included$1,464,528,000

$2,005,774,000 Not included Not included$1,464,528,000

$2,005,774,000 Not included Not included Not included Not included$1,464,528,000

$2,005,774,000 I (1)Based on a commercial operation date of February 1984.This is the estimate upon which the Fiscal Year 1982 Project Construction Budget is based.(2)Based on a commercial operation date of January 1983, and the scope of work known at the time of the estimate, May 1980.This is the estimate upon which the Fiscal Year 1981 Project Construction Budget is based.(3)$9,700,000 representing construction completion contract, FY 1981 budget estimate, trans-ferred from original budget item"Other Tangible Property" to"Construction Manager".(4)Reallocation of"Architect-Engineer" and"Construction Manager" FY 1981 budget items to reflect revised division of responsibility.

ATTACHMENT B WASHINGTON PUBLIC POWER SUPPLY SYSTEM NUCLEAR PROJECT NO.2 AWARDED PRO3ECX'QUIPMENT AND CONSTRUCHON CONTRACTS (As ot July 1, 1981)I!era Contractor Turbine Generator&Accessories

....Westinghouse Nuclear Steam Supply System......General Electric Electric Cable.................

Raychem Corporation Fire Protection System.........

Sentry Automatic System General Construction

.............

Bovee&Crail Minor Construction

&Maintenance...

Northwest Construction General Construction

-Completion

..Peter Kiewit Structural Steel Pittsburgh Des Moines Architectural Construction

.........Peter Kiewit Primary Containment Vessel.......Pittsburgh Des Moines Containment Vessel Retrofit.......Pittsburgh Des Moines Mechanical Equipment Installation...

Wright4chuchart-Harbor/

BOECON/Bovee

&Crail/GERI

'VAC&Plumbing Installation

.....Waldinger Corp.Electrical Installation

.............

Fischbach/Lord Instrumentation Installation

........Johnson Controls Cooling Towers......

Marley Corporation Make-up Water Pumphouse........

McMillin Brothers Interim Construction Work.........

Wright4chuchart-Harbor One Hundred Forty-six (146)Contracts each with a value less than$5,0 Miscellaneous Purchase Orders Total Awarded Equipment and Construction Contracts...'.........

Amuded Date 5/2/67 3/23/71 7/09/74 2/4/77 3/30/73 6/22/79 9/30/76 3/12/74 5/23/75 IO/20/72 I/28/7?5/10/74 5/10/74 2/14/75 11/5/76 9/22/72 12/27/74 2/26/76 00,000 and Present Coatract Auomd$35,223,000 79,638,000 6,482,000 8,809,000 27,402,000 8,318,000 24,781,000 5,272,000 15,049,000 10,789,000 6Q,397,000 379,884,000 50,277,000 149,209,000 29,245,000 7,512,QQO S,6S5,QQQ 7,889,000 101,800,000

$1,013,631,000 (1)Includes escalation paid to July 1, 1981.The total amount for awarded equipment and construction contracts includes$62,214,000 for escalation.

D-7

""g A EBASCO SERVICES IN'CORPORA TEn~Two WoRLD TRhDE CENTER NEW YoRZ, N.Y.10048 September 4, 1981-Board of Directors Washington Public Power Supply System 3000 George Washington Way Post Once Box 968 Richland, Washington 99352 Gentlemen:

Re: WhsHtNQTGN PUBLtc PowER SUPPLY SYsTEM NUCLEhR PROJECT NO.3 PRQJEcT SThTUs REvlEw hND ANhLY$8 In'January 1973, Ebasco Services Incorporated

("Ebasco"}

was selected and retained by the Washington Public Power Supply System (" Supply System")as Construction Engineer to provide engineering, construction management and related services for Washington Public Power Supply System Nuclear Project No.3.Ebasco is also Construction Engineer for Washington Public Power Supply System Nuclear Project No.5 of duplicate design and located adjacent to Nuclear Project No.3 on a site near Satsop in southeastern Grays Harbor County, Washington.

As'Construction Engineer for Nuclear Project No.3 and Nuclear Project No.5, Ebasco is respon-,sible for the engineering, design quality assurance, cost estimating and reporting and construction management of Nuclear Project No.3.In addition, Ebasco is providing related services including expediting, materials and application engineering, vendor quality assurance, applied physics and nuclear engineering, licensing, plant operations and betterment, and assistance in procurement and contract ad-'inistration for contracts placed by the Supply System.In August 1978, the Supply System merged its sito organization with that of Ebasco's with the objective to more effectively utilize the personnel available and faciTltate the decision mahng and approval process.Since these objectives were not obtained to the degree anticipated, in July 1980, Ebasco recommended to centralize the Construction Management Function at the site under the direc-tion of Ebasco.The Supply System concurred in October 1980, that Ebasco reassume its role as an independent site organization.

This organization change took place over a period of time in order that the integrity of the Quality Assurance Programs at the site be maintained, and by early 19&1 was fully implemented.

Nuclear Project No.3 Nuclear Project No.3 consists of a 1,300 MWe chss pressurized light-water reactor, nuclear power station, together with all necessary plant facilities including transmission facBities to interconnect with the proposed 500 kV switchyard to be con'structed by the Bonneville Power Administration

("BPA").Nuclear Project No.3 shares certain common facilities with Nuclear Project No.5.E-l Nuclear Project No.3 is located on a site near Satsop in the southeastern portion of Grays Harbor County, approximately 16 miles east of Aberdeen and 1 mile southeast of the conQuence of the Chehalis and Satsop Rivers.The site is conveniently located with respect to the main railroad line shared by the Chicago, Milwaukee, St.Paul and Paci6c Railroad and the Union Paci6c Railroad;U.S.Highway 12;the Chehalis River which is navigable to ocean going barges to a point approxiinately 5 miles west of the site;and an existing BPA transmission corridor which is part of the Federal Columbia River Power System.The nuclear steam supply system ("NSSS"), including the fabrication of the initial nuclear fuel core, for Nuclear Project'o.

3 will be supplied by Combustion Engineering, Inc.and will include the System 80 pressurized water reactor design together with two U-tube steam generators.

The NSSS has a thermal rating of 3,817 MWt, and will supply appro~ately 18,000,000 pounds per hour of steam at 1,000 psig and 550 degrees F.The turbine-generator will be supplied by Westinghouse Electric Corporation, and will consist of a 6-Qow tandem compound steam turbine with a gross electrical output of 1,316 MWe at three and one-half inches Hg backpressure and a net electrical output of approximately 1,240 MWe.Steam exhausting from the three low-pressure sections of the turbine will be condensed by circulating water whose heat will be dissipated in a natural draft cooling tower.A groundwater intake system will provide the make-up water to replenish the evaporative losses in the cooling tower.The generator consists of a three-phase, 60 Hertz, 1,800 rpm unit rated at 1,460.5 MVA at 0.95 power factor and generates at 25 KV.The main plant structures include the reactor containment and shield structure, the reactor auxil-iary building, the fuel handling building and the control room area-ail supported on a common foun-dation mat and referred to collectively as the Combination Structure-and the turbine-generator building.The Combination Structure will be founded on fresh sandstone rock and is designed to with-stand a horizontal seismic ground acceleration of 0.32g.A natural draft hyperbolic cooling tower, 500 feet high with a base diatrieter of 400 feet, is the largest plant structure.

In addition, there is planned an administration and service building.As a result of the incident at the T1tree Mile Island Plant ('TiVII-2"), the design of the NSSS for Nuclear Project No.3 is being carefully evaluated by Ebasco,.Combustion Engineering and the Supply System.The Nuclear Regulatory Commission is also conducting an overall rea"sessment of the safety related aspects of Nuclear Power Plant design and as a result has issued several Regulatory Guides that have, through their implementation, impacted the design of Nuclear Project No.3.Although, additional modi6cations may be required, it is Ebasco's belief, based upon currently known information, that the Fiscal Year 1982 Schedule and Cost Estimate is sufhcient to accommodate such modi6cations.

Nuclear Project No, 3 is being designed to comply with applicable existing codes, laws, standards and regulations of local, state and federal agencies, includes components and equipment of proven design or reasonable extensions of proven design concepts;and is compatible with the comprehensive land-use plans and zoning requirements of the site region..4e'Contract Status and Methods As of July 1, 1981, 182 of 191 prepurchased equipment, material and construction contracts have been placed.A listing of the contracts authorized is shown in Attachment B.The remaining equipment contracts are expected to be awarded during the next twelve months.The prepurchased equipment and construction contracts are awarded by the Supply System by means of a competitive process pursuant to the statutory requirements with which the Supply System must conform as a joint operating agency of the State of Washington.

Factors considered by the Supply System include price and responsiveness of the bid to bidding requirements.

The Supply System is also E-2 authorized to consider the bidder's experience, qualifications, available personnel and facilities.

In our opinion, the vendors and the contractors who have been awarded contracts by the Supply System are qualified for the particular type of work to be performed by them.Current Esthnated Project No.3 Construction Cost The Nuclear Project No.3 construction cost estimate was developed on an equitable cost basis which takes into consideration that both Nuclear Project No.3 and Nuclear Project No.5 benefit from the economics of dual unit construction and therefore share certain costs on the basis of the propor-tion of respective benefit.The estimated capital cost of the items within Ebasco's scope of responsibil-ity and included in the Fiscal Year 1982 Project Construction Cost Estimate for Nuclear Project No.3 was$2,653,134,000.

This estimate refiects an increase of$816,821,000 over the Project Construction Cost Estimate for Fiscal Year 1981.The reasons for the increase and the approximate contributioq of each to the total are: (1)Actual award amounts and estimates for particular equipment and material exceeding those anticipated in the previous Project Construction Cost Estimate (Va%);(2)Lower than anticipated productivities on installation contracts and allowance for same on future work (9%);(3)Historical escalation exceeding anticipated rates and allowance for higher future escah-tion rate for material and labor (4%);(4)Increases in contractor indirect costs resulting from reassessment of contractor support requirements and contract duration (23%);(5)Increases in bulk material quantities resulting from a more complete design basis (11%);(6)Impacts of CB&I derrick accident and boilermaker strike (1%);(7)Further implementation of regulatory impacts post TiaH-2 (1Vi%);(8)Additional Architect Engineer and Construction Manager Services due to the increased scope resulting from the reorganization mentioned above and requirement to staff for an additional duration of time (8'.%);(9)Subsequent higher sales tax and escahtion (12%%);and (10)A higher contingency allowance (29%).The basis for escalation and contingency, which are identified separately in the estimate, are as follows Escalation Labor and material escalation is computed in accordance with the terms of current labor agreements and existiug contracts.

For material not presently covered by labor agreements or material contracts, escalation is computed at 11%per year for 1981 and 9%thereafter, compounded from March 1, 1981.For labor not presently covered by labor agreements or material contracts, escalation is computed at 12%per year for 1981 and 1982 and 10%per year thereafter, compounded from March 1, 1981.A total of$343,917,000 is included to cover escalation on awarded contracts and future escalation from March 1981 for unawarded contracts.

A change of 1%in the annual escalation rates would result in an increase or decrease of approximately

$25,000,000 in the estimate.Contingency A total of$350,000,000 is included as contingency to cover the potential impacts of design uncer-tainties (including TMI-2), quantity refinements, departures from assumed productivity rates and the schedule extension of six months as described below.Ebasco is aware of the current financial situation relating to Nuclear Project No.5 and that decisions made in the future to address this situation could impact the Project Construction Cost Estimate for Nuclear Project No.3.It is, however, not possible at this time to estimate this potential impact.Nuclear Project No.3 Status and Schedule As of July 1, 1981, engineering activities were 82%complete, prepurchased equipment and material procurement activities were 97%complete and construction of Nuclear Project No.3 was approximately 32%complete.The engineering percent complete is currently being calculated in accordance with an E-3 earned value system of measurement.

This measurement system was developed to give a more accurate status in the late stages of engineering design.Preliminary site work commenced in April 1977 and major Nuclear Project No.3 site excavation activities are complete.Installation of the Combination Structure foundation mat concrete commenced in September 1978 and was completed during-January 1979.The reactor building concrete shield shield wall was completed in February 1979.Work started on the Combination Structure walls and slab concrete in February 1979 and continues.

Turbine Building concrete and structural steel work and installation of siding and rooQng are essentially complete.The steel containment vessel erection began in March 1979, and painting of the vessel was com-pleted in November 1980.The dome of the vessel will be erected at a later date after all major equip-ment is lifted into the Reactor Building.Piping, Electrical and HVAC installation in the Reactor Auxiliary, Fuel Handling and Turbine Buildings all began in 1980.Reactor Building concrete also began in 1980.All these activities continue.The Fiscal Year 1982 Cost Estimate has provided for a six month schedule contingency.

This schedule contingency was developed by extending the commercial operation date from June 1986 to December 1986.The previous commercial operation date of June 1986 is being maintained as the Target Schedule to which all Site Construction activities are planned.Funding for this time extension'has been included in the contingency account as discussed above.CONCLUSIONS We have reviewed in depth those aspects of Nuclear Project No.3 which are within Ebasco's scope of responsibility.

Based upon presently known regulatory criteria and the schedular and economic assumptions set forth herein, it is our considered opinion, with respect to Nuclear Project No.3 that: 1.The Satsop site is a suitable location for Nuclear Project No.3.2.All aspects of Nuclear Project No.3 are of presently proven engineering design or applica-tion, or are reasonable extension thereof.Modifications to the design as required by TiM-2 will be implemented as they become known.3.Nuclear Project No.3 is being designed to comply with existing licensing requirements at local, state and federal levels.4.The program for construction is consistent with those for other installations of similar size and complexity, and is realistic.

The completion of Nuclear Project No.'3 in accordance with the scheduled commercial operation date of December 1986 is reasonably anticipated.

5.The work within Ebasco's scope of responsibility is expected to be completed within the Fiscal Year 1982 Project Construction Cost Estimate.6.Fonowing an initial period of testing and preliminary operation, Nuclear Project No.3 is expected to operate in a reliable manner with normal maintenance, The Nuclear Project No.3 description and statements and summaries of our estimates contained in this letter which are set forth in the OfBcial Statement in the sections titled"Location","Description","Permits and Licences" and"Contracts and Schedule" under the caption"Project No.3" to which this letter is attached are correct.Very truly yours,~e W.W~cm Presidenr ATTACHMENT A WASHINGTON PUBLIC POWER SUPPLY SYSTEM@NUCLEAR PROJECT NO.3 Construction Cost Esthtate FPC Accoimt Land and Land Rights (3).Structures and Improvements Reactor Plant Equipment Turbogenerator Unit.Accessory Electric Equipment Miscellaneous Power Plant Equipment Station Equipment Other Tangible Property Escalation Contingency Ebasco Scope Kstbnate as of July 1980(1)$423,991,000 303,961,000 208,665,000 76,765,000 62,513,000 21,249,000 115,090,000 231,917,000 96,951,000 Esttmate as of July 1981(2)548 427 000 462,409,000 237,481,000 136,765,000 62,546,000 21,330,000 97,917,000 343,917,000 350,000,000 Total Direct Construction Cost$1,523,102,000

$2,260,792,000 Sales Tm Architect-Engineer Construction Manager.~~~~~~~~~~~0 0~~~0~~~~0~I~~~~~80,115,000 99,579,000 113,423,000 140,394,000 101,673,000 152,369,000 Total Ebasco Scope$1,818,313)000

$2,653,134,000 (1)Based on a commercial operation date of June 1986.This is the estimate upon which the Fiscal Year 1981 Project Construction Budget is based.(2)Based on a commercial operation date of December'986.

This is the estimate upon which the Fiscal Year 1982 Project Construction Budget is based.(3)All Land and Land Rights Costs are included in Owner's Cost.

ATTACHMENT B ,WASHINGTON PUBLIC POWER SUPPLY SYSTEM NUCLl~h PROJECT NO.3 Awarded Project Contracts (As ot July 4 1981)Item Nuclear Steam Supply System......Turbine Generator and Accessories

..Steel Containment Vessel..........

Excavation

~~~~~~~~~i Piping and Piping Supports.........

Pieliminary Yard Piping&Civil Work Reactor Auxiliary Building Foundation Mat Construction

........,......

Turbine Building Concrete Construc-tion RAB, FHB Substructure Concrete Con-struction~~~~~~~~~~~~\~~~Construction Services.............

RAB/FHB Piping Erection and Me-chanical Equipment Installation(3)

RAB, FHB and TB HVAC Equipment Installation and Duct Erecuon....Electrical Construction

~~..........

Reactor Building Concrete Construc-tion.~~Turbine Generator Erection........Structural Steel-Phase IV.'......~.Construction of Makeup Water Wells Access and NSSS Haul Road.....Structural Steel Pipe Restraints

.....Surface Condensor&Acccssorics

....Reinforcing Steel................

Supply and Delivery of Concrete....Cooling Towers and Accessories

....Main, Stand-by and Auxiliary Trans-formers and Accessories

.........Coatractor Combustion Engineering Westinghouse Electric Chicago Bridge and Iron Company Ecolaire, Inc.Bethlehem Steel Corp.Associated Sand&Gravel Zurn Industries General Electric S.J.Groves&Sons Co.Associated Piping and Engineering Corp.Mid-Mountain Contractors Guy F.Athnson Boecon Momson-Knudsen Capital Development Co.Peter Kiewit Sons'o, Sam P.Wallace/Superior (A Joint Venture)Fischbach&Moore Inc.J.A.Jones Const.Co.Wismer&Becker Chicago Bridge and Iron Company Capital Development Co.Chicago Bridge and Iron Company Coutract Awazd Date(1)7/25/73 8/31/73 10/9/74 11/24/74 6/2/76 4/13/76 9/17/76 4/22/76 6/29/76 3/2/77 10/3/77'1/7/77 6/29/78 8/24/78 11/17/78 4/27/79 7/6/79 12/19/79 12/19/79 1/21/80 3/3/80 5/8/80 5/23/80 Preseat Contract Amount(2)S 60,470,000 40,755,000 30,261,000 5,025,000 16,218,000 8,204,000 15,542,000 5,294,000 37,790,000 31,404,000 e',619,000 10,047,000 15,033,000 107,026,000 7,545,000 198,073,000 15,259,000 80,673,000 28,326,000 7,942,000 9,887,000 6,872,000 13,154,000 ATTACHMENT B (Cont'd)I'ASHINGTON PUBLIC POWER SUPPLY SYSTEM NUCLEAR PROJECX'O.

3 Awarded Project Contracts (Ae ot Mr I, 1981)Item Interior and Exterior Non-Nuclear Painting"~~~~~~~Construction Support Services......Heavy Rlgglllg I~~~~~~~~~~~~~~,~~~I'ire Protection System............

RB Mechanical Equipment and Piping Installation

~~~~~~~~~Coaltsetor Robert McMullan Jc Son Inc Schneider Inc.Lampon Universal Rigging, Inc.Grimell Fire Protection Systems Company Morrison-Knudsen/Energy System Installation/Lord Electric (A Joint Venture)Contract Award Date(I)Present Contract Amount(2)7/11/80 11/14/80 7,755,000 5,655,000 1/16/81 88,113,000 7/10/80 S 5,379,000 7/29/80 10,419,000 Miscellaneous Buildings, Architectural Construction

..................

Capital Development Co.6/12/81'ne Hundred Fifty-Three (153)contracts each with a value less than$5,000,000...T OTAL~~~~~~~~~~~~~~~~~~~~~~~~~~1~~~~~~20,92.1,00Q

$151,701,000

$1,047,362,000 (1)Notice of Award Date.(2)Present contract amount includes executed change orders and is on the equitable cost sharing basis.See the Section entitled"Current Estimated Project Costs and Construction Contracts" in this letter.(3)Contract 3240-226 combined with Contract 3240-251 due to realignment.

~j~o IUQQB1Y F PROPOSED FORMS OF OPINIONS OP COUNSEL Pmject No.1"~[LETTERHEAD OF WOOD 8c DAWSO+[LETTERHEAD OF HOUGHTON CLUCK COUGHLIN 8'c RILEY'oard of Directors.Washington Public Power Supply System Richland, Washington

Dear Sirs:

P 4 Washington Public Power Supply System Nuclear Project No.1 Revenue Bonds, Series 198XD,$315,000,000 At your request we have examined into the validity of an issue of$315,000,000 Washington Public Power Supply System Nuclear Project No.1 Revenue Bonds, Series 1981D, of Washington Public Power Supply System (the"System"), a municipal corporation of the State of Washington.

Said bonds are issuable in coupon form, registrable as to principal on!y, in the denomination of$5,000 each, and in fully registered form, without coupons, in denominations of$5,000 and any multiples thereof.The coupon bonds are numbered from 1 upwards and are dated September 1, 1981.The fully registered bonds are numbered from R-1 upwards and, except fully registered bonds initially issued, which are dated September 1, 1981, shall be dated so that no gain or loss of interest shall result from exchanges'or transfers thereof as provided therein and in the Bond Resolution hereinafter mentioned.

Said bonds mature on July 1 in each of the years and in the amounts and bear interest, payable January 1, 1982, and semiannually thereafter on January 1 and July 1, as follows: Year 2001 2003 2017 Prtnd pal Amount$20,000,000 30,000,000 265,000,000 Interest Rate 14%%8V~15 Said bonds are subject to redemption prior to maturity upon the terms and conditions set forth therein, and recite that they are issued under and pursuant to Resolution No.769, adopted by the Board of Directors of the System on September 18,1975, as amended, and a resolution supplemental thereto, Resolution No.1183 adopted by said Board on September 4, 1981 (hereinafter referred to collectively as the"Bond Resolution"), and under the authority of and in full compliance with the Constitution and statutes of the State of Washington, including Titles 43 and 54 of the Revised Code of Washington, for the purpose of acquiring, by purchase or condemnation, and constructing a nuclear electric generating plant and associated facilities as a separate utility system of the System constituting and known as the Washington Public Power Supply System Nuclear Project No.1.We have examined the Constitution and statutes of the State of Washington, certified copies o proceedings of the Board of Directors of the System authorizing the issuance of said bonds, including the Bond Resolution, other proofs relating to the issuance of said bonds and an executed coupon bond of said series.F-1 In our opinion, the System is a municipal corporation of the State of Washington, duly created and validly existing, the Bond Resolution has been duly adopted and the provisions thereof are valid and binding upon the System, and said bonds have been duly authorized and issued in accordance with the Constitution and statutes of the State of Washington and constitute valid and legally binding obligations of the System payable solely from the funds and revenues as set forth and provided in the Bond Resolution on a parity with the bonds heretofore issued, and any bonds hereafter issued on a parity therewith, pursuant to the Bond Resolution.

In a lawsuit pending in the Superior Court for Grays Harbor County, Washington (Washington Public Power Supply System v.Date et al., No.70423), the'defendants, among other things, question the legal existence of the System and its corporate powers with respect to the construction of nuclear reactors, including the System's Nuclear Project No.1.We are of the opinion that such claim is without merit.It is to be understood that the rights of the holders of said bonds under the same and under the Bond Resolution and the enforceability thereof may be subject to judicial discretion, the valid exercise of the sovereign police powers of the State of Washington and of the constitutional powers of the United States of America, and valid bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors'ights.

It is also our opinion that the interest on said bonds is exempt from taxation by the United States of America under existing laws, regulations and rulings issued by the Internal Revenue Service.I Very truly yours, F-2 Project No.1 PROPOSED FORM OF OPINION OF COUNSEL Nl IUWPU Board of Directors Washington Public Power Supply System Richland, Washington

Dear Sits:

Washington PubHc Power Supply System Nuclear Project No.1 Revenae Boa~Series 1981D,$315,000,000 Under date of September., 1981, we rendered an opinioa approving the validity of thc above bonds (the"Bonds")issued pursuant to resolutions adopted by thc Board of Directors of the Washington Public Power Supply Svstem (the"System")on September 18, 1975, and September 4, 1981 (col-lectively, the"Bond Resolution").'e have examined into the validity of thc project Agreemeat (Contract No.14-03-39211), dated February 6, 1973, between thc United States of America, Department of Energy, acting by and through the Boaaeville Power Administrator

("BoancviHe"), aad the System, as amended by Amenda-tory Agreement No.1 thereto, dated as of May 31, 1974, referred to in the Ofilcial Statemeat of thc.System dated September 4, 1981, relating to thc Bonds.We have examined certified copies of pro-ceedings of the Board of Directors of the System authorizing the execution aad delivery of said agreemcnt aad said amendatory agreement, aad such other documents, proceedings and matters relating to thc authorization, execution and delivery of said agreement and said amendatory agrecmcnt by each of the parties thereto as we deemed relevant.Ia our opinion, said agreement, as amended, has been duly authorized, executed and delivered by each of the parties thereto aad coastitutcs a valid and bindiag agreement enforceable in accordaacc with its terms.We have also examined into thc validity of ninety-two of the Net Billing Agreements, dated Febru-ary 6, 1973, each as amended by an Amendatory Agreement No.1 thereto, dated as of May 31, 1974, referred to in said Official Statement, among Bonneville, the System and certain of the Participants referred to in Exhibit A of said Ofiicial Statement, which ninety'greemeats, as amended, provide for the purchase and assignment of aa aggregate of not less than 65.50%of thc capability of the WPPSS No.1 Project, as such Project is defined in the Bond Resolution, in any Coatract Year (as defined in thc Net Billing Agreements) during the period ending June 30, 1986, 65.50%of said capability in the period beginning July 1, 1986, to aad including June 30, 1996, and 97.04%of said capability in each twelve month period thereafter.

We have examined certifie copies of proceedings of thc System and of the Participants which arc parties to said Net BilHag Agreements, authorizing the execution and delivery of said ninety-two Net Billing Agreements and Amendatory Agreements No.1 thereto, and such other docu-ments, proceedings and matters relating to the authorization, cxccution and delivery of said ninety-two Net Billing Agreements and amendatory agreements by each of the parties thereto as we deemed relevant.In our opinion each of said ninety-two

¹t Billing Agrcemeats, as amended, has been duly authorized, F-3 executed and delivered by each of the parties thereto and constitutes a valid and binding agreement, enforce-able in accordance with its terms.e We have also examined into the validity of the five Exchange Agreements, dated February 6, 1973, each as amended by an Amendatory Agreement No.1 thereto, dated as of May 31, 1974, referred to in said OScial Statement, among Bonneville, the System and each of The Montana Power Com-pany, Pacific Power Sc Light Company, Portland General Electric'Company, Pugct Sound Power&Light Company and The Washington Water Power Company, which five agreements, as amended, pro-vide for the purchase by said companies of an aggregate of 32A70%of the capability of the WPPSS No.1 Project during the period beginning July 1, 1980, and ending on June 30, 1996, and the exchange thereof with Bonneville for a certain amount of firm power and energy.We have examined certified copies of proceedings of the System and of the companies which are parties to said Exchange Agreements, authoriz-ing the execution and dcHvery of said Exchange Agreements, and Amendatory Agreements No.1 thereto, and such other documents, proceedings and matters relating to the authorization, execution and delivery of said Exchange Agreements and amendatory agreements by each of the parties thereto as wc deemed~levant.In our opinion, each of said Exchange Agreements, as amended, has been duly authorized, executed and delivered by each of the parties thereto and constitutes a valid and binding agreement.

enforceablc in accordance with its terms.It is to be understood that the obligations of the parties to thc Pmject Agreement, the Net Billing Agreements and thc Exchange Agreements, each as amended, and the enforccability thereof may besubject to judicial discretion, the valid exercise of the sovereign police powers of the State of Washington and of the constitutional powers of the United States of America, and valid bankruptcy, insolvency, reorganization, moratorium and other laws afecting creditors'ights.

In rendering this opinion, wc have relied upon the opinion of counsel for each of the Participants and aforesaid companies that the Net Billing Agreement or Exchange Agreement, as amended, to ,'which such Participant or company is a party has been duly executed and delivered by said Participant 0'or company and is not in confiict with, or in violation of, and will not be a breach of, or constitute a default under, the terms and conditions of any other agreement or commitment by which such Participant or company is bound.Very truly yours, Project No.2 PROPOSED FORM OF OPINION OF COUNSEL tLETTERHEAD OF WOOD 8~DAVi/SON][LETTERHEAD OF HOUGHTON CLUCK COUGHLIN 8t RILEY]Board of Directors Washington Public Power Supply System Richland, Washington

Dear Sirs:

Washington Pabuc Power Supply System Nuclear Project No.2 Revenue Bon~Series 1981A,$210,000,000 At your request, we have examined into thc validity of$210,000,000 Washington Public Power Supply System Nuclear Project No.2 Revenue Bonds, Series 1981A, of Washington Public Power Supply System (the"System"), a municipal corporation of the State of Washington.

Said bonds are issuablc in coupon form, registrable as to principal only," in the denomination of$5,000 each, and in fully regis-tered form, without coupons, in denominations of$5,000 and any multiples thereof.The coupon bonds arc numbered from 1 upwards and are dated September 1, 1981.The fully registered bonds are numbered from R-1 upwards, and, except fully registered bonds initially issued, which are dated September 1, 1981, shall bc dated so that no gain or loss of interest shall result from exchanges or transfers thereof as pro-vided therein and in the Bond Resolution hereinafter mentioned.

Said bonds mature on July 1 in each of the years and in the amounts and bear interest, payable January 1, 1982, and semiannually thereafter on January 1 and July 1, as follows: Year 2001 2003 2006 2012$30,000,000 100,000,000 30,000,000 50,000,000 Interect Rate 14%%8'4%13V4 Said bonds are subject to redemption prior to maturity upon the terms and conditions sct forth therein, and recite that they are issued under and pursuant to Resolution No.640, adopted by the Board of Directors of the System on June 26, 1973, and a resolution supplemental thereto, Resolution No.1184, adopted by said Board on September 4, 1981 (hereinafter referred to collectively as the"Bond Resolu-tion"), and under the authority of and in full compliance with the Constitution and statutes of thc State of Washington, including Titles 43 and 54 of the Revised Code of Washington, for thc purpose of acquiring, by purchase or condemnation, and constructing a nuclear electric generating plant and associated facilities as a separate utility system constituting and known as the Washington Public Power Supply System Nuclear Project No.2.F-5 We have examined the Constitution and statutes of the State of Washington, certified copies of proceedings of the Board of Directors of the System authorizing the issuance of said bonds, including the Bond Resolution, other proofs relating to the issuance of said bonds and an executed coupon bond of said series.In our opinion, the System is a municipal corporation of the State of Washington, duly created and validly existing;the Bond Resolution has been duly adopted and the provisions thereof are valid and binding upon the System;and said bonds have been duly authorized and issued in accordance with the Constitution and statutes of the State of Washington and constitute valid and legally binding obligations

'f the System payable solely from the funds and revenues as set forth and provided in the Bond Resolu-tion on a parity with the System's presently outstanding Washington Public Power Supply System Nuclear Project No.2 Revenue Bonds, Series 1973, Series 1974, Series 1974A, Series 197SA, Series 1976, Series 1976A, Series 1978, Series 1979, Series 1979A and Series 1980 and any bonds hereafter issued on a parity therewith pursuant to the Bond Resolution.

In a lawsuit pending in the Superior Court for Grays Harbor County, Washington (Washingron Public Power Supply System v.Date er al., No.70423), the defendants, among other things, question the legal existence of the System and its corporate powers with respect to the construction of nuclear reactors, including the System's Nuclear, Project No.2.We are of the opinion that such claim is without merit.It is to be understood that the rights of the holders of said bonds under the same and under the Bond Resolution and the enforceability thereof may be subject to judicial discretion, the valid exercise of the sovereign police powers of the State of Washington and of the constitutional powers of the United States of America, and valid bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors'ights.

It is also our opinion that'the interest on said bonds is exempt from taxation by the United States of America under existing laws, regulations and rulings issued by the Internal Revenue Service.~.Very truly yours, Project No.2 PROPOSED FORM OF OPINION OF COUNSEL P.ETTERHEAD OF WOOD 4 DAWSOiV][LEMZRHEAD OF HOUGHTON CLUCK COUGHLIN 4 RILEY]Board of Directors Washington Public Power Supply System Richland, Washington

Dear Sirs:

1 WasMngton PnMc Power Supply System Nuciear Project No.2 Revenue Bonds, Series 1981A,$210,000,000 Under the date of September, 1981, we rendered an opinion approving the validity of the bonds referred to above (the"Bonds")issued pursuant to resolutions adopted by the Board of Directors of the Washington Public Power Supply System (the"System")on lune 26, 1973, and September 4, 1981 (collectively, the"Bond Resolution").We have examined into the validity of the Project Agreement (Contract No.1443-19121) between the United States of America, Department of Energy,, acting by and through the Bonneville Power Administrator, and the System, referred to in the Official Statement of the System dated September 4, 1981, relating to the Bonds.With respect to the authorization, execution and delivery of said agreement, we have examined certified copies of proceedings of the Board of Directors of the System authorizing the execution and delivery of said agreement, and such other documents, proceedings and matters relating to the authorization, execution and delivery of said agreement by each of the parties thereto as we deemed relevant.In our opinion said agreement has been duly authorized, executed and delivered by each of the parties thereto and constitutes a valid and binding agreement enforceable in accordance with its terns.We have als'o examined into the validity of eighty-four of the Net Billing Agreements, referred to in said Official Statement, among the United States of America, Department of Energy, acting by'and through the Bonneville Power Administrator, the System, and certain of the Participants referred to in Exhibit A of said Official Statement, which eighty-'four agreements provide for the purchase and assign-ment of an aggregate of 97.638%of the capability of the Project, as such Project is defined in the Bond Resolution, and include all such Net Billing Agreements providing for the purchase and assignment by any participant of more than 0.701%of the capability of the project.With respect'o the authoriza-

.tion, execution and delivery of said eighty-four Net Billing Agreements, we have examined certified copies of proceedings of the System and of the Participants which are parties thereto authorizing the execution and delivery of said eighty-four Net Billing Agreements, and such other documents, proceedings and matters relating to the authorization, execution and delivery of said eighty-four Net Billing Agree-ments by each of the parties thereto as we deemed relevant.In our opinion, each of said eighty-four Net Billing Agreements has been duly authorized, executed and delivered by each of the parties thereto and constitutes a valid and binding agreement enforceable in accordance with its terms.F-7

'I It is to be understood that the obligations of each of the parties to the Project Agreement and the Net Billing Agreements and the enforceability thereof may be subject to judicial discretion, the valid.exercise of the sovereign police powers of the State of Washington and of the constitutional powers of the United States of America, and to valid bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors'ights.

In rendering this opinion, we have relied upon the opinion of counsel for each of the Participants that the Net Billing Agreement to which such Participant is a party has been duly executed and delivered by said Participant and is not in conQict with, or in violation of, and will not be a breach of, or constitute a default under, the terms and conditions of any other agreement or commitment by which such Partici-pant is.bona'ery truly yours, F-8 Project No 3 PROPOSED FORM OF OPINION OF COUNSEL[LETTERHEAD OF WOOD&DAWSON][LETI'ERHEAD OF HOUGHTON CLUCK COUGHLIN&, RILEY]" Board of Directors Washington Public Power Supply System Richland, Washington

Dear Sirs:

Washington Public Power Supply System Nuclear Project No.3 Revenue Boads, Series 1981B,$225,000)000 At your request we have examined into the validity of an issue of$225,000,000 Washington Public Power Supply System Nuclear Project No.3 Revenue Bonds, Series 19&IB, of Washington Public Power.Supply System (the"System"), a municipal corporation of thc State of Washington, Said bonds are issuable in coupon form, registrable as to principal only, in the denomination of$5,000 each, and in fully registered form, without coupons, in denominations of$5,000 and any multiples thereof.The coupon bonds are numbered from I upwards and are dated September I, 19&1.The fully registered bonds are numbered from'-1 upwards and, except fully registered bonds initially issued, which are dated September I, 1981, shall be dated so that no gain or loss of interest shall result from exchanges or transfers thereof as provided therein aad in the Bond Resolution hereinafter mentioned.

Said bonds mature on July I in each of the years and in the amounts aad bear interest, payable January I, 1982, and semi-annually thereafter on January I and July I, as follows: Madpal Year Among Rata 2003$20,000,000

&Y4%2006 20,000,000 14%2018 185,000,000 15 Said bonds arc subject to redemption prior to maturity upon the terms and conditions set forth therein, and recite that they are issued uader and pursuant to Resolutioa No.775, adopted by the Board of Directors of the System on thc third day of December 1975, aad a resolution supplemental thereto, Resolution No.1185, adopted by said Board on September 4, 1981 (hereinafter referred to collectively as the"Bond Resolution"), and under the authority of and in full compHance with the Constitution and'tatutes of the State of Washington, including Titles 43 and 54 of the Revised Code of Washington, for thc purpose of constructing, and acquiring as a separate utility system of the System an undivided owner-ship interest in, a nuclear electric generating plant and associated facilitics constituting and known as the Washington Public Power Supply System Nuclear Project No.3.F-9 We have examined the Constitution and statutes of the State of Washington, and certified copies of proceedings of the Board of Directors of the System authorizing the issuance of said bonds, including the Bond Resolution, other proofs relating to the issuance of said bonds and an executed coupon bond of said series.Jn our opinion, the System is a municipal corporation of the State of Washington, duly created and validly existing;the Bond Resolution has been duly adopted and the provisions thereof are valid and binding upon the System;and said bonds have been duly authorized and issued in accordance with the Constitution and statutes of the State of Washington and constitute valid and legally binding obligations.of the System payablc solely from Qe funds and revenues as set forth and provided in the Bond Resolu-tion orl a parity with the System's presently outstanding Washington Public Power Supply System Nuclear Project No.3 Revenue Bonds, Series 1975, Series 1976, Series 1977, Series 1978 and Series 1981A and any bonds hereafter issued on a parity therewith pursuant to the Bond Resolution.

'n a lawsuit pending in the Superior Court for Grays Harbor County, Washington (W'ashington Public Power Supply System v.Date er al., No.70423), the defendants, among other things, question the legal existence of the System.We aie of the opinion that such claim is without merit.It is to be understood that the rights of the holders of said bonds under the same and under the Bend Resolution and thc cnforceability thereof under the same may be subject to judicial discretion, the;alid exercise of the sovereign police powers of the State of Washington and of the constitutional powers of the United.States of America, and valid bankruptcy, insolvency, reorganization, moratorium and other laws affecting creditors'ights.

It is also our opinion that the interest on said bonds is exempt from taxation by the United States of America under existing laws, regulations and rulings issued by the Internal Revenue Service..Very truly yours,~o F-10 Project No.3 PROPOSED FORM OF OPINION OF COUNSEL[LETTERHEAD QF WOOD&DAWSON'LETTERHEAD OF HOUGHTON CLUCK COUGHLIN&RILEYj Board of Directors Washington Public Power Supply System Richlaad, Washiagtoa

Dear Sirs:

Washington Public Power Supply System Nuclear Project No.3 Revenae Boads, Series 1981B,$225,000,000

~e Under date of September, 1981, we readered an opinion approving thc validity of the bonds referred to above (the"Bonds")issued pursuant to resolutions adopted by the Board of Directors o!the Washington Public Power Supply System (the"System")on December 3, 1975 and September 4, 1981 (collectively, the"Bond Resolutioa").

We have examined into the validity of eightywight of the Net Billing Agreements referred tc in the Official Statement of the System dated September 4, 1981 relating to the Bonds, among the United States of America, Department of Energy, acting by aad through the Bonneville Power Administrator, the System and certain of thc Participants referred to in Exhibit A of said Official Statement, which eighty-eight agreements provide for thc purchase and assigameat of an aggrcgatc of not less than 95.525%of the System's Owaership Share of the Project Capability (as defined in the Net Biuing Agreements) of the WPPSS No.3 Project (as defined in thc Bond Resolution) in any Contract Year (as defined ia the Net BBling Agreements).

With respect to the authorization, execufion and delivery of said eightywight Net BiHiag Agreements, we have cxamincd certified copies of proceedings of the System and of the Participants which are parties thereto authorizing the execution and delivery of said eighty~ight Net Billiag Agreements, aad such other documents, proceedings and matters relating to the authorization, execution and delivery of said eightywight Net Biuing Agreements by each of the parties thereto as we deemed relevant.In our opinion, each of said eighty-eight Net Billing Agreements has been duly authorized, executed aad delivered by each of the parties thereto and consfitutes a valid and binding agreemcat enforceable in accordance with its terms.We have also examined into the validity of the Ownership Agrecmeat referred to in said Official Statement, among the System and Pacific Power&Light Company, Portlaad General Electric Company, Puget Sound Power&Light Company and The Washington Water Power Company.With respect to the authorizationexecution and delivery of said Ownership Agreement, we have examined certified copies of proceedings of the System aad of the Companies which are parties thereto authorizing the execution and delivery of said Ownership Agreement, and such other documents, proceedings and matters relating to the authorization, execution and dhlivezy of said Ownership Agreement by each of the parties thereto as we deemed relevant.In our opinion, said Ownership'greement has been duly authorized, executed and delivered by each of thc parties thereto and constitutes a valid and bindiag agreement enforceable ia accordance with its tcrns.We have also examined into the validity of the Project Agreement (Contract No.1443-39100) referred to in said Official Statemeat, between the United States of America, Department of Energy, acing by and through the Bonneville Power Administrator, aad the System.With respect to the authorization, execution aad delivery of said Project Agreement, we have examined certiffed copies ot proceedings of the Board of Directors of the System authoriziag the execution and delivery of said Project Agreement, and such other documents, proceedings and matters relating to the authorization, execution and delivery of said Project Agreement by each of the parties thereto as wc deemed relevaat.In our opiaioa, said Project Agreement has been duly authorized, executed and delivered by each of the parties thereto and constitutes a valid aad binding agreemcnt eaforceable in accordance with its terms.It is to be understood that the obligations of each of the parties to the Net Billing Agreements, Ownership Agreement and Project Agrecmcnt aad the enforceabiTlty thereof under the same may bo subject to judicial discretion, the valid exercise of the sovereign police powers of the State of Washington and of the constitutional powers of the United States of America, and valid bankruptcy, insolvency, reorganization, moratorium and other laws aifecting creditors'ights, In rendering this opinion, we have reHed upon the opinion of counsel for each of the Participants and aforesaid Companies that thc Net Billiag Agreement or Ownership Agreement to which such Participant or Company is a party has been duly executed and delivered by said Participaat or Company and is aot in conffict with, or in violation of, aad will aot be a breach of, or constitute a default under, the terms and conditions of any other agreemeat or commitment by which such Participant or Company is bouad.Very truly yours, F-12 Project No.1 Project No.2 Project No.3 P'ORM OF PROPOSED ORIGINAL ISSUE DISCOUNT OPINION OF WOOD 8c DAWSON]

Dear Sirs:

Washington PubHc Power Supply System, Nuclear Project No.1 Revenue Bonds, Series 1981D,$315,000,000 Nuclear Project No.2 Revenue Bonds, Series 198IA,$210,000,000 Nuclear Project No.3 Revenue Bonds, Series 1981B,$225,000,000 In connection with the delivery today of$315,000,000 principal amount of Nuclear Project No.1 Revenue Bonds, Series 1981D,$210,000,000 principal amount of Nuclear Project No.2 Revenue Bonds, Series 1981A, and$225,000,000 principal amount of Nuclear Project No.3 Revenue Bonds, Series 1981B (collectively, the"Projects Nos.1, 2 and 3 Bonds"), of Washington Public Power Supply System (the"Supply System"), you have requested our opinion as to the Federal income tax treatment of the amount of original issue discount reffected in the initial public offering price of the Projects Nos.1, 2 and 3 Bonds maturing on July 1, 2003 (the"Bonds").The Bonds are being sold to the underwriters pursuant to a Contract of Purchase for the Projects Nos.1, 2 and 3 Bonds dated, and accepted by the Supply System on, September 4, 1981 (the"Contract"), which separately states a purchase price for the Bonds of each series of 56.96 fo of the principal amount thereof and obligates the underwriters to make an initial public offering of the Bonds of such series at a yield of 14.25%as stated in the official statement dated September 4," l981, relating to the Bonds, which the underwriters have informed us results in an initial offering price of 59.957 lo of the principal amount of the Bonds.Based on published rulings of the Internal Revenue Service, we are of the opinion with respect to the Bonds that the amount of original issue discount (i.e.the difference between-the initial public offering price.to the public as stated in the Contract and the principal amount of the Bonds, but not in excess of the difference between the price paid for the Bonds by the undeavriters and the principal amount of the Bonds)is tax-exempt interest to a taxpayer who has purchased in the original offering at the initial public offering price and who holds a Bond to maturity and such bondholder would not, under present Federal income tax law realize taxable capital gain upon payment of the Bond upon maturity.The holder of a Bond under present Federal income tax law is deemed to have accrued tax-exempt income with respect to the original issue discount on a straight line amortization basis from the date of the original issue to the date of maturity.Thus, a holder of a Bond who purchased it in the original offering at the initial public offering price and who later disposes of such Bond prior to maturity (including by redemption at the option of the Supply System)would be deemed to have accrued tax-exempt income based upon the amortization factor described above and the time he has held such Bond from its original sale.If the amount the holder realizes on disposition of such Bond does not exceed the initial public offering price plus the amount of original issue discount amortized to the date of disposition, the holder would not realize taxable gain on such disposition; if the disposition price were in excess of this amount the holder would recognize taxable gain only to the extent of such excess.Very truly yours, F-13 E<XIIIBIT G SUPPLY SYSTEMS NET BILLED PROJECTS NET BII.LING REQVIREihlRNTS

($000)Estimated Debt Scrrlce ror Future FtaaactaelD

$182,932 315,339 386,204 439,820 458,84$467,489 467,814 468,137 466,922 467,27$467,635 467,488 467,863 468,243 468,161 468,883 Estlmalcd Est)meted Operetta))

hmouats Dcbl Sere)ce Costs Paid Prior to Less Year Oa Flaeactag Escludlad Commercte)

'rolal Ksllmatcd hsaounls End)ac Issued Deb!Operatloa hnaual Paym<<ats by to be lane 30 to Dstcll)r I i3I Dates(4)costs C~l(sl Net Dined 1982...............

$227,892 s 0$13,482$424,306$31,$93$392,713 1983...............

28$,679 0 29,745 630,763 46,758 584,005 19&4 ,............

301,893 38,963 12,841 739,901 62,6$$677.246 1985...............

306,230 114,323 9,656 870,029 70,800.799,229 1986...............

312,501 132,782 4,893 909,021 7$,756 833,26$1987..............

314,11$203,017 0 984,621 81,059 903,562 1988...............

313,790 431,966 0 1,213,570 86,733 1,126,837 19S9...............

313,467 479,432 0 1,261,036 92,804 1.168,232 1990...............

314,682 535,826 0 1,317,430 99,301 1,218,129 1991...............

314,329 595,1$6 0',376,760 167,629 1,209,131 1992...............

313,969 656,637 0 1,438,24 I 174,846 1,263,395 1993...............

314,116 723,$64 0 1,$05,168 182,6&1 1,322,487 1994...............

313,741 792,&47 0 1,574,451 191,405 1,383,046 1995...............

313,361 867,127 0 1,648,731 202,074 1,446,657 1996...............

313,443 953,420 0 1,735,024 214,483 1,520,$41 1997...............

312,'721 1,048,946 0 I,S30,550 0 1,830,550 (1)Actual debt service on outstanding Project No.1 Bonds;outstanding Project No.2 Bonds;and on outstanding Project No.3 Bonds.(2)Debt service for future Net Billed Bonds, including this issue, based on the 1982 project construction budgets.(3)Operating costs for the Net Billed projects including taxes and net payments to the Reserve and Contingency Fund costs are estimated by the Supply System in detail through 1994 and escalated at rates based on Supply System estimates.

Plants are assumed to operate at a 60%plant factor the first year of commercial operation, 65%the second year and 70%thereafter.

(4)Includes funding of working capital, Reserve and Contingency Funds, Reserve Account in Bond Funds and debt service on outstanding Hanford Project Bonds from July 1981 to June 1985.(S)For the years through 1996, payments made by the Companies pursuant to the Exchange Agreements reduce the net billing require-ments of Project No.1.Paymeuts for the years 1982 through 1985 are based on rate increases estimated by Bom)eville anti increased each year thereafter at an average rate of 7.0%.Companies'ayment for that period may dilfcr from those shown as they are subject to the rate schedules finally adopted by Bonneville and may bc increased up to approximately

$2,000,000 per year pursuant to a letter agreement dated May 8, 1974.Companies'ayments for the period July l990 through June 1996 are estimated based on the pro-vision of the project No.1 Exchange Agreements.

Companies'ayments for that period may be increased up to approximately

$700,000 per year pursuant to a letter agreement dated May 8, 1974.

l~o EXHIBIT H Coopers 8 Lybrand.certNed public acawntente Administrator Bonneville Power Administration,.

United States Depax'tment of Energy~We'have examined the statement of assets and liabili-ties of the Federal Columbia River Power System (FCRPS)as of September 30, 1980 and 1979;and the related statements of revenues and expenses, changes in federal investment and source and use of funds for the fiscal years then ende'd.Our examina-tions were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting

'ecords and such other auditing procedures as we considered necessary in the circumstances., Recorded revenues are based upon rates for service established in accordance with the Bonneville Project Act and related legislation which are intended to provide for.,the full recovery of all FCRPS costs and repayment to the U.S.Treasury of its investment in power facilities and assigned irrigation costs within repayment periods established pursuant to such statutory requirements.

As discussed in Note 1 to the financial statements, revenues needed to recover the costs of generating facilities are based on required'epayment periods which are shorter than the periods over which such facilities are depreciated and, prior to September 30, 1979, the periods over which required net billed projects payments were recovered in revenues differed from the periods in which such payments were included in operating expenses.As indicated in Note 1, under the caption, Thermal Plant Net Bill-ing Advances and Amortization, the amortization to operations of certain previously deferred net billed project payments and the expensing'of similar payments currently incurred was commenced in December 1979 in order to match such costs and their recovery in rates and, as indicated in Note 5,'other deferred net billing advances were written off in July 1980 to operations.

Under gen-erally accepted accountimg principles, revenues based upon cost recovery and the related costs should be included in the determina-tion of net revenues in the same accounting period.Accordingly, the financial statements are not intended to present financial position and results of operations in'onformity with generally accepted accounting principles.

The financial statements are, however, appropriately presented in accordance with accounting principles required by or appropriate to applicable legislation and execut'ive directives of other government agencies, as described in Note l.As described in Note 3, the allocation of certain utility plant cost and operation and maintenance expenses relating to multi-purpose projects between power and nonpower purposes is subject to adjustment, and the amount of adjustments, if any, that may be necesssary when allocations become firm is not determinable at this time.As described in Note 1 under the caption, Regulatory Authorities; power rate increases which were placed into effect on an interim basis and wheeling rate increases which have been col-lected under a temporary rate order are subject to refund with interest in the event of regulatory disapproval.

In our opinion, subject to the effects, if any, on the financial statements of the resolution of the cost allocations and rate proceedings discussed in the two preceding paragraphs, the financial statements referred to above present fairly the assets and liabilities of the Federal Columbia River Power System at September 30, 1980 and 1979, and its revenues and expenses, changes in federal investment and source and use of funds for the fiscal years then ended, in conformity with accounting principles described in Note 1 applied on a consistent basis.Supplemental Schedule A showing the amount and alloca-tion of plant investment as of September 30, 1980 was subjected to the audit procedures applied in the examination of the basic financial statements and in our opinion, subject to the effects, if any, on Schedule A of the ultimate resolution of the cost allo-cations referred to above, is fairly stated in all material respects in relation-to the basic financial statements taken as a whole.o Portland, Oregon December 17, 1980 FEDERAL COLUMBIA RIVER POWER SYSTEM STATEMENT OF REVENUES AND EXPENSES for the fiscal years ended September 30, 1980 and 1979 Fiscal Year~Tous ands'ollars)

OPERATING REVENUES (Note 1): Sales of electric power: Publicly owned utilities Privately owned utilities Federal, agencies Aluminum industry Other industry$258,087 75,567 8,045 116, 647 12.374$146, 796 48,131 4,840 53,168 4, 584 470.720:257 519 Other operating revenues: Wheeling Other 27,801 13,945 27,843 11, 97 Total operating revenues 41,746 39 040 512,466 296 559 OPERATING EXPENSES: Operation Maintenance Purchase and exchange power (Notes 1 and 5)Qri e-off of Trojan Nuclear Project net billing advances (Note 5)Depreciation Total operating expenses Net operating revenues 104,444 49,610 138,533 44,210 51,380 388,177 124,289 76,547 46,601 25,195 50.'64 198.50" 98.052 INTEREST EXPENSE (Notes 2, 4 and 7): Interest on Federal investment:

On appropriated funds On Transmission System Act borrowings Allowance for funds used during construction Net interest, expense NET REVENUES (EXPENSE)190,464 35,235~43, 920)183 779 173,337 24,635~29.9 1I 68,00'The accompanying notes are an integral part.of the financial statements.

FEDERAL COLUMBIA RIVER POWER SYSTEM STATEMENT OF ASSETS AND LIABILITIES at September 30, 1980 and 1979 ASSETS Se tember 30, (TEousands of DoOOars)UTILITY PLANT (Notes 2 and 3): Completed plant (Schedule A)'ccumulated depreciation Construction work in progress (Schedule A)Net utility plant CURRENT ASSETS: Unexpended funds (Note 4)--'ccounts receivable Accrued unbilled revenues Materials and supplies, at, average cost Total current assets OTHER ASSETS AND DEFEIGKD CHARGES: Trust funds (Note 6)Net billing advances, less amortization (Note 5)Investment in Teton Dam (Note 9)Other Total other assets and deferred charges$5,844,826~510 817)5,334,009 , 1.000 164 6 334,173 73,951 16,277 26,506 26,168 142,902 12,957 207,953 13,774 38,606 273 290$5,599,965~469,567)5,130,398 884,655 6 015 053 e 75,306, 8, 119 20,668 26,465 130 558 8, 700 246,861 13,741 11,968 281 270 LIABILITIES AND FEDERAL INVESTMENT FEDERAL INVEST66T:

Net investment of U.S.Government in power facilities (Note 7)Accumulated net revenues Irrigation assistance (Schedule A and Note 8)$646 million and$627 million, respectively Total federal investment COMMITMENTS AND CONTINGENCIES: (Notes 1, 2, 3, 5, 8, 9 and 10)$6,462,386$6,075,7 182,639 242,129 6 645 025 6 31",863 CURIKNT LIABILITIES:

Accounts payable Employees accrued leave Total current liabilities DEFERRED CREDITS: Trust, fund advances (Note 6)Other Total deferred credits 78,984 8,621 87,605 12,957 4,778 17.735 86,121 8,311 94.432 8,700 5,886 14.586 The accompanying notes are an integral part of the financial statements.

FR)ERAL COLUMBIA RIVER POWER SySTEM STATEMENT OF CHANGES IN HZERAL INVESTMENT for the fiscal years ended September 30, 1980 and 1979 Balance October 1, 1978 Balance Additions September 30, Additions (Reductions) 1979 (Reductions)

Balance September 30, 1980.Congressional appropria-tions U.S.Treasury transfers to Continuing Fund Transfers from (to)other federal agencies, net Federal columbia River Transmission System Act borrowings (Note 2)Interest on federal investment.:

On appropriated funds On Transmission System Act borrowings Unpaid annual expense (Note 7)Less: Interest payments Funds returned to U.S.Treasury$6,461,889 7,005$260,772 48,885 (4,258)$6,722,661 7,005 44,627 300,000 110,000 410, 000 1/785,341 6,210 (1,791,551) 74,753 24,635 98,584 (99,388)1,860,094 30,845 98,584 (1,890,939)

(1, 182 537)(24,606)(1 207 143)$281,290 (791)115,000 176, 643 35,235 13, 821 (211,878)(22.666688)$7,003,951 7,005 43,836 525,000 2,036,737 66,080 112,405 (2,102,817)

(1,229,811)

~Net investment of U.S.government Accumulated net revenues Total federal investment, 5,635,242 312.078 S~Q'M 440,492 (69,949)6,075,734 242,129 386,652 (59,490)6,462,386 182,639The accompanying notes are an integral pars of the financial statements.

FEDERAL COLUMBIA RIVER POWER SYSTEM STATEMENT OF SOURCE AND USE OF FUNDS for the fiscal years ended September 30, 1980 and 1979 SOURCE OF FUNDS: Operations:

Net, revenues (expense)Charges not requiring funds: Depreciation Amortization of net billing advances Write-off of Trojan Nuclear Project net.billing advances Funds provided from (used in)operations Increase in net investment of U.S.Government Decrease (increase) in current assets: Unexpended funds Receivables Materials and supplies Increase (decrease) in current liabilities Total funds provided Fiscal Year 7TTiousands or Dollars}51,380 8,994 44, 218 45,094 50,164 3,503 (16,282}386,652 440,492 1,355 (13,996)~297~6, 827)3,675 4,543 (484)15,552 S(59,490)$(69,949)USE OF FUNDS: Investment in utility plant, net Increase in net billing advances (see Note 1 under caption Thermal Plant Net, Billing Advances and Amortization)

'ther, net Total funds used S370,500 S348, 14,296 96,919 27,774 2.382 The accompanying notes are an integral part of the financial statements.

FEDERAK COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAT STATEMENTS 1.Basis of Pre aration of Financial Statements and Summar of Sx z scant Accountxn Po acres: General The Federal Columbia River Power System (FCRPS)includes the accounts of the Bonneville Power Administration (BPA), which purchases, transmits and-markets power, and the accounts repre-senting the Pacific Northwest generating facilities of the Corps of Engineers (Corps)and the Water and Power Resources Service (Service)for which BPA is the power marketing agency.Each entity is separately managed and financed, but the facilities are operated as an integrated power system with the financial results combined under the FCRPS title.Costs of multipurpose Corps and'Service projects are assigned to the individual purposes through a cost allocation process." The portion of total project costs allocated to power is included in these statements as Utility Plant.'Schedule A lists the projects included in FCRPS and the allocation of plant investment to the various purposes.Properties and income are exempt from taxation.Accounts are kept in accordance with standards and principles prescribed by the Comptroller General of the United States and the uniform system of accounts prescribed for electric utilities by the Federal Energy Regulatory Commission (FERC).FCRPS accounting policies described herein also reflect requirements of specific legislation and executive directives issued by the involved government departments (BPA is a unit of the Department of Energy;the Service is a part of the Department of Interior and the Corps of the Department of Defense).Revenues Operating" revenues are recorded on the basis of service rendered.Rates established under requirements of the Bonneville Project Act and related legislation are intended to provide sufficient cash to meet all required payments for system costs (including operating expenses, payment to the U.S.Treasury f'r debt service on borrow-ings and for its investment in power facilities and interest thereon, and costs of net billed thermal projects and,assigned irrigation costs-see Notes 5, 7 and 8).The rates are also required to be low enough to encourage widespread use of electric energy at the lowest possible cost to consumers consistent with sound business principles.

If revenues in any year are not sufficient to meet all required payments, the priority for use of revenues is: net billing FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 1.Basis of Pre aration of Financial Statements and Summar o Sx x scant Accountxn Po acres, Continue: Revenues, Continued credits;additional payments required for net billed thermal projects and BPA operating expenses;debt service on Federal Columbia River Transmission Syst: em Act borrowings from the U.S.Treasury;Corps and Service operating expenses;interest on unpaid annual expense and on the Federal investment in power facilities financed through appropriations; amortization of unpaid annual expense (see Note 7);amortization of the Federal investment in o power facilities financed through appropriations; irrigation repayment assistance.

Presently no irrigation repayment assis-tance,is required until 1997.If insufficient cash is available to meet all payment obligations, the priority order for the application of revenues will be used in reverse order to deter-mine what payments will be deferred.There is no fixed annual requirement for payment of the power investment or assigned irrigation costs, the only requirement being that repayments be completed within prescribed periods.Payments to repay an invest-ment bearing a higher rate of interest may be scheduled ahead of other investments bearing a lower rate to the extent that this is possible while still complying with prescribed repayment periods.0 The rates are intended to provide for recovery of the capital investment in transmission facilities within their average es-timated useful service lives and within 50 years for power gener-ating facilities.

As set forth below, these assets are being depreciated in the accounts on a compound interest method over their estimated useful lives, which currently average approxi-mately 35 years for transmission facilities and 85 years for generating facilities.

Thus, annual depreciation charges are not matched with the recovery of the related capital costs and will, in the case of generating facilities, continue beyond the period within which such costs will have been recovered through revenues.Re lato Authorities Effective January 1, 1979, the Secretary of Energy delegated authority to the Assistant Secretary for Resource Applications to develop, acting by and through the Administrator, and to confirm, approve and place in effect on an interim basis, power and trans-mission rates.At the same time, the Federal Energy Regulatory Commission (FERC)was given authority to confirm and approve on a final basis, or to disapprove but not to modify, such rates.Re-funds with interest are authorized if rates finally approved are lower than rates approved on an interim basis.o o FEDERAL COIUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 1.Basis of Pre aration of Financial Statements and Summar o Sz z.>cant Accountxn Po acres, Continued:

Re latox Authorities, Continued On December 20, 1979, increased power rates were placed into effect on an interim basis.Revenues applicable to these rate increases, which were the first power rate increases since December 20, 1974, totaled approximately

$195.8 million at September 30, 1980.Wheel-ing rates charged for transmission of nonfederal power were increased approximately 22%on July 1, 1977 under a temporary rate order.Revenues applicable to these wheeling rate increases totaled approximately

$21.3 million at September 30, 1980 (includ-ing$6.0 million in 1980 and$8.8 million in 1979).In November and December 1980, FERC remanded the increased power and wheeling rates without prejudice for further development of the records in order to establish their conformity with applicable statutory standards.

Utilit Plant and De reciation Utility plant is stated at original cost.Cost includes direct labor and materials, payments to contractors, indirect charges for engineering, supervision and similar overhead items, and an allowance for funds used during construction.

The cost of addi-tions, renewals and betterments is capitalized.

Repairs and minor replacements are charged to operating expenses.With minor excep-tions, the cost of utility plant retired, together with removal costs and less salvage, is charged to accumulated depreciation when it is removed from service.Depreciation of utility plant is computed based on the estimated service lives of the various classes of property using the com-pound interest method (rates from 2-1/2%to 3>>1/4%).Service lives currently average approximately 35 years for transmission plant and 85 years for generating plant.Depreciation provisions recorded in the accounts, expressed as a percent of the average cost of plant in service, approximated'1.9%

in 1980 and 2.0%in 1979 for transmission plant and 0.4%in each such year for generating plant.The compound interest method adopted pursuant to executive directives of government agencies results in increasing depreciation charges in the later years of service lives.Effective October 1, 1979, BPA revised its procedures for alloca-tion of general and administrative costs to more accurately reflect the relative magnitude of its programs.This change decreased gen-eral and administrative costs capitalized as utility plant by approximately

$8.7 million in 1980.

FEDERAI COIUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 1.Basis of Pre aration of Financial Statements and Summar o Sz z scant Accountxn Po acres, Continue Allowance for Funds Used Durin Construction The practice of, capitalizing an allowance for funds used during construction is followed.Rates used are based upon interest rates stipulated for certain generating projects'(2-1/2%

to 3-1/4%)and rates approximating the cost of borrowings from the U.S.Treasury for other construction (8%to 10%during the two years ended Septem-ber 30, 1980).Thermal Plant Net Billin Advances and Amortization Net billing agreements provide that BPA make payments and/or grant billing credits prior to a nuclear project's date of commercial operation.

Additionally, certain payments made by BPA with respect to the operating Trojan Nuclear Project (principally related to fuel purchases, working capital and additions to debt service re-serves)were deferred (see Note 5).Deferred payments and bilLing credits, less amortization, are included as deferred charges under the caption"net billing advances" in the accompanying statement of assets and liabilities.

0 Payments and billing credits totaling$212.5 million made prior to December 20, 1979 for Washington Public Power Supply System nuclear plants.under construction have been deferred and, commencing Decem-, ber 20, 1979, are being amortized ratably over 35 years.The increased power rates effective December 20, 1979 provide for re-covery of the deferred amount.Similar payments and billing credits~made since December 20, 1979 totaling$88.9 million have been charged directly to Purchase and Exchange Power expense since their recovery is also provided for in the increased power rates effective on an interim basis at that date.As discussed in Note 5, effective July 1, 1980 all unamortized net billing advances (and subsequent payments and billing credits)with respect to the operating Trojan Nuclear Project have been charged to expense.Research and Develo ment Research and development costs, including depreciation of the cost of facilities constructed for research and development activities, are charged to expense.Costs charged to expense totaled approximately 910.8 million in 1980 and 811.0 million in 1979.10 FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued D 1.Basis of Pre aration of Financial Statements and Summar o Sx x z.cant Accounts.n Po z.ches, Continued:

Retirement Benefits Substantially all employees engaged in FCRPS activities parti-cipate in the Federal government's Civil Service Retirement Fund, a contributory pension plan.Retirement benefit expense is equivalent to 7%of eligible employee compensation.

2.Financin of FCRPS Construction Pro ram: The Federal Columbia River Transmission System Act (Act), approved October 18, 1974, authorized BPA to use its operating receipts and proceeds from sales of revenue bonds, which the Act author-ized it to issue, to finance further construction of the Federal transmission system in the Pacific Northwest.

Prior to the enactment of this legislation, the transmission system construc-tion program was financed through the appropriation process.Construction performed by the Corps and the Service continues to be financed through annual Congressional appropriations.

In order to assist in financing the construction, acquisition and replace<<ment of the transmission system, the Act authorized BPA to issue to the U.S.Treasury and have outstanding at any time up to$1.25 billion of bonds, notes or other evidences of indebtedness bearing interest, and having terms and conditions comparable to those pre-vailing in the market.for similar utility debt instruments.

Following is a summary of borrowings and repayments under the Act: Notes Borrowzngs Bonds Re a ents.Date Ma aons Rate Ma aons Rate M~atuttt Borrowzn s 8.95%9/30/2013 9.45.6/30/2014 9/30/77$125 6.73%9/30/78 (125)9/30/78 250 9.125$50 6/30/79 (75)75 9/30/79 (175)9/30/79 235 10.5 50-9.90 9/30/2014 9/30/80 115 13.00 9/30/2015 Outstanding at 9/30/80$~BPA's borrowing authority within the aforementioned

$1.25 billion.maximum is limited at any one time to its cumulative expenditures for transmission plant (including capitalized interest and any'nspent, approved construction budget amounts)which have not been 11 FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 2.Financin of FCRPS Construction Pro ram, Continued:

financed from appropriations.

At September 30, 1980, BPA had bor-rowed substantially all funds available within this limitation

~other than the approved 1981 construction budget.The$235 million note outstanding is payable by September 30, 1981.BPA's construction budget for fiscal year 1981 is 9143 million, for which substantial commitments have been incurred.Fiscal 1981 construction appropriations for power facilities have been authorized by Congress for the Corps and the Service totaling$126~million and$18 million, respectively.

3.Cost Allocations:

Allocations of plant cost and operation and maintenance expenses between power and nonpower purposes for six system projects are presently based on tentative allocations.

At September 30, 1980, total costs for these six projects approximated

$2.1 billion of which$1.6 billion was tentatively allocated to power and subject to adjustment.

In prior years, adjustments were made to plant cost and to accumulated net revenues{for adjustments relating to operation and maintenance, interest or depreciation) when final allocations were adopted.The amount of adjustments that may be necessary when the allocations for these six projects become final is not determinable at this time.Under certain circumstances, final cost, allocations can be changed, but Congressional approval may be required for any significant change.As set forth above, retrospective adjustments to the financial records are performed when a final cost allocation dif-fers from the tentative cost allocation.

If a change in a final cost allocation were made, any related adjustments would most likely be prospective unless the affected project never functioned as intended.4.Unexaended Funds: Unexpended funds consist of the unexpended balance of funds appropriated by Congress for construction, operation and mainten-ance purposes for the Corps and Service, and cash balances of BPA.12 FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 4.Unex ended Funds, Continued:

Amounts shown in the statement of assets and'liabilities corn>>prise: Se tember 30, 1980 1979~T ousands o7 Dollars)Corps and Service unexpended appropriated funds BPA cash balances with U.S.Treasury 948,400$47,999 25,551 27,307 825~FCRPS receives credit for interest on unexpended appropriated funds by deducting them from the unamortized federal investment in determining the required interest on the federal investment.

The Treasury gives BPA credit for its cash balances in determining interest charges.The interest expense on Treasury borrowings reflects reductions of$5.9 million in 1980 and$2.8 million in 1979 arising from credits for cash balances.5.Purchase and Exchan e Power E ense and Commitments to Exc an e Power an Ac are Pro ect Cap x zt: Existing net billing and exchange agreements provide that BPA will acquire all or part of the generating capability of the nuclear power plants listed in the table below.BPA is obligated to make payments, exchange power, or apply credits (net billings)to parti>>cipating customers equal to the customers'ortions of the annual project costs, including'annual debt service requirements, whether'r not the projects are completed, operable, or operated.Annual project budgets have not included provisions for any future costs associated with spent fuel reprocessing, off-site storage of spent fuel or plant decommissioning.

The"Present Termination Commitment" represents

'the outstanding debt issued to finance the projects (without credit for salvage of assets or unspent construction funds)which would be payable over the varied financing repayment periods if the projects were terminated as of September 30, 1980:

FEDERAI COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 5.Purchase and Exchan e Power Ex ense and Commitments to Exc an e Power an Ac are Pro ect, Ca abz xt , Continued:

Estimated BPA Portion Project and;Capability Projected in Service Date'dditional Estimated Financing Requirements Present for Projects Capacity in Termination under WPPSS*Hanford Project (100',)Net billed projects: Trojan Nuclear-Project (30~)WPPSS*Nuclear Project gl (100~)WPPSS*Nuclear Project 52 (100~)WPPSS~Nuclear Project 03 (70:)Operational Operational February 1986 September 1983 September 1986 860$46,045 339 147,660 1,100 1,265,500 701,100 868 680,000 1,141,700 1,250 1,255,000$899,700*Washington Public Power Supply System BPA's commitment, period under the net billing agreements extends ,for the life of'the projects, except that the terms of the Trojan Nuclear Project net billing agreements under which Eugene Water&Electric Board (Eugene)assigned its 30%share of the project capability to BPA and other participants, contained a provision allowing Eugene to withdraw the project capability for use in its own system beginning in 1984.Had Eugene exercised its withdrawal rights, settlement for BPA's prepaid Trojan costs would have been negotiated at withdrawal dates and, accordingly, BPA included such prepaid costs as net billing advances in its balance sheet.On July 1, 1980, Eugene's right to withdraw expired, Eugene confirmed that it did not intend to request withdrawal, and the balance of prepaid costs existing at that date ($44,210,186) was charged to expense.No such withdrawal options exist for the WPPSS projects.See Note 1 for further information concerning net billing advances.Amounts shown therefor in the accompanying statement of assets and liabilities comprise: "

FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAZ, STATEMENTS, Continued5.Purchase and Exchan e Power E ense and Commitments to Exc an e Power and Ac are Pro ect Ca aha, xt , Continued:

Trojan Nuclear Project, net of accumu-lated amortization of$14,426 at September 30, 1979 Washington Public Power Supply System Nuclear Project No.2 (under con-struction), net of accumulated amortization of$4,554 at Septem-ber 30, 1980 1980 1979~T ousands oZ Dollars)$45,113$207,953 201,748$2'63.$~JK1 BPA has also entered into agreement with a group of utilities to exchange an agreed amount of pover for their rights to a portion of the Canadian Entitlement (one-half of the additional power bene-fits realized by downstream U.S.projects from three Canadian Treaty dams for a 60-year period).The Canadian Entitlement was purchased for a 30-year period from the completion of each dam (the last dam was placed in service in 1973)by 41 Pacific North-vest utilities.

BPA furnishes specified amounts of power to the utilities regardless of entitlement pover generated.

BPA's minimum average energy commitment to the utilities declines annually from approximately 621 megavatts currently to approximately 100 mega-watts in the last year of the exchange agreement (2003).Following is an analysis of amounts included in purchase and exchange power expense: Trojan Nuclear Project: Share of annual'generation costs WPPSS Nuclear Projects: Project No.1 Project No.2 Other purchase and exchange power costs 1980 1979$32,382$22,502 22,901 70,571'2,679 2,693 15 FEDERAL COLUMBIA RIVER PONER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 0: 6.Trust Funds and Trust Fund Advances: These balance sheet amounts comprise funds received by BPA from customers and others for the purchase of nonfederal power for customers'enefit, and for construction to be done for others.7.Net Investment of U.S.Government:

The Federal investment in each of the generating projects and for each year's investment in the transmission system is being repaid to the U.S.Treasury within 50 and 35 years, respectively, from the time the facility is placed in service.No such repayments are required during the=next five years.However, amounts are normally expected to be paid annually for interest on outstanding Federal investment, net of interest capitalized on projects financed through appropriations, and for operating expenses of the Corps and Service funded by annual appropriations.

To the extent that funds are not available for payment, such amounts become payable from subsequent years'evenue prior to any payment for amortization of Federal investment.

Fiscal 1980 and 1979 revenues were not sufficient to pay all these annual amounts and payments of$13.8 and$98.6 million, respectively, of interest on appropriated funds has bein deferred.Interest rates (other than on Transmission System Act borrowings) range from 2-1/2%to 8%(the weighted average rate was approxi-.mately 3.3%in 1980 and 1979).The rates have been set qither by law, by administrative order pursuant to law, or by administrative policies, and have not necessarily been established to recover the 0 interest costs to the U.S.Treasury to finance the investment.

See Note l-Revenues and Note 8 for additional information con-cerning repayment requirements and policies.8.Re a ent Res onsibilit for Irri ation Costs: L egislation requires that FCRPS net revenues will be used to repay to the U.S.Treasury that portion of the cost, allocated to irriga-tion of any Pacific Northwest project authorized by Congress and determined by the Secretary, Department of Interior, to be beyond the ability of the irrigation water users to repay.The use of power revenues for such repayment represents a payment for irriga-0 tion assistance to the benefiting water users and, while paid by power ratepayers, such costs do not represent a regular operations cost of the power program and are not included therein.The$646 million in irrigation assistance payments shown as returnable from power revenues in Schedule A will be reflected as reductions of accumulated net revenues at the time future payments are made.The~16 FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued 8.Re a ent Res onsibilit for Irri ation Costs, Continued:

first payment is scheduled to be made in 1997.The$646 million does not include any portion of$21 million of costs allocated to irrigation at six Corps projects located within Oregon where com-pletion of irrigation facilities is not yet authorized.

If com-pletion is authorized, a determination of water users'epayment ability will probably be made which might result in additional irrigation assistance being payable from accumulated net powe revenues.9.Teton Dam: On June 5, 1976, before the project had been completed and turned over for the use of FCRPS, a breach occurred in the Teton Dam.The project was extensively damaged, and a vast amount of damage occurred downstream from the'resulting flood.The total invest-ment in the project at September 30, 1980 (excluding interest totaling approximately

$1,810,000 subsequent to June 1976 which has been charged to expense)was$78.0 million.The amount of investment allocated to power was$13.8 million, and the amount of investment allocated to irrigation but repayable from power revenues was$49.9 million.Disposition of the project's costs and final decision as to the repayment obligation are dependent, upon Department of the Interior administrative action and/or Congressional action.If repayment is not required, the cost associated with the investment in power facilities (and recovery of the related$1.8 million interest)will be charged off against the investment of the U.S.Government.

Should FCRPS, be directed to repay, the costs will be recovered through rates.Until a decision is made,,the investment allocated to power is included as a deferred charge in the statement of assets and liabilities and the cost of applicable irrigation assistance is included in the total of other irrigation costs described in Note 8.FCRPS will not be required to repay the costs of claims of non-federal entities and individuals resulting from failure of Teton Dam.The Congress enacted legislation-to pay the costs of these claims and stipulated that all such payments would be nonreim-bursable.17 FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAZ, STATEMENTS, Continued~I The Confederated Tribes of the Colville Indians and the Spokane Indian Tribes{the Tribes)have asserted claims in unspecified amounts arising from construction of the Grand Coulee and Chief Joseph Dam projects.In response to a request from Congress, a task force established by the Departments of Interior and Army has studied the claims.No basis for liability has been found but we Office of Management and Budget has suggested the affected federal agencies work with the Tribes to develop a proposal which will encouzage their economic development, including a supply of necessary power.It is not curzently expected that resolution of this matter will adversely affect FCRPS power revenues.On November 14, 1977, the City of Portland{the City)filed two lawsuits in the United States District Court for the District of Oregon against the Administrator of BPA and the Secretary of the Department of Energy.In the first suit the City alleges BPA has~acted illegally in its sales of power to preference customers, private utilities and direct service industrial customers and that, as a result of such actions, the City has been denied an ability to purchase power from BPA.The City then requests that it be declared a prefezence customer;that BPA power sales agree-'ents be set aside;that BPA adopt revised allocation proceduzes; and that BPA sell power to the City of Portland until such reallo-~cation and revised rules are complete.The second suit is based upon BPA's alleged failure to comply with the terms of the National Environmental Policy Act.In this suit'he City alleges that all BPA power sales contracts, extensions, renewals and the net billing agreements executed since Januazy 3., l970, were major Federal actions significantly affecting the quality of human environment in BPA's service area.The suit further alleges that BPA's actions have caused a serious impact on the City by reducing the quality of the environment.

The Cz.ty then asks that, all power sales contracts, extensions, renewal agzeements and net bill'ng agreements entered into by BPA since January 1, 1970 be declared null and void;that BPA be required to prepare an environmental impact statement{EIS)on each of these agreements and that BPA be enjoined from executing any new power sales agr ements or net b'lling agreements until BPA completes an EIS.In July 1978 three private utilities, Pacific Power&Light Company, Portland General Electric Company and Montana Power Company, who had previously been joined by BPA as defendants, filed cross-claims against BPA.They contend that the BPA preference clause entitles them to power for their domestic and rural customers.

Montana Power Company also cia'ms a statutory geographic preference for Federal hydro power produced at Hungry Horse and Iibby Dams.18 FEDERAL COEUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued d: In the City of Portland's first suit the District Court orally'ranted a motion by the defendants to dismiss the plaintiffs'laims on the ground that the City had not taken the steps neces-sary to render their claims ripe for court review.Subsequently the court required further briefing on specific issues relating to the motion.Final briefs have been submitted and the matter is pending.The investor-owned utilities'ross claims are also pend-ing.On December 20, 1979, the City moved to amend its complaint for the purpose of supporting the cross claims of Pacific Power 6 Light Company and Portland General Electric Company, and on Decem-ber 27, 1979, BPA petitioned the court to deny the City's motion for, the reason that the matter has already been determined.

The court has taken no action on either the'City's motion or BPA's petition.In the opinion of the BPA General Counsel the lawsuits originally filed by the City of Portland and counterclaims filed by the pri-vate utilities are without merit and furthermore have been rendered moot by enactment of the Pacific Northwest Electric Power Planning and Conservation Act.No estimate of the financial effects on FCRPS in the event of adverse decisions in these cases can be mad On January 22, 1980, Pacific Power 8 Eight Company filed suit in the United States District Court for Oregon against the Department of Energy and BPA to have the Assistant Secretary's interim rate order of December 3, 1979 declared unlawful and for other relief, including injunctive relief against collection of BPA's new whole-sale power rates which were effective December 20, 1979.Portland General Electric Company and the Oregon Public Utility Commission have intervened as plaintiffs in the lawsuit and the Public Power Council has intervened as defendant.

Plaintiffs do not contest Bonneville's need for an increase in revenues, but, contest the design of Bonneville's rates.On September 30, 1980, the Court entered judgment for the Government and on November 26, 1980, the plaintiffs filed a Notice of Appeal to the Ninth Circuit Court of Appeals.It is the opinion of BPA General Counsel that the holding of the District Court, will be sustained.

Montana Power Company and the Idaho Power Company filed suit in the United States District Court for the District of Montana (venue has been changed to the District of Oregon)seeking an injunction against collection of the interim rates approved by the order of December 3, 1979 and'for other relief.The contentions of plain-tiffs in Montana are nearly identical to those raised by plaint's before the District Court in Oregon, except that plaintiffs in Montana do not concede that interim rates may be imposed based upon the imperative need for additional revenue and seek to have all rates reduced to the level prevailing before the order.It is 19 FEDERAL COLUMBIA RIVER POWER SYSTEM NOTES TO FINANCIAL STATEMENTS, Continued the opinion of BPA General Counsel that in the event that this litigation proceeds further, the contentions of the plaintiffs are without merit, pazticularly in view of the result in the Pacific Powez&Light Company case.Certain other claims, suits and complaints have been filed or are pending against entities of FCRPS, including litigation relating to the installation of additional generating capacity at Bonneville and Libby dams, acquiring land rights needed to raise, the Chief Joseph dam reservoir level and construction of ceztain transmission lines.In the opinion of counsel and management, these actions are either without merit, involve amounts which are not significant to FCRPS'inancial position or results of operations or primarily affect the overall cost of construction projects which will be capitalized and recovered through future power rates.ll.Re ional Power Bill: The Pacific Northwest Electric Power Planning and Conservation Act became effec ive December 5, 1980.Under the Act: BPA assumes a utility function in its region.The BPA Administrator may acquire power resources, but BPA can>>not own or construct any generating resources.

Resource acquisition priorities are: conservation, renewable resources, resources using waste heat or hav-ing high fuel conversion efficiency, other resources.

All obligations assumed by BPA under the Act are to be secured solely by BPA revenues.The BPA borrowing limit{see Note 2)is increased from$1.25 billion to$2.5 billion effective in fiscal 1982.The entire increase is foz a revolving fun'd for conser-vation and renewable resource loans and grants.BPA ratemaking remains subject to confirmation and approval by FERC and FERC may approve revised rates on an interim basis.20 Schedule A FEDERAL COLUHDIA RIVER POWER SYSTEH SCHEDULE Oi'HOUNT AND ALLOCATION OF PLANT INVESTHENT as of September 30.1980 (Thousands of Dollars)Cofu22ercial Power Percent of Total Returnable from Cojmjje rcia 1 Power Revenues lrri ation Returnable Return-from able Commercial from Total Power Other Irriga-Nonreimbursable Construc-tion Total Mork in Cofjmfercial Prwrress Po r Haviga-Flood Fish and Recrea-tion Control Mildlife tion Completed Plant Other 10O.Ot 95.2t 26.I'93.7t 99.0t 90.6t 30.5t 60.7t 84.6$55.3t 35.6t 75.7t 73.6t 73.2t 78.7t 76.lt 47.7t 18.2t 81.0't Bo.lt 80.6t 12.9t 86.0t 17.7t$1,301 135$174 16,056~$48 1,150 2,505 1,01$3;202 35,509 732.527 208 290 1,000 546 221 9,149 365 83,092 3,066 4,790 47,902 38,202 20,984 32,982 30,288 26,305 24,655$2,298 10,451 1,856 5,813 4,321 2,061 272 626 45,991 88,382 2,509 11,432 3,987 4,047 511 28,699 11,948 2,822 2,290 5,354 2,082 238 14,880 86,343 26,410 32,831 2,604 94 13,731 7,839 417 50,341 733 1,372 1,985 48,35e 52,882 24,285 54,189 48,533 62,891 ga,3eo 60,267 711 110 43,309 22 1,152 70 121 585,904 ea.zt 83.3t 500,9&7 27,845 91,691 93,061 441,920 859 9,297 49 862$$~9~Ioo.ot Ioo.ot~2287 81.6t$~I)$~61(c)83.3t 12 033 8513 920 8g7jlg ets and deferred charges in the accompanying nt of assets and liabilities.

Amounts~Pro'ect Total Revenues Sources tion Projects in service: Transmission facilities (BPA)$2,144,773$1,853,400$291,373$2,144,773 Albeni Falls (CE)33,757 32,147 32, 147 Boise (Service)73,998 5,387 2,157 7,544$11,754$38,596$50,350 Bonneville (CE).620,993 89,612 492,217 581,829 Chief Joseph (CE)443,666" 438,718 438,718 732 Colujfjbia Dasin (Service)1,437,460 664,686 160,640 825,326 477,315 560,407 Cougar (CE)60,440.18,415 3 18,418 3,066 Detroit-Big Cliff (CE)66,914 40,604 25 40,629 4,790 Dworshak (CE)341,565 288,953 30 288,983 Green Peter-Foster (CE)90,247 49,819 45 49,864 5,813 Hills Creek (CE)48,973 17,449 17,449 4,321 Hungry Horse (Service)101,641 76,975 11 76,986 lce Harbor (CE)183.419 131,714 3,205 134,919 John Day (CE)(a)526,899 385,415 380 385,795 Libby (CE)(a)579,421 418,319 37.941 456,260 Little Goose (CE)(a)238,295 178,140 3,163 181,303 Lookout Point-Dexter (CE)97,566 46,433 67 46,500 1,372 Lost Creek (CE)(a)148,544 26,962 26,962 1,985 Lo~er Granite (CE)(a)388.457 311,310 3,171 314,481 Lower Honumental (CE)(a)259,840 204,874 3,194 208,068 HcNary (CE)335,800 , 268,235 2,384 270,619 Hinidoka-Palisades (Service)188,433 14,057 17 14,074 10,268 108,628 The Dalles (CE)324,142 278,598 131 278,729 Yakima (Service)69,467 4,604 10 4,614 7,714'5,038 62,752 Irrigation assistance at 12 projects having no power generation 113,716 35 595 113 716 Plant investment 8,918,426 5,844,826 1,000,164 6,844,990 332,028 917.932 Repayment obligation retained by Colfjjffbia Basin Project 2,211 1,352 1,352(b)859 Other repay59ent obligations 9,297 9,297 Invest ent In retell projeot fdj 70 023 13 774 13.774 6'I 49 929 8~9M 9n 85 M1~11 85JLI3 93tj 8~8fig llfi 833M25 8j28~9 855'l~2 BPA-Bonneville Power Administration CE-Corps of Engineers Service-Hater and Power Resources Service (a)Projects in service that have tentative cost allocations at September 30.1980.(b)Joint facilities transferred to Bureau of Sport Fisheries and Nildlife.This portion is included in other ass statement of assets and liabilities.(c)Included in this amount are nonreimbursable road costs amounting to$83.7 million.(d)Commercial power portion of Teton is included in other assets and deferred charges in the accompanying stateme exclude interest totaling approximately

$1,810,000 subsequent to June 1976 which has been charged to expense.