ML100260995

2009 Annual Financial Report

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

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(K- -.- ENERGY\Q NORTHWEST January 14, 2010 G02-1 0-010 Gregory V. Cullen Manager, Regulatory Programs P.O. Box 968, Mail Drop PE20 Richland, WA 99352-0968 Ph. 509-377-6105 F. 509-377-4317 gvcullen @energy-northwest.com 10 CFR 50.71 (b)U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, DC 20555-0001

Subject:

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

Dear Sir or Madam:

In accordance with 10 CFR 50.71 (b), enclosed is,a copy of the Energy Northwest 2009 Annual Report for the subject facility.There are no commitments contained in this letter or its enclosure.

Should you have any questions, please call MC Humphreys at (509) 377-4025.Respectfully, GV Cullen Manager, Regulatory Programs

Enclosure:

As stated cc: NRC RIV Regional Administrator w/o NRC NRR Project Manager w/o NRC Sr. Resident Inspector

-988C w/o RN Sherman -BPA/1 399 w/o WA Horin -Winston & Strawn w/o JPOWERFUL SOLUTIONS 2009 Annual Report Q OENERGY NORTHWEST 2 growing powerful solutions+/-1:1 ~ ~.i z.~s.i ~ mu ~3 4 5 6 6 A Message to Our Stakeholders Executive Board Senior Leadership Energy Northwest Is Growing Board of Directors 27 FINANCIAL DATA & INFORMATION 28 Management Report on Responsibility for Financial Reporting 28 Audit, Legal and Finance Committee Chairman's Letter 29 Report of Independent Auditors 30 Energy Northwest Management's Discussion and Analysis 40 Balance Sheets 42 Statements of Revenues, Expenses, and Changes in Net Assets 43 Statements of Cash Flows 45 Notes to Financial Statements 66 Current Debt Ratings 7 8 10 12 14 16 17 17 18 Longest Serving Commissioner Columbia Generating Station Columbia's Nineteenth Refueling Outage Nine Canyon Wind Project Packwood Lake Hydroelectric Project White Bluffs Solar Station Industrial Development Complex Operations and Maintenance Services Applied Process Engineering Laboratory 19 20 22 23 24 25 26 Environmental and Analytical Services Laboratory OUR VISION: Calibration Services Laboratory New Generating Resources Growing Our People Growing Environmental Stewardship Growing Our Community Growing Our Future Provide responsible and cost-effective energy solutions for the region's ratepayers.

OUR MISSION: The region's preferred source for energy solutions.

I Energy Northwest 2009 Annual Report 3 Challenge, commitment and accomplishment defined Energy Northwest people and operations in fiscal year 2009.Despite a major refueling outage with more than the usual complement of unplanned maintenance challenges, the Energy Northwest team closed out the year $8 million under budget, vastly exceeding our goal of $6.8 million.That performance honored our regional budgetary and planning commitments while underscoring the immense value Energy Northwest brings to Northwest ratepayers in terms of affordable, environmentally responsible power Fiscal 2009 also saw us deliver an application to renew our expiring 50-year license for the Packwood Lake Hydroelectric Project. With initial operations in 1964, Packwood was our first project as a young joint operating agency. We have applied for a new 50-year license and anticipate a decision by the Federal Energy Regulatory Commission next spring.Other highlights of the year included an American Association for Laboratory Accreditation certification for our Calibration Services Laboratory, The certification

-which only a handful of nuclear utilities nationwide receive is based on rigorous Interna-tional Organization for Standardization criteria.

The internationally recognized certification validates the laboratory's quality and technical competence.

Our investments of time, effort and finances to upgrade our training programs was officially recognized during the past year through the formal accreditation renewal of our operations and engineering training programs by the National Nuclear Accrediting Board.The year's bright spots and accomplishments were dimmed several times by perfor-mance issues at Columbia Generating Station While public safety -our first priority -was never threatened, we were all reminded of the crucial importance of ongoing, planned investment in our facilities and our people.Our commitment to improving performance at Columbia is unequivocal.

Our Energy Northwest leadership team is leaning forward to provide the resources and support necessary to move us back up the performance ladder.Challenges arrived on the environmental front as well. We were inspired by the team's highly professional response to regulatory recommendations for improving our environ-mental compliance programs.Receiving and responding productively to constructive feedback is a recognized hallmark of world-class organizations.

The experience steeled our commitment to envi ronmental stewardship and our ISO 14001 environmental certification Looking toward fiscal 2010 and beyond, Energy Northwest will continue to play a vital role in helping meet the region's need for clean, reliable, affordable electric power.Potential energy legislation at state and federal levels cannot be ignored. Legislators at both levels continue to debate the merits of environmental and energy policies.

Our task will be to remain fully engaged and continue to communicate the unique nature of public power organizations.

We must remain vigilant to ensure well-intended legislation does not diminish our ability to serve the needs of Northwest ratepayers.

Closer to home we must continue to grow our future leaders. The inevitable march of time will require and deliver new senior leaders, managers and team members. The quality of our organization and our performance as a power generator will never be any better than the quality of our people. This is an essential, ongoing investment that must never be underestimated.

We are especially pleased to report the launch of a new Nuclear Technology Program partnership with Columbia Basin College. The program is a vital step in helping us prepare tomorrow's workforce and leaders; especially in light of unprecedented industry retire-ments anticipated in the coming decade.Fiscal 2009 was indeed a challenging year. Yet the truest measure of an organization is never a snapshot in time, but rather how it moves forward from adversity to embrace and embody professional excellence.

We have every confidence in our team's commitment, professionalism and sheer tal-ent to advance us into the arena of world-class performance, where we belong.The challenge belongs to every member of our Energy Northwest team. We look forward to navigating the path to excellence with the support and encouragement of our regional partners and slakeholders.

Respectfully, Joseph V (Vic) Parrish Chief Executive Officer Sid Morrison Chairman, Executive Board 4 growing powerful solutions EXECUTIVE BOARD BACK (L-R): Bill Gordon, Kathleen Vaughn, Dan Gunkel, Tim Sheldon, Jack Janda FRONT (L-R): Sid Morrison, Lawrence Kenney, Edward E. (Ted) Coates, Tom Casey Energy Northwest's Executive Board sets the policies that govern the operations of the organization.

It is made up of 11 members, five elected from the Board of Directors, three outside members appointed by the Board of Directors and three outside members appointed by the Washington State Governor.

Energy Northwest 2009 Annual Report 5 Coprt SerieVc rsd n 6 gmowing powerful solutions BOARD OF DIRECTORS STANDING (L-R): Steve Kern, Kathleen Vaughn, Dan Gunkel, Clyde Leach, Buz Ketchum, Ken McMillen, Raymon Sieler, Mike Murphy, Ann Congdon, Judy Ridge, Larry Reese, Will Purser, Roger Sparks, Greg Hansen, Dave Womack, Larry Dunbar, Ed Williams, Torn Casey, Jack Janda SITTING (L-R): Carol Curtis, Linda Gott, Diana Thompson, Chuck TenPas, Lori Sanders, Bill Gordon (Not pictured:

Bill Gaines, Chris Kroupa. Picture reflects two additional members who joined after fiscal year 2009.)

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

COLUMBIA GENERATING STATION RICHLAND, WASH.COMMERCIAL OPERATION:

1984 Columbia Generating Station had mixed performance this last year -the nineteenth refueling outage exceeded schedule by eight days, and four unplanned outages kept the plant down for 16 additional days, diminishing an otherwise strong online operation.

Renewed emphasis on plant performance has already begun to provide the focus and resources needed to move Columbia back up the performance spectrum.In March, Columbia successfully completed a hostile-action-based exercise that displayed nearly a year of preparation, practice and benchmarking of other nuclear plants. The exercise demonstrated to the Nuclear Regulatory Commission, the Federal Energy Regulatory Commission, and state and local emergency offices that Energy Northwest can handily defend Columbia's facilities and people against a hostile force.A major re-siding of the Reactor and Turbine Buildings was completed in June. The effort required innovative installation techniques to replace the siding damaged during a severe wind storm in February 2008. Although the damage was significant, there was no threat to nuclear safety.In March, all 11 initial license class candidates successfully completed a challenging 18-month training program and Energy Northwest 2009 Annual Report 9 Moving into the next quarter century of power generation, Columbia will continue to provide safe, efficient and valuable electrical power to the region.

QUALITY CONTROL Hy th r ine i lity control specitasiss obseived every aspet c Cie R 19 efHeling oace.REFUEL FLOOR: Located on th 606 foo elevatcio o i he read bil ii g, the was a hub of activityci duinig theR 19i refielingoiffec COLUMBIA'S NINETEENTH REFUELING OUTAGE Energy Northwest 2009 Annual Report 11 SAFETY: id , 1 11 ý! I for, W i I i------------------

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-TRAINING:

Th 12 growing powerful solutions NINE CANYON WIND PROJECT The Nine Canyon Wind Project is one of the largest public-owned wind projects in the nation. With 63 wind turbines -14 rated at 2.3 megawatts and 49 more at 1.3 megawatts

-Nine Canyon's total installed capacity is 95.9 megawatts.

Fiscal 2009 was the first full year of operation for the third and final phase of the project, which added the 14 2.3 megawatt turbines.The project produced 226,268 net megawatt-hours of electricity and achieved a 98.1 percent adjusted availability factor, up from 97.8 in fiscal 2008. This improvement is directly related to a reduction in the number of major component failures, which reflects the dedicated efforts of employees to aggressively address causes before failures occur. In April, a new maintenance building with a built-in heavy equipment crane was completed, allowing for the on-site storage and movement of heavy, critical equipment spares.An equipment fire and two nearby grass fires challenged project performance.

In early August 2008, fire in a wind turbine tower electrical cabinet severely damaged nearly all of the tower's components except for the main generator and the pad mounted transformer.

The turbine was repaired and returned to service at the end of September.

A brush fire started near Phase II several days later, but was extinguished by local fire companies in an effort that included the air drop of fire retardant chemicals.

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

These programs will help increase the availability to qualified local talent and prepare these individuals for the growing wind energy job market.

Energy Northwest 2009 Annual Report 13 I 14 growing powerj/d solutions m PACKWOOD LAKE HYDROELECTRIC PROJECT GIFFORD PINCHOT NATIONAL FOREST PACKWOOD, WASH.COMMERCIAL OPERATION:

1964 Energy Northwest 2009 Annual Report 15 16 growing pow(ifu solutionsý MIIMMII, II IIMNVA WHITE BLUFFS SOLAR STATION One of the great benefts of solar power is its reliability.

The sun rises and White Bluffs Solar Station produces electricity.

With a rating of 38.7 kilowatts direct current, the 242-panel station is located at the Industrial Development Complex near Columbia Generating Station.White Bluffs produced 46,090 net kilowatt-hours of electric-ity during fiscal 2009. The Bonneville Power Administration integrates the power from White Bluffs into its system and Bonneville Environmental Foundation markets the displaced 46,090 net kilowatt-hours of electricity in fiscal year 2009 air pollution and greenhouse gas emissions as "Green Tags!'Buyers who participate in utility green power programs purchase these tags to replace traditional polluting sources of electricity with clean, secure and sustainable renewable sources of energy from across North America.Energy Northwest provided the leadership to develop this first-of-its-kind generating plant in the Northwest.

White Bluffs continues to generate interest from innovators within the util-ity, solar and academic communities.

K Energy Northwest 2009 Annual Report 17 INDUSTRIAL DEVELOPMENT COMPLEX The Industrial Development Complex is located east of Columbia Generating Station. The IDC continues its focus on economic development and reuse of 40 facilities and associated property through a diversified leasing program, which includes use by Energy Northwest.

The long-term goal is to secure an "anchor tenant" which will utilize most of the existing facilities.

This would provide a $20 to $30 million savings in long-term site restoration costs for the Bonneville Power Administration.

The leasing effort has been very successful to date, with the site currently at 80 percent capacity.The primary tenant is Washington Closure Hanford, which manages the Department of Energy's cleanup of waste sites and burial grounds, and removal of excess facilities, throughout the Hanford Site.In addition to the leasing program, the complex has the capability of supplying both back up water and power to Columbia, as needed. IDC staff members also offer a variety of training and support functions during Columbia's outage years, as well as oversight on site environmental issues.OPERATIONS AND MAINTENANCE SERVICES Operations and Maintenance Services supplied and installed a high-voltage silicon coating, SiCoat, to the generator step-up and auxiliary transformers at an AES Corporation coal plant in Hawaii. The coating prevents coal dust contamination, and subsequent arcing, from tripping the generating unit. AES has not experienced a single trip due to contamination since the application.

Energy Northwest continued services for Olympic View Generating Station during fiscal 2009. Operations and Maintenance Services has performed these activities full time for the station since 2001. The Olympic View Generating Station is owned by Mason County Public Utility District 3 and is comprised of two 2.8-megawatt generating units, powered by natural gas-fired reciprocating engines. The nominal station output is 5.4 net megawatts.

The plant is designed to be manned or operated remotely, depending on load requirements.

Energy Northwest also provided journeyman craft support for Seattle City Light's Boundary Hydroelectric Project.Located on the Pend Oreille River in northeastern Washington, the dam supplies more than one-third of Seattle City Light's power.

18 growing powerful solutions Growing powerful solutions is what the Applied Process Engineering Laboratory is all about -providing facilities, programs and services to technology startup and expanding companies.

In 2009, APEL increased its emphasis on renewable and clean energy technologies to match Energy Northwest, Washington State and federal priorities.

Throughout the year, Energy Northwest staff managed and maintained the laboratory within budget and returned a positive net margin of $445,000 inclusive of depreciation and corporate cost allocations.

This return will help offset the cost of roof repairs at APEL slated for next year. Founding community stakeholders

-Pacific Northwest National Laboratory, Port of Benton, the Department of Energy, Washington State University Tri-Cities, the city of Richland and the Tri-City Development Council -continued to provide strategic vision and technical and operational support.Energy Northwest employs the Washington Technology Center to provide diverse business incubation services to improve performance and growth for successful startups.

APEL provides entrepreneurship coaching, access to funding and resource connections, all of which complement a suite of locally available technical assistance for businesses.

The laboratory also supports four business tenants in addition to anchor tenant PNNL. One business is on target to meet graduation metrics in 2011, while two others scaled down to withstand national economic impacts -specifically, delays in federal or state contracts and research funding. APEL businesses include Environmental Assessment Services, InnovaTek, IsoRay Medical and Energy Northwest's Environmental Services Laboratory.

The Tri-Cities Research District, a Washington State innovation partnership zone, relies on APEL to provide incubation programs Energy Northwest 2009 Annual Report 19 and facilities for new technologyhbased businesses.

Centered in the research district, both APEL and Energy Northwest have a pivotal opportunity to lead technology innovation-to-commercialization initiatives in clean and renewable energy.Key 2010 initiatives include continued focus on financial sustainability, and environmental and regulatory compliance.

APEL will expand educational programs focused on leadership and innovative thinking, and will continue to support the Tri-Cities Research District initiatives in energy technology.

H 20 g7vwing powerful solutions CALIBRATION SERVICES LABORATORY The Energy Northwest Calibration Services Laboratory contract, and has a negotiated agreement with options to extend continued to excel in quality of work and customer satisfaction in services through October 2010. Revenue from these customers fiscal 2009. helps reduce overhead costs for its primary customer -the The laboratory added numerous small businesses to its growing Columbia Generating Station.list of customers, which includes large companies such as Bechtel, Columbia receives in-house services, including support during Pacific Northwest National Laboratory, AREVA and Washington refueling outages and special testing. The laboratory also provides Demilitarization Company. It also recently completed 10 years services for Energy Northwest projects such as the Packwood Lake of service to the Hanford Site through the Fluor Hanford, Inc. Hydroelectric Project and Nine Canyon Wind Project, as well as the Energy Northwest 2009 Annual Report 21 H.W. Hill Landfill Gas Power Plant owned by the Klickitat County Public Utility District.During fiscal 2009, staff worked successfully to obtain laboratory accreditation to the International Standard ANS/ISOi IEC 17025, certifying that the requirements for competence of laboratory testing and calibration are met. In order to obtain accreditation, laboratories must demonstrate that both their quality management system and their technical competence comply with the International Standard.

Further accreditation of the Energy Northwest Standards Laboratory was also obtained from the American Association for Laboratory Accreditation, and will position the laboratory to attract new regional and national customers.

ii 22 gmowing powerful solutions NEW GENERATING RESOURCES A number of interrelated factors drive the development of new generating resources

-regional economic and power growth; financial incentives and lending practices; renewable portfolio standards; thermal emissions policies; and most importantly, member utility needs. The recession significantly impacted each of these broad categories, resulting in slower growth and uncertainty in financial market and development incentives.

To bolster financial security in new development, the Energy Northwest Board of Directors passed a policy requiring a 75 percent investment commitment and risk sharing from new generation development partners before progressing from the feasibility stage into the permitting development phase.Despite such measures and an otherwise successful marketing effort, the economic environment effectively ended a much anticipated partnership to develop Kalama Energy -a 680-megawatt combined-cycle natural gas plant -by October 2008.The site is now maintained for the potential future development of a smaller natural gas combined-cycle option for Energy Northwest members and other regional public power utilities.

In addition, a natural gas peaking plant option at the site is being marketed to manage intermittent wind resources.

Increased interest in both options is anticipated as the economy recovers.Four Energy Northwest utility members jointly invested in the development of the Radar Ridge Wind Project in Pacific County.Participating public utility districts include Grays Harbor, Clallam County, Pacific County and Mason County 3.The partnership formed a governance committee to oversee development of the 60- to 80-megawatt wind project proposed to be online in 2012. Radar Ridge would be the first major commercial project west of the Cascades.

The development is the result of member needs for renewable energy, mandated by Washington State's Renewable Portfolio Standard, and member interest in projects outside of Bonneville Power Administration transmission congestion.

Energy Northwest entered into a development services agreement with ADAGE, a joint venture of Duke Energy and AREVA. ADAGE is developing several 50-megawatt wood biomass plants across the United States, including several in the Pacific Northwest.

Energy Northwest will assist them by providing expertise in high-voltage transmission interconnection and the marketing of Northwest power purchase agreements.

In the process, member utilities will be positioned to receive projects in their service areas plus priority on baseload renewable power.Feasibility studies were completed during the fiscal year for a small landfill gas project and wood biomass project for Port Angeles. Work was also performed on large-scale and small-scale pilot solar projects, one in eastern Washington and one in eastern Oregon, to determine the performance of thin film photovoltaic panels. A formal development offering is expected during fiscal 2010.Energy Northwest is also working with Northwest utilities to evaluate interest in studying small modular reactor designs and the viability of this technology as part of a responsible look into a diverse mix of energy resources that may be used to meet future regional power needs. If enough interest is identified, a nuclear study group will be formed in fiscal 2010.

Energy Northwest 2009 Annual Report 23:ST I 005~C I&c 24 growing powerful solutions GROWING ENVIRONMENTAL STEWARDSHIP Energy Northwest is committed to protecting the environment for current and future generations, and integrating environmental stewardship into every facet of the operation.

The Energy Northwest Environmental Stewardship Policy is the cornerstone of its Environmental Management System.This comprehensive program demonstrates commitment and establishes clear expectations for the entire organization.

This means that consideration of the environment is integrated into all aspects of the organization, including its structure, resources, responsibilities, planning, practices, procedures and processes.

Designed to meet the rigorous requirements of the globally recognized International Organization for Standardization (ISO) 14001:2004 standard, Energy Northwest EMS places additional emphasis on compliance, pollution prevention and communication.

Energy Northwest's EMS was registered to the ISO 14001:2004 standard in April 2005. Every three years, the registration is reviewed for recertification.

Part of this process includes annual surveillance audits to help ensure that the system remains effective and continually improves.

In April 2009, the National Science Foundation recommended recertification after a successful surveillance audit.Compliance with regulatory requirements is a fundamental aspect of sound environmental management.

As Energy Northwest moves forward into fiscal year 2010, the goal is to achieve and maintain environmental excellence and foster environmental stewardship at all Energy Northwest facilities.

To minimize Energy Northwest's impact on the environment, all agency activities are periodically reviewed for compliance with environmental regulations and proper identification of potential impacts to the environment.

Potentially impacting activities include waste generation; atmospheric emissions; liquid discharges; storage and use of petroleum, chemicals or radioactive materials; and land use. These potentially significant impacts are addressed as a priority by Energy Northwest and are considered when setting environmental objectives and in designing and implementing necessary controls and programs.

Under the EMS, the effectiveness of these controls is monitored and corrective and preventative action is taken, as needed, to continually improve.To better assess Energy Northwest's impact on the environment and the effectiveness of the EMS, environmental performance is trended through the use of key performance indicators.

These indicators monitor performance in areas such as energy production, effluents, emissions, wastes, compliance, pollution prevention and recycling.

In fiscal 2009, significant improvements in the area of compliance were verified through internal assessments.

This achievement was due to increased staffing and monitoring, new and revised procedures, enhanced training and communication, and increased management emphasis and involvement.

Energy Northwest's goal in fiscal 2010 is to continually improve on environmental compliance and meet or exceed all environmental key performance indicators.

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

Energy Northwest and its employees are committed to making a positive and long-lasting difference in the Tri-Cities communitv.

The Uon officialiy soonsors threevital From the chief executive officer 26 growing powerful solutions F I GROWING OUR FUTURE Energy Northwest has aggregated the energy needs of Washington's public power community for more than half-a-century. The agency's mandate to help member utilities deliver reliable, affordable and environmentally responsible electric energy to the region's ratepayers is on the cusp of a renaissance.

The next decade will refine current and emerging technologies, opening doors to vast "green"energy opportunities in the Northwest.The timing for this environmental-energy renaissance is superb given climate change concerns and Energy Northwest's commitment to developing responsible energy generation.

Public policy and ratepayer demand will likely challenge the energy industry to find improved and new renewable energy sources. As a regional energy leader we must work to ensure those sources are as affordable as they are environmentally attractive.

One such proposed project is the ecologically friendly Radar Ridge Wind Project in Pacific County, in western Washington, tentatively scheduled for construction as early as 2011.Energy Northwest also recognizes the need to develop a diverse mix of renewable energy sources, including advanced solar technologies.

Moving beyond the successful demonstration of White Bluffs Solar Station, Energy Northwest intends to develop solar power generation projects for an anticipated 2010 offering to interested utilities.

As a part of the diverse energy equation of the future, Energy Northwest must also look at affordable baseload energy sources, and new nuclear is one of the most affordable energy sources available.

Nuclear power is safe, environmentally responsible and requires minimal land. This nearly carbontfree energy source is also now possible in smaller modular designs capable of powering small urban communities.

Energy Northwest is proposing working with other Northwest utilities to study the potential of small, modular nuclear technologies in fiscal 2010.Through commitment to the region's ratepayers, technology innovation and vision, the Energy Northwest team intends to take full advantage of tomorrow's energy opportunities, while providing the region reliable, affordable and environmentally responsible energy today.

Energy Northwest 2009 Annual Report 27 Financial Data& Information 28 growing powerful solutions MANAGEMENT REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING Energy Northwest management is responsible for preparing the accompanying financial statements and for their integrity.

They were prepared in accordance with generally accepted accounting principles applied on a consistent basis, and include amounts that are based on management's best estimates and judgments.

The financial statements have been audited by PricewaterhouseCoopers LLP, Energy Northwest's independent auditors.

Management has made available to PricewaterhouseCoopers LLP all financial records and related data, and believes that all representations made to PricewaterhouseCoopers LLP during its audit were valid and appropriate.

Management has established and maintains internal control procedures that provide reasonable assurance as to the integrity and reliability of the financial statements, the protection of assets from unauthorized use or disposition, and the prevention and detection of fraudulent financial reporting.

These control procedures provide appropriate division of responsibility and are documented by written policies and procedures.

Energy Northwest maintains an ongoing internal auditing program that provides for independent assessment of the effectiveness of internal controls, and for recommendations of possible improvements thereto. In addition, PricewaterhouseCoopers LLP has considered the internal control structure in order to determine their auditing procedures for the purpose of expressing an opinion on the financial statements.

Management has considered recommendations made by the internal auditor and PricewaterhouseCoopers LLP concerning the control procedures and has taken appropriate action to respond to the recommendations.

Management believes that, as of June 30, 2009, internal control procedures are adequate.J.V. Parrish Chief Executive Officer A.E. Mouncer Vice President, Corporate Services, Chief Financial Officer/General Counsel AUDIT, LEGAL AND FINANCE COMMI'TEE CHAIRMAN'S LETTER The Executive Board's Audit, Legal and Finance Committee (Committee) is composed of six independent directors.

Members of the Committee are Chairman Larry Kenney, K.C. Golden, Bill Gordon, Jack Janda, Dave Remington, Kathy Vaughn and Sid Morrison, Ex-Officio.

The Committee held 11 meetings during the fiscal year ended June 30, 2009.The Committee oversees Energy Northwest's financial reporting process on behalf of the Executive Board. In fulfilling its responsibilities, the Committee discussed with the internal auditor and the independent auditors the overall scope and specific plans for their respective audits, and reviewed Energy Northwest's financial statements and the adequacy of Energy Northwest's internal controls.The Committee met regularly with Energy Northwest's internal auditor and convened periodic meetings with the independent auditors to discuss the results of their audit, their evaluations of Energy Northwest's internal controls, and the overall quality of Energy Northwest's financial reporting.

The meetings were designed to facilitate any private communications with the Committee desired by the internal auditor or independent auditors.Larry Kenney Chairman, Audit Legal and Finance Committee Energy Northwest 2009 Annual Report 29 REPORT OF INDEPENDENT AUDITORS To the Executive Board of Energy Northwest In our opinion, the financial statements of the business-type activities of Energy Northwest (the "Company"), including the Columbia Generating Station, Packwood Lake Hydroelectric Project, Nuclear Project No. 1, Nuclear Project No. 3, the Business Development Fund, the Nine Canyon Wind Project, and the Internal Service Fund which collectively comprise the Company's balance sheets, statements of revenues, expenses and changes in net assets, and of cash flows, present fairly, in all material respects, the respective financial position of the business-type activities of the Company at June 30, 2009, and the respective changes in financial position and cash flows, where applicable, thereof for the year then ended in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management.

Our responsibility is to express opinions on these financial statements based on our audit. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinions.The Management's Discussion and Analysis listed in the table of contents is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information.

However, we did not audit the information and express no opinion on it.L4 0 Portland, Oregon September 24,2009 30 growing powerful solutions Energy Northwest MaVnagement s Discussion and Analysis Energy Northwest is a municipal corporation and joint operating agency of the State of Washington.

Each Energy Northwest business unit is financed and accounted for separately from all other current or future business assets. The following discussion and analysis is organized by business unit. The management discussion and analysis of the financial performance and activity is provided as an introduction and to aid in comparing the basic financial statements for the Fiscal Year (FY) ended June 30, 2009, with the basic financial statements for the FY ended June 30, 2008.Energy Northwest has adopted accounting policies and principles that are in accordance with Generally Accepted Accounting Principles (GAAP) in the United States of America. Energy Northwest's records are maintained as prescribed by the Governmental Accounting Standards Board (GASB) and, when not in conflict with GASB pronouncements, accounting principles prescribed by the Financial Accounting Standards Board (FASB). (See Note 1 to the Financial Statements.)

Energy Northwest 2009 Annual Report 31 Because each business unit is financed and accounted for separately, the following section on financial performance is discussed by business unit to aid in analysis of assessing the financial position of each individual business unit. For comparative purposes only, the table on the following page represents a memorandum total only for Energy Northwest, as a whole, for FY 2009 and FY 2008 in accordance with GASB No. 34,"Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments" The financial statements for Energy Northwest include the Balance Sheets, Statements of Revenues, Expenses, and Changes in Net Assets, Statements of Cash Flows for each of the business units, and Notes to Financial Statements.

COMBINED FINANCIAL INFORMATION JUNE 30, 2009 AND 2008 (000'S)2008 2009 Assets CurrentAssets

$ 173,689 $ 187, 671 $Restricted Assets Special Funds 119,525 104,325 Debt Service Funds 298,820 279,241 Net Plant 1,509,814 1,497,182 Nuclear Fuel 208,082 222,927 Deferred Charges 4,492,382 4,455,067 ITOTALASSETS

$ 6,802,312

$ 6,746,413

$Current Liabilities

$ 247,918 $ 243,042 $Restricted Liabilities Special Funds 128,678 135,373 Debt Service Funds 129,738 137,293 Long-Term Debt 6,290,766 6,226,186 Other Long-Term Liabilities 9,337 10,597 Deferred Credits 5,920 6,179 Net Assets (10,045)::

(12,257)::

TOTAL LIABILITIES

& NETASSETS

$ 6,802,312

$ 6,746,413

$The Balance Sheets present the financial position of each business unit on an accrual basis. The Balance Sheets report financial information about construction work in progress, the amount of resources and obligations, restricted accounts and due to/from balances for each business unit. (See Note 1 to the Financial Statements.)

The Statements of Revenues, Expenses, and Changes in Net Assets provide financial information relating to all expenses, revenues and equity that reflect the results of each business unit and its related activities over the course of the Fiscal Year. The financial information provided aids in benchmarking activities, conducting comparisons to evaluate progress, and determining whether the business unit has successfully recovered its costs.The Statements of Cash Flows reflect cash receipts and disbursements and net changes resulting from operating, financing and investment activities.

The statements provide insight into what generates cash, where the cash comes from, and purpose of cash activity.Change The Notes to Financial Statements present disclosures that contribute 13,982 to the understanding of the material (1 5,200) presented in the financial statements.

(19,579) This includes, but is not limited to, (12,632) Schedule of Outstanding Long-Term 14,845 Debt and Debt Service Requirements (37,315) (See Note 5 to the Financial Statements), (55,899)1 accounting policies, significant balances and activities, material risks, (4,876)commitments and obligations, and 6,695 subsequent events, if applicable.

7,555... .The basic financial statements of (260 each business unit along with the 1,260 259 notes to the financial statements (2,212) and the management discussion and (55,899)1 analysis should be used to provide an overview of Energy Northwest's financial.-performance.

Questions concerning 92,324 any of the information provided in this (1,615)report should be addressed to Energy Northwest at PO Box 968, Richland, WA, 467 99352.Operating Revenues $ 455,066 $ 545,775 $Operating Expenses 336,622 428,946 Net Operating Revenues .118,444 $ 116,829 $Other Income and Expense $ (120,337)

$ (119,870)::

$(Distribution)/Contribution (485) __ 829 Beginning Fund Equity (7,667):.

(10,045):'

1,314 q (2,378)ENDING NETASSETS

$ (10,045) $ (12,257):

$ 2,212 32 growing powerful solutions The Columbia Generating Station (Columbia) is wholly owned by Energy Northwest and its Participants and operated by Energy Northwest.

The plant is a 1,1 50-megawatt electric (MWe, Design Electric Rating, net) boiling water nuclear power plant located on the Department of Energy's (DOE) Hanford Site north of Richland, Washington.

Columbia produced 7,725 gigawatt-hours (GWh) of electricity in FY 2009, as compared to 9,594 GWh of electricity in FY 2008, which included economic dispatch of 15 and 134 GWh respectively.

Columbia completed its two-year refueling and maintenance outage (R-1 9) on June 24 (47 days), with costs totaling $116.7 million. Budgeted days and costs for R-19 were 38 days and $117.5 million.Generation was down 19.5 percent from FY 2008 due to the completion of R-1 9, two forced outages, (August 2008 and February 2009), a down-power to 60% for one week in April 2009 to allow for feed water pump work, maintenance outage in November 2008 and FY 2008 being the second best generation year on record.Columbia's performance is measured in several ways, including cost of power at Columbia.

The cost of power for FY 2009 was 4.94 cents per kilowatt-hour (kWh) as compared with 2.75 cents per kWh in FY 2008. The industry cost of power fluctuates year to year depending on various factors such as refueling outages and other planned activities.

Lower generation figures due to R-1 9, two forced outages, down-power constraints and the maintenance outage were the major drivers for the 79.6 percent increase in cost of power.BALANCE SHEET ANALYSIS The net decrease to Plant in Service (Plant) and Construction Work In Progress (CWIP) from FY 2008 to FY 2009 (excluding nuclear fuel) was $5.0 million. The additions to Plant/CWIP of $70.0 million were offset by an increase to Accumulated Depreciation of $75.0 million resulting in the net decrease to Plant. The additions to Plant for FY 2009 were captured in seven major projects:

Main Condenser Replacement, Reactor Recirculation Motor Refurbishment, Radio Obsolescence, Software Programs, Reactor Feed Pump Control Systems, Fatigue OrderTracking System, and the Cobalt Reduction Program. These projects resulted in 74 percent of the additions to Plant. The remaining 26 percent of additions were made up of 158 separate projects.Nuclear fuel, net of accumulated amortization, increased$14.8 million from FY 2008 to $222.9 million for FY 2009. During FY 2009 Columbia incurred $38.8 million in capitalized fuel Columbia Generating Station Net Generation

-GWhrs Columbia Generating Station Cost of Power -Cents / kWh 10,000 8,000 6,000 4,000 2,000 9,594 9,636'5.00 1..494*8,016"7,725'7,599 4.00 3.00 2.00 1.00 3.69 3.34 2.75 2.12 0 finn ~ -'"-.' ---... .-'-. -000 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 Energy Northwest 2009 Annual Report 33 purchases.

Fuel bundles of $19.0 million were inserted in cycle 20 during R-1 9 and $18.0 million of uranium will be used for future reloads in cycle 21 and beyond. The fuel activity was offset by $24.0 million in current year amortization.

Current assets increased

$4.2 million in FY 2009 to $139.1 million. The main cause of this increase was from vendor invoice timing related to year end obligations incurred which amounted to approximately

$8.0 million. The remaining difference was due to a decrease in materials and supplies of $3.8 million.The Restricted Assets Special Funds decreased

$5.8 million to$85.2 million in FY 2009 due to the FY 2009 bond financing plan and schedule of construction costs for these funds in FY 2009.The Debt Service Funds increased

$22.9 million in FY 2009 to$80.9 million. The increase was created due to restructuring as a result of the bond sale.Deferred Charges increased

$44.1 million in FY 2009 from$809.2 million to $853.3 million. Components of this increase were an increase to Costs in Excess of Billings, related to refunding of current maturities of $41.7 million and a slight decrease to unamortized debt expense of $0.5 million and an increase of $2.9 million for relicensing efforts. The accumulated decommissioning and site restoration accrued costs are not currently billed to Bonneville Power Administration (BPA). BPA holds and manages a trust fund for the purpose of funding decommissioning and site restoration. (See Note 12 to the Financial Statements.)

The balances in these external trust funds are not reflected on Energy Northwest's Balance Sheet.Relicensing activities for Columbia accounted for $2.9 million of the increase.

Columbia was issued a standard 40-year operating license by the Nuclear Regulatory Commission (NRC) in 1983.Energy Northwest is preparing an application to renew the license for an additional 20 years, thus continuing operations to 2043. Submittal of this application is planned for January 2010.The estimated duration of the license renewal process is 20-24 months from acceptance of application.

Current Liabilities increased

$25.3 million in FY 2009 to $87.3 million mostly due to current maturities of long-term debt and incurred costs at year end being higher than last year.Restricted Liabilities (Special Funds and Debt Service)increased

$11.3 million in FY 2009 to $191.1 due to bond activity.Long-Term Debt increased

$37.3 million in FY 2009 from $2.4 billion to $2.5 billion, excluding current maturities, which was a result of the FY 2009 bond Issue. In FY 2009, new debt was issued for various Columbia construction projects, as well as for part of the Debt Optimization Program. (See Note 5 to the Financial Statements.)

Other long-term liabilities increased

$1.2 million in FY 2009 to$10.6 million related to nuclear fuel cask activity.STATEMENT OF OPERATIONS ANALYSIS Columbia is a net-billed project. Energy Northwest recognizes revenues equal to expense for each period on net-billed projects.

No net revenue or loss is recognized and no equity is accumulated.

Operating expenses increased

$90.4 million from FY 2008 to $403.7 million due to activity associated with R-1 9 and other outage related occurrences.

Operations and Maintenance costs increased

$94.3 million as a result of outage activity.

The $3.0 increase to Administrative and General Expense was due to staffing requirements, related benefit increases and increased regulatory expenses.

There were increases to depreciation of$4.1 million due to plant increases and a slight increase of $0.3 million to decommissioning.

The increases of $101.7 million were offset by decreases in nuclear fuel and disposal costs of $10.4 34 gmowig powfidst slu/ ions million and by a decrease to generation tax of $0.9 million. These decreases were directly related to lower generation activity.Other Income and Expenses increased

$0.3 million from FY 2008 to $116.1 million net expenses in FY 2009. Expenses The Packwood Lake Hydroelectric Project (Packwood) is associated with bond activity increased

$2.5 million but were wholly owned and operated by Energy Northwest.

Packwood offset by lower investment income of $2.4 million, due to market consists of a diversion structure at Packwood Lake and a conditions.

The remaining increase was due to increased costs powerhouse located near the town of Packwood, Washington.

associated with inter-business unit services.

The water is carried from the lake to the powerhouse through Columbia's total operating revenue increased from $429.0 a five-mile long buried tunnel and drops nearly 1,800 feet in million in FY 2008 to $519.8 million in FY 2009. The increase of elevation.

Packwood produced 99.34 GWh of electricity in FY$90.8 million was due to increased costs associated with R-1 9 2009 versus 77.47 GWh in FY 2008. The 28.2 percent increase and other outage activity and the related effects of the net in generation can be attributed to an excellent snowpack and billing agreements on total revenue, ample water available for generation.

FY 2008 experienced the Columbia incurred additional costs as a result of a FY 2008 lowest water levels in seven years while conditions in FY 2009 (February) wind storm that damaged siding on the Reactor resulted in a 14.2 percent increase in generation above the 30 Building and Turbine Generator Building.

The damage from year average of 86.97 GWh and was the 12th highest generation the wind storm did not affect generation during the repair year on record.period. Approximately

$5.3 million was incurred in FY 2008 for In November 2006, Lewis County was declared a disaster repair work and $8.7 million was incurred in FY 2009. Columbia area because of torrential rain and flooding.

During this event submitted an insurance claim for reimbursement of the $14.0 a large slide occurred adjacent to the Packwood underground million incurred due to wind damage. Columbia incurred costs of pipeline.

Significant repairs to stabilize the pipeline were$5.0 million for the deductible and $7.7 million of the remaining completed during the following year. Expenditures of $1.0 amount was covered by the insurer, which was paid directly million were incurred to install an H-Pile wall and improve to BPA. An additional

$7.5 million in costs are expected to be drainage to mitigate the recurrence of additional slides in incurred in FY 2010 and will also be submitted for insurance that area. Packwood applied for"Public Assistance Grants" reimbursement.

from the Washington State Military Department (Emergency Management Division) and Federal Emergency Management Agency (FEMA) in FY 2007 and the acceptance remains in Columbia Generating Station Operating Expenses pending status. Due to the delay in grant acceptance a bank line Total Operating Costs (000's) U Other Income I Expenses$450,000$400,000 Packwood Hydroelectric Project Net Generation

-GWhrs$350,000 100 99.34 97.80$300,000 Y85,22$250,000 80 77.47$200,000$150,000 60$100,000 40 040 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 20 0 .... ... ... ..FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 Energy Northwvest 2009 Annual Report 35 of credit was established for $1.3 million while grant acceptance from FEMA is being resolved.

The line of credit has a $0.8 million outstanding balance.Packwood's performance is measured in several ways, including cost of power. The cost of power for FY 2009 was$1.62 cents/kWh as compared to $3.87 cents/kWh in FY 2008.The cost of power fluctuates year-to-year depending on various factors such as outage, maintenance, generation, and other operating costs. The FY 2009 cost of power decrease was due to increased generation which resulted in an increase in secondary market sales.4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 L FY 2009 Packwood Hydroelectric Project Cost of Power -Cents / kWh 3 87 1.61 IFY 2008 IFY 2007 FY 2006 1960. The current license will expire on February 28, 2010. The final application for the relicensing of Packwood was submitted to FERC on February 22, 2008. The estimated license renewal process is 18-24 months from the acceptance of application.

STATEMENT OF OPERATIONS ANALYSIS The agreement with Packwood participants obligates them to pay annual costs and to receive excess revenues. (See Note 1 to the Financial Statements.)

Accordingly, Energy Northwest recognizes revenues equal to expenses for each period. No net revenue or loss is recognized and no equity is accumulated.

Operating expenses decreased

$1.4 million from FY 2008 amounts, reflecting lower maintenance and outage costs and other power supply expenses.

FY 2008 incurred additional costs for slide repair work of $0.9 million and purchased power costs of $0.7 million related to low water conditions.

Slight increases in FY 2009 took place to depreciation of $1 k for plant activity and generation tax of $4k due to increased generation.

Packwood is obligated to supply a specified amount of power hourly, known as Priority Firm Energy (PFE). The amount varies monthly based on historical average generation.

If the project can not deliver PFE, replacement power must be purchased on the spot market. Electrical energy from Packwood is currently sold directly to Snohomish PUD who purchases all of the output directly.

The power purchase agreement (PPA) provides a predetermined rate for all firm delivery, per the contract Packwood Lake Hydroelectric Project Total Operating Costs (000's)FY 2005 BALANCE SHEET ANALYSIS Total assets decreased

$1.0 million from FY 2008, with the major driver being the decrease to restricted assets from $1.8 million to $0.8 million reflecting the elimination of all bonded debt associated with Packwood.

The impact of debt elimination was offset by an increase to relicensing of $0.2 million and net participant and receivable activity of $0.2 million. Significant changes to total liabilities were a direct result of the elimination of all bonded debt for Packwood.Packwood has incurred $3.6 million in relicensing costs through FY 2009. These costs are shown as Deferred Charges on the Balance Sheet. The FY 2010 projections call for an additional

$0.5 million in costs to continue the relicensing efforts. The FERC issued a 50-year operating license to Packwood on March 1,$3,200$2,900$2,600$2,300$2,000$1,700$1,400$1,100$800$500$200-100 FY 2009 FY 2008ýA Operating Expenses U Other Income / Expenses FY 2007 FY 2006 FY 2005 36 growing powerful solutions schedule and the Mid-Columbia (Mid-C) based rate for any deliveries above firm, or secondary power. Conversely, if there is excess capacity per the PPA with Snohomish PUD, Energy Northwest sells the excess on the open market for additional revenues to be included as part of the PPA with the participants of the project. (See Note 6 to the Financial Statements.)

Other income and expenses decreased from a net income of S11 k in FY 2008 to a net loss of $28k in FY 2009. The decrease in other income was due to much lower investment returns and decreased investment requirements due to bond retirement.

Investment income decreased

$66k from FY 2008 which was offset by a decrease to bond related expenses of $27k.Energy Northwest wholly owns Nuclear Project No. 1. Nuclear Project No. 1, a 1,250-MWe plant, was placed in extended construction delay status in 1982, when it was 65 percent complete.

On May 13, 1994, Energy Northwest's Board of Directors adopted a resolution terminating Nuclear Project No.1. All funding requirements are net-billed obligations of Nuclear Project No. 1 .Termination expenses and debt service costs comprise the activity on Nuclear Project No. 1 and are net-billed.

BALANCE SHEET ANALYSIS Long-term debt decreased

$41.2 million from $1.926 billion in FY 2008 to $1.885 billion in FY 2009, as a result of a portion of maturing principal not being extended in the final years of the Debt Optimization Program (DOP).The current portion of long-term debt decreased

$14.0 million in FY 2009 due to the maturity schedule of debt.STATEMENT OF OPERATIONS ANALYSIS Other Income and Expenses showed a net decrease to other revenues of $8.4 million from $106.0 million in FY 2008 to $97.6 million in FY 2009. Investment revenue decreased

$1.9 million due to market conditions.

The lower investment revenue was offset by lower bond related expenses of $9.5 million. Decreased costs were incurred for plant preservation of $0.8 million with minor increases in cost for decommissioning of $20k and surplus sale activity of $69k.Nuclear Project No. 3, a 1,240-MWe plant, was placed in extended construction delay status in 1983, when it was 75 percent complete.

On May 13, 1994, Energy Northwest's Board of Directors adopted a resolution terminating Nuclear Project No. 3.Energy Northwest is no longer responsible for any site restoration costs as they were transferred with the assets to the Satsop Redevelopment Project. The debt service related activities remain and are net-billed. (See Note 13 to the Financial Statements.)

BALANCE SHEET ANALYSIS Long-term debt decreased

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

$23.9 million in FY 2009 due to the maturity schedule of debt.STATEMENT OF OPERATIONS ANALYSIS Overall expenses decreased

$8.2 million from FY 2008 related to bond activity.

The change in investment income of $1.5 million was due to market conditions.

Buins Deeomn Fund-Energy Northwest was created to enable Washington public power utilities and municipalities to build and operate generation projects.

The Business Development Fund (BDF) was created by Executive Board Resolution No. 1006 in April 1997, for the purpose of holding, administering, disbursing, and accounting for Energy Northwest costs and revenues generated from engaging in new energy business opportunities.

The BDF is managed as an enterprise fund. Four business lines have been created within the fund: General Services and Facilities, Generation, Professional Services, and Business Unit Support.Each line may have one or more programs that are managed as a unique business activity.BALANCE SHEET ANALYSIS Total assets decreased

$0.6 million from $6.3 million in FY 2008 to $5.7 million in FY 2009. The decrease to current assets of $ 1.1 million was due to current funding of operations, mainly due to Energy Northwest 2009 Annual Report 37 generation sector development costs. The decrease to current assets was offset by a $0.5 million increase to plant, mostly from the Rattlesnake Mountain Combined Community Communication Facility Project. Liabilities increased

$0.7 million from FY 2008 to FY 2009 due to operating activity.

Net Assets decreased

$1.3 million from $4.5 million in FY 2008 to $3.2 million in FY 2009 due to lower revenue realization with incurred development expenses.STATEMENT OF OPERATIONS ANALYSIS Operating Revenues in FY 2009 totaled $8.7 million as compared to FY 2008 revenues of $10.5 million, a decrease of $1.8 million. There was a reduction in wind revenues of $2.3 million from the previous year's sale involving the Reardan Twin Buttes Wind Project. The reduction in wind revenues was partially offset by $0.9 million for Radar Ridge Wind Project reimbursements.

Other business activity included a slight revenue increase to Environmental and Calibration Services of $0.1 million and a reduction to revenues of $0.5 million for Professional Services from FY 2008. Net operations for FY 2009 showed an operating loss of$1.3 million, down $1.9 million from the FY 2008 operating gain of $0.6 million. The operating loss reflects increased spending on the Radar Ridge Wind Project along with development costs associated with the Professional Services Sector involving Technical Services.Though revenues for Business Development declined overall, the generation development team had a successful year relative to wind energy project development, including the complete subscription of the Radar Ridge Wind Project with a potential of up to 82 megawatts-electric capacity.

The preparation of the solicitation for the procurement process has commenced.

Feasibility and pre-development activities associated with the Mustang Ridge Wind Project, with a potential capacity up to 165 megawatts-electric, culminated with the commencement of marketing effort to subscribe the project's output. This development offers the potential for an innovative teaming arrangement with a private developer who will share the financial risk and provide for the availability of the major equipment with firm pricing.The Business Development Fund receives contributions from the Internal Service Fund to cover cash needs during startup periods. Initial startup costs are not expected to be paid back and are shown as contributions.

As an operating business unit, requests can be made to fund incurred operating expenses.

In FY 2009, the Business Development Fund did not receive any new contributions (transfers), as compared to an increase of $0.7 million for FY 2008. The contributions (transfers) balance remains at $2.5 million for FY 2009.The Nine Canyon Wind Project (Nine Canyon) is wholly owned and operated by Energy Northwest.

Nine Canyon is located in the Horse Heaven Hills area southwest of Kennewick, Washington.

Electricity generated by Nine Canyon is purchased by Pacific Northwest Public Utility Districts (purchasers).

Each purchaser of Phase I has signed a 28-year power purchase agreement with Energy Northwest; each purchaser of Phase II has signed a 27-year power purchase agreement; and each purchaser of Phase III has signed a 23-year power purchase agreement.

The agreements are part of the 2nd Amended and Restated Nine Canyon Wind Project Power Purchase Agreement which now have an agreement end date of 2030. Nine Canyon is connected to the Bonneville Power Administration transmission grid via a substation and transmission lines constructed by Benton County Public Utility District.Phase I of Nine Canyon, which began commercial operation in September 2002, consists of 37 wind turbines, each with a maximum generating capacity of approximately 1.3 MW, for an aggregate generating capacity of 48.1 MW. Phase II of Nine Canyon, which was declared operational in December 2003, includes 12 wind turbines, each with a maximum generating capacity of 1.3 MW, for an aggregate generating capacity of approximately 15.6 MW. Phase III of Nine Canyon, which was declared operational in May 2008, includes 14 wind turbines, each with a maximum generating capacity of 2.3 MW, for an aggregate generating capacity of 32.2 MW. The total Nine Nine Canyon Wind Project Net Generation

-GWhrs FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 38 growing powerful solutions Canyon generating capability is 95.9 MW, enough energy for approximately 39,000 average homes.Nine Canyon produced 226.27 GWh of electricity in FY 2009 versus 237.33 GWh in FY 2008. Major component outages were less in FY 2009 but wind speed averages were 9.2 percent lower than FY 2008 resulting in the slight decrease of 4.7 percent in generation.

Nine Canyon's performance is measured in several ways, including cost of power.The cost of power for FY 2009 was $7.79 cents/kWh as compared to $6.05 cents/kWh in FY 2008. The cost of power fluctuates year to year depending on various factors such as wind totals and unplanned maintenance.

The FY 2009 cost of power increase of 28.8 percent was due to increased fixed costs (depreciation and decommissioning) and increased operations and maintenance costs both related to a full year's costs of the Phase III addition.BALANCE SHEET ANALYSIS Total Assets decreased

$13.5 million from $144.8 million in FY 2008 to $131.3 million in FY 2009. Major drivers for the decrease in assets were a decrease to plant of $5.8 million due to a full year's depreciation of Phase III and a decrease to Debt Service funds of $8.1 million due to an early payment of outstanding debt. The remaining amount was an overall increase of $0.4 million due to receivables, prepayments, and debt related activities.

The Renewable Energy Performance Incentive (REPI)accrual for FY 2009 was $0.8 million compared to $0.7 million for FY 2008 and reflects funding expectations for the program.There was an overall decrease to liabilities of $12.3 million with$11.9 million related to debt activity and the early payment of outstanding debt. The remaining

$0.4 million decrease is due to operating activities.

The decrease in Net Assets was $1.2 million in FY 2009 as compared to $2.9 million in FY 2008. The decline experienced in previous years is continuing, though there is a continued trend of improvement from previous periods. The original plan anticipated operating at a loss in the early years and gradually increasing the rate charged to the purchasers to avoid a large rate increase after the REPI expires. The REPI incentive expires 10 years from the initial operation startup date for each phase. Reserves that were established are used to facilitate this plan. The rate plan in FY 2008 was revised to account for the shortfall experienced in the REPI funding and to provide a new rate scenario out to the 2030 project end date.Nine Canyon Wind Project Cost of Power -Cents / kWh 10.00 8.00 6.00 4.00 2.00 FY 2009 FY 2008 FY 2007 FY 2006 FY 2005 STATEMENT OF OPERATIONS ANALYSIS Operating Revenues increased from $12.6 million in FY 2008 to $15.6 million in FY 2009. The project received revenue from the billing of the purchasers at an average rate of $69.12 per MWh for FY 2009 as compared to $49.62 per MWh for FY 2008 which is reflective of the implementation of the revised rate plan in FY 2008 to account for REPI funding shortfalls and costs of operations.

Revenue was affected by having Phase III on line for the entire year as compared to FY 2008; however, this impact was negated by lower generation.

There was an increase in operating expenses of $3.3 million from $8.1 million in FY 2008 to $11.4 million in FY 2009. Change in operating expenses was due to increased depreciation costs of $2.6 million and operations and maintenance costs of $0.7 million due to the Phase III addition.There were minor increases to decommissioning of $2k, administrative and general expenses of $5k, and a minor decrease of $2k to generation tax due to lower generation.

Other revenue and expenses decreased

$1.1 million from $7.4 million in FY 2008 to $6.3 million in FY 2009. Investment income associated with bond funds increased

$0.2 million due to increased funds available for investments and favorable timing. Bond related expenses accounted for the remaining decrease of $0.9 million. Net losses of $2.0 million for FY 2009 continued the trend from previous years. This trend is reflected in the declining Net Assets balance.However, results are improved over the loss reported for FY 2008 of $2.9 million; the positive trend reflects the impact of the revised rate structure and Phase III implementation.

Energy Northwest has accrued, as income (contribution) from DOE, REPI payments that enable Nine Canyon to receive funds Energy Northwest 2009 Annual Report 39 based on generation as it applies to the REPI bill. REPI was created to promote increases in the generation and utilization of electricity from renewable energy sources and to further the advances of renewable energy technologies.

This program, authorized under Section 1212 of the Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualifying renewable energy generation facilities.

Nine Canyon received REPI funding in the amount of $0.8 million for FY 2009, representing its share of funded amounts. The payment stream from Nine Canyon participants and the REPI receipts were projected to cover the total costs over the purchase agreement.

Continued shortfalls in REPI funding for the Nine Canyon project led to a revised rate plan to incorporate the impact of this shortfall over the life of the project. The billing rates for the Nine Canyon participants increased 69 percent and 80 percent for Phase I and Phase II participants respectively in FY 2008 in order to cover total project costs, projected out to the 2030 proposed project end date. The increases for FY 2008 were a change from the previous plan where a 3 percent increase each year over the life of the project was projected.

Going forward, the increase or decrease in rates will be based on cash requirements of debt repayment and the cost of operations.

Phase III started with an initial planning rate of $49.82 per MWh which will increase at 3 percent per year for three years.In year four (FY 2011) the rate will increase to a rate that will be stabilized over the life of the project. Possible adjustments may be necessary to future rates depending on operating costs and REPI, similar to Phase I and II.The Internal Service Fund (ISF) (formerly the General Fund)was established in May 1957. The Internal Service Fund provides services to the other funds. This fund accounts for the central procurement of certain common goods and services for the business units on a cost reimbursement basis. (See Note I to Financial Statements.)

BALANCE SHEET ANALYSIS Total Assets for FY 2009 increased

$16.3 million from $37.4 million in FY 2008 to $53.7 million in FY 2009. The five major items for the change were 1) an increase of $17.2 million to Cash for anticipated year end check and warrant redemption, 2)an increase of $1.5 million to Personal Time Bank investments and cash (which represents decreased usage due to R-1 9 requirements), 3) an increase of $0.7 million in restricted assets due to maturity schedule and escrow requirements processing schedule, 4) a decrease in net plant due to depreciation of $2.3 million, and 5) a decrease to operational activities of $0.8 million.The net increase in Net Assets and Liabilities is due to increases in Accounts Payable and Payroll related liabilities of$11.0 million and an increase to Sales Tax Payable of $5.0 million, which is tied to movement of fabricated fuel into the State of Washington.The remaining change is due to a $258k increase to Net Assets.STATEMENT OF OPERATIONS ANALYSIS Net Revenues for FY 2009 decreased

$166k from FY 2008.Investment income decreased

$218k due to lower invested balance relating to lower yields. Lease utilization factors remained relatively constant from FY 2008 but reduced Nine Canyon Wind Project Total Operating Costs (000's)$12,000 ..........

$11,000 .. ......$10,000 .....$9,0 00 .......................

$8,000 ........$7,000$6,000 .$5,000 .$4,000 "'$3,000...

..$2,000 " 1,00 " El Operating Expenses 0 Other Income / Expenses.....................I ....I I .ý .improvement costs resulted in a decrease to overall costs of........ $209k. Results from operations resulted in a $531k decrease.............

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

depreciation costs.IFY 2009 IFY 2008 2FY 2007 FY 2006 FY 2005 40 growing powerful solutions Blne t As of Jun 30, 200 (Dllr in Thuans Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Station Project No.l No.3* Fund Wind Project 2009 Internal Service Combined Subtotal Fund i Total 40 growing powerful solutions Assets CURRENT ASSETS Cash $ 10,092 $ 869 $ 209 $ 179 .5 360 :3 216 $ 11,925 i$ 18,876 :$ 30,801 Available-for-sale investments 18,029 4,159 5,003 2,485 6,362 36,038 24,488 60,526 Accounts and other receivables 352 263 507 2 1,124 128 1,252 Due from Participants 134 i 134 134 Due from other business units 4,537 18 441 124 1,023 6,143 464 Due from other funds 11,615 2,018 29,313 934 43,880 Materials and supplies 92,629 92,629 92,629 Prepayments and other 1,830 81 147 2,058 271 2,329 TOTAL CURRENT ASSETS 139,084 1,365 6,827 34,619 4,375 7,661 193,931 44,227 187,671 CURRENT RESTRICTED ASSETS (NOTE 1)Special funds Cash 3,364 4 3 1: 3,372 583 3,955 Available-for-sale investments

81,743 5,384 8,725 1,550 97,402 1,927 99,329 Accounts and other receivables 127 43 43 828 1,041 1,041 Debt service funds Cash 2,411 36 158 3 2,608 2,608 Available-for-sale investments 76,528 87,544 100,945 11,438 276,455 276,455 Accounts and other receivables 42 15 9 112 178 178 Due from other funds 1,935 809 295 : 3,039 TOTAL CURRENT .: : RESTRICTEDASSETS 166,150 809 93,321 109,883 13,932 i 384,095 2,510 U 383;566 Non Current Assets UTILITY PLANT (NOTE 2)In service 3,609,698 13,642 1,948 134,151 3,759,439 47,475 3,806,914 Not in service _ _25,253 ---25,253 25,253 Accumulated depreciation (2,321,450)

(12,542):'

(25,253):" (648): (26,965) (2,386,858)

(40,517):

(2,427,375) 1,288,248 1,100- 1,300 107,186 1,397,834 6,958 1,404,792 Nuclear fuel, net of accumulated amortization 222,927 222,927 222,927 Construction work in progress 92,390 92,390 92,390 TOTAL NONCURRENTASSETS i 1,603,565 1,100 -1,300 107,186 1,713,151 6,958 1 1,720,109 DEFERRED CHARGES Costs in excess of billings 832,952-i 1,881,219 1,699,206

.4,413,377 4413,377 Unamortized debt expense 12,057 -8,792 6,451 2,472 29,772 29772 Other deferred charges 8,269 3,649 11,918 11,918 TOTAL DEFERRED CHARGES 853,278 3,649 1,890,011 1,705,657 1 -2,472 4,455,067 4,455,067 TOTALASSETS i$ 2,762,077 1$ 6,923 .$ 1,990,159

$ 1,850,159 1$ 5,675 $ 131,251 1$ 6,746,244

$ 53,695 1$ 6,746,413*Project recorded on a liquidation basis.The accompanying notes are an integral part of these combined financial statements Energy Northwest 2009 Annual Report 41 Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Station Project No.* No.3* Fund Wind Project 2UU9 Internal Service Combined Subtotal Fund Total Liabilities And Net Assets CURRENT LIABILITIES Current maturities of long-term debt $ 22,375 $ $ 40,155 $ 71,280 i$ $ -:$ 133,810 i$ $ 133,810 Accounts payable and accrued expenses 42,184 999 292 245 2,495 719 46,934 39,520 86,454 Due to Participants 22,778 22,778 22,778 Due to other funds 809 ; 809 -Due to other business units i i 464i 464i 6,143i TOTAL CURRENT ( ..i LIABILITIES 187,337 1,808 40,447 71,525 2,495 1,183 204,795 45,663 243,042 LIABILITIES-PAYABLE FROM CURRENT RESTRICTED ASSETS (NOTE 1)Special funds Accounts payable and accrued expenses 118,922 14,773 1,095 134,790 583 135,373 Due to other funds 13,550 2,313 5,493 934 22,290 -Debt service funds Accrued interest payable 58,633 5 47,737 30,918 137,293 137,293 Due to other funds 23,820 23,820 TOTAL CURRENT RESTRICTED ASSETS 191,105 5 64,823 60,231 2,029 318,193 583 272,666 LONG-TERM DEBT (NOTE 5)Revenue bonds payable 2,392,382 1,821,165 1,729,005 144,730 6,087,282 6,087,282 Unamortized (discount)/premium on bonds -net 91,995 81,365 (2,548) 5,126 175,938 175,938 Unamortized gain/(loss) on bond refundings (11,339) ; (17,641):

(8,054): (37,034) (37,034)!TOTAL LONG-TERM DEBT r 2,473,038 " 1,884,889 1,718,403-149856 6,226,186 " 1 6,226,186 OTHER LONG-TERM LIABILITIES 1 10,597 -a --"'- 10,597 a " 10,597 DEFERRED CREDITS Advances from Members ...i and others -, -.726 726 Other deferred credits a 5,110 1 305 5,415 38i 5,453 TOTAL DEFERRED CREDITS 5,110. " " 305i 5,415 a 764 6,179 NET ASSETS Invested in capital assets, net of related debt 1,300 (40, 198):: (38,898) 6,958 (31,940)::

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

6,685 (12,257): TOTAL LIABILITIES 2,762,077 6,923 1,990,159 1,850,159 2,495 a 153,373 6,765,186 47,010 a I) 6,758,670 TOTAL LIABILITIES AND .-.--NETASSETS

$ 2,762,077

$ 6,923 :$ 1,990,159 i$ 1,850,159 i$ 5,675 a$ 131,251 i$ 6,746,244

$ 53,695 $ 6,746,413*Project recorded on a liquidation basis.The accompanying notes are an integral part of these combined financial statements 42 growing powerful solutions'~State&mensOfRveus, xpnes n Chage In~p~r Ne .wAssets Fo the year 6 ene June 30, 209(olrnTosns Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Station Project No.1

• No.3* Fund Wind Project 2009 Internal Service Combined Subtotal Fund Total 42 growing powerful solutions OPERATING REVENUES S 519,758 S 1,641 $ -S -$ 8,738 S 15,638 $ 545,775 $ -S 545,775 OPERATING EXPENSES Nuclear fuel 27,118 27,118 27,118 Spent fuel disposal fee 7,380 7,380 7,380 Decommissioning 6,457 76 6,533 6,533 Depreciation and amortization 77,063 36 213 6,736 84,048 84,048 Operations and maintenance 255,380 1,295 12,092 4,459 273,226 273,226 Other power supply expense 11i 111 111 Administrative

&general 27,123 151 --51 27,325 27,325 Generation tax 3,137 20 48 3,205 3,205 TOTAL OPERATING EXPENSES 403,658], 1,613 " " 12,305 11,370 428,946 -428,946 NET OPERATING REVENUES 116,100 28 -" (3,567)i 4,268 116,829 -116,8291 OTHER INCOME AND EXPENSE Other 888 I 97,588 87,029 2,201 187,706 72,660 187,964 Investment income 1,993 19 410 494 63 605 3,584 150 3,584 Interest expense and discount amortization (118,981)::

(47):: (96,160) (85,418):

(6,869); (307,475)

(307,475)Plant preservation and termination costs (1,329)::

(2,105) (3434) (3,434)Depreciation and amortization (6): (6)' (2,727)::

(6)Decommissioning (503):: (503):: (503)Services to other business units (69,825)-TOTAL OTHER INCOME AND ..EXPENSES (116,100):

(28): -2,264 (6,264): (120,128):

258 (119,870)Changes in Net Assets --(1,303): (1,996): (3,299): 258 (3,041)(DISTRIBUTION)/CONTRIBUTION

-- -829. 829' -: 829 TOTAL NET ASSETS, BEGINNING OFYEAR .4,483 (20,955)1 (16,472):

6,427 (10,045)STOTAL NET ASSETS, END 6,685 : OFYEAR END -i$ " -$ $ 3,180 I$ (22,122)15 (18,942)i$

6,685 ($ 1 (12,257)F*Project recorded on a liquidation basis.The accompanying notes are an integral part of these combined financial statements Energy Northwest 2009 Annual Report 43 Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2009 Station Project i No.1

• No.3* Fund Wind Project Fund Combined Total CASH FLOWS FROM OPERATING AND OTHER ACTIVITIES Operating revenue receipts $ 481,142 $ 3,003 :$ $ $Cash payments for operating expenses (295,537):

(1,287) : : _Other revenue receipts 129,515 134,013 Cash payments for preservation, termination expense _ _ _ (297) (512): Cash payments for services i -Net cash provided/(used) by operating and other activities 185,605 1,716 1 129,218 133,501 4,805 $ 16,814 i$ $ 505,764 (5,887) (5,696)::

(308,407)263,528 (809)19,205 19,205 (1,082): 11,118 1 19,205 479,281 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings 214,815 _ i 52,403 128,728 Refunded bond escrow requirement (125,305)

(51,890)!:

(127,765);:

Deposit to Debt Service Fund 125,305 i 51,890 127,765 Payment for bond issuance and financing costs (2,511): (10) (1 ,415):: (3,034): Payment for capital items (70,701);

(327) : Receipts from sales of plant assets 35 Nuclear fuel acquisitions (32,998) : _ _Interest paid on revenue bonds (122,833):

(46) (92,691) (122,415):

Principal paid on revenue bond maturities (25,242)::

(1,241); (61,290) (142,860):

(1)0 (500))(46):: 1 (934);: ( 0,806)(8,020)I 395,946 (304,960)304,960 (7,017)(730):: (73,192): 35 (32,998)(348,791)(238,653)Escrow refund 5 1 94 100 Net cash providedl(used) by capital and -related financing activities (39,465) (1,624)::

(102,957))

(139,487)):

(501):: (19,806):

(730) (304,570)CASH FLOWS FROM NON-CAPITAL FINANCE ACTIVITIES

--CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities (949,443)::

(3,327) (351,897)i (423,759):

(15,965):

(44,432):

(62,292):

(1,851,115)

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

IN CASH (60,885) 860 1 (798)1 (3,063)1 (3,046) (9,172)::

17,584 (58,520)CASH AT JUNE 30, 2008 76,752 1 9 1,047 1 3,403 1 3,406 I 9,392 1,875 95,884{CASH AT JUNE 30,2009 1$ 15,867 1$ 869 iS 249 1$ 340 1$ 360 1$ 220 1$ 19,459 1$ 37,364*Project recorded on a liquidation basis.The accompanying notes are an integral part of these combined financial statements 44 growing powerful solutions Stt m n sOfC s Fl S .Cntd Fo th y.earede-ue 30, 2009 .(Dlar nhusns Columbia Business Generating Packwood Lake Nuclear Project Nuclear Project Development Nine Canyon Internal Service 2009 Station Project No.1 No.3* Fund Wind Project Fund Combined Total RECONCILIATION OF NET OPERATING REVENUES TO NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES Net operating revenues $ 116,100 $ 28 $ $ -$ (3,567):$

4,268 t$ $ 116,829 Adjustments to reconcile net operating revenues to cash provided by operating activities:

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

Deferred charges/costs in excess of billings (42,689) (12) (42,701)Accounts receivable 467 203 15 685 Materials and supplies 3,815 3,815 Prepaid and other assets (528) (3) 21 (148): (658)Due from/to other business units, funds and Participants (3,594): 1,171 (433):ý (29):i (2,885)Accounts payable 221 (34)! 700 1 236 1,123 Other revenue receipts 129,515 134,013 263,528 Cash payments for preservation, termination expense _ _ __(297) (512) (809)'! ~ ~ ~

(09 Cash payments for services 19,205 19,205 Net cash provided (used) by operating and other activities

$ 185,605 $ 1716 129,218 $ 133,501 $ (1 08241$ ' 1, 1 120S i, 879,281"'*Project recorded on a liquidation basis.The accompanying notes are an integral part of these combined financial statements Energy Northwest 2009 Annual Report 45*~~~ -7a NOTE 1 -

SUMMARY

OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES Energy Northwest, a municipal corporation and joint operat-ing agency of the State of Washington, was organized in 1957 to finance, acquire, construct and operate facilities for the genera-tion and transmission of electric power.Membership consists of 22 public utility districts and 3 cities.All members own and operate electric systems within the State of Washington.

Energy Northwest is exempt from federal income tax and has no taxing authority.

Energy Northwest maintains seven business units. Each unit is financed and accounted for separately from all other current or future business units.All electrical energy produced by Energy Northwest net-billed business units is ultimately delivered to electrical distribution fa-cilities owned and operated by Bonneville Power Administration (BPA) as part of the Federal Columbia River Power System. BPA in turn distributes the electricity to electric utility systems through-out the Northwest, including participants in Energy Northwest's business units, for ultimate distribution to consumers.

Partici-pants in Energy Northwest's net-billed business units consist of public utilities and rural electric cooperatives located in the western United States who have entered into net-billing agree-ments with Energy Northwest and BPA for participation in one or more of Energy Northwest's business units. BPA is obligated by law to establish rates for electric power which will recover the cost of electric energy acquired from Energy Northwest and other sources, as well as BPA's other costs (see Note 6).Energy Northwest operates the Columbia Generating Station (Columbia), a 1,150-MWe (Design Electric Rating, net) generat-ing plant completed in 1984. Energy Northwest has obtained all permits and licenses required to operate Columbia, including a Nuclear Regulatory Commission (NRC) operating license that expires in December 2023. Energy Northwest is preparing an application to renew the license for an additional 20 years, thus continuing operations to 2043. Submittal of this application is planned for January 2010.The estimated duration of the license renewal process is 20-24 months from acceptance of the applica-tion. Costs to date on Columbia relicensing are $8.3 million.Energy Northwest also operates the Packwood Lake Hydro-electric Project (Packwood), a 27.5-MWe generating plant com-pleted in 1964. Packwood operates under a 50-year license from the Federal Energy Regulatory Commission (FERC) that expires on February 28, 2010.The final application for the relicensing of Packwood was submitted to FERC on February 22, 2008. The estimated license renewal process is 18-24 months from the ac-ceptance of application.

Costs incurred to date for relicensing are$3.6 million. The electric power produced by Packwood is sold to 12 project participant utilities which pay the costs of Pack-wood, including the debt service on Packwood revenue bonds.The Packwood participants are obligated to pay annual costs of Packwood including debt service, whether or not Packwood is operable, until the outstanding bonds are paid or provisions are made for bond retirement, in accordance with the requirements of bond resolution.The participants share Packwood revenue as well. In 2002, Packwood and its participants entered into a Power Sales Agreement with Benton and Franklin PUDs to guarantee a specified level of power generation from the Packwood project.This agreement ended in October 2008. In October 2008, Pack-wood entered into a new Power Sales Agreement with Snohom-ish PUD to purchase the entire project output (see Note 6).Nuclear Project No. 1, a 1,250-MWe plant, was placed in ex-tended construction delay status in 1982, when it was 65 percent complete.

Nuclear Project No. 3, a 1,240-MWe plant, was placed in extended construction delay status in 1983, when it was 75 percent complete.

On May 13, 1994, Energy Northwest's Board of Directors adopted resolutions terminating Nuclear Projects Nos.1 and 3. All funding requirements remain as net-billed obliga-tions of Nuclear Projects Nos. 1 and 3. Energy Northwest wholly owns Nuclear Project No. 1. Energy Northwest is no longer responsible for site restoration costs for Nuclear Project No. 3.(See Note 13)The Business Development Fund was established in April 1997 to pursue and develop new energy related business op-portunities.

There are four main business lines associated with this business unit: General Services and Facilities, Generation, Professional Services, and Business Unit Support.Nine Canyon was established in January 2001 for the purpose of exploring and establishing a wind energy project. Phase I of 46 growing powerful solutions the project was completed in FY 2003 and Phase II was com-pleted in FY 2004. Phase I and II combined capacity is approxi-mately 63.7 MWe. Phase Ill was completed in FY 2008 adding an additional 14 wind turbines to the Nine Canyon Wind Project and adding an aggregate capacity of 32.2 MWe. The total number of turbines at Nine Canyon is 63 and the total capacity is 95.9 MWe.The Internal Service Fund was established in May 1957. It is currently used to account for the central procurement of certain common goods and services for the business units on a cost reimbursement basis.Energy Northwest's fiscal year begins on July 1 and ends on June 30. In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through October 30, 2009, the date the financial statements were issued.The following is a summary of the more significant policies: a) Basis of Accounting and Presentation:

The accounting policies of Energy Northwest conform to GAAP applicable to governmental units. The Governmental Accounting Standards Board (GASB) is the accepted standard-setting body for establishing governmental accounting and finan-cial reporting principles.

Energy Northwest has applied all applicable GASB pronouncements and elected to apply Financial Accounting Standards Board (FASB) statements and interpretations except for those conflicting with or in contradiction to GASB pronouncements.

The accounting and reporting policies of Energy Northwest are regulated by the Washington State Auditor's Office and are based on the Uniform System of Accounts prescribed for public utili-ties and licensees by FERC. Energy Northwest uses the full accrual basis of accounting where revenues are recognized when earned and expenses are recognized when incurred.Revenues and expenses related to Energy Northwest's operations are considered to be operating revenues and expenses; while revenues and expenses related to capital, financing and investing activities are considered to be other income and expenses.

Separate funds and book of accounts are maintained for each business unit. Payment of obligations of one business unit with funds of another business unit is prohibited, and would constitute violation of bond resolution covenants. (See Note 5)Energy Northwest maintains an Internal Service Fund for centralized control and accounting of certain capital assets such as data processing equipment, and for payment and accounting of internal services, payroll, benefits, ad-ministrative and general expenses, and certain contracted services on a cost reimbursement basis. Certain assets in the Internal Service Fund are also owned by this Fund and operated for the benefit of other projects.

Depreciation relating to capital assets is charged to the appropriate busi-ness units based upon assets held by each project.Liabilities of the Internal Service Fund represent accrued payroll, vacation pay, employee benefits, and com-mon accounts payable which have been charged directly or indirectly to business units and will be funded by the busi-ness units when paid. Net amounts owed to or from Energy Northwest business units are recorded as Current Liabili-ties-Due to other business units, or as Current Assets-Due from other business units on the Internal Service Fund Balance Sheet.The Combined Total column on the financial state-ments is for presentation only as each Energy Northwest business unit is financed and accounted for separately from all other current and future business units. The FY 2009 Combined Total includes eliminations for transactions between business units as required in Statement No. 34,"Basic Financial Statements and Management's Discussion and Analysis for State and Local Governments," of the GASB.Pursuant to GASB Statement No. 20, "Accounting and Financial Reporting for Proprietary Funds and Other Gov-ernmental Entities That Use Proprietary Fund Accounting:" Energy Northwest has elected to apply all FASB statements and interpretations, except for those that conflict with, or contradict, GASB pronouncements.

Specifically, GASB No.7, "Advance Refundings Resulting in Defeasance of Debt:" and GASB No. 23, "Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities:" conflict with Statement of Financial Accounting Standard (SFAS) No. 140,"Accounting forTransfers and Servicing of Financial Assets and Extinguishments of Liabilities."As such, the guidance under GASB No. 7 and No. 23 is followed.Such guidance governs the accounting for bond defea-sances and refundings.

Energy Northwest 2009 Annual Report 47 b) Utility Plant and Depreciation:

Utility plant is recorded at original cost which includes both direct costs of construc-tion or acquisition and indirect costs.Property, plant, and equipment are depreciated using the straight-line method over the following estimated use-ful lives: Buildings and Improvements Generation Plant Transportation Equipment General Plant and Equipment 20 -60 years 40 years 6 -9 years 3 -15 years Group rates are used for assets and, accordingly, no gain or loss is recorded on the disposition of an asset unless it represents a major retirement.

When operating plant assets are retired, their original cost together with removal costs, less salvage, is charged to accumulated depreciation.

The utility plant and net assets of Nuclear Projects Nos.1 and 3 have been reduced to their estimated net realiz-able values due to termination.

A write-down of Nuclear Projects Nos. 1 and 3 was recorded in FY 1995 and included in Cost in Excess of Billings.

Interest expense, termination expenses and asset disposition costs for Nuclear Projects Nos. 1 and 3 have been charged to operations.

c) Allowance for Funds Used During Construction (AFUDC): For financing not related to a Capital Facility, Energy North-west analyzes the gross interest expense relating to the cost of the bond sale, taking into account interest earnings and draws for purchase or construction reimbursements for the purpose of analyzing impact to the recording of capital-ized interest.

However, if estimated costs are more than inconsequential, an adjustment is made to allocate capital-ized interest to the appropriate plant account. Interest costs capitalized for FY 2009 totaled $1.9 million and related to Columbia.d) Nuclear Fuel: All expenditures related to the initial pur-chase of nuclear fuel for Columbia, including interest, were capitalized and carried at cost. When the fuel is placed in the reactor; the fuel cost is amortized to operating expense on the basis of quantity of heat produced for generation of electric energy. Accumulated nuclear fuel amortization (the amortization of the cost of nuclear fuel assemblies in the reactor used in the production of energy and in the fuel pool for less than six months per FERC guidelines) is $121.0 million as of June 30, 2009.A fuel lease agreement was entered into in FY 2007 and was completed in FY 2009. The agreement provided for an exchange of uranium oxide (U308) for an equivalent amount of uranium hexafluoride (UF6), which was returned at the conclusion of the loan.A fuel agreement was entered into in FY 2009 in which Energy Northwest purchased U308 from seller in February 2009. A related transaction will take place in FY 2011 in which Energy Northwest will purchase conversion services from seller. At that time, Energy Northwest will deliver the U308 to seller for conversion to UF6.The seller shall deliver to Energy Northwest an equivalent quantity of UF6. This purchase will take place on February 21, 2011.Energy Northwest has a contract with the U.S. Depart-ment of Energy (DOE) that requires the DOE to accept title and dispose of spent nuclear fuel. Although the courts have ruled that DOE had the obligation to accept title to spent nuclear fuel by January 31, 1998, currently, there is no known date established when DOE will fulfill this legal obligation and begin accepting spent nuclear fuel. Energy Northwest is currently seeking damages from DOE to cover interim fuel storage expenses. (See Note 13)The current period operating expense for Columbia in-cludes a $7.4 million charge from the DOE for future spent fuel storage and disposal in accordance with the Nuclear Waste Policy Act of 1982.Energy Northwest has completed the Independent Spent Fuel Storage Installation (ISFSI) project, which is a temporary dry cask storage until the DOE completes its plan for a national repository.

ISFSI will store the spent fuel in commercially available dry storage casks on a concrete pad at the Columbia site. No casks were issued from the cask inventory account in FY 2009. Spent fuel is transferred from the spent fuel pool to the ISFSI periodically to allow for future refuelings.

Current period costs include $25.9 million for nuclear fuel and $1.2 million for dry cask storage costs.

48 growing powerful solutions e) Asset Retirement Obligation:

Energy Northwest has adopted FASB Statement of Financial Accounting Stan-dard (SFAS) No. 143,"Accounting for Asset Retirement Obligations'" This statement requires Energy Northwest to recognize the fair value of a liability associated with the re-tirement of a long-lived asset, such as: Columbia Generat-ing Station, Nuclear Project No. 1, and Nine Canyon, in the period in which it is incurred. (See Note 11)f) Decommissioning and Site Restoration:

Energy North-west established decommissioning and site restoration funds for Columbia and monies are being deposited each year in accordance with an established funding plan. (See Note 12)g) Restricted Assets: In accordance with bond resolutions, related agreements and laws, separate restricted accounts have been established.

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

h) Cash and Investments:

For purposes of the Statement of Cash Flows, cash includes unrestricted and restricted cash balances and each business unit maintains their cash and investments.

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

The percentage of sales method is used to estimate uncollectible accounts.

The reserve is then reviewed for adequacy against an aging schedule of accounts receivable.

Accounts deemed uncollectible are transferred to the provision for uncollectible accounts on a yearly basis. Accounts receivable specific to each business unit are recorded in the residing business unit.j) Other Receivables:

Other receivables include amounts related to the Internal Service Fund from miscellaneous outstanding receivables from other business units which have not yet been collected.

The amounts due to each busi-ness unit are reflected in the Due To/From other business unit's account. Other receivables specific to each business unit are recorded in the residing business unit.k) Materials and Supplies:

Materials and supplies are valued at cost using the weighted average cost method.

Energy Northwest 2009 Annual Report 49 I) Long-Term Liabilities:

Consist of obligations related to bonds payable and the associated premiums/discounts and gains/losses.

Other noncurrent liabilities for CGS only relate to cask activity.Long-Term Liability activity for the year ending June 30, 2009 is shown below.Lo gT r Liblte (Dllr in Thousands)

Beginning Balance Increases Decreases

Ending Balance Columbia Generating Station Revenue bonds payable $ 2,359,765

$ 204,110 $ 171,493 $ 2,392,382 Unamortized (discount)/premium on bonds -net 95,341 10,705 14,051 91,995 Unamortized gain/(loss) on bond refundings (19,336):

7,997 (11,339)Other noncurrent liabilities 9,337 1,260 10,597 Current portion 6,100 46,095 29,820 22,375$ 2,451,207 270,167 $ 215,364 $ 2,506,010 Packwood Lake Hydroelectric Project Revenue bonds payable 551i$ $ 551i$Unamortized (discount)/premium on bonds -net (1) 1 Unamortized gainl(loss) on bond refundings 14 14 Current portion 690 690 1,254$ 1$ 1,255 $ -j Nuclear Project No.1 Revenue bonds payable $ 1,863,790

$ 49,420 $ 92,045 $ 1,821,165 Unamortized (discount)/premium on bonds -net 93,716 2,983 15,334 81,365 Unamortized gain/(loss) on bond refundings (31,404):

13,763: (17,641)Current portion 54,160 40,155 : 54,160 : 40,155$ 1,980,262

$ 106,321 $ 161,539 $ 1,925,044 Nuclear Project No.3 Revenue bonds payable $1,811,025

$117,025 $199,045 $1,729,005 Unamortized (discount)/premium on bonds- net (22,208):

19,660 (2,548)Unamortized gainl(loss) on bond refundings (14,555)::

7,244 743 (8,054)Current portion 95,155 71,280 95,155i 71,280 1,869,417 s 215,209 s 294,943 s 1,789,683 Nine Canyon Wind Project Revenue bonds payable $ 148,435 $ $ 3,705 $ 144,730 Unamortized (discount)I/premium on bonds -net 5,633 507 5,126 Current portion 4,315 4,315 158,383 $ $ 8,527 $ 149,856 50 growing powerful solutions m) Debt Premium, Discount and Expense: Original issue and reacquired bond premiums, discounts and expenses relating to the bonds are amortized over the terms of the respective bond issues using the bonds outstanding method which approximates the effective interest method.In accordance with GASB Statement No. 23, "Accounting and Financial Reporting for Refundings of Debt Reported by Proprietary Activities'" losses on debt refundings have been deferred and amortized as a component of interest expense over the shorter of the remaining life of the old or new debt. The balance sheet includes the original deferred amount less recognized amortization expense and is in-cluded as a reduction to the new debt.n) Revenue Recognition:

Energy Northwest accounts for expenses on an accrual basis, and recovers, through various agreements, actual cash requirements for operations and debt service for Columbia, Packwood, Nuclear Project No. 1 and Nuclear Project No. 3. For these business units Energy Northwest recognizes revenues equal to expenses for each period. No net revenue or loss is recognized, and no equity accumulated.

The difference between cumulative billings received and cumulative expenses is recorded as either bill-ings in excess of costs (deferred credit) or as costs in excess of billings (deferred debit), as appropriate.

Such amounts will be settled during future operating periods. (See Note 6)Energy Northwest accounts for revenues and expenses on an accrual basis for the remaining business units.The difference between cumulative revenues and cumula-tive expenses is recognized as net revenue or losses and included in Net Assets for each period.o) Capital Contribution:

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

This program, authorized under section 1212 if the Energy Policy Act of 1992, provides financial incentive payments for electricity produced and sold by new qualify-ing renewable energy generation facilities.

Nine Canyon recorded a receivable for the applied REPI funding in the amount of $0.8 million for FY 2009, representing its share of funded amounts. The payment stream from Nine Canyon participants and the REPI receipts were projected to cover the total costs over the purchase agreement.

Permanent shortfalls in REPI funding for the Nine Canyon project led to a revised rate plan to incorporate the impact of this short-fall over the life of the project. The rate schedule for the Nine Canyon participants covers total project costs occur-ring in FY 2009 and projections out to the 2030 proposed end date.p) Compensated Absences:

Employees earn leave in accor-dance with length of service. Energy Northwest accrues the cost of personal leave in the year when earned. The liability for unpaid leave benefits and related payroll taxes was$18.7 million at June 30, 2009 and is recorded as a current liability.

q) Use of Estimates:

The preparation of Energy Northwest financial statements in conformity with GAAP requires management to make estimates and assumptions that directly affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

Certain incurred expenses and revenues are allocated to the business units based on specific allocation methods that management considers to be reasonable.

Energy Northwest 2009 Annual Report 51 NOTE 2 -UTIUTY PLANT Utility plant activity for the year ended June 30, 2009 was as follows: Beginning Balance Increases Decreases Ending Balance Columbia Generating Station Generation i$ 3,547,102

$ 30,127 1$ -3,577,229 Decommissioning 32,469 32,469 Construction Work-in-Progress 52,539 39,851 92,390 Accumulated Depreciation and Decommissioning (2,246,411):

(75,039) (2,321,450)

UTILITY PLANT, net* 1,385,699

$(5,061):

' -]l 1,380,638,1 Packwood Lake Hydroelectric Project Generation

$ 13,558 !$ 84i$ :;$ 13,642 Accumulated Depreciation (12,517)::

(25): : (12,542)IUTILITY PLANT, net i$ 1,041 :$ 59$ -is il 1,100 Business Development Generation iS 1,327 :$ 621 ;$ -iS 1,948 Construction Work-in-Progress

._ _Accumulated Depreciation (548)i (100) (648)IUTILITY PLANT, net :$ 779 $ 521 $ -:$ 1,300 Nine Canyon Wind Project Generation i$ 132,356 i$ 934 i$ -$ 133,290 Decommissioning 861 861 Construction Work-in-Progress

"_ -: _Accumulated Depreciation and Decommissioning (20,219) (6,746) (26,965)I UTILITY PLANT, net $ 112,998 $ (5,812):$

-:S II 107,186 Internal Service Fund Generation 5 47,086 5 389 $ -i$ 47,475 Construction Work-in-Progress

_ _.Accumulated Depreciation

-(37,790)i (2,727):i (40,517)IUTILITY PLANT, net i$ 9,296 :$ (2,338):$ " :$ II 6,958* Does not include Nuclear Fuel Amount of $223 million, net of amortization.

52 growing powerful solutions NOTE 3 -DEPOSITS AND INVESTMENTS As of June 30, 2009, Energy Northwest had the following unrealized gains and losses: Amortized Cost Unrealized Gains Unrealized Losses Fair Value (1) (2)Columbia Generating Station $ 176,207 $ 93 " $ 176,300 Packwood Lake Hydroelectric Project _ _- : _- : _-_ : Nuclear Project No. 1 97,087 97,087 Nuclear Project No. 3 114,673 114,673 Business Development Fund 2,484 i1 .2,485 Internal Service Fund 26,423 21 1 (29) 26,415 Nine Canyon Wind Project 19,215 149 (14) 19,350 (1) All investments are in U.S. Government backed securities (2) The majority of investments have maturities of less than 1 year. Approximately

$9.35 million have a maturity beyond 1 year with the longest maturity being June 10, 2011.Interest rate risk: In accordance with its investment policy, Energy Northwest manages its exposure to declines in fair values by limiting investments to those with maturities designated in specific bond resolutions.

Credit risk: Energy Northwest's investment policy restricts in-vestments to debt securities and obligations of the U.S.Treasury, U.S. Government agencies, Federal National Mortgage Associa-tion and the Federal Home Loan Banks, certificates of deposit and other evidences of deposit at financial institutions quali-fied by the Washington Public Deposit Protection Commission (PDPC), and general obligation debt of state and local govern-ments and public authorities recognized with one of the three highest credit ratings (AAA, AA+, AA, or equivalent).

This invest-ment policy is more restrictive than the state law.Concentration of credit risk: Energy Northwest investment policy does not specifically address concentration of credit risk.An individual authorized security or obligation can receive up to 100 percent of the authorized investment amount; there are no individual concentration limits.Custodial credit risk, Deposits:

For a deposit, this is the risk that in the event of bank failure, Energy Northwest's deposits may not be returned to it. Energy Northwest's interest bearing accounts and certificates of deposits are covered up to $250,000 by Federal Depository Insurance Corporation (FDIC) while non-interest bearing deposits are entirely covered by FDIC and if nec-essary, all interest and non-interest bearing deposits are covered by collateral held in multiple financial institution collateral pool administered by the Washington State Treasurer's Local Govern-ment Investment Pool (PDPC). Under state law, public deposito-ries under the PDPC may be assessed on a prorated basis if the pool's collateral is insufficient to cover a loss. As a result, deposits covered by collateral held in the multiple financial institution collateral pool are considered to be insured. State law requires deposits may only be made with institutions that are approved by the PDPC.

Energy Northwest 2009 Annual Report 53 NOTE 4 -DEFERRED CHARGES AND DEFERRED CREDITS Other deferred charges of $8.3 million and $3.6 million relate to the Columbia and Packwood relicensing effort, respectively.

NOTE 5- LONG-TERM DEBT Each Energy Northwest business unit is financed separately.

The resolutions of Energy Northwest authorizing issuance of revenue bonds for each business unit provide that such bonds are payable from the revenues of that business unit. All bonds issued under Resolutions Nos. 769, 775 and 640 for Nuclear Proj-ects Nos. 1, 3 and Columbia, respectively, have the same priority of payment within the business unit (the "Prior Lien Bonds"). All bonds issued under Resolutions Nos. 835, 838 and 1042 (the"Electric Revenue Bonds") for Nuclear Projects Nos. 1,3 and Columbia, respectively, are subordinate to the Prior Lien Bonds and have the same subordinated priority of payment within the business unit. Nine Canyon's bonds were authorized by the following resolutions:

Resolution No. 1214 2001 Bonds, Resolu-tion No. 1299 2003 Bonds, Resolution No. 1376 2005 Bonds and Resolution No.1482 2006 Bonds.During the year ended June 30, 2009, Energy Northwest is-sued, for Nuclear Projects No. 1 and 3, and Columbia, the Series 2009-A Bonds and Series 2009-B Bonds. The Series 2009-C Bonds were issued for Columbia.

The Series 2009-A, 2009-B, 2009-C Bonds issued for Nuclear Project No. 1, Nuclear Project No. 3, and Columbia are fixed rate bonds with a weighted average coupon interest rate ranging from 4.83 percent to 5.67 percent. These transactions resulted in a net-loss for accounting purposes of$0.03 million. According to GASB No. 23, "Accounting and Finan-cial Reporting for Refundings of Debt Reported by Proprietary Activities;" gains and losses on the refundings are deferred and amortized over the remaining life of the old debt or the new debt, whichever is shorter.The Series 2009-A Bonds issued for Nuclear Project No. 1, Nuclear Project No. 3, and Columbia are tax exempt fixed-rate bonds that extended debt.The Series 2009-B Bonds, issued for Nuclear Project No. 1, Nuclear Project No. 3 and Columbia are taxable fixed-rate bonds for the purpose of paying costs relating to the issuance of the Series 2009-A, Series 2009-B, and Series 2009-C Bonds, as well as certain costs relating to the refunding of certain outstanding bonds.The Series 2009-C Bonds issued for Columbia are tax exempt fixed-rate bonds to finance a portion of the cost of certain capital improvements at Columbia.Nuclear Projects Nos. 1 and 3 have long-term debt that contains variable rate interest.

These rates are set periodically through a weekly rate reset. These rates ranged from 0.200 per-cent to 9.240 percent during FY 2009.The Bond Proceeds, Weighted Average Coupon Interest Rates, Net Accounting Loss, and Total Defeased Bonds for 2009-A, 2009-B, and 2009-C are presented in the following tables:

54 growing powerful solutions BOND PROCEEDS (dollars in millions)2009A 2009B 2009C Total Project I $ 51.89 i$ 0.51 $$ -52.40 CGS 125.30 18.51 71.00 214.81 Project 3 127.76 0.97 -128.73 Total i$ 304.95 $ 19.99 $ 71.00 iS 395.94 WEIGHTED AVERAGE COUPON INTEREST RATE FOR REFUNDED BONDS 2009A 2009B 2009C Total 5.42%' -" The 2009A issue refunded variable rate bonds that are not included.WEIGHTED AVERAGE COUPON INTEREST RATE FOR NEW BONDS 2009A 2009B 2009C Total 4.83% 5.67% 4.88%NET ACCOUNTING LOSS (dollars in millions)2009A 2009B 2009C Total Project I $ (0.51):$ 0.51 $ $CGS (2.15): 1.21 (0.94)Project 3 0.01 0.96 0.97 Total $ (2.65)i$ 2.68 $ $ 0.03 TOTAL DEFEASED 2009A 2009B 2009C Total Project 1 i$ 51.89 $ -$ -: 51.89 CGS 125.30 : -125.30 Project 3 127.76 -127.76 Total 5 304.95 $ " i$ " i$ 304.95 In prior fiscal years, Energy Northwest also defeased certain revenue bonds by placing the net proceeds from the refunding bonds in irrevocable trusts to provide for all required future debt service payments on the refunded bonds until their dates of redemption.

Accordingly, the trust account assets and liability for the defeased bonds are not included in the financial statements in accordance with GASB statements No. 7 and 23. Including the FY 2009 defeasements, $44.8 million, $25.9 million, and $1 25.3 million of defeased bonds were not called or had not matured at June 30, 2009, for Nuclear Projects Nos. 1 and 3, and Columbia respectively.

Outstanding principal on revenue and refunding bonds for the various business units as of June 30, 2009, and future debt service requirements for these bonds are presented in the fol-lowing tables: Energy Northwest did not issue or refund any bonds associated with Packwood or Nine Canyon for FY 2009. All remaining bonded debt related to Packwood was paid off prior to June 30, 2009.

Energy Northwest 2009 Annual Report 55 NUCLEAR PROJECT NO.1 COLUMBIA REVENUE AND REFUNDING BONDS REFUNDING REVENUE BONDS Serial or Term Serial or Term Series Coupon Rate (%) Maturities Amount Series I Coupon Rate (%) Maturities Amount 1992A 1994A 2001A 2002A 2002B 2003A 2003B 2003F 2004A 2004B 2004C 2005A 2005C 2006A 2006B 2006C 2006D 2007A 2007B 2007D 2008A 2008B 2008C 2008D 2008E 2009A 2009B -2009C 6.30 5.40 5.00-5.50 5.20-5.75 5.35-6.00 5.50 4.15 5.00-5.25 5.25 5.50 5.25 5.00 4.34-4.74 5.00 5.23 5.00 5.80 5.00 5.07-5.33 5.00 5.00-5.25 3.60-5.95 5.00-5.25 5.00 4.15 3.00-5.00 4.59-6.80 4.25-5.00 7-1-2012 i$* 7-1-2012 7-1-13/2017 7-1-17/2018 7-1-2018 7-1-10/2015 7-1-2009 7-1-10/2018 7-1-10/2018 7-1-2013 7-1-10/2018 7-1-15/2018 7-1-09/2015 7-1-20/2024 7-1-2011 7-1-20/2024 7-1-2023 7-1-13/2018 7-1-12/2021 7-1-21/2024 7-1-14/2018 7-1-09/2021 7-1-21/2024 7-1-10/2012 7-1-2009 7-1-14/2018 7-1-14/2024 7-1-20/2024 50,000 100,107 186,600 157,260 123,815 132,970 4,530 33,165 259,680 12,715 21,275 114,985 91,890 434,210 4,420 62,200 3,425 77,575 10,665 35,080 110,935 14,850 37,240 127,510 3,545 116,425 18,515 69,170 1989B 1990B 1993B 1996C 1998A 2001A 2002A 2002B 2003A 2003B 2004A 20048 2005A 2006A 2007A 2007B 2007C 2008A 2008B 2008D 2008E 2009A 2009B 1993 1A-1 1993-1A-2 1993-1A-3 7.125 7.25 7.00 6.00 5.75 4.50-5.50 5.50-5.75 6.00 5.50 4.06 5.25 5.50 5.00 5.00 5.00 5.07-5.10 5.00 5.00-5.25 3.60 5.00 4.15 3.25-5.00 4.59 VARIABLE VARIABLE VARIABLE i 71I2016 i$7-1-2009 7-1-2009 7-1-2009 7-1-2009 7-1-10/2013 7-1-13/2017 7-1-2017 7-1-13/2017 7-1-2009 7-1-2013 7-1-2013 7-1-13/2015 7-1-10/2017 7-1-13/2017 7-1-12/2013 7-1-13/2017 7-1-13/2017 7-1-2009 7-1-10/2017 7-1-2009 7-1-14/2015 7-1-2014 41,070 2,695 5,855 6,335 2,810 76,560 248,485 101,950 241,455 18,210 62,485 1,135 72,175 271,325 51,730 6,740 219,020 230,535 2,155 70,125 2,095 48,905 515 33,055 33,055 10,845 Revenue bonds payable;;$

1,861,320 Estimated fair value at June 30, 2009 I$II 2,039,1771 (B)Revenue bonds payablel.

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

56 growing powerful solutions Outstaning Log-er Debt (ConO)As Of Jun 30, 200 (Dllr In Thosads NUCLEAR PROJECT NO.3 REFUNDING REVENUE BONDS Serial or Term Series Coupon Rate N%) Maturities Amount 1989A (A) 7-1-0912014

$ 8,893 1989B (A) 7-1 -09/2014 29,224 7.125 7-1-2016 76,145 105,369 19908 (A) 7-1-09/2010 4,871 1993B 7.00 7-1-2009 9,050 1993C (A) 7-1-13/2018 23,963 1997A 6.00 7-1-2009 5,235 2001A 5.50 7-1-10/2018 151,380 20018B 5.50 7-01-2018 10,675 (C)20028 6.00 7-01-2016 75,360 2003A 5.50 7-1-11/2017 241,915 20038 4.15 7-1-2009 21,575 2004A -5.25 7-1-14/2016 83,835 20048 5.50 7-12013 1,515 2005A 5.00 7-1-13/2015 129,265 2006A 5.00 7-1-16/2018 39,445 2007A 4.50-5.00 7-1-13/2018 84,465 20078 5.07 7-1-2012 1,725 2007C 5.00 7-1-12/2018 61,085 2008A 5.25 7-1-2018 13,790 20088 3.70 7-1-2010 110 2008D 5.00 7-1-10/2017 62,270 2008E 4.15 7-1-2009 2,485 2009A .5.00-5.25 7-1-14/2018 116,055 20098B 4.59 7-1-2009 970 1993-3A-3 VARIABLE .15,795 2003E VARIABLE .98,025 2008-Fl i VARIABLE .104,415 20084F2 VARIABLE 104,415 NINE CANYON WIND PROJECT REFUNDING REVENUE BONDS Serial or Term Series Coupon Rate %) Maturities Amount 2003 i 3.75-5.00 i 7-1 -1 0/2023 $17,600 2005 i 4.50-5.00 7-1 -1 0/2023 i57,720 2006 4.50-5.00 7-1-10/2030 69,410 Revenue bonds payable:, 144,730 Estimated fair value at June 30, 2009 145,350 (B)(B) The estimated fair value shown has been reported to meet the disclosure requirements of the Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.Total Bonds Payable::$

6,221,092 Estimated fair value at June 30, 2009$ 6,669,5601 Compound interest bonds accretion:, Revenue bonds payable::

$Estimated fair value at June 30, 2009 Is 222,335 1,800,285 11895,5121 (B)(A) Compound Interest Bonds (B) The estimated fair value shown has been reported to meet the disclosure requirements of the Statement of Financial Accounting Standards (SFAS) 107 and does not purport to represent the amounts at which these obligations would be settled.(C) Auction Rate Certificates that will have a rate of 5.50%o through 7/11/2010 and a variable rate thereafter until 7/1/2018.

Energy Northwest 2009 Annual Report 57 Deb Sevc Reureet As f une30 209 DolarI Thuands)COLUMBIA GENERATING STATION Fiscal Year Principal Interest Total 6/30/2009 Balance I $ 22,375 $ 56,530 $ 78,905 2010 156,795 126,473 283,268 2011 94,395 116,239 210,634 2012 266,717 111,547 378,264 2013 69,090 97,006 166,096 2014-2017 631,765 324,754 956,519 2018-2022 884,460 178,007 1 1,062,467 2023-2024 289,160 22,155 311,315$ 2,414,757

$ 1,032,711

$ 3,447,4681 Principal and interest due July 1, 2009.NUCLEAR PROJECT NO. 3 Fiscal Year Principal Interest Total 6/30/2009 Balance $ 46,492 $ 54,308 $ 100,800 2010 35,232 98,844 134,076 2011 83,539 88,352 171,891 2012 70,606 84,769 155,375 2013 133,440 89,264 222,704 2014-2017 826,840 216,474 1,043,314 2018 381,801 21,889 403,690 Adjustment

• • 222,335 (222,335)

-S$ 1,800,285 i$ 431,565 i$ 2,231,8501

• Principal and interest due July 1, 2009.* Adjustment for Compound Interest Bonds accretion; Compound Interest Bonds are reflected at their face amount less discount on the balance sheet NUCLEAR PROJECT NO. 1 Fiscal Year Principal i Interest Total i i '6/30/2009 Balance $ 40,155 $ 47,274 $ 87,429 4 4 2010 83,890 92,974 176,864 4 4 2011 92,550 88,687 181,237 4 4 2012 91,140 84,431 175,571 2013 313,435 80,087 393,522 2014 367,680 64,133 431,813 2015 191,540 45,529 237,069 2016 326,665 36,274 362,939 2017 354,265 18,994: 373,259$ 1,861,320

$ 558,383 $ !I 2,419,7031 Principal and interest due July 1, 2009 NINE CANYON WIND PROJECT Fiscal Year Principal Interest Total 6/30/2009 Balance* $ -$ $ -2010 3,965 6,963 10,928 2011 4,260 6,774 11,034 2012 4,575 6,570 11,145 2013 6,930 6,351 13,281 2014-2017 31,310 21,873 53,183 2018-2022 48,495 1 18,134 1 66,629 2023-2030 45,195 8,692 i 53,887$ 1$ 75,357 1$ II 220,087 1* Principal and interest due July 1, 2009.

58 growing powerful solutions NOTE 6- NET BILWNG Security -Nuclear Projects Nos. 1 and 3 and Columbia The participants have purchased all of the capability of Nuclear Projects Nos. 1 and 3 and Columbia.

BPA has in turn acquired the entire capability from the participants under contracts referred to as net-billing agreements.

Under the net-billing agreements for each of the business units, participants are obligated to pay Energy Northwest a pro-rata share of the total annual costs of the respective projects, including debt service on bonds relating to each business unit. BPA is then obligated to reduce amounts from participants under BPA power sales agree-ments by the same amount.The net-billing agreements provide that participants and BPA are obligated to make such payments whether or not the projects are completed, operable or operat-ing and notwithstanding the suspension, interruption, interfer-ence, reduction or curtailment of the projects' output.On May 13, 1994, Energy Northwest's Board of Directors adopted resolutions terminating Nuclear Projects Nos. I and 3.The Nuclear Projects Nos. 1 and 3 project agreements and the net-billing agreements, except for certain sections which relate only to billing processes and accrued liabilities and obligations under the net-billing agreements, ended upon termination of the projects.

Energy Northwest entered into an agreement with BPA to provide for continuation of the present budget approval, billing and payment processes.

With respect to Nuclear Project No. 3, the ownership agreement among Energy Northwest and private companies was terminated in FY 1999. (See Note 13)Security -Packwood Lake Hydroelectric Project The Packwood participants, Benton PUD, and Franklin PUD had a Power Sales Agreement extending through October 2008.This agreement was not renewed and a new Power Sales agree-ment between the Packwood participants and Snohomish PUD, effective October 2008, ensued. Under the agreement, Snohom-ish PUD purchases all of the output directly.

The power purchase agreement (PPA) provides a predetermined rate for all firm de-livery, per the contract schedule and the Mid-Columbia (Mid-C)based rate for all firm deliveries above firm, or secondary power.Packwood is obligated to supply a specified amount of power.If power production does not supply the required amount of power, Packwood is required to provide any shortfall by purchas-ing power on the open market which resulted in $0.1 million of purchased power in FY 2009. Conversely, if there is excess capac-ity per the PPA with Snohomish PUD, Packwood sells the excess on the open market for additional revenues to be included as part of the PPA with the Packwood participants.

The Packwood participants are obligated to pay annual costs of the project in-cluding debt service, whether or not Packwood is operable, until the outstanding bonds are paid or provisions are made for bond retirement, in accordance with the requirements of the bond resolution.

The Packwood participants also share project revenue to the extent that the amounts exceed project costs.NOTE 7 -PENSION PLANS Substantially all Energy Northwest full-time and qualifying part-time employees participate in one of the following state-wide retirement systems administered by the Washington State Department of Retirement Systems, under cost-sharing multiple-employer public employee defined benefit and defined contri-bution retirement plans. The Department of Retirement Systems (DRS), a department within the primary government of the State of Washington, issues a publicly available comprehensive annual financial report (CAFR) that includes financial statements and required supplementary information for each plan. The DRS CAFR may be obtained by writing to: Department of Retire-ment Systems, Communications Unit, P.O. Box 48380, Olympia, WA 98504-8380.

The following disclosures are made pursuant to GASB Statement 27, "Accounting for Pensions by State and Local Government Employers" Any information obtained from the DRS is the responsibility of the State of Washington.

Price-waterhouseCoopers LLP (PwC), independent auditors for Energy Northwest, has not audited or examined any of the information available from the DRS; accordingly, PwC does not express an opinion or any other form of assurance with respect thereto.Public Employees' Retirement System (PERS)Plans 1, 2, and 3 PERS is a cost-sharing multiple-employer retirement system comprised of three separate plans for membership purposes: Plans 1 and 2 are defined benefit plans and Plan 3 is a defined Energy Northwest 2009 Annual Report 59 benefit plan with a defined contribution component.

Membership in the system includes:

elected officials; state employees; employees of the Supreme, Appeals, and Superior courts (other than judges currently in a judicial retirement system); employees of legislative committees; community and technical colleges, college and university employees not participating in national higher education retirement programs;judges of district and municipal courts; and employees of local governments.

PERS participants who joined the system by September 30, 1977, are Plan I members.Those who joined on or after October 1, 1977, and by either, February 28, 2002, for state and higher education employees, or August 31,2002, for local government employees, are Plan 2 members unless they exercise an option to transfer their membership to Plan 3. PERS participants joining the system on or after March 1, 2002, for state and higher educa-tion employees, or September 1, 2002, for local government em-ployees have the irrevocable option of choosing membership in either PERS Plan 2 or PERS Plan 3. The option must be exercised within 90 days of employment.

An employee is reported in Plan 2 until a choice is made. Employees who fail to choose within 90 days default to PERS Plan 3. Notwithstanding, PERS Plan 2 and Plan 3 members may opt out of plan membership if terminally ill, with less than five years to live.PERS defined benefit retirement benefits are financed from a combination of investment earnings and employer and em-ployee contributions.

PERS retirement benefit provisions are established in state statute and may be amended only by the State Legislature.

Plan 1 members are vested after the completion of five years of eligible service. Plan 1 members are eligible for retirement at any age after 30 years of service, or at the age of 60 with five years of service, or at the age of 55 with 25 years of service. The annual benefit is 2 percent of the average final compensation (AFC) per year of service, capped at 60 percent. (The AFC is based on the greatest compensation during any 24 eligible consecutive compensation months.) Plan 1 members who retire from inac-tive status prior to the age of 65 may receive actuarially reduced benefits.

The benefit is actuarially reduced to reflect the choice of a survivor option. A cost-of living allowance (COLA) is granted at age 66 based upon years of service times the COLA amount, increased by 3 percent annually.

Plan 1 members may also elect to receive an optional COLA that provides an automatic annual adjustment based on the Consumer Price Index. The adjustment is capped at 3 percent annually.

To offset the cost of this annual adjustment, the benefit is reduced.Plan 2 members are vested after the completion of five years of eligible service. Plan 2 members may retire at the age of 65 with five years of service, or at the age of 55 with 20 years of service, with an allowance of 2 percent of the AFC per year of service. (The AFC is based on the greatest compensation during any eligible consecutive 60-month period.) Plan 2 members who retire prior to the age of 65 receive reduced benefits.

If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option. There is no cap on years of service credit; and a cost-of-living allowance is granted (based on the Consumer Price Index), capped at 3 percent annually.Plan 3 has a dual benefit structure.

Employer contributions fi-nance a defined benefit component, and member contributions finance a defined contribution component.

The defined benefit portion provides a benefit calculated at I percent of the AFC per year of service. (The AFC is based on the greatest compensa-tion during any eligible consecutive 60-month period.) Effective June 7, 2006, Plan 3 members are vested in the defined benefit portion of their plan after 10 years of service; or after five years of service, if 12 months of that service are earned after age 44; or after five service credit years earned in PERS Plan 2 prior to June 1, 2003. Plan 3 members are immediately vested in the defined contribution portion of their plan. Vested Plan 3 members are eligible to retire with full benefits at age 65, or at age 55 with 10 years of service. Plan 3 members who retire prior to the age of 65 receive reduced benefits.

If retirement is at age 55 or older with at least 30 years of service, a 3 percent per year reduction applies; otherwise an actuarial reduction will apply. The benefit is also actuarially reduced to reflect the choice of a survivor option.There is no cap on years of service credit, and Plan 3 provides the same cost-of-living allowance as Plan 2.The defined contribution portion can be distributed in accor-dance with an option selected by the member, either as a lump sum or pursuant to other options authorized by the Employee 60 growing powerful solutions Retirement Benefits Board.There are 1,190 participating employers in PERS. Membership in PERS consisted of the following as of the latest actuarial valua-tion date for the plans of September 30, 2007: The required contribution rates expressed as a percentage of current year covered payroll, as of December 31,2008, were as follows: Retirees and beneficiaries receiving benefits Terminated plan members entitled to but not yet receiving benefits 71,244 26,583 105,447 Employer*Employee PERS Plan 1 8.31%**6.00%- ". *PERS Plan 21, 8.31%*5.45%-***PERS'Plan3 8.31 Active plan members vested I-Active plan members non-vested 52,575 Total 255,849 Funding Policy Each biennium, the state Pension Funding Council adopts Plan 1 employer contribution rates, Plan 2 employer and em-ployee contribution rates, and Plan 3 employer contribution rates. Employee contribution rates for Plan 1 are established by statute at 6 percent for state agencies and local government unit employees, and at 7.5 percent for state government elected officials.

The employer and employee contribution rates for Plan 2 and the employer contribution rate for Plan 3 are developed by the Office of the State Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. All employers are required to contribute at the level established by the Legislature.

Under PERS Plan 3, employer contributions finance the defined benefit portion of the plan, and member contributions finance the defined contribution portion. The Employee Retirement Benefits Board sets Plan 3 employee contribution rates. Six rate options are available ranging from 5 to 15 percent; two of the options are graduated rates dependent on the employee's age. The methods used to determine the contribution requirements are established under state statute in accordance with chapters 41.40 and 41.45 RCW.* The employer rates include the employer administrative expense fee currently set at 0.16 percent.** The employer rate for state elected officials is 12.39 percent for Plan 1 and 8.31 percent for Plan 2 and Plan 3.*** Plan 3 defined benefit portion only.**** The employee rate for state elected officials is 7.50 percent for Plan 1 and 5.45 percent for Plan 2.***** Variable from 5.0 percent minimum to 15.0 percent maximum based on rate selected by the PERS 3 member.Both Energy Northwest and the employees made the re-quired contributions.

Energy Northwest's required contributions for the years ended June 30 were as follows: PERS Plan 1 PERS Plan 2 PERS Plan 3 2009 $ 244,531 $ 6,774,304

$ 2,964,075 2008 :$ 201,971 i$ 4,313,031 5 1,702,720 2007 i$ 174,813 i$ 3,235,922 i$ 1,269,321 The contributions above represent the full liability under the system. Any future pension benefits would be reflected in future years as changes in contribution rates. Historical trends and projections are available from the DRS and also disclosed in the CAFR.NOTE 8 -DEFERRED COMPENSATION PLANS Energy Northwest provides a 401 (k) Deferred Compensation Plan (401 (k) Plan), and a 457 Deferred Compensation Plan. Both plans are defined contribution plans that were established to provide a means for investing savings by employees for retire-ment purposes.

All permanent, full-time employees are eligible to enroll in the plans. Participants are immediately vested in their contributions and direct the investment of their contribution.

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

For the 401(k) Plan, Energy Northwest may elect to make an employer matching contribution for each of its employees who Energy Northwest 2009 Annual Report 61 are a participant during the plan year. The amount of such an employer match shall be 50 percent of the maximum salary de-ferral percentage.

During FY 2009 Energy Northwest contributed

$2.2 million in employer matching funds.NOTE 9 -OTHER EMPLOYMENT BENEFITS-POST-EMPLOYMENT In addition to the pension benefits available through PERS, Energy Northwest offers post-employment life insurance benefits to retirees who are eligible to receive pensions under PERS Plan 1, Plan 2, and Plan 3. There are 83 retirees that remain participants in the insurance program. In 1994, Energy North-west's Executive Board approved provisions which continued the life insurance benefit to retirees at 25 percent of the premium for employees who retire prior to January 1, 1995, and charged the full 100 percent premium to employees who retired after Decem-ber 31, 1994. The life insurance benefit is equal to the employee's annual rate of salary at retirement for non-bargaining employees retiring prior to January 1, 1995. The life insurance benefit has a maximum limit of $10,000 for retiree after December 31, 1994.The cost of coverage for retirees remained unchanged for FY 2009 and was $2.82 per $1,000 of coverage.

Employees who retired prior to January 1, 1995, contribute

$.58 per $1,000 of coverage while Energy Northwest pays the remainder; retirees after December 31, 1994, pay 100 percent of the cost coverage.Premiums are paid to the insurer on a current period basis. At the time each employee retired, Energy Northwest accrued an estimated liability for the actuarial value of the future premium.Energy Northwest revises the liability for the actuarial value of estimated future premiums, net of retiree contributions.

The total liability recorded at June 30, 2009, was $0.7 million for these benefits.During FY 2009, pension costs for Energy Northwest employ-ees and post-employment life insurance benefit costs for retirees were calculated and allocated to each business unit based on direct labor dollars. This allocation basis resulted in the follow-ing percentages by business unit for FY 2009 for this and other allocated costs; Columbia at 94 percent; Business Development at 4 percent; and Project 1, Nine Canyon, Packwood and Project 3 receiving the residual amount of 2 percent.NOTE 10- INSURANCE Nuclear Licensing and Insurance Energy Northwest is a licensee of the Nuclear Regulatory Commission and is subject to routine licensing and user fees, to retrospective premiums for nuclear liability insurance, and to license modification, suspension, or revocation or civil penal-ties in the event of violations of various regulatory and license requirements.

Federal law under the Price Anderson Act currently limits public liability claims from a nuclear incident.

As of June 30, 2009, the current limit was $12.5 billion and is subject to change to account for the effects of inflation and changes in the number of licensed reactors.

As required by law, Energy Northwest has purchased the maximum commercial insurance available of $300 million, which is the primary layer of protection.

The remaining balance is covered by the industry's retrospective rating plan that uses deferred premium charges to every reactor licensee if a nuclear incident at any licensed reactor in the United States results in claims that exceed the individual licensee's primary in-surance layer.The current maximum deferred premium for each nuclear incident is $117.5 million per reactor, but not more than$17.5 million per reactor may be charged in any one year for each incident.

Nuclear property damage and decontamination liability insurance requirements are met through a combination of commercial nuclear insurance policies purchased by Energy Northwest and BPA. The total amount of insurance purchased is currently

$2.8 billion. The deductible for this coverage is $5.0 million per occurrence.

62 growing powerful solutions NOTE 11 -ASSET RETIREMENT OBLIGATION (ARO)Energy Northwest adopted SFAS No. 143 on July 1, 2002.This Statement requires an entity to recognize the fair value of a liability of an ARO for legal obligations related to the dismantle-ment and restoration costs associated with the retirement of tangible long-lived assets, such as nuclear decommissioning and site restoration liabilities, in the period in which it is incurred.Upon initial recognition of the AROs that are measurable, the probability weighted future cash flows for the associated retire-ment costs are discounted using a credit-adjusted-risk-free rate, and are recognized as both a liability and as an increase in the capitalized carrying amount of the related long-lived assets.Capitalized asset retirement costs are depreciated over the life of the related asset with accretion of the ARO liability classified as an operating expense on the statement of operations and Net Assets each period. Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss if the actual costs differ from the recorded amount.However, with regard to the net-billed projects, BPA is obligated to provide for the entire cost of decommissioning and site resto-ration; therefore, any gain or loss recognized upon settlement of the ARO results in an adjustment to either the billings in excess of costs (liability) or costs in excess of billings (asset), as appro-priate, as no net revenue or loss is recognized, and no equity is accumulated for the net-billed projects.Energy Northwest has identified legal obligations to retire generating plant assets at the following business units: Colum-bia, Nuclear Project No. I and Nine Canyon. Decommissioning and site restoration requirements for Columbia and Nuclear Project No. I are governed by the NRC regulations and site certi-fication agreements between Energy Northwest and the State of Washington and regulations adopted by the Washington Energy Facility Site Evaluation Council (EFSEC) and a lease agreement with the DOE. (See Notes I and 13) Additionally, there are sepa-rate lease agreements for land located at Nine Canyon. Leases at these locations are considered operating leases and expenses were $38.3k for Columbia, $35.Ok for Nuclear Project No. 1 and$569.4k for the Nine Canyon project.As of June 30, 2009, Columbia has a capital decommissioning net asset value of $17.6 million and an accumulated liability of$117.1 million for the generating plant, and for the ISFSI a net asset value of $1.2 million and an accumulated liability of $1.8 million.An adjustment was made in FY 2009 for Nuclear Project No. 1 to account for costs incurred for decommissioning and site res-toration.

Costs incurred in FY 2009 of $0.1 million combined with the current year accretion expense of $0.7 million and downward revision in future restoration estimates of $0.1 million resulted in a small increase to the ARO of $0.5 million. Nuclear Project No.I has a capital decommissioning net asset value of zero and an accumulated liability of $14.8 million.Under the current agreement, Nine Canyon has the obligation to remove the generation facilities upon expiration of the lease agreement if requested by the lessors. The Nine Canyon Wind Project recorded the related original ARO in FY 2003 for Phase I and II. Phase III began commercial operation in FY 2008 and the original ARO was adjusted to reflect the change in scenario for the retirement obligation, with current lease agreements reflect-ing a 2030 expiration date. As of June 30, 2009, Nine Canyon has a capital decommissioning net asset value of $.7 million and an accumulated liability of $1.1 million.Packwood's obligation has not been calculated because the time frame and extent of the obligation was considered under this statement as indeterminate.

As a result, no reasonable estimate of the ARO obligation can be made. An ARO will be required to be recorded if circumstances change. Management believes that these assets will be used in utility operations for the foreseeable future.

Energy Northwest 2009 Annual Report 63 The following table describes the changes to Energy North-west's ARO liabilities for the year ended June 30, 2009: ASSET RETIREMENT OBLIGATION (dollars in millions)Columbia Generating Station Balance At June 30, 2008 .$ 111.27 Current year accretion expense 5.82 ARO at June 30, 2009 Is 117.09 ISFSI Balance At June 30, 2008 $ 1.67 4 Current year accretion expense 0.09 ARO at June 30,2009 Is 1.76 1 Nuclear Project No. 1 BalanceAt June 30, 2008 .$ 14.27 Less: Restoration costs incurred (0.12)Current year accretion expense .0.73 Revision in future restoration estimates (0.11)ARO at June 30,2009 $ 14.77 Nine Canyon Wind Project Balance At June 30, 2008 .$ 1.05 Current year accretion expense 0.04 ARO at June 30,2009 Is 1.091 NOTE 12 -DECOMMISSIONING AND SITE RESTORATION The NRC has issued rules to provide guidance to licensees of operating nuclear plants on decommissioning the plants at the end of each plant's operating life (See Note 11 concerning re-lated ARO for Columbia).

In September 1998, the NRC approved and published its"Final Rule on Financial Assurance Require-ments for Decommissioning Power Reactors!"As provided in this rule, each power reactor licensee is required to report to the NRC the status of its decommissioning funding for each reactor or share of a reactor it owns. This reporting requirement began on March 31, 1999, and reports are required every two years thereafter.

Energy Northwest submitted its most recent report to the NRC in March 2009.Energy Northwest's current estimate of Columbia's decommis-sioning costs in 2009 dollars is $877.0 million (Columbia

-$872.7 million and ISFSI -$4.3 million).

This estimate, which is updated biannually, is based on the NRC minimum amount required to demonstrate reasonable financial assurance for a boiling water reactor with the power level of Columbia.Site restoration requirements for Columbia are governed by the site certification agreements between Energy Northwest and the State of Washington and by regulations adopted by the EFSEC. Energy Northwest submitted a site restoration plan for Columbia that was approved by the EFSEC on June 12, 1995.Energy Northwest's current estimate of Columbia's site restora-tion costs is $107.1 million in constant dollars (based on the 2009 study) and is updated biannually along with the decommission-ing estimate.Both decommissioning and site restoration estimates (based on 2009 study) are used as the basis for establishing a funding plan that includes escalation and interest earnings until decom-missioning activities occur. Payments to the decommissioning and site restoration funds have been made since January 1985.The fair value of cash and investment securities in the decommis-sioning and site restoration funds as of June 30, 2009, totaled ap-proximately

$117.9 million and $17.3 million, respectively.

Since September 1996, these amounts have been held and managed by BPA in external trust funds in accordance with NRC require-ments and site certification agreements; the balances in these external trust funds are not reflected on Energy Northwest's Balance Sheet. Energy Northwest established a second decom-missioning and site restoration plan for the ISFSI. Beginning in FY 2003, an annual contribution is made to the Energy Northwest Decommissioning Fund. These contributions are held by Energy Northwest and not held in trust by BPA. The fair market value of cash and investments as of June 30, 2009, is $0.7 million. These contributions will occur through FY 2029; cash payments will begin for decommissioning and site restoration in FY 2025 with equal installments for five years totaling $2.06 million.

64 growing powerful solutions NOTE 13 -COMMITMENTS AND CONTINGENCIES Nuclear Project No. 1 Termination Since the Nuclear Project No.1 termination, Energy Northwest has been planning for the demolition of Nuclear Project No. 1 and restoration of the site, recognizing the fact that there is no market for the sale of the project in its entirety, and to-date no vi-able alternative use has been found. The final level of demolition and restoration will be in accordance with agreements discussed below under"Nuclear Project No. 1 Site Restoration." Nuclear Project No. 3 Termination In June 1994, the Nuclear Project No. 3 Owners Commit-tee voted unanimously to terminate the project. During 1995, a group from Grays Harbor County, Washington, formed the Satsop Redevelopment Project (SRP). The SRP introduced legisla-tion with the State of Washington under Senate Bill No. 6427, which passed and was signed by the Governor of the State of Washington on March 7, 1996. The legislation enables local gov-ernments and Energy Northwest to negotiate an arrangement al-lowing such local governments to assume an interest in the site on which Nuclear Project No. 3 exists for economic development by transferring ownership of all or a portion of the site to local government entities.

This legislation also provides for the local government entities to assume regulatory responsibilities for site restoration requirements and control of water rights. In February 1999, Energy Northwest entered into a transfer agreement with the SRP to transfer the real and personal property at the site of Nuclear Project No. 3.The SRP also agreed to assume regulatory responsibility for site restoration.

Therefore, Energy Northwest is no longer responsible to the State of Washington and EFSEC for any site restoration costs.Nuclear Project No. 1 Site Restoration Site restoration requirements for Nuclear Project No. 1 is governed by site certification agreements between Energy Northwest and the State of Washington and regulations adopted by EFSEC, and a lease agreement with the DOE. Energy North-west submitted a site restoration plan for Nuclear Project No. 1 to EFSEC on March 8, 1995, which complied with EFSEC require-ments to remove the assets and restore the sites by demolition, burial, entombment, or other techniques such that the sites pose minimal hazard to the public. EFSEC approved Energy North-west's site restoration plan on June 12, 1995. In its approval, EF-SEC recognized that there is uncertainty associated with Energy Northwest's proposed plan. Accordingly, EFSEC's conditional approval provides for additional reviews once the details of the plan are finalized.

A new plan with additional details was submit-ted in FY 2003.This submittal was used to calculate the ARO discussed in Note 11.Business Development Fund Interest in Northwest Open Access Network The Business Development Fund is a member of the North-west Open Access Network (NoaNet).

Members formed Noa-Net pursuant to an Interlocal Cooperation Agreement for the development and efficient use by the members and others of a communication network in conjunction with BPA.The Business Development Fund has a 7.38 percent interest in NoaNet with a potential mandate of an additional 25 percent step-up possible for a maximum 9.23 percent. NoaNet has$18.4 million in network revenue bonds outstanding, based on their June 30, 2009 unaudited statements.

The members are obligated to pay the principal and interest on the bonds when due in the event and to the extent that NoaNet's Gross Revenue Energy Northwest 2009 Annual Report 65 (after payment of costs of Maintenance and Operation) is insuf-ficient for this purpose.The maximum principal share (based on step-up potential) that the Business Development Fund could be required to pay is $1.7 million. It is important to note that the Business Development Fund is not obligated to reimburse losses of NoaNet unless an assessment is made to NoaNet's members based on a two-thirds vote of the membership.

In FY 2009 the Business Development Fund contributed

$186k to NoaNet based on an assessment by the NoaNet members. This equity contribution was reduced to zero at year-end because NoaNet had a negative net equity position of $9.0 million as of June 30, 2009. Future equity contributions, if any, will be treated the same until NoaNet has a positive equity position.

Financial statements for NoaNet may be obtained by writing to: Northwest Open Access Network, NoaNet Headquarters, 5802 Overlook Ave. NE, Tacoma, WA 98422. Any information obtained from NoaNet is the responsibility of NoaNet. PwC has not audited or examined any information available from NoaNet; accordingly, PwC does not express an opinion or any other form of assurance with respect thereto.Other Litigation and Commitments Energy Northwest

v. United States of America filed in U.S.Court of Federal Claims in January 2004 (Cause No.04-001 0C).This is an action for breach of contract and breach of implied covenant of good faith and fair dealing brought by Energy Northwest against the United States (Department of Energy,"DOE") for damages for DOE's failure to meet its legal obliga-tions to accept and dispose of spent nuclear fuel and high-level radioactive waste per the contract.

Energy Northwest's claim is in the amount of $56.8 million. A bench trial was conducted in February 2009, and the Court has taken the matter under advise-ment. No time frame has been provided for when a decision will be rendered.Grays Harbor Energy LLC v. Energy Northwest filed with American Arbitration Association in Seattle, WA, in April 2008 (Case No. 75-158-115-08).

A demand for arbitration was filed by Invenergy (under the name Grays Harbor Energy LLC) related to the interpretation of a"First Power Purchase Option" contract between the parties. Invenergy seeks declaratory relief that the Option is null and void. Energy Northwest filed a counterclaim requesting damages for breach of the Option. The matter was fully arbitrated before an arbitration panel, with the hearing con-cluding on July 23, 2009. On August 18, 2009, the panel issued its decision awarding in favor of Energy Northwest on all counts.Energy Northwest received a cash settlement

($1.3 million) as well as a month to month call option for a period of 3.5 years.Energy Northwest is involved in other various claims, legal actions and contractual commitments and in certain claims and contracts arising in the normal course of business.

Although some suits, claims and commitments are significant in amount, final disposition is not determinable.

In the opinion of manage-ment, the outcome of such litigation, claims or commitments, will not have a material adverse effect on the financial positions of the business units or Energy Northwest as a whole.The future annual cost of the business units, however, may either be in-creased or decreased as a result of the outcome of these matters.

66 growing powerful solutions Curn Debt Ratng (Unudied)Energy Northwest (Long-Term)

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

___Financial Security Assurance AAA AA Aa2 i LEARN MORE about Energy Northwest people and projects on the web at www.energy-northwest.com