GO2-15-017, 2014 Annual Financial Report

2014 Annual Financial Report

ML15036A464
Person / Time
Site:	Columbia
Issue date:	01/28/2015
From:	Gregoire D Energy Northwest
To:	Document Control Desk, Office of Nuclear Reactor Regulation
References
GO2-15-017
Download: ML15036A464 (61)

Text

DonaldW, Gmg~ok P.O. Box 968, PE20 Jn Ph.

,eWgraoIve AWRk4 WA O9M52-.O8 50o"..618IF. 501177-4317

,ergy~wnodm*,won January 28, 2018 G02-15-017 10 CFR 50.71(b)

U.S. Nuclear Regulatory Commission ATTN: Document Control Desk Washington, D.C. 20555-0001

Subject:

COLUMSIA IENERATW4G STATION, DOCKET NO. 50-W; 2014 ANNUAL FINANCIAL REPORT

Dear Sir or Madam:

In Scoord-n-- with Sue rquirmends d 10 CFR 50.71(b),fwoed lea cop of lie EnegyNorthwest Z4AnnualReportforthe ubjcfaciltY. An elctronic copy o t reort is also being povided Via sepaate elecftroi trasmita to ftciltate uplodin Of the khfomelon kfo th ADAMS Dftbse.

Ther we no cornmitntf contWined In tle letter or to eoncls . Should you ha0e any quelm/ tl plan call JR Traulvetr at (509) 377-4337.

Vpeý OW Gregoire Manage, Regulatory Affawrs Enxltwr: As etMed Co: NRC RIV Regional Admn*ar w/o NRC NRR Project M a wo NRC Sr. Resident npecr - 9C *do MA Jones - SPNI 399 w/o C Sonode - BPAII 399 w/o JM Irvan - w/o WA Horin - Wineon & Strawn %o PO1O+

/SPAIN 2

jr ne Ad a

00,--Oslo a Energy Northwest 2014 Annual Report

AARON ELSEY Technical Services Engineering

F -ytr 24 A a{Rep ot 3 4 A Message to our Stakeholders 6 Executive Board 7 Board of Directors 8 Senior Leadership 9 Project Generation 10 Columbia Generating Station 12 Nine Canyon Wind Project 14 Packwood Lake Hydroelectric Project 14 White Bluffs Solar Station 15 Operations and Maintenance 16 Generation Project Development 18 Applied Process Engineering Laboratory 18 Calibration Services Laboratory 20 Environmental & Analytical Services Laboratory 20 Industrial Development Complex 22 Environmental Stewardship 24 Community Service 26 CEO Recognition 27 FINANCIAL DATA & INFORMATION 28 Management Report on Responsibility for Financial Reporting 28 Audit, Legal and Finance Committee Chair's Letter 29 Independent Auditor's Report 30 Energy Northwest Management's Discussion and Analysis 39 Current Debt Ratings 40 Statement of Net Position 42 Statements of Revenues, Expenses and Changes in Net Position 43 Statements of Cash Flows 45 Notes to Financial Statements KAITLIN CARTER worked with a team to develop a high-risk work plan. The plan was implemented and resulted in improved reliability and predictability of the steam supply to the seal steam evaporator. The main purpose of the seal steam evaporator is to provide sealing steam to the main turbine. A loss of steam would allow air to be pulled into the condenser creating high condenser pressure.

JOHN PETERSON maintained high standards of quality in completing design, construction and testing of fire protection features in two new buildings on-site at Columbia.

AARON ELSEY demonstrated initiative and ownership to develop a mockup of a motor control device for a high pressure core spray pump. In addition, he went to the vendor's test facility and provided oversight for the test.

4 Balancing a New Energy Horizon AMESSAGE Energy Northwest's projects soared above previous record Most importantly, our employees have reached these historic generation numbers to bring carbon-free electricity to the Pacific milestones safely.

Northwest in fiscal year 2014. Our dedicated team of professionals Energy Northwest also earned the Association of Washington continues to focus on our Excellence Model and apply our agency's Business Workplace Safety Award. The association recognized Team vision to the region's future energy balance. Energy Northwest for acheiving a -remarkable" milestone of 10 We had a lot to celebrate this year, from safety and generation million hours without a lost-time injury. By the end of the fiscal records to operating milestones. year the team surpassed 12 million work hours without a lost-time Packwood Lake Ilydroelectric project commemorated 50 accident. Recognition by AWB coincided with Columbia breaking its years of operation and Columbia Generating Station will operational generation record. In fiscal 2014 Columbia generated 9.8 celebrate 30 years of commercial operation this December. million megawatts of electricity - a record for a non-refueling year.

Fnet ,j t vs't

" Nil Annma[Pcpoit 5 tCotumbia generated megawatts of electricitYC record in tiscal 2014 - a new ZERO:LostTime operations & Maintenance Accidents & Capitat Expenditures In calendar year 2013, the facility generated 8.5 million MWh of Finally, our sincere thanks to all Energy Northwest team members the needs of the who volunteered their time and talents to support electricity - a record for a refueling year.

we are making community in which we live and work. Tlogether We attribute the success of Energy Northwest to our employees.

meeting progress on all our generation and regional energy initiatives, They represent innovation, and they maintain our resources to the peers, and our our commitment to excellence to our industry, our highest standards of excellence to provide safe, reliable, cost-effective, community.

responsible power generation and energy solutions. We ended the year by spending 99.64 percent of the approved Columbia operations &

maintenance and capital budgets of $304.9 million, thus underscoring Respectfully, Sid Morrison our dedication to investing in Columbia, while maintaining fiscal Mark Reddemann Chair, Executive Board Chief Executive Officer discipline and our responsibility to Northwest ratepayers.

MARC DAUDON Assistant

[ORI SANDERS Secretary Secretary Inside Director Wash. Gubernatorial Appointee Kennfewick, Seattle, Wash.

WILL PURSER Inside Director JAMES MOSS Gubernatorial Sequirn, Washý Appointee Wash.

'*Wood,

_6 The Energy Northwest Executive Board sets Policies that govern the operation of the the oer the t he a e n be r It is made uph eofb oii members: five elected from ard Of e d re t t ions by t a rd d ofi re c t o r a pp o i n t ed goveror members aPPOinted by Washington's

, 21OUtside

7 LINDA GOTT TERRY BREWER BILL GORDON JUDY RIDGE UUUU AUULK I IN NANCY BARNES BARNEY BURKE President Vice President Secretary Assistant Secretary ARIE CALLAGHAN ANN CONGDON BILL GAINES DAN GUNKEL BUU HAMMUNU b IlVt nUU..I.. JACK JANDA MIKE JONES BUZ KETCHAM CURT KNAPP CLYDE LEAGH VnIL LU7IN M.L. NORTON WILL PURSER SHAN ROWBOTHAM LORI SANDERS CHUCK 1 ENPAS DIANA THUMPSUN KAIMY VAUUMN The Eniergy Northwest Board of Directors is comprised of Board members represent utilities with strong histories of serving representatives from each of its Washington state rmcenber utilities. the public power needs of Washington ratepayers. T[heir experience The board of directors has final authority on any decision to helps guide the agency as a continuing and effective source of purchase, acquire, construct, terminate or decommission any plants powerful energy solutions.

and/or facilities of Energy Northwest.

8 Balancing a New Energy Horizon The senior leadership team manages day-to-day operations, executes developing programs and projects, establishes long-term strategies in direct support of the Energy Northwest vision, and provides essential hands-on leadership to foster continual process improvement and strengthen organizational core values in the workforce.

JIM BRAD BRENT MARK GROVER BOB ALEX GASTON SAWATZKE RIDGE REDDEMANN HETTEL DUTTON JAVORIK General Manager, Vice President, Nuclear Vice President, Chief Executive Officer Vice President, General Counsel; Vice President, Energy Services Generation; Chief Corporate Services; Operations Chief Ethics Officer Engineering

& Development Nuclear Officer Chief Financial Officer

ELiipe y Nothwet 2014 , -,-ilReporFt 9 Columbia's generating capacity is 1,170-megawatts, COLUMBIA enough energy to power more than a million homes.

GENERATING STATION 2390391 MWh Packwood has produced 4,735,798 megawatt-hours of electricity since commercial operation began in 1964.

PACKWOOD LAKE HYDROELECTRIC PROJECT 115040 MWh 41 .852 kwh WHITE BLUFFS SOLAR STATION 10,136,395 MWh

SMIT OWENS Mg C0lumbia / ,

Enei gy Noit wiit 20141 Annuacl N'pof t 11 COLUMBIA GENERATING STATION Columbia Generating Station is a boiling water reactor, using ne megppawinppatthurs of elctict toth nuclear fission to heat water into high pressure steam. The steam pnIiiLJowIergi spins turbines that are connected to a generator, producing emissions-free electricity. Columbia demonstrates Energy Northwest's commitment to operating safely and efficiently.

10/0 CoLumbia produces Electricity produced at Columbia is provided at-cost to the approximately 10 percent Bonneville Power Administration, which delivers the power to of the energy generated in utilities throughout Washington and other western states.

Nuclear power has proven itself safe for more than 40 years of 10 Washington state.

operation at nuclear plants across the U.S. Working in a nuclear energy facility is far safer than working in the financial or insurance CoLumbia was online every industries. day during fiscaL year 2014 4.,1 C

C rE z*

r_

0

£ £Columbia continues to strive 12 0

0 for excellence. The teamwork and communication I witness on RESIDUAL HEAT

• , REMOVAL PUMP-2B a daily basis keeps the station REPAIR TEAM Tim Allbee, Ryan Downing, Doc Owens, operatingsafely and reliably. I Jamey Rich, Richard Schultz and Kevin Smith successfully planned and completed, error-free, the replacement of a residual heat removal

- BRAD SAWATZKE pump. During the performance of the work, Vice president, nuclear generation; they constantly looked ahead for potential chief nuclear officer barriers and worked with Engineering and Radiation Protection to remove barriers early on. As a result, the work on the pump replacement was completed with essentially no mechanical or assembly problems.

CoLumbia - Net Generation - MWh

NINE CANYON WIND PROJECT Power generation Nine Canyon is one of the largest Public-owned wind projects the region's leader in 14 rated at 2.3 megawatts With a vision to be in the nation. With 63 wind turbines -

Energy Northwest partnered with Walla Walla Community College Canyon's total installed megawatts- Nine to host the state's first Wind energy technician training program and 49 rated at 1.3 of clean, renewable energy at the conmmnunity college level, This increases the availability capacity is 95.9 megawatts Wind ty production, Nine skilled workforce entering the growig atd year of renewable energy of locally gee Reaching during than 239,00 ,,,Wh of electricity job market. 2014, More fiscal Year Cany

Nine Canyon is aligned on the hilltops southeast of Kennewick, The turbines are self-starting and begin generating electricity when Wash., and the turbines are positioned to take advantage of wind speed reaches eight miles per hour. Generation increases as persistently strong winds along the Columbia River Gorge. The the wind speed increases, with full power achieved at about 35 turbines convert those winds into electrical energy. mph. If winds exceed 55 mph on a sustained basis, the turbines Each turbine has its own miniature weather station that shut down automatically by pitching the blades to a stopped monitors wind direction and speed. Motors atop the turbines position while engaging a large disk brake and restart when the rotate the turbines into the wind and sophisticated control systems winds fall below 45 mph. The pitch of the blades is automatically ensure the blades turn at the optimal speed to produce electricity. adjusted to maximize power generation from the available wind.

Nine-Canyon

14 8,[ ticn my Ne-wErnom -yti . mzon M

0a 0 PACKWOOD LAKE HYDROELECTRIC PROJECT The 27.5 megawatt Packwood Lake Hydroelectric Project has produced low-cost energy for Northwest ratepayers for 50 years.

Generation totals for fiscal year 2014 were 115,040 megawatt-hours - up 10.93 percent from 2013 - primarily due to above netmgwt-or during ~

ficlyer21 average snowfall in the Cascade Mountains and a late spring runoff.

The capacity factor for fiscal 2014 was 50.5 percent and the project attained 100 percent availability.

100 Packwood lake is located in Lewis County, Wash., in the Gifford Pinchot National Forest, approximately 20 miles south of Mt.

Rainier. The facility was Energy Northwest's first electric power generation project.

Ilydro is a carbon-free resource, and fish screens protect migrating fish populations. The water levels in Packwood Lake and Lake Creek Adjusted are closely monitored to preclude environmental impacts. AvaiLability Factor WHITE BLUFFS SOLAR STATION White Bluffs Solar Station, a 242-panel demonstration facility with a rating of 38.7 kilowatts direct current, is located at the Industrial Development Complex near Columbia Generating Station.

The solar plant began operation in May 2002 and, at the time, was the region's largest photovoltaic solar facility. The collaborative project is funded by Energy Northwest, the Bonneville Power Administration, the Bonneville Environmental Foundation and the UI.S. Department of Energy. For more than 12 years, the generation project has provided reliable and efficient clean energy.

British Petroleum, the solar panel manufacturer, continues to support the 20-year warranty of the PV panels.

The project generated 41,852 net kilowatt-hours of electricity during fiscal year 2014.

nekiowt-hus5

OPERATIONS &MAINTENANCE Energy Northwest supports its members in the areas of Calif. to operate and maintain the Tieton ltydrelectric Project of operations and maintenance of generating facilities and electric Rimrock Lake in the Cascades.

utility automation. During fiscal 2014, Operations and Maintenance Energy Northwest provides operations and maintenance services Services engaged the agency's member utilities with solutions for to OlympicViewGeneratingStation, owned by Mason County Public supervisory control and data acquisition systems, power plant t Itility District 3. Olympic View is comprised of two 2.8 megawatt optimization and developed the technical specifications for a generating units powered by natural gas-fired reciprocating engines.

demand response control network. The demand response program The plant may operate remotely, depending on load requirements.

targets residential, commercial and industrial electric customers. Operations and Maintenance also provides project management, Energy Northwest recently added to its Operations and project engineering and craft labor support for the agency's Maintenance portfolio, signing a contract with the city of Burbank, members' power generation projects.

16 Balxineig a Nevi, EineircB Huriz2on GENERATION PROJECT DEVELOPMENT Advanced Nuclear Energy Northwest joined the Western Initiative for N uclear, a collaboration to study the demonstration and deploymer it of a Battery small modular reactor plant in the Western tUnited States by s igning Energy teaming agreements with NuScale Power and Ultah Asso ciated Municipal Power Systems. The Western Initiative for Nuclear r has a ESS Storage System goal to develop the first small modular nuclear reactor project in the United States, currently scheduled to come online in the mid--2020s with a preferred location within the Idaho National Labo ratory site. Uinder the proposed structure, tlAMPS will own the project, Energy Storage NuScale will provide the SMR technology and Energy Nor thwest Following six months of successful field testing at the Nine will provide operations and maintenance services. NuScale re ceived Canyon Wind Project, the 500 kwh Battery Energy Storage System, grant matching funds from the Department of Energy to assist developed by Powin Energy, was redeployed to the City of Richland's in the completion of NuScale's design certification processs with distribution system. The battery storage unit operations and testing the Nuclear Regulatory Commission. The NuScale SMR design focused on several key distribution scale applications such as peak represents the next generation of commercial nuclear power plants load shaving and distribution system support. The final phase of the and will deliver safe, reliable, affordable and carbon-free ener gy. three planned field deployments is for the BESS to operate "behind the meter" within partner Pacific Northwest National Laboratory's Richland campus starting in July 2014. Concurrently, the BESS will be integrated into Energy Northwest's regional demand response pilot program. This will allow the BESS to leverage its storage capacity, and communication and control capabilities to the success of Energy Northwest's Demand Response Program. The BESS demonstration project provided significant technical innovation and operating SMR experience during the last year of testing for the participants which include Energy Northwest, Powin Energy, PNNL, City of Richland and the Bonneville Power Administration. The ultimate goal of the energy storage project is to develop multiple value streams to Smal.l. ModuLar ReacG enhance the overall cost effectiveness of energy storage for Pacific Northwest utilities and ultimately enable commercial deployment of energy storage in the region.

Utah Associated Municipat Power Systems

ELýM'Fc~y Nortl\iweýt2?CB4 Afruýji[ E~po 17 Demand Response Renewable Resources Energy Northwest's Energy Services and Development group, Energy Northwest continues to identify and advance low-risk and five public power partners are working closely with BPA to and least-cost renewable generation development opportunities, develop structures and technical implementation methods for anticipating future requirements for regional utilities. During a first of a kind regional demand-side resource. The Aggregated 2013, Energy Northwest affiliated with neoen Renewables, an Demand Response Pilot Project provides up to 25 megawatts of fast- international developer of energy projects, to advance utility-responding customer-side load reduction for BPA's use as a regional scale photovoltaic solar projects in south-central Washington.

grid balancing asset. The expected online date is the first quarter of Development efforts are underway for three prospective sites in 2015. As a demand-side alternative to more conventional balancing the Richland, Wash. area, including Energy Northwest's Industrial services from thermal or hydroelectric generating facilities, the Development Complex, with potential commercial operation dates demand response network developed and managed by Energy as early as 2019. Additionally, Energy Northwest maintains close Northwest coordinates numerous customer-side loads, such as ties with other developers in the region and tendered a variety of major industrial centers, commercial and institutional facilities, and competitively-priced wind, biomass and solar generation resource residential loads. These demand-side resources change their power opportunities to its member utilities.

use in an expedited and reliable manner through communications and control infrastructures, similar to demand response systems elsewhere in the nation. Beyond the project's 18-month pilot run, Energy Northwest intends to expand the portfolio of offered products, add additional utility partners and loads, and grow the network into a fully functional and competitive grid-scale regional balancing resource by public power and for public power.

7ý ITT 1 Ii* AygvgaP'j1tC(I I)Cnan(l~ Re'sponise'P101io l'qiej('

ppIov~ides ul to 25 miegawvatts o~jjast-aise (is aI i-egional giritl blanc~ing~i asset upill ani t'xji~eetet online (late inl the fiirst qUar-telr of 2015.

18 Batancing a New Energy Horizon APPLIED PROCESS ENGINEERING LABORATORY PNNL)

Energy Northwest offers the Applied Process Engineering Laboratory as a lease facility for laboratory-based research and Regional technical expertise and development. Pacific Northwest National Laboratory is an anchor patented research tenant, occupying approximately 50 percent of APEL. This provides are leveraged into significant financial sustainability for the leasing operation. Energy new ventures.

Northwest Environmental and Analytical Services utilizes six laboratory spaces for environmental and materials sample and test work in support of Columbia Generating Station and commercial customers IsoRay Medical, Environmental Assessment Services and Freestone Environmental. Approximately 20 percent of the leasable CALIBRATION SERVICES LABORATORY space is available for business start-ups or as specialized testing labs The Energy Northwest Standards Laboratory, located adjacent to for emerging technologies. Columbia, is a multi-faceted applied physics laboratory performing APEL is a key part of the regional commitment to technology calibrations in virtually every aspect of metrology, including torque, innovation, especially in clean energy, environmental sustainability force, pressure, vacuum, mass, dimensional, electrical, electronic, and biotechnology. A participating member of the Tri-Cities temperature, humidity, flow, vibration, light and sound.

Research District Innovation Partnership Zone, APEI. is a "launch In addition to providing services to its primary customer, pad" as regional technical expertise and patented research are Columbia, ENSL performs work in the commercial sector, which leveraged into new ventures. APEL provides an environment rich has expanded the laboratory's capabilities, increased the technical with resources, technical assistance and connections to potential expertise of the staff and enhanced the quality program.

partners and customers, which fosters collaborative innovation and ENSL is accredited to International Standard ANSI/ISO/IEC technology commercialization. 17025 by the American Association for Laboratory Accreditation.

Fiscal year 2014 mirrored the constrained federal and state The laboratory was first accredited in January 2009 and has economies. The trend in technology innovation brought inquiries maintained laboratory accreditation. The accreditation process primarily from existing businesses in need of specialized test facilities is performance based and requires the laboratory, through within a controlled operating environment. APEL's building-wide on-site assessments, to demonstrate competence in meeting permitted air and water systems meet that intermittent need with stringent technical and quality requirements. ENSL's current less cost to the entrepreneur. Unfortunately, no grassroots start-up accreditation is valid through Jan. 31, 2015. Preparations for ventures joined the APEL community this year. the next accreditation renewal will take place in the first half APEL's Advisory Board represents the major institutions that of fiscal 2015.

sponsor APEL and its mission including Energy Northwest, the Maintaining accreditation, enhancing capabilities and Port of Benton, the Department of Energy, Washington State continually making improvements to ENSL's technical and quality University-Tri-Cities, PNNL, the City of Richland and the Tri-Cities programs, are all factors in securing contracts with several major Industrial Development Council. APEL is self-funded through clients. Major laboratory clientele includes Bechtel, Washington lease revenues.

.

.... Uoinf Bu sine s sWI t 1U S

A~natei**t 19 Closure I lanford, Washington River Protection Solutions, Cl12M and surveillances of vendors for qualification and placement on the Hill, PNNI., AREVA, Columbia Energy & Environmental, Hligh- Energy Northwest E'valuated Suppliers List.

Line Engineering, Intermech, Energy Solutions and Mid-Columrbia The ENSI has also been involved with educational outreach in the Engineering. ENSL has provided commercial calibration services Tri-Cities through participation in the annual Science Technology for the last 16 years. In addition, ENSE has provided on-site Engineering and Math Conference and the World Metrology Day.

outage support to Columbia and other nuclear facilities through T his participation includes classroom instruction to students at local the Utilities Service Alliance shared-personnel program, Packwood schools in hands-on applied physics, as well as hosting students at Lake Hlydroelectric Project and Hlermiston Generating Facility. the ENSL laboratory facilities for work-based learning experiences.

Laboratory employees also provide support through on-site audits Energy Northwest Standards Laboratory Utilities Service ALliance

20 Batancing a New Energy Horizon ENVIRONMENTAL &ANALYTICAL SERVICES LABORATORY For more than 16 years, Energy Northwest's Environmental The laboratory staff continues their involvement with and Analytical Services Laboratory has provided chemical analysis educational outreach in the Tri-Cities, including presentations and environmental monitoring expertise for utility, municipal to Delta I ligh School students, serving as judges for local science and residential customers. The laboratory continues to maintain and technology competitions and participating in the annual accreditation for wastewater, drinking water, radiochemical analyses, Science Technology Engineering and Math Conference. With the and licensure as a clinical laboratory for drug screenings. laboratory's participation, students learn about analytical chemistry, Services provided to Columbia Generating Station and laboratory testing methods, careers in environmental science and outside clients include metals quantification, general chemistry, the importance of clean energy.

microbiological testing, radiological monitoring, lubricant condition monitoring, material verification, commercial-grade dedication of materials, and aquatic and terrestrial monitoring. This includes working with the Washington Geological Survey as part of a Department of Energy geothermal grant. Energy Services and Development financially supported the project to participate in the chemical analysis of mineral springs samples collected throughout the state of Washington.

The Radiological Environmental Monitoring Program for $615A0 Columbia is operated by the laboratory and independently assesses the radiological impact of Columbia operation. The REMP lab Revenue from the collects and analyzes air, water and agricultural samples to ensure sales of metal scrap any environmental impact is known and quantified. materiaLs from In support of Energy Northwest's ISO 14001 Environmental Nuclear Project 1 Management System commitment, the laboratory monitors noxious weed populations and controls these populations primarily through the use of species-specific insects. Additionally, as part of the INDUSTRIAL DEVELOPMENT COMPLEX Migratory Bird Habitat Enhancement Plan, artificial nest sites were The Industrial Development Complex is located just east of installed during fiscal year 2012 for the burrowing owl, a "species of Columbia Generating Station and is operated by Energy Northwest.

concern" listed by Washington state. Ongoing monitoring during A leasing business line has successfully leveraged available outlying subsequent fiscal years indicates that burrowing owls are using the buildings by renting office and warehouse space, as well as former artificial nest burrows. power facilities.

Laboratory employees continue to perform key environmental Tenants based at the IDC are primarily involved in the ongoing assessments at the Shepherds Flat Wind Farm located in north- construction and restoration efforts at the Department of Energy's central Oregon. Owned by Caithness Shepherds Flat, LLC, of Hanford Site. Reduced federal funding continued through fiscal Sacramento, Calif., the project's 909-megawatt capacity makes it the 2014, causing site support contractors to cut costs. While total leased largest wind generation facility in the United States. Involvement space declined during fiscal 2014, total revenue generated through with the project has been ongoing since 2002. IDC leasing was $615,400.

Energy Services and Development has a strategic plan for the IDC. The declining trend in leasing affords the opportunity to look at ways to efficiently remove unused infrastructure. An asset sales project generated $2.035M revenue from the sales of metal scrap materials beginning in fiscal 2014. This ongoing initiative reduces site short- and long-term maintenance costs to regional ratepayers.

ve" 22 Balancing a New Energy Ho izon ENVIRONMENTAL STEWARDSHIP Environmental Stewardship is the cornerstone of the Energy Excellent performance continued in hazardous material sp Northwest Environmental Management System and all employees prevention in fiscal 2014 with one minor spill counted as bei1 are expected to consider the environment in everything they do. This, preventable across all facilities of Energy Northwest.

along with commitments to regulatory compliance and pollution To support a strategic initiative to strengthen energy conservatic prevention are keys to continuation of Energy Northwest's EMS an environmental objective and target was established with registration to the International Organization for Standardization initial target of 400 MWh of gained electrical efficiency across 14001:2004 standard. Each year Energy Northwest sites. Significant lightii Energy Northwest is subjected ISO 14001 :2004 set ont enhancements at Columbia led the agen to third-party oversight by NSF Ihei-(iterla for art envir-onnientcil to achieving 745 MWh of gained electri(

International Strategic Registrations, iinaaiigenien't systein (IH(I can efficiency, achieved primarily throul an accredited registrar, which be cei-tifictI to. RI toes not state conversion of exterior lighting to LE ireqniim'emenis for envi'ironniental ensures conformance with the fixtures and more stringent operation p~ejrfiniianee, ba~t mnaps ont a rigorous requirements of the control.

f,'amneivork that a conii)(i) oi,01 standard. organiizationt canfJoIloii, to se't Energy Northwest is committed During fiscal year 2014, Energy taking care of the environment. Ener, Northwest established aggressive iilaiiajfleinlt systeiii. Northwest's commitment is formal environmental targets for certified by the International Organizati(

hazardous-waste generation, mixed-waste generation, prevention of hazardous material spills and strengthening energy conservation.

After several years of successfully achieving aggressive reduction targets for hazardous- and mixed-waste generation, Energy Northwest did not achieve the fiscal 2014 targets. The largest contributor to these numbers within Energy Northwest is Columbia Generating Station, which performs among the best of like plants A global independent public health within the nuclear industry. Consistent with the Energy Northwest and environmental organization that EMS commitment to continual improvement, these objectives will provides standards development, product certification, testing, auditing, receive on-going focus in fiscal 2015. education and risk management services

I'll

,1,,Noii I 'M, I Armu;d P(ýImO 23 for Standardization, which underscores the agency's compliance The project consisted of developing a path on a currently unused to international environmental standards and provides third-party dirt road along the old canal which parallels the Yakima River off of validation that Energy Northwest's environmental stewardship and Twin Bridges Road between I lighway 240 and the river. Employee management efforts are both effective and sustainable. volunteers picked up debris and helped to convert the road to an The Environmental and Regulatory Programs group continues to easily accessible and "earth friendly" path that is free and open to provide support to the organization in ensuring rigorous compliance the public.

with regulatory requirements and conformance with tile elements The clean-up activity reflects both organizations' commitment to of the ISO 14001:2004 standard. the local community and the environment.

To improve the quality of life to members in the Columbia Through these efforts, environmental stewardship opportunities Basin community, more than 40 employee volunteers from continue to he identified and supported.

Energy Northwest and AREVA teamed up to help make the Tapteal Greenway Association Trail system cleaner and more user-friendly.

The two companies partnered with the association to celebrate Earth Day and involved a community clean-up project along the Yakima River. The team of volunteers filled two large roll-away dumpsters to capacity with littered debris.

"It was very gratifying to see the turnout of volunteers on a cold, wet afternoon," said Steve Vaughn, Environmental Management System coordinator.

,Iloi'.' Millti 40 tcfltphoycet'.11It'JS/',l IFnii',-y Aforti-htw'sl o111iidARFI 1 1 tttiz('fIJC iiii to hellI)

,iii~k' the lpel(('tci/As.soU(k I fiou Tioi stjsteii t-lclatiei (111( IltOP(' is('--Jeiz'dhJ.

24 Balancing a New Energy Horizon COMMUNITY SERVICE One of the community and educational outreach opportunities Energy Northwest undertook this year was a series of public service announcements focusing on the value of nuclear energy and Columbia Generating Station, touting Columbia's new informational website: www.ColumbiaValue.com. The PSAs remain available for viewing on the agency's social media sites.

I Youb w wClmi aalu.co 1 Energy Northwest employees participated in several energy and environmental-related events throughout the year, such as Kids Engineering Day and Washington Energy Week.

Agency employees also spoke to a wide range of audiences, including many civic and business organizations, through the Energy Northwest Speakers Bureau. Our speakers visited elementary schools, universities, neighborhood associations, international agencies, and other groups throughout the state to raise public awareness and understanding of the Energy Northwest mission, nuclear power generation and regional energy issues.

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

From agency long-time veteransto the iteivest employees, Energy Northwest ctiresfor our community through direct, hands-on int.ohemetnl.

Energy Northwest 2014 Annual Report 25 The agency officially sponsors three important community Head Start organizations: United Way, I lead Start and March of Dimes. Energy Northwest celebrated 33 years of support to the Benton Franklin [lead Start program and earned the Association of United Way Washington Business' community service award for the agency's Energy Northwest employees contributed more than $72,000 to important and enduring service to others in the I lead Start Program.

the United Way of Benton and Franklin counties. These pledges help Energy Northwest commits to adopting every I lead Start child provide hot meals to elderly neighbors, fund youth developmental for the holiday season. During fiscal 2014, employees sponsored programs, provide disaster relief planning for our community and more than 400 children.

build self-esteem in at-risk youth. Each child provided a wish list to Santa and received at least one United Way improves lives through their Community Solutions toy and one clothing item. Energy Northwest employees, dressed as program. The goal is that everyone living in Benton and Franklin Santa and his elves, distributed the gifts during 11 Ilead Start parties.

counties has a good education; access to healthcare; lives and works T"he Head Start program is the most successful, longest-running, in a safe environment; and is a self-sufficient, active member of the national school readiness program in the tlnited States. It provides community. comprehensive education, health, nutrition and parent involvement services to low-income children and their families.

March of Dimes More than 25 million pre-school aged children have benefited Team Energy Northwest raised more than $30,000 this year for the from I lead Start, and the number of children served in Benton March of Dimes, exceeding its goal and once again demonstrating and Franklin counties has more than doubled during the past two the philanthropy and generosity of its employees. More than 60 decades.

Energy Northwest employees, along with their spouses, children and pets, participated in the 3.1-mile walk along the Columbia River during the 2014 Tri-Cities March for Babies event to support neonatal birth centers and local families in need. Energy Northwest was the top team contributor in the March of Dimes' Southeastern Washington region for 2014.

~March of Dimes $30,000 Saving babies, together-

26 Balancing a New Energy Horizon Congratulationsto Energy Northivest emploijees who received (EO Lieadership Peiforinanee awards.

Duringjiscalyear 2014, these emnplotjees were honoredfor"exenmplifying excellence in performance through their achievements and worker pr ctices.

Spain Abney Eric Fazzari Kristopher Lapp Steve Richter Sabrina Absolon John Fellman Jaron Lee William Robinson Kenneth Aldridge Marcus Fellows Peter Lesperance Darin Rodabaugh Robert Alexander Cassy Fey Pattie Lilly Diego Rolon Timothy Allbee John Fisher Jeffrey Lippert Michael Rowe Nykki Apodaca Jacque Fuller Terry Loux John Russ Jeremiah Atkins Rolly Fuller Rob Lowe James Sauceda Kelly Baker Richard Garcia Jeremy Lundquist Don Schirm Ruby Barajas Michael Gibson Bruce MacKissock Geoffrey Schneider Brian Berglin Mark Giomi Linda Mar Richard Schultz Keith Berrett Robert Green Chris Maxwell Edward Schumacher Eddie Bickett Don Gregoire Michael McLain David Schumann John Blake Dwayne Gregory Scott Metzger Jeff Schwartz Mark Blake Frank Guendelsberger lason Modrell Sherri Schwartz Chadd Bliss Bill Guldemond Cheri Monroe Charles Scott PT Boler Robert Hammons Chip Moon Jason Simmons Jessica Braun Paul Hand Kim Morris John Slack Denise Brandon Jessica [lansen Abbas Mostala Angela Smith Daryl Breard lames Hardman Zeny Myers Christopher Smith David Briggs Wayne Harper Erik Noble Clay Smith OJ Brooks Judi Hastings Dwendell Oaks Kevin Smith Steven Brush Richard Hermann Kendal Orona Thomas Smith Scott Burn Grover tlettel Sundy Oltjenbruns Kyle Sponholtz James Burns Johnathan I licks Arnold Owens John Steigers Kevin Byers David Hiller Craig Parker Danny Stephens lames Cantrell David Holick Jessica Parker Ben Stewart Barry Carpenter Michael ltolle Linda Parrella Tim Stumetz Kaitlin Carter Paul Hromer Jim Paul Ben Sturges Karen Claussen Jack Hoskins Alan Peterman Gary Swarers Shane Combs Jim I lysjulien Jocelyn Peterman Sam Szendre Daniel Dale Robert Inman John Peterson Andy Thome Stephen Dallas Eli Jakeman Danae Powell Raymond Thomson James Darling William Jensen Tim Powell Keith Trappett lames Daugherty Darla Johnson Lisa Poznanski Eddie Tubbs Jason Davis Matthew Johnson Stacey Presnell Kevin VanSpeybroeck Tanya Dion Morgan Johnson Don Queen Keg Wainwright Amy Donaldson Steve Kartchner Angel Rains Linda Walker lames Dorwin Marian Kellett Garrett Rheaume Ron Walton Ryan Downing Mark Kendrick Michael Rhodes Josh Watt Zach Dunham Daniel King Robert Rhodes Lisa Williams Aaron Elsey Jennifer Knighten Mark Rice Tammy Wood Al Fahnestock Jennifer Kuklinski lamey Rich Linda Woosley Sandra Fardell John Lamendola William Richards

Enr lyNo twst 2014 Annua Rf~p't 27 II Financial Data & Information

28 Ba~ 1itctinýj Ne,ýiElef y Hoiizo~i 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 (GAAP) (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, 2014, internal control procedures are adequate.

M.E. Reddemann B.Ridge Chief Executive Officer Vice President, Corporate Services and Chief Financial/Chief Risk Officer AUDIT, LEGAL AND FINANCE COMMITTEE CHAIR'S LETTER The executive board's Audit, Legal and Finance Committee (committee) is composed of 11 independent directors. Members of the committee are Chair Kathy Vaughn, Marc Daudon, Dan Gunkel (July 2013-June 2014), Jack Janda, Jim Moss, Skip Orser, Will Purser, Dave Remington, Lori Sanders, Tim Sheldon, Linda Gott (June 2014, replacing Dan Gunkel) and Sid Morrison, ex-officio. The committee held 10 meetings during the fiscal year ending June 30, 2014.

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.

Kathleen R. Vaughn

Chair, Audit, Legal and Finance Committee

)01 Anmm[PRe 1,ci 29 INDEPENDENT AUDITOR'S REPORT To the Executive Board of Energy Northwest:

We have audited the statements of net position and the related statements of revenues, expenses and changes in net position and of cash flows of 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 as of and for the year ended June 30, 2014, and the related notes to the financial statements, which collectively comprise the business-type activities of Energy Northwest (the "Company").

Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility Our responsibility is to express opinions on the financial statements based on our audit. We conducted our audit 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 from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinions In our opinion, the financial statements referred to above present fairly, in all material respects, the respective financial position of the business-type activities of the Company at June 30, 2014, and the respective results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.

Emphasis of Matter As discussed in Note 1 to the financial statements, the Company adopted the provisions of GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, effective July 1, 2013. The financial statements of Columbia Generating Station, Nuclear Project No. 1, Nuclear Project No. 3, and the Nine Canyon Wind Project as of and for the year ended June 30, 2014 reflect the adoption of the provisions of GASB 65. Our opinion is not modified with respect to this matter.

Portland, Oregon September 25, 2014

30 Batancing a New Energy Hu.rizon ENERGY NORTHWEST MANAGEMENT'S DISCUSSION AND ANALYSIS Energy Northwest is a municipal corporation and joint operating agency The Statements of Net Position present the financial position of each of the state of Washington. Each Energy Northwest business unit is financed business unit on an accrual basis. The Statements of Net Position report and accounted for separately from all other current or future business financial information about construction work in progress, the amount of assets. The following discussion and analysis is organized by business unit. resources and obligations, restricted accounts and due to/from balances for The management discussion and analysis of the financial performance and each business unit. (See Note 1 to the Financial Statements.)

activity is provided as an introduction and to aid in comparing the basic The Statements of Revenues, Expenses, and Changes in Net Position financial statements for the fiscal year (FY) ended June 30, 2014, with the provide financial information relating to all expenses, revenues and equity basic financial statements for the FY ended June 30, 2013. that reflect the results of each business unit and its related activities over Energy Northwest has adopted accounting policies and principles that the course of the fiscal year. The financial information provided aids in are in accordance with Generally Accepted Accounting Principles (GAAP) in benchmarking activities, conducting comparisons to evaluate progress, and the United States of America. Energy Northwest's records are maintained as determining whether the business unit has successfully recovered its costs.

prescribed by the Governmental Accounting Standards Board (GASB) and, The Statements of Cash Flows reflect cash receipts and disbursements and when not in conflict with GASB pronouncements, accounting standards net changes resulting from operating, financing and investing activities. The prescribed by the Financial Accounting Standards Board (FASB). (See Note 1 Statements of Cash Flows provide insight into what generates cash, where to the Financial Statements.) the cash comes from, and purpose of cash activity.

Because each business unit is financed and accounted for separately, the The Notes to Financial Statements present disclosures that contribute following section on financial performance is discussed by business unit to aid to the understanding of the material presented in the financial statements.

in analysis of assessing the financial position of each individual business unit. This includes, but is not limited to, Schedule of Outstanding Long-Term Debt For comparative purposes only, the table on the following page represents a and Debt Service Requirements (See Note 5 to the Financial Statements),

memorandum total only for Energy Northwest, as a whole, for FY 2014 and accounting policies, significant balances and activities, material risks, FY 2013 in accordance with GASB No. 34, "Basic Financial Statements-and commitments and obligations, and subsequent events, if applicable.

Management's Discussion and Analysis-for State and Local Governments." The basic financial statements of each business unit along with the notes The financial statements for Energy Northwest include the Balance to the financial statements and management discussion and analysis should Sheets; Statements of Revenues, Expenses, and Changes in Net Position; be used to provide an overview of Energy Northwest's financial performance.

and Statements of Cash Flows for each of the business units, and Notes to The following discussion provides comparative financial information for the Financial Statements. years ended June 30, 2014 and 2013. The year of 2013 has been restated to reflect changes in accounting principles per GASB Statement No. 65.

(See Note 1 to the Financial Statements.) Questions concerning any of the information provided in this report should be addressed to Energy Northwest at PO Box 968, Richland, WA, 99352.

Ene gy Northwest 201,4 Annýiat Report 31 COMBINED FINANCIAL INFORMATION June 30, 2014 and 2013 (Dollars in thousands) 2013 2014 Change Assets Current Assets $ 199,122 $ 242,268 $ 43,146 Restricted Assets Special Funds 51,896 172,851 120,955 Debt Service Funds 672,455 662,673 (9,782)

Net Plant 1,499,711 1,517,397 17,686 Nuclear Fuel 985,824 999,007 13,183 Other Charges 3,259,059 3,078,698 (180,361)

TOTAL ASSETS 6,668,067 6,672,894 4,827 DEFERRED OUTFLOWS OF RESOURCES* 13,572 20,048 6,476 TOTAL ASSETS AND DEFERRED OUTFLOWS $ 6,681,639 $ 6,692,942 $ 11,303 Current Liabilities S 621,867 $ 983,794 $ 361,927 Restricted Liabilities Special Funds 147,047 153,250 6,203 Debt Service Funds 139,029 123,653 (15,376)

Long-Term Debt 5,755,324 5,420,783 (334,541)

Other Long-Term Liabitilies 18,115 11,254 (6,861)

Other Credits 5,727 6,041 314 Net Position (12,968) (12,923) 45 TOTAL LIABILITIES AND NET POSITION 6,674,141 6,685,852 11,711 DEFERRED INFLOWS OF RESOURCES* 7,498 7,090 (408)

TOTAL LIABILITIES, NET POSITION $ 6,681,639 $ 6,692,942 11,303 AND DEFERRED INFLOWS Operating Revenues $ 566,920 $ 470,779 $ (96,141)

Operating Expenses 443,629 386,496 (57,133)

Net Operating Revenues 123,291 84,283 (39,008)

Other Income and Expenses (122,221) (84,238). 37,983 (DISTRIBUTION) & CONTRIBUTION BEGINNING NET POSITION* (14,038) (12,968), 1,070 ENDING NET POSITION $ (12,968) $ (12,923): $ 45 Energy Northwest's 2013 Statement of Net Position and Statements of Revenues and Expenses and Changes in Net Position were updated for the impacts of the required retroactive application of GASB Statement No. 65 "Items Previously Reported as Assets and Liabilities," which became effective for Energy Northwest in fiscal year 2014. See Note 1 for a summary of this change in accounting principle.

32 Baiancfnq i New Energy Horizon COLUMBIA GENERATING STATION Net Position Analysis Columbia Generating Station (Columbia) is wholly owned by Energy The net increase to Utility Plant (plant) and Construction Work In Progress Northwest and its participants and operated by Energy Northwest. The plant (CWIP) from FY 2013 to FY 2014 (excluding nuclear fuel) was $25.3 million.

is a 1,170-megawatt electric (MWe, Design Electric Rating, net) boiling water The changes to plant and CWIP were comprised of additions to plant of nuclear power plant located on the Department of Energy's (DOE) Hanford $156.0 million with a decrease to CWIP of $47.3 million. Remaining changes Site north of Richland, Washington. was the period effect of depreciation of $83.4 million.

Columbia produced 9,781 gigawatt-hours (GWh) of electricity in FY 2014, The FY 2014 CWIP balance of $69.2 million consisted of 11 major projects as compared to 8,479 GWh of electricity in FY 2013, which included economic of at least $1.2 million: Fukushima impacts, Plant Telephone Obsolescence, dispatch of 62 and 51 GWh respectively. The FY 2014 generation increase Cyber Security, Stack Monitor Performance, Service Water Pump and Motor of 15.4 percent was due to record generation performance. Additionally, Overhauls, Turbine Blades and Valves, ISFSI Pad Expansion, High Pressure FY 2014 generation was approximately 313 GWh higher than budgeted, Core Spray Refurbishments, Reactor Feed Water Overhauls, Condensate Pump reflecting the continuous and successful generation run. Refurbishments, and Residual Heat Removal Systems. These projects resulted Columbia's cost performance is measured by the cost of power indicator. in 74 percent of the CWIP activity. The remaining 26 percent was made up of The cost of power for FY 2014 was 3.70 cents per kilowatt-hour (kWh) as 87 separate projects.

compared with 4.51 cents per kWh in FY 2013. The industry cost of power Nuclear fuel, net of accumulated amortization, increased $13.2 million fluctuates year to year depending on various factors such as refueling from FY 2013 to $999.0 million for FY 2014. During FY 2014 Columbia outages and other planned activities. The FY 2014 cost of power decrease of incurred $49.1 million in capitalized fuel activity, $11.2 million of capitalized 18.0 percent was due to the record generation run for FY 2014 and continued interest additions and $47.0 million of amortization.

successful cost control. Current assets increased $52.4 million in FY 2014 to $218.7 million.

Changes were increases to receivables of $23.8 million, increases to cash and investments of $9.2 million, due from other business units of $9.6 million and increases to materials and supplies and prepaid amounts of $9.8 million.

Special funds increased $120.5 million to $136.9 million in FY 2014 due to the FY 2014 bond activity and schedule of construction costs for these funds in FY 2014.

Columbia Generating Station Columbia Generating Station NET GENERATION - GWhrs COST OF POWER - CENTS/kWh FY 2014 9,781 FY 2014 3.70 FY 2013 8,479 FY 2013 4.51 FY 2012 6,984 FY 2012 4.73 FY 2011 7,247 FY 2011 5.69 FY 2010 8,124 FY 2010 3.74 0 2,000 4,000 6,000 8,000 10,000 0 1 2 3 4 5 6

I f 33 The debt service funds decreased $48.3 million in FY 2014 to $99.1 Statement of Revenue and Expenses Analysis million. The decrease is due to the maturity of outstanding debt along with Columbia is a net-billed project. Energy Northwest recognizes revenues restructuring and funding activities and the requirement of making funds equal to expenses for each period on net-billed projects. No net revenue or available for these maturities. loss is recognized and no net position is accumulated.

Other charges increased $11.5 million in FY 2014 from $895.4 million to Operating expenses decreased $55.7 million from FY 2013 costs of $418.9

$907.0 million. The increase was change in Costs in Excess of Billings related million to $363.2 million in FY 2014. The decreases in costs were due to FY to the net effect of payment of current maturities and refunding activity 2013 being a planned refueling year as compared to FY 2014 and were mostly related to available debt of $11.5 million. in the operations and maintenance areas amounting to $70.2 million. The Current liabilities increased $0.9 million in FY 2014 to $140.0 million. decreased costs were offset by increased benefit costs in the administrative Components of the change were a decrease to current maturities of debt of and general area of $1.2 million, and increases to fuel costs and generation

$28.8 million, increases due to timing of year end obligations of $8.6 million, tax of $11.8 million due to the FY 2014 record generation.

and timing of due to participants that resulted in an increase of $21.1 million. Other Income and Expenses decreased $39.1 million from FY 2013 to Restricted liabilities increased $2.0 million in FY 2014 to $200.7 million. $80.3 million net expenses in FY 2014. The spent fuel litigation settlement The increase was due to bond activity and related decrease of $4.6 million from the Department of Energy (DOE) of $23.6 million was the major factor and decommissioning increases of $6.6 million. in the decrease to overall expenses and is shown as gain on DOE settlement Long-term debt (Bonds Payable) increased $187.0 million in FY 2014 from on the Statement of Revenues, Expenses, and Changes in Net Position. (See

$3,268.6 million to $3,455.7 million due to the debt associated with the Note 13 to the financial statements.) The remaining decrease of $15.5 million planned and approved debt restructuring for the region. was due to decreased bond related expenses of $17.6 million, decrease in Other long-term liabilities decreased $6.9 million in FY 2014 to $11.0 investment income of $0.6 million, decreases in miscellaneous non-utility million related to nuclear fuel cask activity. leasing revenue of $2.3 million and completion of the TVA fuel lease revenue program in FY 2013 resulting in a $0.7 million reduction in costs.

Columbia's total operating revenue decreased from $538.3 million in FY 2013 to $443.5 million in FY 2014. The decrease of $94.8 million was due to the off cycle year of the two year refueling and maintenance program and the related effect of the net billing agreement on total revenue. (See Note 6 to the Financial Statements for Net Billing discussion.

Columbia Generating Station TOTAL OPERATING COSTS (dollars inthousands)

FY 2014 443,484 FY 2013 539,779 FY 2012 397,881 FY 2011 522,156 FY 2010 448,075 0 100,000 200,000 300,000 400,000 500,000 Operating Expenses Other Income Expenses

34 Balancing -iNew; Energy Hor~zur PACKWOOD LAKE HYDROELECTRIC PROJECT The Packwood Lake Hydroelectric Project (Packwood) is wholly owned and operated by Energy Northwest. Packwood consists of a diversion structure at Packwood Lake and a powerhouse located near the town of Packwood, Washington. The water is carried from the lake to the powerhouse through a five-mile long buried tunnel and drops nearly 1,800 feet in elevation. Packwood produced 115.04 GWh of electricity in FY 2014 versus 103.70 GWh in FY 2013. The 10.9 percent increase in generation can be attributed to more favorable water availability compared to the previous year, and resulted in the fifth highest generation in the life of the plant. Generation results for FY 2014 did exceed the estimated amount of 84.64 GWh by 35.9 percent.

Packwood's cost performance is measured by the cost of power indicator. The cost of power for FY 2014 was $1.88 cents per kWh as compared to $2.07 cents per kWh in FY 2013. The cost of power fluctuates year-to-year depending on various factors such as outage, maintenance, generation, and other operating costs. The FY 2014 cost of power decrease of 9.2 percent was a result of increased generation due to water availability and a slight decrease of overall costs attributable to operations and maintenance charges.

The Packwood Lake Hydroelectric Project The Packwood Lake Hydroelectric Project NET GENERATION - GWhrs COST OF POWER - CENTS/kWh FY 2014 115.04 FY 2014 1.88 FY 2013 103.70 FY 2013 2.07 FY 2012 119.43 FY 2012 1.58 FY 2011 107.92 FY 2011 1.59 FY 2010 86.07 FY 2010 1.82 0 20 40 60 80 100 120 0.0 0.5 1.0 1.5 2.0 2.50 Net Position Analysis Statement of Revenue and Expenses Analysis Total assets increased $0.2 million from FY 2013, with the major driver The agreement with Packwood participants obligates them to pay being an increase of $0.2 million in capital activity for utility plant. The annual costs and to receive excess revenues. (See Note 1 to the Financial corresponding increase to total liabilities of $0.2 million was the increase in Statements.) Accordingly, Energy Northwest recognizes revenues equal to due to participants for the results of operations. Packwood has incurred $3.7 expenses for each period. No net revenue or loss is recognized and no net million in relicensing costs through FY 2013 with no new costs incurred for position is accumulated.

FY 2014. These costs are shown as Other Charges on the Statement of Net Operating expenses decreased $28 thousand to $2.15 million in FY Position. Packwood has been operating under a 50-year license issued by 2014 from $2.18 million in FY 2013. Operations and maintenance and the FERC, which expired on February 28, 2010. Energy Northwest submitted administrative and general costs decreased $58 thousand offset by increased the Final License Application (FLA) for renewal of the operating license to costs of $31 thousand for depreciation, amortization and generation tax.

FERC on February 22, 2008. On March 4, 2010, FERC issued a one-year Other Income and Expense decreased from a net gain of $8 thousand in extension to operate under the original license which is indefinitely extended FY 2013 to a $4 thousand gain in FY 2014. The $4 thousand decrease in net for continued operations until formal decision is issued by FERC and a new gain was due to fewer property disposals and decreased investment income.

operating license is granted. As of June 30, 2014, Packwood continues to be relicensed under this extended agreement.

35 The Packwood Lake Hydroetectric Project Packwood participants are obligated to pay annual costs of the project TOTAL OPERATING COSTS (dollars in thousands)

(including any applicable debt service), whether or not the project is operable.

The Packwood participants also share project revenue to the extent that the amounts exceed costs. These funds can be returned to the participants or FY 2014 2,150 kept within the project. As of June 30, 2014 there is $5.8 million recorded as deferred revenues in excess of costs that are being kept within the project. FY 2013 2,166 Packwood participants are currently taking 100 percent of the project generation; there are no additional agreements for power sales. FY 2012 1,872 FY 2011 1,742 FY 2010 1,535 500 1,000 1,500 2,000 2,500 Operating Expenses = Other Income/Expenses NUCLEAR PROJECT NO. 1 NUCLEAR PROJECT NO. 3 Energy Northwest wholly owns Nuclear Project No. 1, a 1,250-MWe plant, Nuclear Project No. 3, a 1,240-MWe plant, was placed in extended which was placed in extended construction delay status in 1982, when it construction delay status in 1983, when it was 75 percent complete. On was 65 percent complete. On May 13, 1994, Energy Northwest's Board of May 13, 1994, Energy Northwest's Board of Directors adopted a resolution Directors adopted a resolution terminating Nuclear Project No. 1.All funding terminating Nuclear Project No. 3. Energy Northwest is no longer responsible requirements are net-billed obligations of Nuclear Project No. 1. Termination for any site restoration costs as they were transferred with the assets to the expenses and debt service costs comprise the activity of Nuclear Project No. 1 Satsop Redevelopment Project. The debt service related activities remain the and are net-billed. (See Notes 6 and 13 to the Financial Statements.) responsibility of Energy Northwest and are net-billed. (See Notes 6 and 13 to the Financial Statements.)

Net Position Analysis Restricted cash increased $52.3 million in FY 2014 to $361.8 million. The Net Position Analysis increase was due to bond activities, investment activities and transactions Long-term debt decreased $166.9 million from $1,274.2 million in FY 2013 between other units. to $1,107.3 million in FY 2014, as a result of $157.3 million being transferred Long-term debt decreased $345.9 million from $1,084.2 million in FY 2013 to current debt to be paid on July 1, 2014 along with a decrease in bond to $738.8 million in FY 2014 as a result of $332.1 million being transferred to related amortization of $9.1 million; and the remaining change was due to the current debt to be paid on July 1, 2014 along with a decrease in bond related debt associated with the planned and approved debt restructuring. Current amortization of $13.3 million. Short term debt increased $59.0 million per debt per the debt maturity schedule decreased $8.9 million from $166.2 the debt maturity schedule. There was a decrease to restricted liabilities of million in FY 2013 to $157.3 million in FY 2014. The remaining changes in

$8.6 million, represented by decreases to interest payable of $7.0 million and liabilities of $82.1 million were due to an increase in notes payable related to decommissioning estimate of $1.6 million. bond financing of $85.2 million, and an decrease in accrued interest payable of $3.1 million.

Statement of Revenue and Expenses Analysis Other Income and Expenses showed a net decrease to expenses of Statement of Revenue and Expenses Analysis

$10.9 million from $52.5 million in FY 2013 to $41.6 million in FY 2014. Overall expenses decreased $6.5 million from FY 2013 related to bond Investment revenue for FY 2014 decreased $53 thousand; bond related activity (interest expense and amortization). Investment income was lower expenses decreased $9.9 million; other expenses decreased $1.0 million, by $22 thousand but was offset by decreased liquidation (plant preservation which included a restoration cost estimate decrease of $1.3 million as a result and termination) costs.

of accelerated restoration work completed, offset by a slight increase of $0.3 million in plant preservation costs.

36 F~[L~aNv r H BUSINESS DEVELOPMENT 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.

Net Position Analysis Total assets increased $0.3 million from $10.1 million in FY 2013 to $10.4 million in FY 2014. Increases were due to cash and investments of $0.2 million, net plant increases of $0.2 million, increase to due from other business activity of $0.4 million and decreases to receivables and prepaid amounts of $0.5 million. Liabilities increased $0.6 million from FY 2013 due to timing of year end outstanding items.

Statement of Revenues and Expenses Analysis Operating Revenues in FY 2014 totaled $6.0 million as compared to FY 2013 revenues of $9.0 million, a decrease of $3.0 million (33.3 percent). The decrease in revenues was driven by three major activity areas: Discontinued projects for Grant County, Seattle City Light and Kalama which amounted to a decrease of $1.8 million, lowered leasing rates for facilities resulting in a decrease of $0.3 million, and lower amounts of activity for Hanford calibration work of $0.9 million. Operating costs decreased $1.8 million due to decreased business activity discussed above resulting in a net operating decrease of $1.2 million.

Other Income and Expenses remained steady at $1.3 million, with decreases of $0.2 million in other expenses which was offset by decreases in miscellaneous income of $0.2 million. There were no other significant individual item variances.

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 2014 there were no contributions (transfers), which was also the case for FY 2013.

pot 37 NINE CANYON WIND PROJECT The Nine Canyon Wind Project (Nine Canyon) is wholly owned and Net Position Analysis operated by Energy Northwest. Nine Canyon is located in the Horse Heaven Total assets decreased $8.5 million from $113.4 million in FY 2013 to Hills area southwest of Kennewick, Wash. Electricity generated by Nine $104.9 million in FY 2014. The major driver for the change in assets was Canyon is purchased by Pacific Northwest Public Utility Districts (purchasers). a decrease of $6.8 million in net plant due to accumulated depreciation.

Each of the purchasers of Phase I, Phase II,and Phase IIIhave signed a power The remaining changes consisted of decreases to restricted assets of $1.5 purchase agreement which are part of the 2nd Amended and Restated Nine million and decreases in cash and investments of $0.7 million, and slight Canyon Wind Project Power Purchase Agreement which now has an end date increases to receivables and prepaids of $0.5 million. There was an overall of 2030. Nine Canyon is connected to the Bonneville Power Administration decrease to liabilities and net position of $8.5 million with a decrease to transmission grid via a substation and transmission lines constructed by long term debt of $12.0 million, increases to current debt maturities of $0.4 Benton County Public Utility District. million, increases to unamortized debt activity of $2.7 million, and decreases Phase Iof Nine Canyon, which began commercial operation in September to accrued debt related interest of $0.7 million. The increase in net position 2002, consists of 37 wind turbines, each with a maximum generating capacity was $0.4 million in FY 2014 as compared to a decrease of $0.2 million in FY of approximately 1.3 MW, for an aggregate generating capacity of 48.1 MW. 2013. There was an adjustment to beginning net position of $1.4 million due Phase IIof Nine Canyon, which was declared operational in December 2003, to the retrospective application of GASB Statement No. 65. The adjustment includes 12 wind turbines, each with a maximum generating capacity of 1.3 for the GASB application was offset by an increase in net position of $0.4 MW, for an aggregate generating capacity of approximately 15.6 MW. Phase million reflecting the rate stabilization approach for Nine Canyon planning IIIof Nine Canyon, which was declared operational in May 2008, includes out through the 2030 period.

14 wind turbines, each with a maximum generating capacity of 2.3 MW, In previous years Energy Northwest has accrued, as income (contribution) for an aggregate generating capacity of 32.2 MW. The total Nine Canyon from the Department of Energy, Renewable Energy Production Incentive (REPI) generating capability is 95.9 MW, enough energy for approximately 39,000 payments that enable Nine Canyon to receive funds based on generation as average homes. it applies to the REPI legislation. REPI was created to promote increases in Nine Canyon produced 239.39 GWh of electricity in FY 2014 versus 228.23 the generation and utilization of electricity from renewable energy sources GWh in FY 2013. The increase of 4.9 percent was due to more favorable wind and to further the advances of renewable energy technologies. This program, conditions in FY 2014 as compared to FY 2013. FY 2014 was more in line authorized under Section 1212 of the Energy Policy Act of 1992, provides with historical averages and ranked as the third highest generation in the financial incentive payments for electricity produced and sold by new project's history. qualifying renewable energy generation facilities. The payment stream from Nine Canyon's cost performance is measured by the cost of power Nine Canyon participants and the REPI receipts were projected to cover the indicator. The cost of power for FY 2014 was $7.83 cents per kWh as total costs over the purchase agreement. Continued shortfalls in REPI funding compared to $7.91 cents per kWh in FY 2013. The cost of power fluctuates for the Nine Canyon project led to a revised rate plan to incorporate the year to year depending on various factors such as wind totals and unplanned impact of this shortfall over the life of the project. The billing rates for the maintenance. The slight decrease of 1.0 percent in cost of power for FY 2014 Nine Canyon participants increased 69 percent and 80 percent for Phase I and was attributable to slightly higher operating costs ($367 thousand) due to Phase II participants respectively in FY 2008 in order to cover total project GASB Statement No. 65 implementation for bond refinancing costs offset by costs, projected out to the 2030 proposed project end date. The increases for the third highest generation year.

Nine Canyon Wind Project Nine Canyon Wind Project NET GENERATION - GWh COST OF POWER - CENTS/kWh FY 2014 239.39 FY 2014 7.83 FY 2013 228.23 FY 2013 7.91 FY 2012 261.63 FY 2012 6.69 FY 2011 264.74 FY 2011 6.56 FY 2010 226.73 FY 2010 7.88 0 50 100 150 200 250 300 0 1 2 3 4 5 6 7 8 9

38 £34 -irucngaNevj Lnerny Hon-zor FY 2008 were a change from the previous plan where a 3 percent increase each The original plan anticipated operating at a loss in the early years and year over the life of the project was projected. Going forward, the increase or gradually increasing the rate charged to the purchasers to avoid a large rate decrease in rates will be based on cash requirements of debt repayment and increase after the REPI expires. The REPI incentive expires 10 years from the the cost of operations. Phase IIIstarted with an initial planning rate of $49.82 initial operation startup date for each phase. Reserves that were established per MWh which increased at 3 percent per year for three years. In year six are used to facilitate this plan. The rate plan in FY 2008 was revised to account (FY 2013) the rate increased to a rate that is expected to be stabilized over for the shortfall experienced in the REPI funding and to provide a new rate the life of the project. Possible adjustments may be necessary to future rates scenario out to the 2030 project end date. Energy Northwest did not receive depending on operating costs and REPI funding, similar to Phase I and II. REPI funding in FY 2014 and is not anticipating receiving any future REPI incentives. The results from FY 2014 reflect the revised rate plan scenario and Statement of Revenues and Expenses Analysis gradual increase in the return of total net position.

Operating revenues increased $0.2 million from $19.0 million inFY 2013 to

$19.2 million in FY 2014. The project received revenue from the billing of the Nine Canyon Wind Project purchasers at an average rate of $76.33 per MWh for FY 2014 as compared TOTAL OPERATING COSTS (dottars in thousands) to $80.06 per MWh for FY 2013 which is reflective of the implementation of the revised rate plan in FY 2008 to account for REPI funding shortfalls and costs of operations. The decrease in the average rate billed to purchasers was FY 2014 18,750 a direct result of increased generation above FY 2014 estimates. Operating costs increased from $13.1 million in FY 2013 to $13.6 million in FY 2014. FY 2013 18,805 Increased operating costs of $0.5 million for FY 2014 were due to $0.4 million recognition of current period costs for refinancing due to implementation FY 2012 17,467 of GASB Statement No. 65 and a slight increase ($0.1 million) in overall operations and maintenance expenditures.

FY 2011 17,466 Other income and expenses decreased $0.5 million from $5.7 million in net expenses FY 2013 to $5.2 million in FY 2014. Decreased interest costs FY 2010 16,506 of $0.3 million and decreases in amortized bond expenses of $0.3 million accounted for the change. Net gain or change in net position of $0.4 million for FY 2014 was a direct result of the planned average rate increase with 0 3,000 6,000 9,000 12,000 15,000 lower than budgeted operating costs. = Operating Expenses M Other income/ Expenses

-nei av ý,ýortfiwc - 2014 Awiti a[ Repwt 39 INTERNAL SERVICE FUND The Internal Service Fund (ISF) (formerly the General Fund) was established The net increase in net position and liabilities is due to decreases in in May 1957. The ISF provides services to the other funds. This fund accounts accounts payable and payroll related liabilities of $17.4 million due to year-for the central procurement of certain common goods and services for the end allocation of related expenses and an increase of $1.1 million due to business units on a cost reimbursement basis. (See Note 1 to Financial change in unpaid bearer bond estimates.

Statements.)

Statement of Revenues and Expenses Analysis Net Position Analysis Net revenues for FY 2014 decreased $28 thousand from FY 2013. The Total assets decreased $16.3 million from $55.7 million in FY 2013 to decrease was due to decreased amounts of other business expenses of

$39.4 million in FY 2014. The majority of the change ($16.6 million) was $54 thousand, decrease in depreciation of $0.7 million offset by decreases a result of year end allocation to other business units. There were small in operating revenue due to operations of $0.8 million and interest of $4 increases to cash and investments of $1.4 million with a decrease of $1.1 thousand.

million to net plant accounting for the remainder of the changes.

CURRENT DEBT RATINGS (Unaudited)

Nine Canyon Rating Energy Northwest (Long-Term) Net-Billed Rating Phase I & II Phase III Fitch, Inc. AA A- A-Moodys Investors Service, Inc. (Moodys) Aal A2 A2 Standard and Poor's Ratings Services (S & P) AA- A- A

STATEMENT OF NET POSITION As of June 30, 2014 (Dollars in thousands)

Columbia Packwood Lake Nuclear Nuclear Business Nine Canyon Internal Generating Hydroelectric Project Project Development Wind Service Combined Station Project Number 1 Number 3" Fund Project Subtotal Fund Total ASSETS CURRENT ASSETS Cash $ 39,791 $ 892 $ 3,391 3,251 $ 2,348 $ 8,965 $ 58,638 $ 1,333 S 59,971 Available-for-sale investments 12,576 500 - 5,434 - 18,510 4,997 23,507 Accounts and other receivables 23,962 121 - 118 386 24,587 148 24,735 Due from other business units 9,450 131 327 13 743 156 10,820 189 Materials and supplies 130,953 - 130,953 130,953 Prepayments and other TOTAL CURRENT ASSETS 1,735 218,467 16 1,660 3,718

-

3,264

-

8,643

- 184 9,691 1,935 245,443 1,167 7,834 3,102 242,268 ~

RESTRICTED ASSETS (NOTE 1)

Special funds Cash 941 3,501 7,728 195 31 12,396 2,369 14,765 Available-for-sale investments 136,020 - 1,557 137,577 20,491 158,068 Accounts and other receivables 18 - 18 18 Debt service funds Cash 99,110 358,301 183,331 10,040 650,782 650,782 Available-for-sale investments - - 2,108 - 9,783 11,891 11,891 TOTAL RESTRICTED ASSETS 236,089 361,802 193,167 195 21,411 812,664 22,860 835,524 NON CURRENTASSETS UTILITY PLANT (Note 2)

Inservice 3,969,575 14,635 - - 2,898 134,518 4,121,626 47,878 4,169,504 Not in service - - 29,415 - 29,415 29,415 Construction work in progress 69,150 - 69,150 69,150 Accumulated depreciation (2,606,854) (12,892) (29,415) (1,335) (60,960) (2,711,456) (39,216) (2,750,672)

Net Utility Plant 1,431,871 1,743 1,563 73,558 1,508,735 8,662 1,517,397 Nuclear fuel, net of accumulated depreciation 999,007 999,007 999,007 TOTAL NONCURRENT ASSETS 2,430,878 1,743 - 1,563 73,558 2,507,742 8,662 2,516,404 OTHER CHARGES Cost in excess of billings 906,957 985,437 1,182,315 - - 3,074,709 - 3,074,709 Prepaid bond insurance - - - 252 252 252 Other - 3,737 - - 3,737 3,737 TOTAL OTHER CHARGES 906,957 3,737 985,437 1,182,315 - 252 3,078,698 - 3,078,698 TOTAL ASSETS 3,792,391 7,140 1,350,957 1,378,746 10,401 104,912 6,644,547 39,356 6,672,894 DEFERRED OUTFLOWS OF RESOURCES Deferred outflows

- unamortized loss on bond refunding 18,183 900 965 20,048 20,048 TOTAL DEFERRED OUTFLOWS OF RESOURCES 18,183 900 965 - - 20,048 - 20,048 TOTAL ASSETS AND DEFERRED OUTFLOWS $ 3,810,574 $ 7,140 $ 1,351,857 S 1,379,711 $ 10,401 $ 104,912 $ 6,664,595 $ 39,356 $ 6,692,942 Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements

• Energy Northwest's 2013 Statement of Net Position and Statements of Revenues and Expenses and Changes in Net Position were updated for the impacts of the required retroactive application of GASB Statement No. 65 "Items Previously Reported as Assets and Liabilities," which became effective for Energy Northwest in fiscal year 2014. See Note 1 for a summary of this change in accounting principle.

41 STATEMENT OF NET POSITION As of June 30, 2014 (DoLLars in thousands)

Columbia Packwood Lake Nuclear Nuclear Business Nine Canyon Internal Generating Hydroelectric Project Project Development Wind Service Combined Station Project Number 1* Number 3* Fund Project Subtotal Fund Total LIABILITIES AND NET POSITION CURRENT LIABILITIES Current maturities of long-term debt $ 32,205 $ -S$ 332,100 $ 157,300 $ - $ 7,265 $ 528,870 $ - $ 528,870 Current notes payable - - 235,445 85,180 - - 320,625 . 320,625 Accounts payable and accrued expenses 62,214 294 338 58 1,635 556 65,095 22,166 87,261 Due to participants 46,009 1,029 - - - 47,038 - 47,038 Due to other business units -- - - - - - 11,009 -

TOTAL CURRENT LIABILITIES 140,428 1,323 567,883 242,538 1,6351 7,821 961,628 33,175 983,794 LIABILITIES-PAYABLE FROM RESTRICTED ASSETS (NOTE 1)

Special funds Accounts payable and accrued expenses 133,797 - 16,608 - - 1,341 151,746 1,504, 153,250 Debt service funds Accrued interest payable 66,905 26,201 28,139 - 2,408 123,653 123,653 TOTAL RESTRICTED LIABILITIES 200,702 - 42,809 28,139 3,749 275,399 1,504 276,903 LONG-TERM DEBT (NOTE 5)

Revenue bonds payable 3,304,805 - 715,905 1,071,400 . 112,120 5,204,230 - 5,204,230 Unamortized (discount)/ 150,938 - 22,919 35,894 - 6,802 216,553 - 216,553 premium on bonds -net TOTAL LONG-TERM DEBT 3,455,743 - 738,824 1,107,294 - 118,922 5,420,783 - 5,420,783 OTHER LONG-TERM LIABILITIES 11,054 - - - 195 - 11,249 5 11,254 OTHER CREDITS Advances from members 5,817 - ..- 5,817 - 5,817 and others Other . 200 - - 24 224 224 TOTAL OTHER CREDITS - 5,817 200 - - 24 6,041 - 6,041 NET POSITION Invested in capital assets, -- 1,563 (45,675) (44,112), 8,662 (35,450) net of related debt Restricted, net - - 16,649 16,649 21,356 38,005 Unrestricted, net - 7,008 2,860 9,868 (25,346) (15,478)

NET POSITION - - - - 8,571 (26,166) (17,595) 4,672 (12,923)

TOTAL LIABILITIES 3,807,927 7,140 1,349,716 1,377,971 1,830 130,516 6,675,100 34,684 6,698,775 DEFERRED INFLOWS OF RESOURCES Deferred inflows - unamortized gain on bond refunding 2,647 - 2,141 1,740 562 7,090 - 7,090 TOTAL DEFERRED INFLOWS OF RESOURCES 2,647 - 2,141 1,740 - 562 7,090 - 7,090 TOTAL LIABILITIES, NET POSITION, AND DEFERRED INFLOWS  :$ 3,810,574 $ 7,140 :$ 1,351,857 $ 1,379,711 $ 10,401 $ 104,912 $ 6,664,595 $ 39,356 $ 6,692,942

• Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements Energy Northwest's 2013 Statement of Net Position and Statements of Revenues and Expenses and Changes in Net Position were updated for the impacts of the required retroactive application of GASB Statement No. 65 "Items Previously Reported as Assets and Liabilities," which became effective for Energy Northwest in fiscal year 2014. See Note 1 for a summary of this change in accounting principle.

STAMncTrS, 42 :OR NeV,, EnEPSgy loCazon A STATEMENTS OF REVENUES, EXPENSES, AND CHANGES INNET POSITION As Of June 30, 2014 (Do~ars inthousands)

Packwood Columbia Lake Nuclear Nuclear Business Nine Canyon internal Generating Hydroelectric Project Project Development Wind Service Combined Station Project No.1

• No.3

• Fund Project Subtotal Fund Total OPERATING REVENUES $ 443,484 $ 2,150 S $ S 5,964 $ 19,181 $ 470,779 : $ $ 470,779 OPERATING EXPENSES Services to other business units Nuclear fuel 52,986 52,986 52,986 Spent fuel disposal fee 8,162 8,162 8,162 Decommissioning 6,664 86 6,750 6,750 Depreciation and amortization 85,144 86 226 6,804 92,260 92,260 Operations and maintenance 176,197 1,883 7,334 6,236 191,650. 191,650 Administrative & general 28,929 160 - 401. 29,490 29,490 Generation tax 5,122 25 51 5,198 5,198 Total operating expenses 363,204 2,154 7,560 13,578 386,496 386,496 uJrcnnI~fluIIIi*I~ivIL *JJ*3) vtlqt USOU i I,3vO) J,OU3 04e03 OZ03 0%

OTHER INCOME & EXPENSE Other 3,259 1 41,592 47,879 1,236 - 93,967 88,555 93,927 Gain on DOE settlement 23,575 - - - 23,575 - 23,575 Investment income 63 3 15 28 14 44 167 6 167 Interest expense and debt amortization, net of (107,177) - (39,505)' (47,510) (5,216). (199,408): - (199,408) capitalized interest Plant preservation and termination costs (1,517) (397) (1,914) - (1,914)

Depreciation and amortization (5) - (5). 1,363 (5)

Decommissioning (580) (580) (580)

Services to other business units - (89,964)-

TOTAL OTHER INCOME & EXPENSE (80,280) 4 1,250 (5,172): (84,198) (40): (84,238)

INCOME (LOSS) (346) 431 85 (40) 45 TOTAL NET POSITION, BEGINNING OF YEAR *-- 8,917 (26,597) (17,680) 4,712 (12,968)

TOTAL NET POSITION, ENDOFYEAR $ $ $ - $ $ 8,571 $ (26,166) $ (17,595) $ 4,672 $ (12,923)

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

• Energy Northwest's 2013 Statement of Net Position and Statements of Revenues and Expenses and Changes in Net Position were updated for the impacts of the required retroactive application of GASB Statement No. 65 "items Previously Reported as Assets and Liabilities," which became effective for Energy Northwest in fiscal year 2014. See Note 1 for a summary of this change in accounting principle.

v ti( Iv'201 -4Anm ial Repor t 43 STATEMENT OF CASH FLOWS As of June 30, 2014 (DoLLars in thousands)

Columbia Packwood Lake Nuclear Nuclear Business Nine Canyon Internal Generating Hydroelectric Project Project Development Wind Service Combined Station Project No.1

• No.3

• Fund Project Fund Total CASH FLOWS FROM OPERATING AND NONOPERATING ACTIVITIES Operating revenue receipts 457,865 $ 2,290 $ $ $ 2,813 $ 18,936 $ - $ 481,904 Cash payments for operating expenses (239,026) (2,174) (2,418) (6,135) (249,753)

Non-operating revenue receipts 100 148,565 128,360 277,025 Cash payments for preservation, termination expense 1,236 18 1,254 Cash payments for services net of cash received from other units 1,785 1,785 Net cash provided by operating and nonoperating activities 218,939 116 149,801 128,378 395 12,801 1,785 512,215 CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bond refundings 670,900 26,702 41 ,392 738,994 Payment on refunded debt 449,525) (26,703) (42 ,776) (519,004)

Principal paid on revenue bond maturities (61,020) (273,055) (166,160) (6,835) (507,070)

Payment for bond issuance and financing costs (6,771) (288) (405) (741) (8,205)

Proceeds from notes payable 61,273 235,445 85,180 - - 381,898 Payment for notes payable (61,273) - (61,273)

Interest paid on bonds 141,548) (59,386) (59,331) (6, 032) (266,297)

Interest paid on notes (115) (115)

Payment for capital items 100,456) (125) (196) (39) (259) (101,075)

Nuclear fuel acquisitions (49,106) - - (49,106)

Proceeds from sale of capital assets 37 37 Net cash provided/(used) by capital and related financing activities (137,604) (125) (97,284) (140,717) (196) (15,031) (259) (391,216)

CASH FLOWS FROM NON-CAPITAL FINANCE ACTIVITIES - -

CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities (188,296) (6,038) (36,804) (6,945) (35,465) (41,395) (314,943)

Sales of investment securities 77,617 500 219,488 184,391 4,021 38,034 42,507 566,558 Interest on investments 154 28 55 65 45 110 658 1,115 Net cash provided/(used) by investing activities (110,525) 528 213,505 147,652 (2,879) 2,679 1,770 252,730 NET INCREASE (DECREASE) IN CASH (29,190) 519 266,022 135,313 (2,680) 449 3,296 373,729 CASH ATJUNE 30, 2013 169,032 373 99,171 58,997 5,223 18,587 406 351,789 CASH ATJUNE 30, 2014 (NOTE B) $ 139,842 $ 892 $ 365,193 $ 194,310 $ 2,543 $ 19,036 $ 3,702 $ 725,518

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

• Energy Northwest's 2013 Statement of Net Position and Statements of Revenues and Expenses and Changes in Net Position were updated for the impacts of the required retroactive application of GASB Statement No. 65 "Items Previously Reported as Assets and Liabilities," which became effective for Energy Northwest in fiscal year 2014. See Note 1 for a summary of this change in accounting principle.

44 B~ ~~NwBerj iz STATEMENT OF CASH FLOWS As of June 30, 2014 (DolLars in thousands)

Columbia Packwood Lake Nuclear Nuclear Business Nine Canyon Internal Generating Hydroelectric Project Project Development Wind Service Combined Station Project No.1

• No.3

• Fund Project Fund Total RECONCILIATION OF NET OPERATING REVENUES TO NET CASH FLOWS PROVIDED BY OPERATING AND NON OPERATING ACTIVITIES Net income/loss from operations $ 80,280 $ (4)$ - $ $ (1,596) S 5,602 $ - $ 84,282 Adjustments to reconcile net operating revenues to cash provided by operating activities:

Depreciation and amortization 132,496 80 185 6 ,793 1,364 140,918 Decommissioning 6,664 33 6,697 Non-operating revenues 41,593 47,879 - - 89,472 Other (360) 97 1,078 770 (40) 1,545 Change in operating assets and liabilities:

Deferred charges/costs in excess of billings 19,859 (19) 109,745 80,504 - - 210,089 Accounts receivable (237) (11) 348 (245) (30) (171)

Materials and supplies (18,727) - - (18,727)

Prepaid and other assets (326) (4) 140 (108) 333 35 Due from/to other business units (26,067) (122) (57) (23) (400) (166) 26,835 Accounts payable 25,357 99 (1,481) 15 640 122 (26,677) (1,925)

Net cash provided by operating and nonoperating activities $ 218,939 $ 116 $ 149,801 $ 128,378 $ 395 $ 12,801 $ 1,785 $ 512,215 Non-cash activities Capitalized interest 19,115 19,115

• Project recorded on a liquidation basis The accompanying notes are an integral part of these combined financial statements Energy Northwest's 2013 Statement of Net Position and Statements of Revenues and Expenses and Changes in Net Position were updated for the impacts of the required retroactive application of GASB Statement No. 65 "Items Previously Reported as Assets and Liabilities," which became effective for Energy Northwest in fiscal year 2014. See Note 1 for a summary of this change in accounting principle.

LFaietqy No thwc-A 201l4 Annua ReLpoi t 45 NOTES TO FINANCIAL STATEMENTS NOTE 1 - Summary of Operations and Significant Accounting Policies delay status in 1983, when it was 75 percent complete. On May 13, 1994, Energy Northwest, a municipal corporation and joint operating agency of Energy Northwest's Board of Directors adopted resolutions terminating the state of Washington, was organized in 1957 to finance, acquire, construct Nuclear Projects Nos. 1 and 3. All funding requirements remain as net-billed and operate facilities for the generation and transmission of electric power. obligations of Nuclear Projects Nos. 1 and 3. Energy Northwest wholly owns Membership consists of 22 public utility districts and 5 municipalities. All Nuclear Project No. 1. Energy Northwest is no longer responsible for site members own and operate electric systems within the state of Washington. restoration costs for Nuclear Project No. 3. (See Note 13)

Energy Northwest is exempt from federal income tax and has no taxing The Business Development Fund was established in April 1997 to pursue authority. and develop new energy related business opportunities. There are four Energy Northwest maintains seven business units. Each unit is financed main business lines associated with this business unit: General Services and and accounted for separately from all other current or future business units. Facilities, Generation, Professional Services, and Business Unit Support.

All electrical energy produced by Energy Northwest's net-billed business The Nine Canyon Wind Project (Nine Canyon) was established in January units is ultimately delivered to electrical distribution facilities owned and 2001 for the purpose of exploring and establishing a wind energy project.

operated by Bonneville Power Administration (BPA) as part of the Federal Phase I of the project was completed in FY 2003 and Phase I1was completed Columbia River Power System. BPA in turn distributes the electricity to in FY 2004. Phase I and II combined capacity is approximately 63.7 MWe.

electric utility systems throughout the Northwest, including participants in Phase IIIwas completed in FY 2008 adding an additional 14 wind turbines Energy Northwest's business units, for ultimate distribution to consumers. to Nine Canyon and adding an aggregate capacity of 32.2 MWe. The total Participants in Energy Northwest's net-billed business units consist of public number of turbines at Nine Canyon is 63 and the total capacity is 95.9 MWe.

utilities and rural electric cooperatives located in the western United States The Internal Service Fund was established in May 1957. It is currently used who have entered into net-billing agreements with Energy Northwest and to account for the central procurement of certain common goods and services BPA for participation in one or more of Energy Northwest's business units. for the business units on a cost reimbursement basis.

BPA is obligated by law to establish rates for electric power which will recover Energy Northwest's fiscal year begins on July 1 and ends on June 30. In the cost of electric energy acquired from Energy Northwest and other sources, preparing these financial statements, the company has evaluated events and as well as BPA's other costs (see Note 6). transactions for potential recognition or disclosure through September 25, Energy Northwest operates the Columbia Generating Station (Columbia), 2014, the date of audit opinion issuance date.

a 1,170-MWe (Design Electric Rating, net) generating plant completed The following is a summary of the significant accounting policies:

in 1984. Energy Northwest has obtained all permits and licenses required to operate Columbia. Columbia was issued a standard 40-year operating a) Basis of Accounting and Presentation: The accounting policies of license by the Nuclear Regulatory Commission (NRC) in 1983. On January Energy Northwest conform to Generally Accepted Accounting Principles 19, 2010 Energy Northwest submitted an application to the NRC to renew (GAAP) applicable to governmental units. The Governmental Accounting the license for an additional 20 years, thus continuing operations to 2043. Standards Board (GASB) is the accepted standard-setting body for A renewal license was granted by the NRC on May 22, 2012 for continued establishing governmental accounting and financial reporting principles.

operation of Columbia to December 31, 2043. Energy Northwest has applied all applicable GASB pronouncements and Energy Northwest also operates the Packwood Lake Hydroelectric Project has applied Financial Accounting Standards Board (FASB) standards, (Packwood), a 27.5-MWe generating plant completed in 1964. Packwood as other accounting literature, in those areas not directly prescribed has been operating under a 50-year license issued by the Federal Energy by GASB and to the extent that they do not conflict with or contradict Regulatory Commission (FERC), which expired on February 28, 2010. Energy GASB pronouncements. The accounting and reporting policies of Energy Northwest submitted the Final License Application (FLA) for renewal of the Northwest are regulated by the Washington State Auditor's Office and operating license to FERC on February 22, 2008. On March 4, 2010, FERC are based on the Uniform System of Accounts prescribed for public issued a one-year extension, or until the issuance of a new license for the utilities and licensees by FERC. Energy Northwest uses an accrual project or other disposition under the Federal Power Act, whichever comes basis of accounting where revenues are recognized when earned and first. FERC is awaiting issuance of the National Oceanic and Atmospheric expenses are recognized when incurred. Revenues and expenses related Administration's (NOAA) Biological Opinion, after which FERC will complete to Energy Northwest's operations are considered to be operating the final license renewal documentation for Packwood. Costs incurred to revenues and expenses; while revenues and expenses related to capital, date for relicensing are $3.7 million included in other charges. financing and investing activities are considered to be other income and The electric power produced by Packwood is sold to 12 project participant expenses. Separate funds and books of accounts are maintained for each utilities which pay the costs of Packwood. The Packwood participants are business unit. Payment of the obligations of one business unit with funds obligated to pay annual costs of Packwood including debt service, whether of another business unit is prohibited, and would constitute violation of or not Packwood is operable. The participants also share Packwood revenue. bond resolution covenants (See Note 5).

(See Note 6). Energy Northwest maintains an Internal Service Fund for centralized Nuclear Project No. 1, a 1,250-MWe plant, was placed in extended control and accounting of certain capital assets such as data processing construction delay status in 1982, when it was 65 percent complete. Nuclear equipment, and for payment and accounting of internal services, payroll, Project No. 3, a 1,240-MWe plant, was placed in extended construction benefits, administrative and general expenses, and certain contracted

46 Baiancinq a New Energqy Hoi izc services on a cost reimbursement basis. Certain assets in the Internal GASB 65 CHANGES (Dollars inthousands)

Service Fund are also owned by this Fund and operated for the benefit 1 Cummulative impact as of July 1,2013 of other projects. Depreciation relating to capital assets is charged to the appropriate business units based upon assets held by each project. Columbia Net Position Impact Liabilities of the Internal Service Fund represent accrued payroll, - Debt Expense 14,290

- Amortization Of Unamortized Gain/(Loss) On Bond Refundings 354 vacation pay, employee benefits, and common accounts payable which have been charged directly or indirectly to business units and will be Total 14,644 funded by the business units when paid. Net amounts owed to, or from, Energy Northwest business units are recorded as Current Liabilities-Due Nuclear Project No.1 Net Position Impact to other business units, or as Current Assets-Due from other business Debt Expense 2,813 units on the Internal Service Fund Statement of Net Position. - Amortization Of Unamortized Gain/(Loss) On Bond Refundings 982 The combined total column on the financial statements is for Total 3,795 presentation (unaudited) only as each Energy Northwest business unit is financed and accounted for separately from all other current and Nuclear Project No.3 Net Position Impact future business units. The FY 2014 Combined Total includes eliminations - Debt Expense 3,888 for transactions between business units as required inGASB Statement - Amortization Of Unamortized Gain/(Loss) On Bond Refundings 758 No. 34, Basic Financial Statements and Management's Discussion and Total 4,646 Analysis for State and Local Governments.

In June 2012, GASB issued Statement No. 68, Accounting and Nine Canyon Net Position Impact Financial Reporting for Pensions -An Amendment of GASB Statement No. -Debt Expense 1,145

27. The primary objective of Statement No. 68 is to improve accounting -Amortization Of Unamortized Gain/(Loss) On Bond Refundings 274 and financial reporting by state and local governments for pensions. This Total 1,419 statement establishes standards for measuring and recognizing liabilities, deferred outflows and deferred inflows of resources and expenses. For defined benefit pension plans, this statement identifies the methods b) Utility Plant and Depreciation: Utility plant is recorded at original and assumptions to project benefit payments, discount projected benefit cost which includes both direct costs of construction or acquisition and payments to their actuarial present value and attribute present value to indirect costs.

periods of employee service. Note disclosure and required supplementary Property, plant, and equipment are depreciated using the straight-information about pensions are also addressed. Statement No. 68 is line method over the following estimated useful lives:

effective for Energy Northwest beginning in fiscal year 2015. Energy Northwest is currently evaluating the financial statement impact of Buildings and Improvements 20 - 60 years adopting this statement. Generation Plant 40 years Change in Accounting Principle In March 2012, GASB issued Transportation Equipment 6 - 9 years Statement No. 65, Items Previously Reported as Assets and Liabilities. General Plant and Equipment 3 - 15 years Energy Northwest was required to implement this pronouncement as of June 30, 2014. This statement establishes accounting and financial Group rates are used for assets and, accordingly, no gain or loss reporting standards reclassifying, as deferred outflows of resources or is recorded on the disposition of an asset unless it represents a major deferred inflows of resources, certain items previously reported as assets retirement. When operating plant assets are retired, their original cost and liabilities and recognizes, as outflows of resources or inflows of together with removal costs, less salvage, is charged to accumulated resources, certain items previously reported as assets and liabilities. GASB depreciation.

Statement No. 65 requires debt issuance costs withstanding insurance The utility plant and net position of Nuclear Projects Nos. 1 and costs (if necessary) to be expensed when incurred, in prior years these 3 have been reduced to their estimated net realizable values due to expenses were amortized over the life of the bond. Gains and losses on termination. A write-down of Nuclear Projects Nos. 1 and 3 was recorded refunded debt have been reclassified as deferred inflows of resources in FY 1995 and included in Cost in Excess of Billings. Interest expense, and deferred outflows of resources respectively. These amounts have termination expenses and asset disposition costs for Nuclear Projects been restated due to the retroactive application requirement of GASB Nos. 1 and 3 have been charged to operations (see Note 11).

Statement No. 65.

C) Capitalized Interest: Energy Northwest 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 capitalized interest. If estimated costs are more than inconsequential, an adjustment is made to allocate capitalized interest to the appropriate plant account. Capitalized interest costs were $19.1 million. This amount includes an adjustment

E Northvecf 2014 An nual Repot 47 for a correction of an error which relates to prior periods. The cumulative, j) Other Receivables: Other receivables include amounts related to the net effect of the prior period correction recorded in the current year is Internal Service Fund from miscellaneous outstanding receivables from

$18.7 million, of which $11.7 million has been capitalized to Nuclear other business units which have not yet been collected. The amounts Fuel and $7 million to Utility Plant. Capitalized interest relating to fiscal due to each business unit are reflected in Due To/From other business year 2014 is $0.4 million. The correction of the error in the current period units. Other receivables specific to each business unit are recorded in the is not considered to have a material effect on the fiscal 2014 financial residing business unit.

statements.

k) Materials and Supplies: Materials and supplies are valued at cost d) Nuclear Fuel: Energy Northwest has various agreements for uranium using the weighted average cost method.

concentrates, conversion, and enrichment to provide for short-term enriched uranium product and long-term enrichment services. All I) Leases: Consist of separate operating lease agreements. The total of expenditures related to the initial purchase of nuclear fuel for Columbia, these leases by business unit and their respective amounts paid per year including interest, were capitalized and carried at cost. are listed in the table below:

e) Asset Retirement Obligation: Energy Northwest has adopted ASC 410, PROJECTS OPERATING LEASE COSTS (Dollars inthousands)

Asset Retirement and Environmental Obligations. This standard requires 2015 2016 2017 2018 1 2019+

Energy Northwest to recognize the fair value of a liability associated Columbia $ 635 $ 635 $ 635 $ 635 $ 15,240 with the retirement of a long-lived asset, such as: Columbia Generating Nuclear Project No. 1 35 35 35 35 840 Station, Nuclear Project No. 1, and Nine Canyon, in the period in which it Nine Canyon 704 704 704 704 16,896 is incurred (see Note 11). Business Development Fund 81 81 81 81 1,944 Internal Service Fund 136 136 136 136 3,264 f) Decommissioning and Site Restoration: Energy Northwest Packwood 110 110 110 110 2,640 established decommissioning and site restoration funds for Columbia Total $ 1,701 $ 1,701 $ 1,701 $ 1,701 $ 40,824 and monies are being deposited each year in accordance with an established funding plan (see Note 12).

m) Long-Term Liabilities: Consist of obligations related to bonds g) Restricted Assets: In accordance with bond resolutions, related payable and the associated premiums/discounts and gains/losses. Other agreements and laws, separate restricted accounts have been noncurrent liabilities for Columbia relates to the dry storage cask activity.

established. These assets are restricted for specific uses including debt (see table on following page).

service, construction, capital additions and fuel purchases, unplanned operation and maintenance costs, termination, decommissioning, n) Debt Premium, Discount and Expense: Original issue and reacquired operating reserves, financing, long-term disability, and workers' bond premiums, discounts and expenses relating to the bonds are compensation claims. They are classified as current or non-current assets amortized over the terms of the respective bond issues using the bonds as appropriate. outstanding method which approximates the effective interest method.

In accordance with GASB Statement No. 23, Accounting and Financial h) Cash and Investments: For purposes of the Statements of Cash Reporting for Refundings of Debt Reported by Proprietary Activities, Flows, cash includes unrestricted and restricted cash balances and each losses on debt refundings have been deferred and amortized as a business unit maintains its cash and investments. Short-term highly component of interest expense over the shorter of the remaining life of liquid investments are not considered to be cash equivalents, but are the old or new debt.

classified as available-for-sale investments and are stated at fair value with unrealized gains and losses reported in investment income (see 0) Revenue Recognition: Energy Northwest accounts for expenses on Note 3). Energy Northwest resolutions and investment policies limit an accrual basis, and recovers, through various agreements, actual cash investment authority to obligations of the United States Treasury, requirements for operations and debt service for Columbia, Packwood, Federal National Mortgage Association and Federal Home Loan Banks. Nuclear Project No. 1 and Nuclear Project No. 3. For these business units, Safe keeping agents, custodians, or trustees hold all investments for the Energy Northwest recognizes revenues equal to expenses for each period.

benefit of the individual Energy Northwest business units. No net revenue or loss is recognized, and no net position is accumulated.

The difference between cumulative billings received and cumulative i) Accounts Receivable: The percentage of sales method is used to expenses is recorded as either billings in excess of costs (other credits) estimate uncollectible accounts. The reserve is then reviewed for or as costs in excess of billings (other charges), as appropriate. Such adequacy against an aging schedule of accounts receivable. Accounts amounts will be settled during future operating periods (see Note 6).

deemed uncollectible are transferred to the provision for uncollectible Energy Northwest accounts for revenues and expenses on an accrual accounts on a yearly basis. Accounts receivable specific to each business basis for the remaining business units.The difference between cumulative unit are recorded in the residing business unit. revenues and cumulative expenses is recognized as net revenue or loss and included in Net Position for each period.

48 Bal , rc, Ne. Ei.erqy I torlz LONG-TERM LIABILITIES (Dollars inthousands)

Balance 6/30/2013 INCREASES DECREASES Balance 6/30/2014 Columbia Revenue bonds payable $ 3,163,020 $ 608,240 $ 466,455 $ 3,304,805 Unamortized (discount)/premium on bonds - net 105,591 74,233 28,886 150,938 Other noncurrent liabilities 17,914 25 6,885 11,054

$ 3,286,525 S 682,498 S 502.226 S 3,466.797 Nuclear Project No.1 Revenue bonds payable S..1,048,005 .... 332,100 3 $ 715,905 Unamortized (discount)/premium on bonds - net 36,251 30 13,362 22,919

$ 1,084,256 $ 30 $ 345,462 $ 738,824 Nuclear Project No.3 Revenue bonds payable $ 1,229,245 $ 25,990 $ 183,835 $ 1,071,400 Unamortized (discount)/premium on bonds -net 44,955 543 9,604 35,894

$ 1,274,200 $ 26,533 $ 193,439 $ 1,107.294 Nine Canyon Revenue bonds payable $ 124,120 $ 36,570 .. 48,570 s 112,120 Unamortized (discount)/premium on bonds -net 4,138 4,320 1,656 6,802

$ 128,258 $ 40,890 $ 50,226 $ 118,922 p) Capital Contribution: Renewable Energy Performance Incentive (REPI) q) Compensated Absences: Employees earn leave in accordance with payments enable Nine Canyon to receive funds based on generation as length of service. Energy Northwest accrues the cost of personal leave in it applies to the REPI bill. REPI was created as part of the Energy Policy the year when earned. The liability for unpaid leave benefits and related Act of 1992 to promote increases in the generation and utilization of payroll taxes was $20.4 million at June 30, 2014 and is recorded as a electricity from renewable energy sources and to further the advances of current liability.

renewable energy technologies.

This program, authorized under section 1212 of the Energy Policy Act r) Use of Estimates: The preparation of Energy Northwest financial of 1992, provides financial incentive payments for electricity produced statements in conformity with GAAP requires management to make and sold by new qualifying renewable energy generation facilities. Nine estimates and assumptions that directly affect the reported amounts Canyon did not record a receivable for FY 2014 REPI funding as no of assets and liabilities, disclosures of contingent assets and liabilities funds are anticipated to be disbursed to Energy Northwest under this at the date of the financial statements, and the reported amounts of program. The payment stream from Nine Canyon participants and the revenue and expenses during the reporting period. Actual results could anticipated REPI funding were projected to cover the total costs of the differ from these estimates. Certain incurred expenses and revenues are purchase agreement. Permanent shortfalls in REPI funding for the Nine allocated to the business units based on specific allocation methods that Canyon project led to a revised rate plan to incorporate the impact of management considers to be reasonable.

this shortfall over the life of the project. The current rate schedule for the Nine Canyon participants covers total estimated project costs occurring s) Deferred Inflows and Outflows: Consist of losses and gains on bond in FY 2014 and estimated total cost recovery projections out to the 2030 refundings as labeled on the Statement of Net Position.

proposed end date. During FY 2014 there was no cost recovery obtained from REPI.

1 49 t) Short-Term Debt: Columbia entered SHORT-TERM LIABILITIES (Dollars inthousands) into a line of credit during fiscal year Balance as of 6/30/2013 INCREASES DECREASES Balance as of 6/30/2014 2014 for up to $93.0 million. $61.3 Columbia million was drawn during fiscal year Line of Credit S $ 61,273 $ 61,273 $

2014 to fund capital expenses which Nuclear Project No.1 was subsequently paid in full during $

Non-Revolving Loan $ 235,445 ,$ $ 235,445 fiscal year 2014. Unit 1 entered into a non-revolving loan facility for $235.4 Nuclear Project No.3 Non-Revolving Loan $ S 85,180 $ 85,180 million during fiscal year 2014 to pay a portion of bonds maturing on July Nine Canyon 1, 2014. Unit 3 entered into a non- $

Short-term debt S revolving loan facility for $85.2 million -:$

during fiscal year 2014 to pay a portion Packwood Short-term debt S -iS of bonds maturing on July 1, 2014.

Nine Canyon did not receive short-term Business Development financing during fiscal year 2014. Short-term debt S S - $ -S NOTE 2 - Utility Plant Utility plant activity for the year ended June 30, 2014 was as follows:

UTILITY PLANT ACTIVITY(Dollars inthousands)

Balance 6/30/2013 Capital Acquisitions Sale or Other Dispositions Balance 6/30/2014 Columbia Generation 3,798,767 $ 156,466 S (427) $ 3,954,807 Decommissioning 14,768 14,768 Construction Work-in-Progress 116,483 104,493 (151,826) 69,150 Accumulated Depreciation and Decommissioning (2,523,438) (83,843)* 427 (2,606,854)

Utility Plant, net* $ 1,406,581 $ 177,116 $ (151,826):: $ 1,431,871 Packwood Generation $ 14,437 $ 198 $ - $ 14,635 Construction Work-in-Progress - 198 (198) i Accumulated Depreciation (12,812) (80): (12,892)

Utility Plant, net $ 1,625 $ 316 $ (198) $ 1,743 Business Development General $ 2,543 $ 355 $ -$ 2,898 Construction Work-in-Progress - 355 (355)

Accumulated Depreciation (1,150) (185)- (1,335)

Utility Plant, net $ 1,393 $ 524 $ (355) $ 1,563 Nine Canyon Generation $ 133,649 $ 42 $ (35) $ 133,657 Decommissioning 861 - 861 Construction Work-in-Progress - 42 (42)

Accumulated Depreciation and Decommissioning (54,166) (6,826) 32 (60,960)

Utility Plant, net* $ 80,345 $ (6,741) $ (45) $ 73,558 Internal Service Fund General $ 47,969 $ 259 $ (350) $ 47,878 Construction Work-in-Progress - 259 (259)

Accumulated Depreciation (38,203) (1,363) 350 (39,216)

Utility Plant, net $ 9,766 $ (846) $ (259) S 8,662

• Does not include Nuclear Fuel amount of $999 million, net of amortization

50 Balancinq a New Ener gy Horizon NOTE 3 AVAILABLE-FOR-SALE INVESTMENTS (Dollars inthousands)

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

Columbia $ 148,627 $ 3:$ (34)' $ 148,596 Packwood 500 500 Nuclear Project No. 1 Nuclear Project No. 3 2,108 2,108 Business Development Fund 5,435 5,435 Internal Service Fund 25,439 (1): 25,441 Nine Canyon 11,338 (1): 11,339 (1) All investments are in U.S. Government backed securities including U.S. Government Agencies and Treasury Bills.

(2) No investments shown have a maturity greater than one year.

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

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.

NOTE 4 - Other Charges and Credits for Resources 1299 (2003 Bonds), Resolution No. 1376 (2005 Bonds), Resolution No.1482 Other charges of $3.7 million relate to the Packwood relicensing effort. (2006 Bonds), Resolution No. 1722 (2012 Bonds), and Resolution No. 1789 Other credits of $24 thousand for Nine Canyon consist of cost of issuance (2014 Bonds). No 2001 or 2003 Nine Canyon bonds remained outstanding as related to the bond refunding inFY 2014. The $200 thousand inother credits of June 30, 2014 under Resolution Nos. 1214 and 1299 respectively.

for Unit 1 consist of performance deposits related to asset sales. During the year ended June 30, 2014, Energy Northwest issued, for Columbia and Project 3, the Series 2014-A bonds. For Columbia, 2014-B fixed NOTE 5 - Long-Term Debt rate bonds were also issued. The Columbia and Project 3 bonds were issued Each Energy Northwest business unit isfinanced separately.The resolutions with a coupon interest rate ranging from 0.315 percent to 5.0 percent.

of Energy Northwest authorizing issuance of revenue bonds for each business The Series 2014-A bonds issued for Columbia and Project 3 are tax-exempt unit provide that such bonds are payable from the revenues of that business fixed-rate bonds. Series 2014-B bonds issued for Columbia are taxable fixed unit. All bonds issued under resolutions Nos. 769, 775 and 640 for Nuclear rate bonds. These bonds were issued in majority to refund prior Columbia Projects Nos. 1, 3 and Columbia, respectively, have the same priority of and Project 3 bonds (See Note 1). These transactions resulted in a net loss payment within the business unit (the "prior lien bonds"). No prior lien bonds for accounting purposes of $11.23 million. The 2014-A and 2014-B refunding remain outstanding related to Columbia authorized under resolution No. 640. bonds resulted in a combined economic gain of $26.1 million and $1.2 million All bonds issued under resolutions Nos. 835, 838 and 1042 (the "electric for Columbia and Project 3, respectively. The economic gain was recorded revenue bonds") for Nuclear Projects Nos. 1, 3 and Columbia, respectively, are according to GASB 7.

subordinate to the prior lien bonds and have the same subordinated priority During fiscal year 2014, Nine Canyon issued the 2014 Series bonds that of payment within the business unit. Nine Canyon's bonds were authorized by refunded prior Nine Canyon bonds. The 2014 Series tax-exempt fixed rate the following resolutions: Resolution No. 1214 (2001 Bonds), Resolution No. bonds were issued with a coupon interest rate ranging from 4.0 percent to

Eiýcýqv ý014 Amuýi I Reporf 51 5.0 percent. This transaction resulted in a net gain for accounting purposes of

$0.5 million. The 2014 series refunding bonds resulted in an economic gain of

$3.6 million. The economic gain was recorded according to GASB 7.

The Bond Proceeds, Weighted Average Coupon Interest Rates, Net Accounting Loss, and Total Defeased Bonds for Columbia and Project 3 2014-A, Columbia 2014-B and 2014 Series for Nine Canyon are presented in the following tables:

BOND PROCEEDS (Dollars inmillions) 2014 REFUNDING RESULTS (Dollars inthousands) 2014A 2014B 2014 TOTAL CASH FLOW DIFFERENCE Columbia 591.93 90.52 682.45 2014-A (Tax-Exempt) Transaction Project 3 26.53 26.53

. .- .I . .. . . Columbia Nine Canyon -[ -I 40.89 40.89 Prior Debt Service $ 488,911 Total $ 618.46 S 90.52 $ 40.89 $ 749.87 EN Interest Contribution (4,190)

Refunding Debt Service (479,202)

WEIGHTED AVERAGE COUPON INTEREST RATE FOR REFUNDED BONDS Net Cash Flow Savings (Dissavings) .$ 5,519 2014A 20148 2014 Columbia 5.05% 4.94% Project 3 Project 3 5.25% Prior Debt Service $ 27,928 Nine Canyon 4.69% Refunding Debt Service (26,578)

Total 5.06% 4.94% 4.69% Net Cash Flow Savings (Dissavings) $ 1,350 2014-B (Taxable) Transaction WEIGHTED AVERAGE COUPON INTEREST RATE FOR NEW BONDS Columbia 2014A 20148 2014 Prior Debt Service $ 62,301 Columbia 4.83% 2,46%

Refunding Debt Service (64,867)

Project 3 2.00%

Net Cash Flow Savings (Dissavings) $ (2,566)

Nine Canyon 4.90%

Total 4.68% 2.46% 4.90% Nine Canyon 2014 Transaction Nine Canyon NET ACCOUNTING LOSS (Dollars inmillions) Prior Debt Service S$ 52,758 2014A 2014B 2014 TOTAL Refunding Debt Service (46,725)

Columbia 9.50 1.90 - 11.40 Net Cash Flow Savings (Dissavings) $ 6,033 Project 3 (0.17) (0.17)

Nine Canyon (0.51)1 (0.S5)

Total $ 9.33 $ 1.90 $ (0.51) $ 10.72 TOTAL DEFEASED (Dollars inmillions) 2014A 2014B 2014 TOTAL Columbia 379.94 54.31 - 434.25 Project 3 26.54 - 26.54 Nine Canyon - 41.31 41.31 Total $ 406.48 $ 54.31 $ 41.31 $ 502.10

52 Baltanuinq .ý NewiEnei qy i h i~zou Energy Northwest did not issue or refund any bonds associated with NUCLEAR PROJECT NO. 1 REFUNDING REVENUE BONDS Project No. 1 during fiscal year 2014. (Dollars in thousands)

Outstanding principal on revenue and refunding bonds for the various Serial or Term Series Coupon Rate (%) Maturities Amount business units as of June 30, 2014, and future debt service requirements for 19898 7.125 7-1-2016 $ 41,070 these bonds are presented in the following tables:

2003A 5.50 7-1-2014 128,650 2005A 5.00 7-1-1412015 51,365 COLUMBIA GENERATING REVENUE AND REFUNDING BONDS 2006A 5.00 7-1-1412017 83,965 (Dollars inthousands) 2007A 5.00 7-1-14/2017 49,280 Serial or Term Series Coupon Rate (%) Maturities Amount 2007C 5.00 7-1-14/2017 174,955 2003A 5.50 7-1-2015  !$ 81,090 2008A 5.00-5.25 7-1-14/2017 209,695 2004A 5.25 7-1-17/2018 20,375 2008D 5.00 7-1-14/2017 21,985 2004C 5.25 7-1-17/2018 5,510 2009A 3.25-5.00 7-1-14/2015 48,905 2005A 5.00 7-1-15/2018 16,035 2009B 4.59 7-1-2014 515 2005C 4.72-4.74 7-1-14/2015 29,235 2010A 3.00-5.00 7-1-14/2017 45,680 2006A 5.00 7-1 -20/2024 313,980 2012A 5.00 7-1-14/2017 126,555 2006C 5.00 7-1 -20/2024 9,095 2012B 5.00 7-1-2017 41,285 2006D 5.80 7-1-2023 3,425 2012C 1.264 7-1-2015 24,100 2007A 5.00 7-1-14/2018 66,295 20078 5.33 7-1-20/2021 9,935 Revenue bonds payable $ 1,048,005 2007D 5.00 7-1 -21/2024 35,080 Estimated fair value at June 30, 2014 $ 1,116,735 2008A 5.00-5.25 7-1-14/2018 89,295 20088

• 5.95 7-1-20/2021 12,025 NUCLEAR PROJECT NO. 3REFUNDING REVENUE BONDS 2008C 5.00-5.25 7-1-21/2024 37,240 (Dollars in thousands) 2009A 3.00-5.00 7-1-14/2018 113,570 Serial or Term Series Coupon Rate (%) Maturities Amount 2009B 4.59-6.8 7-1 -23/2024 10,095 1989A (A) 7-1-2014 $ 1,357 2009C 4.25-5.00 7-1 -20/2024 69,170 1989B 7.25 7-1-2014 3,618 2010B 3.75-4.25 7-1 -20/2024

• 16,005 7.125 7-1-2016 76,145 2010C 4.52-5.12 7-1 -20/2024 75,770 79,763 2010D 5.61-5.71 7-1 -23/2024 155,805 1993C 5.70-5.75 7-1-14/2018 20,321 2011A 4.00-5.00 7-1 -14/2023 301,325 2004A 5.25 7-1-14/2016 57,300 20118 4.19-5.19 7-1-19/2024

• 29,920 2005A 5.00 7-1-14/2015 78,790 2011C 3.55 7-1-2019 4,600 2006A 5.00 7-1-16/2018 39,445 2012A 5.00 7-1-18/2021

• 441,240 2007A 4.50-5.00 7-1-14/2018 80,475 2012D 4.00-5.00 7-1 -25/2044 34,140 2007C 5.00 7-1-14/2018 46,880 2012E 1.06-4.14 7-1-15/2037

• 748,515 2008A 5.25 7-1-2018 13,790 2014A 3.00-5.00 7-1-16/2040 517,720 2008D 5.00 7-1-14/2017 28,535 2014B 0.315-4.052 7-1-15/2030 90,520 2009A 5.00-5.25 7-1-14/2018 116,055 2009B 4.59 7-1-2014 970 Revenue bonds payable  :$ 3,337,010 2010A 5.00 7-1-16/2018 279,980 Estimated fair value at June 30, 2014  !$ 3,708,117 2010B 5.00 7-1-2016 29,865 7-1 -2018 2011A 4.00-5.00 92,285 7-1-2018 2012A 5.00 67,885 2012B 3.00-5.00 7-1-16/2017 30,330 2012C 1,26-1.74 7-1-15/2016 61,635 2014A 2.00 7-1-2015 25,990 Compound interest bonds accretion 77,049 Revenue bonds payable $ 1,228,700 Estimated fair value at June 30, 2014 $ 1,349,792 (A) Compound Interest Bonds

A I [ .um p,[)oit 53 NINE CANYON WIND PROJECT REVENUE AND REFUNDING BONDS (Dollars in thousands)

Serial or Term Series Coupon Rate (%) Maturities Amount 2005 4.50-5.00 7-1 -14/2023 3,620 2006 4.50-5.00 7-1-14/2030 66,385 2012 2.50-5.00 7-1-14/2023 12,810 2014 4.00-5.00 7-1-15/2023 36,570 Revenue bond payable $ 119,385 Estimated fair value at June 30, 2014 $ 130,276 Total bonds payable $ 5,733,100 Estimated fair value at June 30, 2014 $ 6,304,920 DEBT SERVICE REQUIREMENTS As of June 30, 2014 (Dollars in thousands)

COLUMBIA GENERATING STATION NUCLEAR PROJECT NO. I FISCAL YEAR* PRINCIPAL: INTEREST: TOTAL FISCAL YEAR* PRINCIPAL INTEREST TOTAL 6/30/2014 Balance: $ 32,205 !$ 66,905 $ 99,110 6/30/2014 Balance:** $ 332,100 $ 26,201 $ 358,301 2015 244,995 143,971 388,966 2015 191,430 35,443 226,873 2016 78,645 132,729 211,374 2016 239,385 27,026 266,411 2017 93,930 129,939 223,869 2017 285,090 14,118 299,208 2018 423,885 125,921 549,806 2019 414,000 110,487 524,487 2020-2024 1,714,115 320,528 2,034,643 2025-2029 55,695 71,341 127,036 2030-2034 209,675 36,200 245,875 2035-2039 47,815 11,975 59,790 2040-2044 22,050 2,132 24,182

$ 3,337,010 . $ 1,152,126 . $ 4,489,136 $ 1,048,005 $ 102,788 $ 1,150,793

• Fiscal year for this report indicates the cash funding requirement year. Fiscal year for this report indicates the cash funding requirement year.

• • Principal and Interest due July 1, 2014.

Principal and Interest due July 1, 2014.

NUCLEAR PROJECT NO. 3 NINE CANYON WIND PROJECT FISCAL YEAR* PRINCIPAL i INTEREST. TOTAL FISCAL YEAR* PRINCIPAL INTEREST TOTAL 6/30/2014 Balance:- $ 124,7045 60,735 $ 185,439 6130/2014 Balance: $ 7,265 $ 2,408 $ 9,673 2015 129,250 59,614 188,864 2015 7,130 5,398 12,528 2016 = 247,499 56,838 304,337 2016 7,440 5,091 12,531 2017 177,617 45,124 222,741 2017 7,805 4,730 12,535 2018 472,581 32,625 505,206 2018 8,185 4,356 12.541 2019 8,605 3,947 12,552 2020-2024 43,155 12,942 56,097 2025-2029 24,260 4,691 28,951 2030 5,540 249 5,789 Adjustment *** 77,049 (77,049):

$ 1,228,700 $ 177,887 $ 1,406,587 $ 119,385 $ 43,812 . $ 163,197 Fiscal year for this report indicates the cash funding requirement year. Fiscal year for this report indicates the cash funding requirement year.

Principal and Interest due July 1, 2014. Principal and Interest due July 1, 2014.

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

54 Bata ncing aiNew Energy Hot zon NOTE 6 - Net Billing The Legislature established PERS in 1947. Membership in the system includes: elected officials; state employees; employees of the Supreme, Security - Nuclear Projects Nos. 1 and 3 and Columbia Appeals, and Superior courts; employees of legislative committees; employees The participants have purchased all of the capability of Nuclear Projects of district and municipal courts; and employees of local governments.

Nos. 1 and 3 and Columbia. BPA has in turn acquired the entire capability Membership also includes higher education employees not participating in from the participants under contracts referred to as net-billing agreements. higher education retirement programs. Approximately 49% of PERS salaries Under the net-billing agreements for each of the business units, participants are accounted for by state employment. PERS retirement benefit provisions are obligated to pay Energy Northwest a pro-rata share of the total annual are established in chapters 41.34 and 41.40 RCW and may be amended only costs of the respective projects, including debt service on bonds relating to by the State Legislature.

each business unit. BPA is then obligated to reduce amounts from participants PERS is a cost-sharing multiple-employer retirement system comprised of under BPA power sales agreements by the same amount. The net-billing three separate plans for membership purposes: Plans 1 and 2 are defined agreements provide that participants and BPA are obligated to make such benefit plans and Plan 3 is a defined benefit plan with a defined contribution payments whether or not the projects are completed, operable or operating component.

and notwithstanding the suspension, interruption, interference, reduction or PERS members who joined the system by September 30, 1977 are Plan curtailment of the projects' output. 1 members. Those who joined on or after October 1, 1977 and by either, On May 13, 1994, Energy Northwest's Board of Directors adopted February 28, 2002 for state and higher education employees, or August resolutions terminating Nuclear Projects Nos. 1 and 3. The Nuclear Projects 31, 2002 for local government employees, are Plan 2 members unless they Nos. 1 and 3 project agreements and the net-billing agreements, except for exercised an option to transfer their membership to Plan 3. PERS members certain sections which relate only to billing processes and accrued liabilities joining the system on or after March 1, 2002 for state and higher education and obligations under the net-billing agreements, ended upon termination employees, or September 1, 2002 for local government employees have the of the projects. Energy Northwest previously entered into an agreement with irrevocable option of choosing membership in either PERS Plan 2 or Plan 3.

BPA to provide for continuation of the present budget approval, billing and The option must be exercised within 90 days of employment. Employees who payment processes. With respect to Nuclear Project No. 3, the ownership fail to choose within 90 days default to Plan 3.

agreement among Energy Northwest and private companies was terminated PERS is comprised of and reported as three separate plans for accounting in FY 1999. (See Note 13) purposes: Plan 1, Plan 2/3, and Plan 3. Plan 1 accounts for the defined benefits of Plan 1 members. Plan 2/3 accounts for the defined benefits of Plan Security - Packwood Lake Hydroelectric Project 2 members, and the defined benefit portion of benefits for Plan 3 members.

Power produced by Packwood is provided to the 12 member utilities. The Plan 3 accounts for the defined contribution portion of benefits for Plan 3 member utilities pay the annual costs, including any debt service, of Packwood members. Although members can only be a member of either Plan 2 or Plan and are obligated to pay these annual costs whether or not Packwood is 3, the defined benefit portions of Plan 2 and Plan 3 are accounted for in the operational. The Packwood participants also share project revenue to the same pension trust fund. All assets of this Plan 2/3 may legally be used to pay extent that the amounts exceed project costs. the defined benefits of any of the Plan 2 or Plan 3 members or beneficiaries, as defined by the terms of the plan. Therefore, Plan 2/3 is considered to be a NOTE 7 - Pension Plans single plan for accounting purposes.

Substantially all Energy Northwest full-time and qualifying part- PERS Plan 1 and Plan 2 retirement benefits are financed from a combination time employees participate in one of the following statewide retirement of investment earnings and employer and employee contributions. Employee systems administered by the Washington State Department of Retirement contributions to the PERS Plan 1 and Plan 2 defined benefit plans accrue Systems, under cost-sharing multiple-employer public employee defined interest at a rate specified by the Director of DRS. During DRS' Fiscal Year benefit retirement plans. The Department of Retirement Systems (DRS), 2013, the rate was five and one-half percent compounded quarterly. Members a department within the primary government of the State of Washington, in PERS Plan 1 and Plan 2 can elect to withdraw total employee contributions issues a publicly available comprehensive annual financial report (CAFR) and interest thereon, in lieu of any retirement benefit, upon separation from that includes financial statements and required supplementary information PERS-covered employment.

for each plan. The DRS CAFR may be obtained by writing to: Department PERS Plan 1 members are vested after the completion of five years of of Retirement Systems, Communications Unit, P.O. Box 48380, Olympia, WA eligible service.

98504-8380; or it may be downloaded from the DRS website at www.drs. PERS Plan 1 members are eligible for retirement from active status at any wa.gov. The following disclosures are made pursuant to GASB Statements age with at least 30 years of service, at age 55 with 25 years of service, or at No. 27, Accounting for Pensions by State and Local Government Employers age 60 with at least 5 years of service. Plan 1 members retiring from inactive and No. 50, Pension Disclosures, an Amendment of GASB Statements No. 25 status prior to the age of 65 may receive actuarially reduced benefits.

and No. 27. The monthly benefit is 2% of the average final compensation (AFC) per Any information obtained from the DRS is the responsibility of the state year of service, but the benefit may not exceed 6 0% of the AFC. The AFC isthe of Washington. PricewaterhouseCoopers LLP (PwC), independent auditors monthly average of the 24 consecutive highest-paid service credit months.

for Energy Northwest, has not audited or examined any of the information PERS Plan 1 retirement benefits are actuarially reduced to reflect the available from the DRS; accordingly, PwC does not express an opinion or any choice, if made, of a survivor option.

other form of assurance with respect thereto. Plan 1 members may elect to receive an optional COLA that provides

2 Fnui gy N th

, t -.I]4

- \it rl R 55 an automatic annual adjustment based on the Consumer Price Index. The to fund, along with investment earnings, the increased retirement benefits of adjustment is capped at 3% annually. To offset the cost of this annual those justices and judges that participate in the program.

adjustment, the benefit is reduced. The methods used to determine the contribution requirements are PERS Plan 2 members are vested after the completion of five years of established under state statute in accordance with chapters 41.40 and 41.45 eligible service. Plan 2 members are eligible for normal retirement at the age RCW.

of 65 with five years of service. The monthly benefit is 2% of the AFC per year The required contribution rates expressed as a percentage of current-year of service. The AFC is the monthly average of the 60 consecutive highest-paid covered payroll, as of December 31, 2013, are as follows:

service months. There is no cap on years of service credit; and a cost-of-living Members Not Participating in JBM:

allowance is granted (based on the Consumer Price Index), capped at 3%

annually. PERS Plan 1 PERS Plan 2 PERS Plan 3 PERS Plan 2 members who have at least 20 years of service credit, and Employer* 9.21%* 9.21 %* 9.21/***

are 55 years of age or older, are eligible for early retirement with a reduced 4.92%-...

Employee 6.000/o****

benefit. The benefit is reduced by an early retirement factor (ERF) that varies

• The employer rates include the employer administrative expense fee according to age, for each year before age 65. currently set at 0.18%.

PERS Plan 3 has a dual benefit structure. Employer contributions finance ** The employer rate for state elected officials is 13.73% for Plan 1 and a defined benefit component and member contributions finance a defined 9.21% for Plan 2 and Plan 3.

• ** Plan 3 defined benefit portion only.

contribution component. As established by chapter 41.34 RCW, employee contribution rates to the defined contribution component range from 5% to *** The employee rate for state elected officials is 7.50% for Plan 1 and 4.92% for Plan 2.

15% of salaries, based on member choice. Members who do not choose a contribution rate default to a 5% rate. There are currently no requirements

• Variable from 5.0% minimum to 15.0% maximum based on rate selected by the PERS 3 member.

for employer contributions to the defined contribution component of PERS Plan 3.

Both Energy Northwest and the employees made the required PERS Plan 3 defined contribution retirement benefits are dependent contributions. Energy Northwest's required contributions for the years ending upon the results of investment activities. Members may elect to self-direct June 30 were as follows:

the investment of their contributions. Any expenses incurred in conjunction with self-directed investments are paid by members. Absent a member's self-PERS Plan 1 PERS Plan 2 PERS Plan 3 direction, PERS Plan 3 contributions are invested in the Retirement Strategy Fund that assumes the member will retire at age 65. 2014 $ 75,202 $ 13,095,190 $ 5,919,781 There are 1,176 participating employers in PERS. Membership in PERS 2013 $ 106,514 $ 10,630,935 $ 5,075,823 consisted of the following as of the latest actuarial valuation date for the 2012 $ 124,071 $ 9,773,209 $ 4,710,819 plans of June 30, 2012 :

NOTE 8 - Deferred Compensation Plans Retirees and Beneficiaries Receiving Benefits 82,282 Energy Northwest provides a 401(k) deferred compensation plan (401(k)

Terminated Plan Members Entitled to 30,515 plan), and a 457 deferred compensation plan. Both plans are defined But Not Yet Receiving Benefits contribution plans that were established to provide a means for investing savings by employees for retirement purposes. All permanent, full-time Active Plan Members Vested 106,317 employees are eligible to enroll in the plans. Participants are immediately Active Plan Members Non-vested 44,273 vested in their contributions and direct the investment of their contribution.

Total 263,347 Each participant may elect to contribute pre-tax annual compensation, subject to current Internal Revenue Service limitations.

Funding Policy For the 401(k) plan, Energy Northwest may elect to make an employer Each biennium, the state Pension Funding Council adopts PERS Plan 1 matching contribution for each of its employees who is a participant during employer contribution rates, PERS Plan 2 employer and employee contribution the plan year. The amount of such an employer match shall be 50 percent of rates, and PERS Plan 3 employer contribution rates. Employee contribution the maximum salary deferral percentage. During FY 2014 Energy Northwest rates for Plan 1 are established by statute at 6 %for state agencies and local contributed $3.2 million in employer matching funds while employees government unit employees, and at 7.5 % for state government elected contributed $10.8 million for FY 2014.

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 NOTE 9 - Other Employment Benefits - Post-Employment Actuary to fully fund Plan 2 and the defined benefit portion of Plan 3. Under In addition to the pension benefits available through PERS, Energy PERS Plan 3, employer contributions finance the defined benefit portion of the Northwest offers post-employment life insurance benefits to retirees who are plan and member contributions finance the defined contribution portion. The eligible to receive pensions under PERS Plan 1, Plan 2, and Plan 3. There are Plan 3 employee contribution rates range from 5 % to 15%. 57 retirees who remain participants in the insurance program. In 1994, Energy As a result of the implementation of the Judicial Benefit Multiplier Program Northwest's Executive Board approved provisions which continued the life in January 2007, a second tier of employer and employee rates was developed insurance benefit to retirees at 25 percent of the premium for employees who

56 y Balancing New Dietgy ý ot zon retire prior to January 1, 1995, and charged the full 100 percent premium to wide retrospective payment program called Secondary Financial Protection employees who retired after December 31, 1994. The life insurance benefit is ("SFP"). Energy Northwest has $375 million of liability insurance as the first equal to the employee's annual rate of salary at retirement for non-bargaining layer of protection. Ifany US nuclear generation plant has a significant event employees retiring prior to January 1, 1995. The life insurance benefit has a which exceeds the plant's first layer of protection, every operating licensed maximum limit of $10,000 for retirees after December 31, 1994. The cost reactor inthe US is subject to an assessment up to $127.3 million not including of coverage for retirees remained unchanged for FY 2014 and was $2.82 state insurance premium tax. Assessments are limited to $18.96 million per per $1,000 of coverage. Employees who retired prior to January 1, 1995, reactor, per year, per incident, excluding tax. The SFP is adjusted at least every contribute $.58 cents per $1,000 of coverage while Energy Northwest pays 5 years to account for inflation and any changes in the number of operating the remainder; retirees after December 31, 1994, pay 100 percent of the cost plants. The SFP and liability coverage are not subject to any deductibles.

coverage. Premiums are paid to the insurer on a current period basis. At the NEIL Coverage: The Code of Federal Regulations requires nuclear time each employee retired, Energy Northwest accrued an estimated liability generation plant license-holders to maintain at least $1.06 billion nuclear for the actuarial value of the future premium. Energy Northwest revises the decontamination and property damage insurance and requires the proceeds liability for the actuarial value of estimated future premiums, net of retiree thereof to be used to place a plant in a safe and stable condition, to contributions. The total liability recorded at June 30, 2014, was $0.5 million decontaminate it pursuant to a plan submitted to and approved by the NRC for these benefits. before the proceeds can be used for plant repair or restoration or to provide During FY 2014, pension costs for Energy Northwest employees and post- for premature decommissioning. Energy Northwest has aggregate coverage employment life insurance benefit costs for retirees were calculated and in the amount of $2.75 billion which is subject to a $5 million deductible per allocated to each business unit based on direct labor dollars. This allocation accident.

basis resulted in the following percentages by business unit for FY 2014 for this and other allocated costs; Columbia at 94 percent; Business Development NOTE 11 - Asset Retirement Obligation (ARO) at 4 percent; and Project 1, Nine Canyon, Packwood and Project 3 receiving Energy Northwest adopted ASC 410 on July 1, 2002. This standard requires the residual amount of 2 percent. an entity to recognize the fair value of a liability of an ARO for legal obligations related to the dismantlement and restoration costs associated with the NOTE 10 - Nuclear Licensing and Insurance retirement of tangible long-lived assets, such as nuclear decommissioning and site restoration liabilities, in the period in which it is incurred. Upon Nuclear Licensing initial recognition of the AROs that are measurable, the probability weighted Energy Northwest is a licensee of the Nuclear Regulatory Commission future cash flows for the associated retirement costs are discounted using a

("NRC") and is subject to routine licensing and user fees. Additionally, Energy credit-adjusted-risk-free rate, and are recognized as both a liability and as an Northwest may be subject to license modification, suspension, revocation, or increase in the capitalized carrying amount of the related long-lived assets.

civil penalties in the event regulatory or license requirements are violated. Capitalized asset retirement costs are depreciated over the life of the related asset with accretion of the ARO liability classified as an operating expense Nuclear Insurance on the statement of revenues, expenses, and changes in net position each Nuclear insurance includes liability coverage, property damage, period. Upon settlement of the liability, an entity either settles the obligation decontamination and premature decommissioning coverage and accidental for its recorded amount or incurs a gain or loss if the actual costs differ outage and/or extra expense coverage. The liability coverage is governed by from the recorded amount. However, with regard to the net-billed projects, the Price-Anderson Act (Act), while the property damage, decontamination BPA is obligated to provide for the entire cost of decommissioning and site and premature decommissioning coverage are defined by the Code of restoration; therefore, any gain or loss recognized upon settlement of the ARO Federal Regulations. Energy Northwest continues to maintain all regulatory results in an adjustment to either the billings in excess of costs (liability) or required limits as defined by the NRC, Code of Federal Regulations and the costs in excess of billings (asset), as appropriate, as no net revenue or loss Act. The NRC requires Energy Northwest to certify nuclear insurance limits is recognized, and no net position is accumulated for the net-billed projects.

on an annual basis. Energy Northwest intends to maintain insurance against Energy Northwest has identified legal obligations to retire generating nuclear risks to the extent such insurance is available on reasonable terms plant assets at the following business units: Columbia, Nuclear Project No.

and in an amount and form consistent with customary practice. Energy 1 and Nine Canyon. Decommissioning and site restoration requirements for Northwest is self-insured to the extent that losses (i) are within the policy Columbia and Nuclear Project No. 1 are governed by the NRC regulations deductibles, (ii)are not covered per policy exclusions, terms and limitations, and site certification agreements between Energy Northwest and the state of (iii) exceed the amount of insurance maintained, or (iv)are not covered due Washington and regulations adopted by the Washington Energy Facility Site to lack of insurance availability. Such losses could have an effect on Energy Evaluation Council (EFSEC) and a lease agreement with the Department of Northwest's results of operations and cash flows. All dollar figures noted Energy ("DOE"). (See Notes 1 and 13) below are as of June 30, 2014. As of June 30, 2014, Columbia has a capital decommissioning net asset American Nuclear Insurance (ANI) Coverage: The Act provides financial value of zero and an accumulated liability of $131.4 million for the generating protection for the public in the event of a significant nuclear generation plant, and for the ISFSI a net asset value of $1.1 million and an accumulated plant incident. The Act sets the statutory limit of public liability for a liability of $2.3 million. The adjustment to ISFSI was associated with new NRC single nuclear incident at $13.2 billion. Energy Northwest addresses this (Nuclear Regulatory Commission) spent fuel decommissioning requirements.

requirement through a combination of private insurance and an industry- Nuclear Project No. 1 in FY 2014 current year accretion of $.6 million and

! 57 downward revision in future restoration estimates of $2.2 million resu Ilted in NOTE 12 - Decommissioning and Site Restoration the decrease to the ARO liability of $1.6 million. Nuclear Project No. I has a The NRC has issued rules to provide guidance to licensees of operating capital decommissioning net asset value of zero and an accumulated Iiability nuclear plants on providing financial assurance for decommissioning plants of $16.6 million. at the end of each plant's operating life (See Note 11 for Columbia ARO). In Under the current agreement, Nine Canyon has the obligation to emove September 1998, the NRC approved and published its "Final Rule on Financial the generation facilities upon expiration of the lease agreement if req iuested Assurance Requirements for Decommissioning Power Reactors." As provided by the lessors. The Nine Canyon Wind Project recorded the related original in this rule, each power reactor licensee is required to report to the NRC the ARO in FY 2003 for Phase I and I1.Phase IIIbegan commercial opera tion in status of its decommissioning funding for each reactor or share of a reactor FY 2008 and the original ARO was adjusted to reflect the change in sccenaro it owns. This reporting requirement began March 31, 1999, and reports are for the retirement obligation, with current lease agreements ref lecting required every two years thereafter. Energy Northwest submitted its most a 2030 expiration date. As of June 30, 2014, Nine Canyon has a capital recent report to the NRC in March 2013.

decommissioning net asset value of $0.5 million and an accumulated Iliability Energy Northwest's estimate of Columbia's decommissioning costs in FY of $1.3 million. 2013 dollars is $459.0 million (Columbia - $454.6 million and ISFSI - $4.4 Packwood's obligation has not been calculated because the time frame million). This estimate, which is updated biannually with the last update and extent of the obligation was considered under this statem ent as in fiscal year 2013 is based on the NRC minimum amount required to indeterminate. As a result, no reasonable estimate of the ARO obligati on can demonstrate reasonable financial assurance for a boiling water reactor with be made. An ARO will be required to be recorded if circumstances c:hange. the power level of Columbia.

Management believes that these assets will be used in utility operati ons for Site restoration requirements for Columbia are governed by the site the foreseeable future. certification agreements between Energy Northwest and the state of The following table describes the changes to Energy Northwest 's ARO Washington and by regulations adopted by the EFSEC. Energy Northwest liabilities for the year ended June 30, 2014 the balance is included in the submitted a site restoration plan for Columbia that was approved by the accounts payable and accrued expense balances for each unit. ISFSI is EFSEC on June 12, 1995. Energy Northwest's current estimate of Columbia's included in Columbia's balance: site restoration costs is $109.0 million in constant dollars (based on the 2013 study) and is updated biannually along with the decommissioning estimate.

Asset Retirement Obligation (Dollars in millions) Both decommissioning and site restoration estimates (based on 2013 study) are used as the basis for establishing a funding plan that includes escalation Columbia Generating Station and interest earnings until decommissioning activities occur. Payments to the Balance At June 30, 2013 124.91 decommissioning and site restoration funds have been made since January Current year accretion expense 6.53 1985. The fair value of cash and investment securities in the decommissioning ARO at June 30, 2014 131.44 and site restoration funds as of June 30, 2014, totaled approximately $214.3 million and $35.9 million, respectively. Since September 1996, these amounts lSFSI have been held in an irrevocable trust that recognizes asset retirement Balance At June 30, 2013 2.16 obligations according to the fair value of the dismantlement and restoration Current year accretion expense 0.10 costs of certain Energy Northwest assets. The trustee is a domestic U.S. bank ARO at June 30,2014 2.26 that certifies the funds for use when needed to retire the asset. The trust is funded by BPA ratepayers and managed by BPA in accordance with NRC Nuclear Project No. 1 requirements and site certification agreements; the balances in these external

!$ trust funds are not reflected on Energy Northwest's balance sheet.

Balance At June 30, 2013 18.24 Current year accretion expense 0.58 Energy Northwest established a decommissioning and site restoration plan (2.21) for the ISFSI in 1997. Beginning in FY 2003, an annual contribution is made Revision in future restoration estimates to the Energy Northwest Decommissioning Fund. These contributions are held ARO at June 30, 2014 by Energy Northwest and not held in trust by BPA. The fair market value of cash and investments as of June 30, 2014, is $1.2 million. These contributions Nine Canyon Wind Project will occur through FY 2044; cash payments will begin for decommissioning Balance At June 30, 2013 and site restoration in FY 2045 with equal installments for five years totaling Current year accretion expense 0.05

$10.6 million in constant dollars based on the study.

ARO at June 30, 2014 1.34

58 B~alr~c' riqNe.,. Ený7rqy Hoenzun NOTE 13 - Commitments And Contingencies financial statements. The $5.5 million of the network revenue bonds will be paid in full in December of 2016, and the $3.8 million in note payables Nuclear Project No. 1 Termination will be paid in full in December 2017. The members are obligated to pay Since the Nuclear Project No.1 termination, Energy Northwest has been the principal and interest on the bonds when due in the event and to the planning for the demolition of Nuclear Project No. 1 and restoration of the extent that NoaNet's Gross Revenue (after payment of costs of Maintenance site, recognizing the fact that there is no market for the sale of the project and Operation) is insufficient for this purpose. The maximum principal share in its entirety, and no viable alternative use has been found to-date. The final (based on step-up potential) that the Business Development Fund could level of demolition and restoration will be in accordance with agreements be required to pay is $.9 million. The Business Development Fund is not discussed below under "Nuclear Project No. 1 Site Restoration." 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 2014 Nuclear Project No. 3 Termination the Business Development Fund was not required to contribute to NoaNet.

In June 1994, the Nuclear Project No. 3 Owners Committee voted Financial statements for NoaNet may be obtained by writing to: Northwest unanimously to terminate the project, In 1995, a group from Grays Harbor Open Access Network, NoaNet Headquarters, 5802 Overlook Ave. NE, Tacoma, County, Washington, formed the Satsop Redevelopment Project (SRP). The WA 98422. Any information obtained from NoaNet is the responsibility of SRP introduced legislation with the state of Washington under Senate Bill NoaNet. PwC has not audited or examined any information available from No. 6427, which passed and was signed by the governor of the state of NoaNet; accordingly, PwC does not express an opinion or any other form of Washington on March 7, 1996. The legislation enables local governments assurance with respect thereto.

and Energy Northwest to negotiate an arrangement allowing such local governments to assume an interest in the site on which Nuclear Project Other Litigation and Commitments No. 3 exists for economic development by transferring ownership of all or a Energy Northwest v. SPX Heat Transfer Inc. (CV13-5151-RMP). Energy portion of the site to local government entities. This legislation also provides Northwest filed suit against SPX Heat Transfer Inc. (SPX) on December 24, for the local government entities to assume regulatory responsibilities for 2013 seeking the recovery of damages relating to SPX's breach of contract.

site restoration requirements and control of water rights. In February 1999, In February, 2009, SPX's predecessor in interest Yuba Heat Transfer LLC Energy Northwest entered into a transfer agreement with the SRP to transfer and Energy Northwest entered into a contract for the design, engineering, the real and personal property at the site of Nuclear Project No. 3. The SRP fabrication and delivery of the condenser modules and related components also agreed to assume regulatory responsibility for site restoration. Therefore, for Energy Northwest's Columbia Generating Station. In the lawsuit, Energy Energy Northwest is no longer responsible to the state of Washington and Northwest contends that SPX breached the contract (1) by failing to meet EFSEC for any site restoration costs. contract specifications for condenser backpressure and sub-cooling; (2) by failing to provide work that was free from defect in design and fabrication; Nuclear Project No. 1 Site Restoration and (3) by failing to meet the express warranties contained in the contract.

Site restoration requirements for Nuclear Project No. 1 are governed by No specific amount of damages has been demanded in the complaint.

site certification agreements between Energy Northwest and the state of SPX has responded to the lawsuit and has included a counterclaim for Washington and regulations adopted by EFSEC, and a lease agreement with damages. In its counterclaim, SPX seeks the balance of the contract amount, DOE. Energy Northwest submitted a site restoration plan for Nuclear Project which is $2,070,334 plus accumulated interest. Additionally, SPX seeks No. 1 to EFSEC on March 8, 1995, which complied with EFSEC requirements recovery of some or all of a portion of the incentive fee contained in the to remove the assets and restore the sites by demolition, burial, entombment, contract as determined by the formula in the contract with no specific amount or other techniques such that the sites pose minimal hazard to the public. demanded. Energy Northwest has denied that it owes SPX the contract EFSEC approved Energy Northwest's site restoration plan on June 12, 1995. balance or any amount of the performance incentive.

In its approval, EFSEC recognized that there is uncertainty associated with On July 22, 2014, Energy Northwest made an offer of settlement to SPX Energy Northwest's proposed plan. Accordingly, EFSEC's conditional approval in accordance with RCW 39.04.240, RCW 4.84.260 and the Federal Rules of provides for additional reviews once the details of the plan are finalized. A Civil Procedure, Rule 68. In the offer of settlement, Energy Northwest agreed new plan with additional details was submitted in FY 2003. This submittal to accept a judgment from SPX for all claims including but not limited to SPX's was used to calculate the ARO discussed in Note 11. counterclaims, for $0.00. Should SPX decline this offer of settlement and Energy Northwest prevails at trial with a jury verdict greater than the offer Business Development Fund Interest in Northwest Open of settlement, in addition to the jury verdict SPX would be obligated to pay Access Network Energy Northwest its legal costs and attorneys' fees from the date of the offer The Business Development Fund is a member of the Northwest Open of settlement. The outcome of this matter cannot be predicted at this time.

Access Network (NoaNet). Members formed NoaNet pursuant to an Interlocal Energy Northwest v. United States of America, (No. 11-447C), EN-SNF2.

Cooperation Agreement for the development and efficient use by the Energy Northwest filed a second action against the United States of America members and others of a communication network in conjunction with BPA. (the "Government") in the U.S. Court of Federal Claims in July 2011 for its The Business Development Fund has a 7.38 percent interest in NoaNet continuing breach of contract for the Government's failure to dispose of spent with a potential mandate of an additional 25 percent step-up possible for a nuclear fuel and high-level radioactive waste and the additional damages maximum 9.23 percent. NoaNet has $9.3 million in network revenue bonds Energy Northwest incurred or will incur between September 1, 2006, and and note payables outstanding, based on their December 30, 2013 audited June 30, 2012. On March 11, 2014, the court awarded Energy Northwest

Energy Northwest 2014 Annual Report 59 summary judgment for costs incurred to continue to operate and maintain its 1998, currently, there is no known date established when DOE will fulfill this dry storage program. This favorable decision ultimately led to the approval legal obligation and begin accepting spent nuclear fuel. On November 19, by the Executive Board of a settlement agreement with the Government in 2013, the D.C. Circuit Court ordered the DOE to submit to Congress a proposal the amount of $23.6 million to dispose of the second action. This amount to reduce the current waste disposal fee to zero, unless and until there is a has been recorded within Non-Operating Revenues on the Statement of viable disposal program. On January 3, 2014, the DOE filed a petition for Revenues, Expenses, and Changes in Net Position. The settlement agreement rehearing which was denied by the D.C. Circuit Court on March 18, 2014. Also, also provides for a claims process to obtain payment for continuing damages on January 3, 2014, the DOE submitted a proposal to Congress to reduce the between July 1, 2012, through December 31, 2016, which obviates the current waste disposal fee to zero. On May 9, 2014, the DOE notified Energy need for litigation to recover damages for this time period. The settlement Northwest that the waste disposal fee will remain in effect through May 15, agreement is expected to be fully executed by the parties by fall 2014. Energy 2014, after which time the fee will be set to zero. For the year ended June 30, Northwest received $48.7 million in 2011 under the first action that resulted 2014, Energy Northwest incurred expense of $8.16 million in waste disposal in a Stipulation for Entry of Final Judgment in Favor of Plaintiff Energy fees, recorded in fuel disposal within Columbia's Statement of Revenues, Northwest. Expenses, and Changes in Net Position. Until such time as a new fee structure Energy Northwest is involved in other various claims, legal actions and is in effect, Energy Northwest will not accrue any further costs related to contractual commitments and in certain claims and contracts arising in the waste disposal fees. When the fuel is placed in the reactor the fuel cost is normal course of business. Although some suits, claims and commitments are amortized to operating expense on the basis of quantity of heat produced significant in amount, final disposition is not determinable. In the opinion of for generation of electric energy. The amount moved to spent fuel for cooling management, the outcome of such litigation, claims or commitments will not decreased $55.3 million. Fees for disposal of fuel in the reactor are expensed have a material adverse effect on the financial positions of the business units as part of the fuel cost.

or Energy Northwest as a whole. The future annual cost of the business units, The current period operating expense for Columbia includes an $8.2 however, may either be increased or decreased as a result of the outcome of million charge from DOE for future spent fuel storage and disposal in these matters. accordance with the Nuclear Waste Policy Act of 1982 and $47.0 million for amortization of fuel used in the reactor.

NOTE 14 - Nuclear Fuels Energy Northwest has completed the Independent Spent Fuel Storage In May 2012, Energy Northwest entered into agreements with three Installation (ISFSI) project, which is a temporary dry cask storage facility to other parties for processing high assay uranium tails. The Program consists of be used until DOE completes its plan for a national repository. ISFSI will store several agreements between the parties involved, entered into as a joint effort the spent fuel in commercially available dry storage casks on a concrete pad between the DOE, Tennessee Valley Authority (TVA), United States Enrichment at the Columbia site. Nine casks were issued from the cask inventory account Corporation (USEC) and Energy Northwest to enrich approximately 9,082 in FY 2014 totaling $9.2 million. Spent fuel is transferred from the spent fuel metric tons (MTU) of Depleted Uranium Hexafluoride (DUF6) with an average pool to the ISFSI periodically to allow for future refueling. Current period costs assay of 0.44 weight percent U235 (wt%) that will yield approximately 482 were $2.3 million for dry cask storage costs which are recorded in nuclear MTU of enriched uranium product (EUP) with an average assay of 4.4 wt%. fuel expense.

DOE and Energy Northwest have entered into an agreement for the transfer of the DUF6 to Energy Northwest. The agreement addresses delivery and transfer of title of the DUF6, return of residual DUF6 after enrichment, storage of the EUP, and payment of DOE's costs. The costs for the handling of the DUF6 and storage of the EUP are anticipated to be $5 million or less. As of June 30, 2014, Energy Northwest had recorded $0.5 million in charges to the DOE for delivery of the DUF6 and storage of the EUP, which is capitalized as cost of the fuel being purchased.

Under the Depleted Uranium Enrichment Program (DUEP), Energy Northwest purchased from USEC all of the Separative Work Units (SWU) contained in the EUR Upon finalization of the program, Energy Northwest had purchased a total of 481.6 MTU of EUP from USEC at a cost of $687.2 million, which is recorded in nuclear fuel, net of accumulated amortization, as of June 30, 2013. There have been no additional purchases in fiscal year 2014.

Energy Northwest and TVA have entered into an agreement for the sale and purchase of a portion of the SWU and Feed Component of the EUP. The sales under the agreement are expected to total approximately $731 million.

The sales under this agreement are scheduled to take place between 2015 and 2022.

Energy Northwest has a contract with DOE that requires DOE to accept Designer: Ben Stewart title and dispose of spent nuclear fuel. Although the courts have ruled that Editor: Anna Markham DOE had the obligation to accept title to spent nuclear fuel by January 31,

on the Web at www.energy-northwest.com Northwest people and projects youtube~com/energynorthwest2011 About Energy SmYOU LEARN MORE Twitter.com/energynorthwest Facebook.com/energynorthwest ENERGY NORTHWEST