ML100950446

Trojan ISFSI Annual Financial Report for Year 2009

ML100950446
Person / Time
Site:	Trojan  File:Portland General Electric icon.png
Issue date:	04/01/2010
From:	Quennoz S Portland General Electric Co
To:	Document Control Desk, NRC/NMSS/SFPO
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PGEG *Trojan Portland General Electric Company JSFSI 71760 Columbia River Hwy April 1 ; 2010 Rainier,Oregon 97048 VPN-004-2010 Trojan ISFSI Docket 72-17 License SNM-2509 ATTN: Document Control Desk Director, Spent Fuel Project Office Office of Nuclear Material Safety and Safeguards U.S. Nuclear Regulatory Commission Washington, DC 20555-0001 Annual Financial Report for Year 2009 Portland General Electric Company (PGE), with Eugene Water and Electric Board (EWEB) and PacifiCorp, are the licensees for SNM-2509. PGE and PacifiCorp submit Form 10-Q reports to the Securities and Exchange Commission (SEC). EWEB is a government entity that does not submit a Form 10-Q with the SEC, or a Form 1 with the Federal Energy Regulatory Commission.

Therefore, in accordance with 10 CFR 72.80(b), only EWEB is required to submit an Annual Financial Report.

The enclosed document, "Independent Auditor's Reports and Financial Statements, December 31, 2009 and 2008," is the submittal for EWEB:

If you have any questions regarding this submittal, please contact Mr. Jay Fischer of my staff at (503) 556-7030.

Sincerely, Stephen M. Quennoz Vice President, Nuclear and Power Supply/Generation Enclosure c: Director, NRC, Region IV, DNMS Shana Helton, NRC, NMSS/DSFST (w/o enclosures)

T. M. Stoops, ODOE Richard Varner, EWEB (w/o enclosures)

E. M. Burton, PacifiCorp (w/o enclosures)

R. N. Sherman, BPA (w/o enclosures)

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TABLE OF CONTENTS Board of Com m issioners and Officers .......................................................................... 1 Independent Auditor's Report ............................................... 2 Management's Discussion and Analysis ...................................... 3 - 13 Financial Statements B alance sheets ............................................................................................. 14 - 17 Statements of revenues, expenses and changes in net assets ............ .............. 18 - 19 Statements of cash flows. .................................................. 20 - 23 Notes to financial statements ................................................ 24 - 55 Supplemental Information Electric system long-term bonded debt and interest payment requirements, including current portion ...................... ........................................56 - 59 Water system long-term bonded debt and interest payment requirements, including current portion ............................................................................................. 60 - 61 Electric system analysis of certain restricted cash and investments for debt service .................. 62 Water system analysis of certain restricted cash and investments for debt service .................... 63 Audit Comments Report of independent certified public accountants on the Eugene Water & Electric Board's compliance and certain items based on an audit of financial statements performed in accordance with Oregon Auditing Standards ........................ 64 - 65

Eugene Water & Electric Board Board of Commissioners Mr. Ron Farmer, Wards 4 & 5, President Mr. John H. Brown, "At Large," Vice President Mr. Rich Cunningham, Wards 6 & 7, Member Mr. Bob Cassidy, Wards 2 & 3, Member Ms. Joann Ernst, Wards 1 & 8, Member Officers Mr. Randy L. Berggren, General Manager, Secretary Ms. Debra J. Smith, Assistant Secretary Mr. James H. Origliosso, Treasurer Ms. Catherine D. Bloom, Assistant Treasurer EUGENE WATER & ELECTRIC BOARD 1

arnMn DPIMJC *M=XUTAM*1.5J FM-ESSC--ONS4JL7IM~t INDEPENDENT AUDITOR'S REPORT Tb:the Board of Commissioners Eugene' Water & Electric Board We have audited the accompanying balance sheets of the Electric System, Water System and Combined Total Systems of Eugene Water & Electric Board (Board) as of December 31, 2009 and 2008 and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the iesponsibility of the Board's management. Our -respohsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United Statesi of America. Those. standards require that we plan and perform the audits to obtain reasonable assurance.

about whether the financial statements are free of material misstatement. An audit includes examining,.

imn a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating, the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Board as of December 31, 2009 and 2008 and the results of its individual and combined, operations and cash flows for the years then ended in confor.mity with accounting principles.

generally accepted in the United States of America.

The management's discussion and analysis preceding the financial statements is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the: requited supplementary information. However, we did not audit the information and :express.no opinion on it.

Our audits were conducted, for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial infornmation included as supplementary information following the financial statements and notes to financial statements is provided for purposes of additional analysis and is not a.

required part-of the basic financial statements: Such information has not-been subjected to the auditing, procedures applied in the audits.of the financial statements and we do not express an opinion on it, For Moss Adams LLP Portland, Oregon

'March 1:6, 2010 2 EUGENE WATER & ELECTRIC BOARD

MANAGEMENT'S DISCUSSION AND ANALYSIS The Eugene Water & Electric Board (EWEB or the Board) commenced operation in 1912 and is the largest publicly owned electric and water utility in Oregon. It produces approximately 13% of the generation required to serve loads and purchases the remainder from the Bonneville Power Administration (Bonneville) and other sources. Drinking water is obtained from the McKenzie River, a glacially fed source of the purest water available nationally. Its 540 employees serve a community of 146,000 including the University of Oregon as well as several surrounding areas outside of the city.

EWEB is an administrative unit of the City of Eugene, Oregon (the City) with responsibilities for operation of the water and electric utilities delegated by City Charter to the publicly elected board of five commissioners. The Board operates vertically integrated electric and water utilities with 86,900 electric and 50,700 water customers.

Highlights for 2009 Economic Crisis and Response The national and regional recession deepened and broadened during 2009 with significant impacts on local employment and related consumption of electricity and water. The Board responded with a comprehensive Community Care package amounting to $4.4 million of budget surplus accumulated during 2008. The program included a $30 rebate to all residential customers and targeted assistance to customers experiencing recent unemployment or other financial hardship.

Renewable Energy

" Harvest Wind --joint ownership of a nearly 100 MW wind project, which began operation in December. This project is eligible for federal grant money to partially reimburse EWEB for its costs.

• Biomass - agreed to terms for the purchase of 100% of the output of a planned, local, biomass facility. Operation is planned for late 2010.

In June of 2007, Oregon legislators created a Renewable Portfolio Standard requiring utilities, depending on their size, to acquire new renewable resources with the goal of achieving 25% of the State's energy from renewable sources by 2025. Because EWEB is heavily supplied by hydro-electric generation and its new renewable acquisitions are ahead of load needs, EWEB staff anticipates no problem meeting the standard through the year of 2025 and well beyond.

Compliance - North American Reliability Corporation (NERC)

EWEB implemented the rigorous requirements of NERC's Critical Infrastructure Standards on schedule on December 31, 2009. Those standards ensure both physical and cyber security of EWEB's facility and technology infrastructure. Additionally, a NERC audit performed in October received a perfect score.

EUGENE WATER & ELECTRIC BOARD 3

MANAGEMENT'S DISCUSSION AND ANALYSIS Sustainability Reporting - Global Reporting Initiative (GRI)

The Board joined the growing global community choosing to report on sustainability under the standardized framework of the GRI, which is designed to make reporting of sustainability as standard as financial reporting. This was an organization-wide effort to accomplish reporting for the.

many social, economic and environmental indicators that are the basis of the reporting. Annual reporting is expected to inform EWEB's strategic decision making.

> Employee Safety The organization experienced substantial improvement in employee safety including a 35% decrease in recordable injuries and a 50% decrease in lost work days due to accidents or injuries.

Financial performance for 2009 was stable with modest additions to reserve levels in both the electric and water utilities. Although there was significant fall-off in customer consumption related to poor economic conditions, revenues were supported by retail rate adjustments in both utilities.

Financial results were affected by the cessation of operations of the Hynix semiconductor plant late in 2008. Hynix had been the largest water customer (589 million gallons) and the second largest electric customer (23 megawatts). The closure of the Hynix plant was mitigated through retail rate actions in 2009. Over the longer-term, loss of Hynix electric sales are expected to be replaced by substantial increases in load related to expansion of University of Oregon operations.

Financial Policies and Controls EWEB's financial management system consists of financial policies, financial management strategies, and the internal control structure, including the annual budgets and external audit of its financial, statements. The Board has the exclusive right to determine rates and charges for services provided. The Board has established standards for financial performance above the average of publicly owned electric and water utilities. Planning is guided by ten-year forecasts of balance sheet, operating, and capital items. These tools are used to identify the impacts of anticipated initiatives and to devise strategies to meet the Board's financial objectives.

Board financial performance is reflected in evaluations of creditworthiness performed by the major credit rating agencies. These are the current underlying ratings:

Fitch Moody's Standard & Poors Electric System A+ Al AA-Water System AA Aa3 AA

(

The following discussion and analysis of the financial performance of EWEB provides a summary of the activity for the years ended December 31, 2009, 2008 and 2007. This discussion and analysis should be read in combination with the financial statements.

4 EUGENE WATER & ELECTRIC BOARD

MANAGEMENT'S DISCUSSION AND ANALYSIS Electric System The electric system serves a 238-square mile area, including the City and adjacent suburban areas.

Power supply requirements are met primarily from hydroelectric sources, including self-generation and purchases from Bonneville. Retail sales comprise 70% of revenues with wholesale sales accounting for 30% of revenues. Heating load and general economic conditions are the primary influences on retail sales. During 2009, retail load decreased by 8% from 2008 which includes the full-year effect of the closure of the Hynix plant.

EWEB sets budgets and power supply forecasts conservatively. Budgets assume that available water for generation will be 85% of the historical average. When the amount of water for generation is greater than 85%, additional funds are held in reserves to offset potential deficits in future years. Water available for generation in 2009 was 87% of normal (94% and 93% in, 2008 and 2007, respectively) contributing to substantial deposits to cash reserve accounts.

Since the majority of EWEB's power supply comes from hydroelectric generation, financial performance of the electric utility is largely influenced by the availability of water for generation in excess of 85% of normal and the prices obtainable for excess generation in the wholesale markets.

Substantial wholesale sales activity complements sales to retail customers and provides a stabilizing portfolio effect.

During 2009, the electric system purchased 60% of its power~from Bonneville (50% in 2008 and 47% in 2007). The majority of power purchased from Bonneville is provided under a "Slice of System" contract. Under the Slice agreement EWEB has rights to 2.4% of the output of the federal Bonneville system. The remainder is obtained under a standard output (Block) contract. At critical water conditions (i.e., lowest on historical record) the Block and Slice output, together with EWEB's self-generation is sufficient to serve retail load. The price of Slice power is set assuming critical water conditions. When water conditions are above critical, the resulting secondary output is obtained at no additional charge. To the extent there is excess secondary power available above that necessary to serve retail load, the excess is sold into wholesale power markets. Retail rates are lower when wholesale volume and prices are higher. Wholesale price levels are supported by output sales into forward markets and by financial.

instruments that have the effect of setting minimum prices for sales of secondary power.

Financial performance during 2009 continued to support cash reserves at a level higher than established targets. By the end of 2009, unrestricted cash reserves stood at $103.7 million against an overall reserve target of $88.5 million. (Total working cash and reserves were $98 million in 2008 and $78 million in 2007.) This provides a substantial amount of financial flexibility to the Board going forward which it can use to avoid additional debt and/or reduce existing liabilities and otherwise respond to economic uncertainties.

. EUGENE WATER & ELECTRIC BOARD 5

MANAGEMENT'S DISCUSSION AND ANALYSIS Financial Summary and Analysis Electric system operating revenue for 2009 decreased by $46 million. Of this amount $33 millionwas the result of lower wholesale sales caused by depressed energy prices during much of the year. $10 million was the effect of lower retail sales including $7 million from the full-year effect of the Hynix closure; and residential sales were down by $2 million in the form of customer rebates as part of the Board's increased Community Care program. Rates were increased an average of 5% in September to pass-through increases in Bonneville wholesale power costs.

Operating expenses decreased by $24 million during 2009. The cost of purchased power and related system control and wheeling decreased by $27 million due to decreases in volume purchases and the unit prices. Customer Accounting expense increased by $1.4 million to fund customer bill paying assistance, also a part of the Community Care program. Energy Conservation expenses increased by $.6 million to achieve greater energy savings, and depreciation increased $.7 million reflecting higher plant values. Non-operating revenues were significantly lower ($4.7 million) as a function of lower interest earnings reflecting the recessionary interest rate environment.

From an operating perspective financial performance was positive in 2009, however it did not provide the level of net revenue experienced in the prior two years. Overall 2009 revenues exceeded expenses at levels sufficient to accumulate additional cash reserves. Balance sheet measures improved somewhat with growth in both assets and equity (net assets). Working cash and reserve balances were $103.6 million at year-end 2009, an increase of $6 million over year-end 2008. This compares with annual reserve balance increases of $20 million in both 2008 and 2007.

6 EUGENE WATER & ELECTRIC BOARD

MANAGEMENT'S DISCUSSION AND ANALYSIS Selected Financial Data (in millions ofdollars) 2009 2008 2007 Operating revenues $ 234 $ 280 $ 263 Operating expenses (192) (217) (212)

Net operating income 42 63 51 Non-operating revenues 5 9 8 Non-operating expenses (29) (28) (24)

Income before contributed capital 18 44 35 Contributed capital 1 1 4' Change in net assets $ 19 $ 45 $ 39 Total assets $ 628 $ 586 $ 494 Total liabilities $ 343 $ 320 $ 274 Net assets Invested in capital assets, net of related debt 172 150 117 Restricted 8 8 6 Unrestricted 105 108 97 Total net assets 285 266 220 Total liabilities and net assets $ ý628 $ 586 $ 494 During 2009 the Board acquired a 20% (19.8 MW) interest in the Harvest Wind generation facility which initiated commercial operation in December 2009. The Board's interest is recorded on the balance sheet as an investment asset of $41.6 million, with the related short-term construction debt recorded as a current liability of $43 million. Substantial transmission expense for this project is prepaid and separately reported: $1.9 million.

Electric Utility capital construction is provided for through a combination of construction fees, cash flow from revenues and long-term revenue bonds. The electric system Capital Improvement Plan (CIP)

(2010-2014) calls for major transmission/distribution substation replacements and improvements to related feeder systems. A major new substation is planned to serve additional University of Oregon loads. Also included in the CIP are substantial outlays for relicensing improvements to the Carmen-Smith Hydroelectric Generation Project and completion of the Roosevelt Operations Center.

As of the end of 2009, the electric system had $563 million in plant in service, an increase of $23 million from 2008. Major additions during 2009 included replacements in the distribution system for

$16 million and $3 million for upgrades at Leaburg and Carmen Smith hydro facilities. Capital additions were $25 million and $18 million in 2008 and 2007, respectively.

EUGENE WATER & ELECTRIC BOARD 7

MANAGEMENT'S DISCUSSION AND ANALYSIS Significant construction work in progress at the end of 2009 included standard electric utility improvements for distribution and generation and less typical activity suchas $30 million for a new operations location (Roosevelt Operations Center), and $7 million to upgrade software and computer infrastructure. Construction work in progress was $28 million and $23 million in 2008 and 2007, respectively.

Capital Assets (in millions of dollars) 2009 2008 2007 Production and land $ 203 $ 200 $ 195 Transmission and distribution 273 259 243 General plant 87 81 77 Total utility plant in service $ 563 $ 540 $ 515 Liabilities (in millions of dollars) 2009 2008 2007 Current liabilities $ 92 $ 49 $ 49 Noncurrent liabilities 251 271 225 Total liabilities $ 343 $ 320 $ 274 There was no new long-term debt issued in 2009, consequently noncurrent liabilities decreased by $20 million, however $84.4 million of electric revenue and refunding bonds were issued in 2008 to partially fund construction of the Roosevelt Operations Center and to refund Series 1994 bonds. A short-term credit facility was implemented during 2009 to provide interim taxable financing for participation in the construction of the Harvest Wind Project. A total of $43 million was drawn on the bank line of credit, the terms of which have been extended through May 27, 2010. The Board expects to refinance the line of credit with long-term debt in early 2010.

8 EUGENE WATER & ELECTRIC BOARD

MANAGEMENT'S DISCUSSION AND ANALYSIS Water System The water system provides water to all areas within the City, and two water districts. During 2009 the water system sold approximately 8.8 billion gallons of water, 8.5% of which was to the water districts.

Water is supplied from the McKenzie River and is treated at the Hayden Bridge Filtration Plant, the second largest full-treatment plant in Oregon and will soon be the largest upon completion of the current expansion. Water is pumped from the Hayden Bridge Filtration Plant into the distribution system through two large transmission mains. The water distribution system consists of 26 enclosed reservoirs with a combined storage capacity of 94 million gallons, 31 pump stations and over 800 miles of distribution mains.

Financial Summary and Analysis Beginning in 2007 the Board initiated a multi-year effort to position the water utility to address the replacement of aging water infrastructure as many water mains and distribution facilities were installed over 80 years ago and have been experiencing an increasing rate of failure. This effort is to be funded through a multi-year program of retail rate increases directed toward increasing annual capital investment in the system. The rate increases are to be supplemented by additional long-term debt in the early years in order to have a significant effect on system performance.

Net operating revenue for 2009 was $6 million versus $5 million in 2008 and $680,000 in 2007.

During 2009, water system operating revenues increased by $2.1 million or 10%. This increase was largely attributable to a retail rate increase effective May 2009. Operating expenses increased by $1 million (or 6%) driven primarily by depreciation expense ($380,000 increase) and increased maintenance cost of the distribution system ($348,000 increase). Late in 2008, the water system received notice that its largest industrial customer (Hynix) was ceasing operations by the year-end. This negatively impacted operating revenue by $364,000 for 2008; the full year effect was experienced in 2009 and amounted to $915,000 in lower revenue.

Non-operating revenues consist primarily of interest revenues and system development charges. Non-operating expenses are primarily interest and other financing costs. While non-operating expenses were similar to 2008, non-operating revenues were substantially lower due to the precipitous fall off in customer construction activity and in the interest rates on funds held for construction and other reserves.

In total, interest earnings were $723,000 less than in 2008 and other interest rate related non-operating revenue was lower by $215,000.

Contributions in aid of construction were down $748,000 (54%) from 2008 amounts due to the general decline in construction activity and the resultant decrease in system development charges collected amounted to $322,000 or nearly 40% less than 2008.

EUGENE WATER & ELECTRIC BOARD 9

MANAGEMENT'S DISCUSSION AND ANALYSIS Selected Financial Data (in millions of dollars) 2009 2008 2007 Operating revenues $ 23.1 $ 20.9 $ 18.4 Operating expenses (17.0) (16.0) (17.7)

Net operating income 6.1 4.9 0.7 Non-operating revenues 0.4 1.4 1.3 Non-operating expenses (2.4) (2.4) (1.9)

Income before contributed capital 4.1 3.9 0.1 Contributed capital 1.4 2.3 5.9 Change in net assets $ 5.5 $ 6.2 $ 6.0 Total assets $113.4 $109.6 $ 90.9 Total liabilities $ 42.8 $ 44.5 $ 32.0 Invested in capital assets, net of related debt 53.1 49.2 43.0 Restricted 5.0 8.2 9.7 Unrestricted 12.5 7.7 6.2 Total net assets 70.6 65.1 58.9 Total liabilities and net assets $113.4 $109.6 $ 90.9 Capital construction is provided through a combination of construction fees, cash flow from net revenues, and long-term revenue bonds.

At year-end 2009, the water system had $143 million invested in a variety of capital assets. Utility plant in service, net of accumulated depreciation, was $67 million representing a 16% increase from 2008.

Significant additions were for the transmission and distribution system ($4.5 million) and Laurel Hill Reservoir ($2.8 million). Net plant in service was $58 million in 2008, an increase of 9% over the prior year. During 2007, net plant in service increased 11%.

The water utility had substantial capital work in process ($21 million at year-end) including reservoir additions and upgrades, water main replacements and improvements and a major $13 million upgrade at the Hayden Bridge Filtration Plant. The Hayden Bridge project will proi2 ide the capacity to treat an additional 12 million gallons per day; it was placed into service February 2010.

10 EUGENE WATER & ELECTRIC BOARD

MANAGEMENT'S DISCUSSION AND ANALYSIS Capital Assets (in millions of dollars) 2009 2008 2007 Production and land $ 38 $ 36 $ 35 Transmission and distribution 97 88 83 General plant 8 7 6 Total utility plant in service $ 143 $ 131 $ 124 Liabilities (in millions of dollars) 2009 2008 2007 Current liabilities $ 4 $ 4 $ 5 Noncurrent liabilities 39 40 27 Total liabilities $ 43 $ 44 $ 32 At year-end the water system had $36 million of revenue bonds outstanding versus $37 million at the end of 2008 and $22 million in 2007. In July 2008, $16 million in new revenue bonds were issued to fund capacity additions to the Hayden Bridge Filtration Plant and the replacement of storage, transmission and distribution facilities.

The 2007 update to the water system Capital Improvement Plan (CIP) specified a long-term program of renewals and replacements of distribution mains. Prior year versions of the CIP had projected the need for additional long-term source of supply and upgrades to the purification system. These capital improvement needs are expected to create upward pressure on retail rates through 2012.

Water rates were increased 18% in May 2009 to recover net revenue losses associated with the Hynix shut down, to continue the replacement of aging water mains, and to. stabilize cash reserve positions.

Water rates were increased 17% in May 2008 as part of a multi-year program of rate adjustments to fund the revised capital improvement program. Retail rates were increased 9.2 % in May 2007 to account for multiple years of lower-than-projected water sales.

EUGENE WATER & ELECTRIC BOARD 11

MANAGEMENT'S DISCUSSION AND ANALYSIS Outlook As the effects of the recession continue into 2010, customer assistance targeted toward those experiencing financial hardship has been extended.

Modest retail rate increases are proposed in 2010 to recover costs and maintain reserves within targeted levels. With these changes, EWEB rates will remain at approximately the average of utilities in the region and much lower than average when compared nationally.

Significant additional capital construction will be completed during 2010 including the Hayden Bridge Filtration Plant -upgrade and the Roosevelt Operation Center. Approximately one-half of the Board's employees are expected to move into the new operation facility in the fall of 2010. Also expected is final FERC approval of a new operating license for the Carmen Smith Hydroelectric Project. During 2010, ground-breaking will occur for a new transmission grade electric substation to serve growing University of Oregon loads.

During 2009 electric cash reserve levels were maintained beyond targeted levels in anticipation of draws to support cash flow during the period 2011-14 when the Carmen Smith Hydroelectric Project is expected to be taken out of service for capital construction required by the new FERC operating license.

12 EUGENE WATER & ELECTRIC BOARD

EUGENE WATER & ELECTRIC BOARD 13 BALANCE SHEETS - ASSETS December 31, 2009 and 2008 Electric System Water System 2009 2008 2009 2008 ASSETS Utility plant in service $ 562,998,482 $ 539,854,487 $ 143,170,492 $ 130,781,998 Less accumulated depreciation 298,710,026 286,258,018 76,157,391 72,966,529 Net utility plant in service 264,288,456 253,596,469 67,013,101 57,815,469 Property held for future use 789,172 2,802,783 989,578 989,578 Construction work in progress 60,832,394 40,608,490 21,147,888 16,646,566

-Net utility plant 325,910,022 297,007,742 89,150,567 75,451,613 Debt service reserves 2,802,922 2,796,502 1,402,664 777,349 Customer deposit reserve 2,545,724 3,210,057 Construction funds 34,773,681 49,176,998 189,863 11,057,461 System development charge reserves - 3,019,030 6,703,117 Investments for bond principal and interest 9,606,345 9,524,581 1,226,918 1,233,543 Restricted cash and investments 49,728,672 64,708,138 5,838,475 19,771,470 Cash and cash equivalents 876,128 4,227,965 1,906,900 2,075,247 Short-term investments 20,876,617 15,659,195 Designated cash and investments Purchased power reserve 39,644,399 32,271,265 - -.

Capital improvement reserve 13,920,830 17,939,278 7,149,736 2,644,448 Carmen-Smith reserve 21,570,778 21,352,096 -

Operating reserve 3,778,065 2,942,120 1,287,372 1,099,608 Pension and medical reserve 2,998,862 3,329,512 -

Receivable, less allowances 34,164,865 36,212,276 1,770,985 1,779,715 Note and interest receivable, Water 363,379 363,379 -

Materials and supplies 2,465,717 2,529,069 681,416 549,507 Prepaids 2,346,183 2,183,800 560,585 576,896 Option premiums short-term 3,657,866 4,015,457 -

Total current assets 146,663,689 143,025,412 13,356,994 8,725,421 Prepaid retirement obligation 15,737,682 16,681,942 3,454,611 3,661,888 Long-term receivables, conservation and other 4,441,735 5,031,299 Note receivable, Water 3,454,611 3,661,888 Investment in Harvest Wind 41,552,929 Deferred charges Preliminary investigations 19,051,658 28,757,375 Conservation assets 5,995,807 7,440,448 Derivatives at fair value 2,530,525 10,483,675 Option premiums long-term 1,274,160 346,500 -

Other deferred charges 11,693,573 8,699,700 1,544,909 2,008,962 Total other assets 105,732,680 81,102,827 4,999,520 5,670,850 Total assets $ 628,035,063 $ 585,844,119 $ 113,345,556 $ 109,619,354 Note: Inter-system note receivable and payable are eliminated in the Total Systems column.

See accompanying notes.

14 EUGENE WATER & ELECTRIC BOARD

BALANCE SHEETS - ASSETS December 31, 2009 and 2008 Total Systems 2009 2008

$ 706,168,974 $ 670,636,485 374,867,417 359,224,547 331,301,557 311,411,938 1,778,750 3,792,361 81,980,282 57,255,056 415,060,589 372,459,355 4,205,586 3,573,851 2,545,724 3,210,057 34,963,544 60,234,459 3,019,030 6,703,117 10,833,263 10,758,124 55,567,147 84,479,608 2,783,028 6,303,212 20,876,617 15,659,195 39,644,399 32,271,265 21,070,566 20,583,726 21,570,778 21,352,096 5,065,437 4,041,728 2,998,862 3,329,512 35,935,850 37,991,991 3,147,133 3,078,576 2,906,768 2,760,696 3,657,866 4,015,457 160,020,683 151,750,833 19,192,293 20,343,830 4,441,735 5,031,299 19,051,658 28,757,375 5,995,807 7,440,448 2,530,525 10,483,675 1,274,160 346,500 13,238,482 10,708,662 110,732,200 86,773,677

$ 741,380,619 $ 695,463,473 Continued EUGENE WATER & ELECTRIC BOARD 15

BALANCE SHEETS - LIABILITIES AND NET ASSETS December 31, 2009 and 2008 Electric System Water System 2009 2008 2009 2008 LIABILITIES Payables $ 29,342,701 $ 29,317,456 $ 1,340,173 $ 1,419,061 Accrued payroll and benefits 3,095,253 4,402,868 627,947 839,178 Accrued interest on long-term debt 4,818,461 5,027,143 686,164 720,136 Line of credit 43,000,000 Long-term debt due within one year 11,610,000 10,780,000 1,295,000 1,225,000 Note and interest payable, Electric - 363,379 363,379 Total current liabilities 91,866,415 49,527,467 4,312,663 4,566,754 Long-term debt, bonds payable 223,886,805 235,219,121 34,575,096 35,783,476 Note payable, Electric 3,454,611 3,661,888 Derivatives at fair value 2,530,525 10,483,675 -

Other liabilities 4,220,701 3,753,306 433,891 483,482 Deferred revenue 20,000,000 20,000,000 -

Deferred credit - WGA 755,807 1,085,544 -

Total liabilities 343,260,253 320,069,113 42,776,261 44,495,600 NET ASSETS Invested in capital assets, net of related debt 171,868,487 149,934,417 52,883,226 49,241,856 Restricted 7,899,306 7,958,557 5,152,311 8,240,601 Unrestricted 105,007,017 107,882,032 12,533,758 7,641,297 Total net assets 284;774,810 265,775,006 70,569,295 65,123,754 Total liabilities and net assets $ 628,035,063 $ 585,844,119 $ 113,345,556 $ 109,619,354 Note: Inter-system note receivable and payable are eliminated in the Total Systems column.

See accompanying notes.

16 EUGENE WATER & ELECTRIC BOARD

BALANCE SHEETS - LIABILITIES AND NET ASSETS December 31, 2009 and 2008 Total Systems 2009 2008 30,682,874 S 30,736,517 3,723,200 5,242,046 5,504,625 5,747,279 43,000,000 12,905,000 12,005,000 96,179,078 54,094,221 258,461,901 271,002,597 2,530,525 10,483,675 4,654,592 4,236,788 20,000,000 20,000,000 755,807 1,085,544 386,036,514 364,564,713 224,751,713 199,176,273 13,051,617 16,199,158 117,540,775 115,523,329 355,344,105 330,898,760

$ 741,380,619 $ 695,463,473 EUGENE WATER & ELECTRIC BOARD 17

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Years ended December 31, 2009 and 2008 Electric System Water System 2009 2008 2009 2008 Residential S 80,939,829 $ 83,444,630 $ 12,531,542 $ 10,757,919 Commercial and industrial 83,117,695 90,433,756 9,987,960 9,073,216 Sales for resale and other 70,237,650 106,185,549 567,638. 1,100,922 Operating revenues 234,295,174 280,063,935 23,087,140 20,932,057 Purchased power 92,666,155 120,795,602 System control 5,082,815" 4,822,694 Wheeling 11,700,114 11,657,271 Steam and hydraulic generation 11 If AQ7 1A r(A 1AO Transmission and distribution 18,488,642 17,123,568 5,890,532 5,542,125 Source of supply, pumping and purification - 2,905,108 2,765,719 Customer accounting 10,158,193 8,541,642 1,241,591 1,142,470 Conservation expenses 7,633,877 7,041,011 387,963 403,907 Administrative and general 20,091,862 19,473,199 3,476,822 3,437,930 Depreciation on utility plant 13,421,472 12,711,109 3,132,460 2,753,118 Operating expenses 192,359,627 216,726,245 17,034,476 16,045,269 Net operating income 41,935,547 63,337,690 6,052,664 4,886,788 Interest earnings on investments 1,557,591 5,284,555 147,723 870,960 Allowance for funds used during construction 185,916 442,226 96,052 232,659 Other revenue 3,001,904 3,671,984 201,756 280,583 Non-operating revenues 4,745,411 9,398,765 445,531 1,384,202 Surplus revenue payments 14,311,105 12,460,842

'Other revenue deductions 2,656,690 5,284,900 252,285 664,759 Interest expense and related amortization 11,951,136 10,786,374 2,227,833 1,874,480 Allowance for borrowed funds used during construction (146,200) (391,383) (51,763) (142,220)

Non-operating expenses 28,772,731 28,140,733 2,428,355 2,397,019 Income before contributed capital 17,908,227 44,595,722 4,069,840 3,873,971 Contributions in aid of construction 1,082,708 1,252,603 623,808 1,372,178 Contributed plant assets 8,869 51,904 256,944 118,550 System development charges - 494,949 816,808 Contributed capital 1,091,577 1,304,507 1,375,701 2,307,536 Change in net assets 18,999,804 45,900,229 5,445,541 6,181,507 Total net assets at beginning of year 265,775,006 219,874,777 65,123,754 58,942,247 Total net assets at end of year $ 284,774,810 $ 265,775,006 $ 70,569,295 $ 65,123,754 See accompanying notes.

18 EUGENE WATER & ELECTRIC BOARD

STATEMENTS OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS Years ended December 31, 2009 and 2008 Total Systems 2009 2008

$ 93,471,371 $ 94,202,549 93,105,655 99,506,972 70,805,288 107,286,471 257,382,314 300,995,992 92,666,155 120,795,602 5,082,815 4,822,694 11,700,114 11,657,271 13,116,497 14,560,149 24,379,174 22,665,693 2,905,108 2,765,719 11,399,784 9,684,112 8,021,840 7,444,918 23,568,684 22,911,129 16,553,932 15,464,227 209,394,103 232,771,514 47,988,211 68,224,478 1,705,314 6,155,515 281,968 674,885 3,203,660 3,952,567 5,190,942 10,782,967 14,311,105 12,460,842 2,908,975 5,949,659 14,178,969 12,660,854 (197,963) (533,603) 31,201,086 30,537,752 21,978,067 48,469,693 1,706,516 2,624,781 265,813 170,454 494,949 816,808 2,467,278 3,612,043 24,445,345 52,081,736 330,898,760 278,817,024

$ 355,344,105 $ 330,898,760 EUGENE WATER & ELECTRIC BOARD 19

STATEMENTS OF CASH FLOWS Years ended December 31, 2009 and 2008 Electric System Water System 2009 2008 2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers $ 236,408,442 $ 284,755,040 $ 22,857,039 $ 20,085,934 Other receipts 852,207 3,185,691 190,354 329,889 Power purchases (93,978,439) (117,052,060) -

Payments to employees (34,071,189) (28,481,065) (8,314,745) (7,102,274)

Payments to suppliers (55,167,684) (62,053,610) (5,330,473) (6,585,817)

Surplus revenue payments (14,287,445) (12,279,584) -

Net cash from operating activities 39,755,892 68,074,412 9,402,175 6,727,732 CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investment securities (304,375,620) (289,182,405) (15,981,832) (29,085,822)

Proceeds from sale and maturities of investments 307,284,473 220,607,915 26,038,938 23,553,058 Interest on investments 5,034,497 6,392,184 536,231 899,660 Additions to equity interest in Harvest Wind (41,647,676)

Distributions from equity investment in WGA 400,000 400,000 -

Net cash from investing activities (33,304,326) (61,782,306) 10,593,337 (4,633,104)

CASH FLOWS FROM NON-CAPITAL FINANCING ACTIVITIES Note receipts from Water 207,277 2,032,277 Proceeds from line of credit 43,000,000

• Interest payments (380,251)

Note payments to Electric (207,277) (2,032,277)

Net cash from non-capital financing activities 42,827,026 2,032,277 (207,277) (2,032,277)

CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Proceeds from bonds 86,203,215 15,591,884 Refunding of bonds (33,587,712)

Principal payments (10,780,000) (8,555,000) (1,225,000) (940,000)

Bond issuance costs (306,342)

Additions to utility plant, net (38,832,196) (35,528,243) (16,692,418) (11,897,770)

Interest payments (12,053,660) (9,268,727) (2,102,973) (1,160,763)

Additions to preliminary surveys and other 8,850,721 (11,080,424) -

Contributed capital. 1,091,577 1,304,507 1,118,756 2,188,986 Net cash from capital and related financing activities (51,723,558) (10,512,384) (18,901,635) 3,475,995 CHANGE IN CASH AND CASH EQUIVALENTS (2,444,966) (2,188,000) 886,600 3,538,346 CASH AND CASH EQUIVALENTS, beginning of year 25,897,264 28,085,264 12,666,301 9,127,955 CASH AND CASH EQUIVALENTS, end of year including cash and cash equivalents restricted or designated: $22,576,169 and $3,208,893

($21,669,298 and $10,591,054 in 2008) for Electric and Water, respectively. $. 23,452,298 $ 25,897,264 $ 13,552,901 $ 12,666,301 NON-CASH CAPITAL ACTIVITY:

In 2009, plant assets contributed by developers were $8,869 for the Electric System, and $118,550 for the Water System.

Note: Inter-system note receivable and payable are eliminated in the Total Systems column.

See accompanying notes.

20 EUGENE WATER & ELECTRIC BOARD

STATEMENTS OF CASH FLOWS Years ended December 31, 2009 and 2008 Total Systems 2009 2008 259,265,481 $ 304,840,974 1,042,561 3,515,580 (93,978,439) (117,052,060)

(42,385,934) (35,583,339)

(60,498,157) (68,639,427)

(14,287,445) (12,279,584) 49,158,067 74,802,144 (320,357,452) (318,268,227) 333,323,411 244,160,973 5,570,728 7,291,844 (41,647,676) 400,000 400,000 (22,710,989) (66,415,410) 43,000,000 (380,251) 42,619,749 101,795,099 (33,587,712)

(12,005,000) (9,495,000)

(306,342)

(55,524,614) (47,426,013)

(14,156,633) (10,429,490) 8,850,721 (11,080,424) 2,210,333 3,493,493 (70,625,193) (7,036,389)

(1,558,366) 1,350,345 38,563,565 37,213,219 37,005,199 $ 38,563,564 Continued EUGENE WATER & ELECTRIC BOARD 21

STATEMENTS OF CASH FLOWS Years ended December 31, 2009 and 2008 Electric System . Water System 2009 2008 2009 2008 RECONCILIATION OF NET OPERATING INCOME TO NET CASH FROM OPERATING ACTIVITIES Net operating income $ 41,935,547 S 63,337,690 $ 6,052,664 $ 4,886,788 Adjustments to reconcile net operating income to net cash from operating activities Depreciation, net 12,452,009 12,465,070 3,132,460 2,753,118 Surplus revenue payments (14,287,445) (12,279,584)

Other revenue 2,825,736 3,702,259 185,176 280,583 Other revenue deductions (235,116) (660,111)

Loss from Harvest Wind 94,747 Income from WGA (729,737) (998,824)

(Increase) decrease in assets Receivables 2,047,411 4,223,863 (162,070) (330,688)

Materials and supplies 63,349 (86,629) (131,908) (11,990)

Prepayments and special deposits 195,208 (597,594) (182,137) (285,272)

Conservation loans, net 580,294 (266,182) 20,076 (23,425)

Long-term receivables, other 213,763 757,916 Prepaid retirement obligation 944,260 944,260 207,277 207,277 Deferred charges 4,455,052 50,691 595,313' 426,246 Increase (decrease) in liabilities Accounts payable, accrued payroll and benefits (3,676,889) (6,064,352) (24,944) 21,008 Other liabilities (7,357,413) 2,885,828 (54,616) (535,802)

Net cash from operating activities $ 39,755,892 $ 68,074,412 $ 9,402,175 $ 6,727,732 See accompanying notes.

22 EUGENE WATER & ELECTRIC BOARD

STATEMENTS OF CASH FLOWS Years ended December 31, 2009 and 2008 Total Systems 2009 2008

$ 47,988,211 $ 68,224,478 15,584,469 15,218,188 (14,287,445) (12,279,584) 3,010,912 3,982,842 (235,116) (660,111) 94,747 (729,737) (998,824) i 1,885,341 3,893,175 (68,559) (98,619) 13,071 (882,866) 600,370 (289,607) 213,763 757,916 1,151,537 1,151,537 5,050,365 476,937 (3,701,833) (6,043,344)

'(7,412,029) 2,350,026

$ 49,158,067 $ 74,802,144 EUGENE WATER & ELECTRIC BOARD 23

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 1 - Reporting entity Eugene Water & Electric Board (Board or EWEB) is an administrative unit of the City of Eugene, Oregon. However, as established by the Governmental Accounting Standards Board's (GASB) definition of a reporting entity, the Board is considered a primary government and is not a component unit of another entity, nor are there any component units of which the Board is financially accountable.

The Board is responsible for the ownership and operation of the Electric and Water Systems, and the basic financial statements include these two Systems.

The Board provides energy and water service to residential, commercial and industrial customers located in a 238 square mile area, including the City of Eugene and adjacent suburban areas. The Board has the authority to fix rates and charges. In order to secure power resources, the Board has taken ownership of various generation facilities. In addition, the Board has entered into joint ventures, whereby it has taken or anticipates taking an equity position in various generation facilities. The operations and sale of energy generated from the Board's relationship with each of the facilities is subject to certain risks. Operations are contingent on various factors, such as regulation, river flow levels, licensing agreements and weather patterns. The Board is subject to various forms of regulation under federal, state and local laws and is subject to various Federal Energy Regulatory Commission (FERC) regulations. Laws and regulations are subject to change and may have a direct impact on the operations of the Board.

Notes receivable and payable between the electric and water utilities are eliminated in the Total Systems columns of the financial statements.

Note 2 - Summary of significantaccountingpolicies Method of Accounting The Board maintains its accounting records in accordance with accounting principles generally accepted in the United States of America. As allowed by GASB Statement No. 20, the Board elected to apply all GASB pronouncements as well as Financial Accounting Standards Board (FASB) statements and interpretations issued after November 30, 1989 except where those standards would conflict with or contradict GASB pronouncements.

On July 1, 2009, the FASB Accounting Standards Codification became the single authoritative source of non-governmental U.S. generally accepted accounting principles (GAAP). The codification supersedes

• all previous authoritative FASB guidance that was applicable to the Board.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Actual results could differ from those estimates.

24 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Reclassifications Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. Such reclassifications had no effect on previous net revenue or net revenue assets.

Utility Plant in Service and Depreciation Utility plant is stated at original cost. Costs include labor, materials and related indirect costs, such as engineering, transportation and allowance for funds (i.e. interest) used during construction. Additions, renewals and betterments with a minimum cost of $5,000 or greater per item are capitalized. Repairs and minor replacements are charged to operating expenses. The cost of property and any removal cost is-charged to accumulated depreciation when property is retired. Included in the Board's construction work-in-progress balance are certain costs associated with renewing licensing agreements, as well as meeting other regulatory requirements. Once the new or renewed licensing agreements are obtained, the Board transfers those costs to its utility plant to be depreciated over the estimated useful lives of the plant components. Depreciation is computed using straight-line group rates.

Cash Equivalents For purposes of these statements, cash equivalents are defined as short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in value'because of changes in interest rates. Generally, only investments with original maturities of three months or less meet this definition. The Board considers money market accounts and government investment pool holdings to be cash equivalents.

Fair Value of Financial Instruments The carrying amounts of current assets, including restricted cash and investments, and current liabilities approximate fair value due to the short-term maturity of those instruments. The fair value of the Board's investments and debt are estimated based on the quoted market prices for the same or similar issues.

Materials and Supplies Materials and supplies provide for additions and repairs to utility plant and are stated at average cost.

Option Premiums Premiums on option transactions are recorded as assets and amortized as each period of exercise expires over the term of each option.

Prepaid Retirement Obligation In 2001, the Electric System issued $30 million in bonds to pay down a portion of the Board's unfunded actuarial liability for the State ofOregon Public Employees Retirement System. The Water System makes payments to the Electric System for its estimated share of the liability paid down, and both Systems treat the transaction as a prepayment amortized over the life of the bonds.

EUGENE WATER & ELECTRIC BOARD 25

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Note 2 - Summary of significant accountingpolicies, continued)

Preliminary Investigations At December 31, 2009, the Electric System had $19.1 million in deferred costs for the preliminary investigation of projects it believes will be viable in the future. Most of the balance was for preconstruction relicensing costs of the Carmen Smith Project ($28.8 million at December 31, 2008 for Carmen Smith and the beginnings of the Harvest Wind Project).

Fair Value of Renewable Energy Certificates Renewable Energy Certificates (RECs) are tradable environmental attributes. Each certificate represents 1 megawatt hour of generation from a renewable generation resource. The board records the fair market value of its portfolio of RECs as a deferred charge and an offsetting deferred liability. Fair value represents prices quoted by brokers.

Regulatory Deferrals The Board has deferred revenues and costs to be charged to future periods matching the time periods when the revenues and expenses are included in rates.

• Conservation Assets Conservation assets for the Electric System represent installations of energy saving measures at the properties of its customers. The deferred balance is reduced as costs are recovered, which for the most part represent debt service payments included in rates for related borrowing.

Conservation assets are amortized as other revenue deductions on the statements of revenues, expenses and changes in net assets.

" Derivatives at Fair Value Derivatives consist of electric and natural gas swap and option contracts. Unrealized gains and losses are marked to market using values quoted by trading exchanges or, for options, the Black Scholes method, and'discounted to their present value.

• Sick Leave Employees achieving length of service and age requirements are paid 25% of their accrued sick leave upon retirement. The estimated liability for all future retirements is included in equivalent amounts with Other Deferred Charges and Other Liabilities. Retail rates include an estimate of payments for sick leave on an annual basis.

" Net Pension Obligation A net pension obligation for the Board's supplemental retirement plan is included in equivalent amounts with Other Deferred Charges and Other Liabilities.

26 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008

• Accreted Interest on Capital Appreciation Bonds Capital appreciation bonds are issued with a deep discount payable when the bonds mature.

Interest accrued, but not yet paid, is included in long-term debt. Retail rates include interest costs as they become payable on a cash basis.

• Deferred Revenue Revenues obtained through current rates attributable to significant associated costs to be incurred in the future, are deferred (a decrease in operating revenue) and later recognized (an increase to operating revenue) during the periods when the associated costs are incurred. At December 31, 2007, $20 million in revenue for the relicensing of Carmen Smith was deferred to future periods when those costs will be incurred.

Debt Refundings For current and advance refundings resulting in defeasance of debt, the difference between the reacquisition price and the net carrying amount of the old debt (gain or loss) is deferred and amortized as a component of interest expense over the remaining life of the old debt or the new debt, whichever is shorter. These amounts are reported as*a component of the new debt liability on the Balance Sheet.

Net Assets Net assets consist of:

• Invested in capital assets, net of related debt are capital assets, net of accumulated depreciation and outstanding balances of any bonds and other borrowings that are attributable to the acquisition, construction, or improvement of those assets.

• Restricted net assets have constraints placed on their use. Constraints include those imposed by creditors (such as through debt covenants), contributors, or laws or regulation of other governments or constraints imposed by law through constitutional provisions or through enabling legislation.

• Unrestricted net assets are remaining amounts that'are neither "restricted" nor "invested in capital assets, net of related debt."

EUGENE WATER & ELECTRIC BOARD 27

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Net Assets, continued)

Net assets are as follows:

2009 2008 Electric System Water System7 Electric System Water System Invested in capital assets, net of related debt $ 171,868,487 $ 52,883,226 $ 149,934,417 $ 49,241,856 Restricted for:

Capital projects 308,500 189,863 443,617 246,728 Customer care program - - 221,000 System development charges - 3,019,030 - 6,703,117 Debt service 7,590,806 1,943,418 7,293,940 1,290,756 Unrestricted 105,007,017 12,533,758 107,882,032 7,641,297

$ 284,774,810 $ 70,569,295 $ 265,775,006 $ 65,123,754 Operating Revenue Operating revenues are recorded on the basis of service delivered. Revenues are derived primarily from the sale and transmission of electricity and from the sale of water. Revenue is recognized when the power or water is delivered to and received by the customer. Approximately 10% of 2009 Electric System's retail revenues were the result of sales to one industrial customer (15% of retail sales were the result of sales to two customers in 2008). In late.2008, the Water System's previous largest industrial customer ceased active operations, thus accounting for a very small portion of the Water System's operating revenues in 2009 (and 2.6% in 2008). Estimated revenues are accrued for power and water deliveries not yet billed to customers from meter reading dates prior to month end (unbilled revenue).

The credit practices of the Board require an evaluation of each new customer's credit worthiness on a case-by-case basis. At the discretion of management, a deposit may be obtained from the customer.

Concentrations of credit risk with respect to receivables for residential customers are limited due to the large number of customers comprising the Board's customer base. Credit losses have been within management's expectations. Similar to its evaluation of residential, commercial and industrial customers' credit reviews, the Board continually evaluates its wholesale power customers (sales for resale revenue) by reviewing credit ratings and financial credit worthiness of existing and new- wholesale customers.

Revenues are recorded net of the allowance for doubtful accounts. The allowance is determined by an examination of write off experience in the preceding five years, and consideration of other influences as appropriate. Total amounts written off for the year ended December 31, 2009 were $390,000 ($331,000 for 2008) for the Electric System, and $41,000 ($24,000 for 2008) for the Water System.

28 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Surplus Revenue Payments Inaccordance with Oregon Revised Statutes (ORS 225.270), the Electric System makes surplus revenue payments to the City of Eugene at the rate of 6% of retail sales and 17% of net margin on certain wholesale sales. The Board makes surplus revenue payments to the City of Springfield at the rate of 3%

of retail sales for customers that lie within the boundaries of the City of Springfield. Total surplus revenue payments for the year ended December 31, 2009 were $14.3 million ($12.4 million for 2008).

-Environmental Expenses Fish and plant habitat enhancements, as well as pollutionprevention improvements are expensed or capitalized depending upon their future economic benefits. Most pollution remediation outlays, legal obligations to address existing pollution, do not qualify for capitalization under GAAP and are accrued as liabilities and expenses according to the estimated remediation costs on a current cost basis (rather than present value of future costs).

Note 3 - PowerRisk Management The Board's Power Risk Management Guidelines set forth policies, limits and control systems governing power and fuel purchasing and sales activities for the Electric System. The objectives of such policies are to maximize benefits to customers from wholesale activities while minimizing the risk that wholesale activities will adversely affect retail prices. The Board does not enter into contracts for speculative purposes.

Derivative Financial Instruments In accordance with policy guidelines, the Board utilizes derivative instruments to minimize its exposure to commodity price risk. GAAP requires that derivative instruments be recorded on the balance sheet as an asset or liability measured at its fair value, on a mark-to-market basis, except as provided by the normal purchase and normal sales exception. These instruments include electricity swaps and options, and natural gas swaps and options. All derivative instruments are classified as cash flow hedges. Fair market value is estimated using an option valuation formula or by comparing contract prices to forward market prices. As allowed by GAAP, the Board records both the effective and ineffective unrealized gains and losses from derivative instruments as a regulatory deferral. Changes in fair value are recognized in current income at the time of settlement. The Board has chosen not to implement GASB 53 ahead of its required effective date and has incorporated instead the effects of FASB Accounting Standards Codification 815-10.

At December 31, 2009, net aggregate unrealized gains from derivative instruments were $2.7 million

($10.1 million for 2008) and net aggregate unrealized losses were $128,000 ($489,000 for 2008). The notional amounts under such contracts totaled $13.4 million ($33.3 million for 2008). The contracts extend through 2011.

EUGENE WATER & ELECTRIC BOARD 29

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Derivativefinancial instruments, continued)

Asset Derivatives Liability Derivatives Balance Sheet Fair Balance Sheet Fair Location Value Location Value Commodity contracts designated as hedging instruments Options - electric & gas Other assets $ 1,897,844 Other liabilities $

Swaps - electric & gas Other assets 761,023 Other liabilities (128,342)

$ 2,658,867 $ (128,342)

Location of Amount of gain or (loss) gain or (loss)

Cash flow hedging commodity contracts Other assets $ 2,658,867 Cash flow hedging commodity contracts Other liabilities (128,342)

$ 2,530,525 Credit Risk The Board enters into forward purchase and sale contracts f6r electricity and natural gas with utilities and marketers. The Board is exposed to credit risk related to the possibility of non-performance by its wholesale counterparties. To limit the risk of counterparty default or non-performance, the Board uses a counterparty evaluation process which assigns an internal measure of credit worthiness to the Board's counterparties and sets limits to the dollar value of business that can be transacted with counterparties.

The Board's derivative instruments are concentrated in -the wholesale energy marketing and trading sector, and the banking sector which comprise 92% and 8%, respectively, of all derivative instruments.

The Board's derivative instruments are contracted with various counterparties, however 77% of these instruments are with two counterparties. The maximum possible loss as of December 31, 2009 if these counterparties failed to perform as contracted would be $1.5 million. The maximum possible loss is based on the fair value of the contracts."

Commodity Price Risk During periods when resources are in excess of retail load and the Board sells excess capacity into the wholesale markets, the Board is exposed to commodity price risk. The Board enters into forward contracts intended to manage the price risk associated with power sales in the wholesale markets.

30 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 4- Utilityplant The major classifications and depreciable lives of utility plant in service are as follows:

Electric Utility Plant Balance at Balance at Depreciable December 31, December 31, Life -Years 2008 Increases Decreases 2009 Land $ 5,987,007 $ 859,779 S 6,846,786 Steam production 10-25 20,257,655 151,946 20,409,601 Hydro production 36-50 160,556,375 2,326,681 162,883,056 Wind production 25 13,087,182 13,087,182 Transmission 33.3-50 57,087,796 3,063,495 60,151,291 Distribution 28.5 202,372,549 11,627,309 (1,110,729) 212,889,129 General plant 3-50 80,505,923 6,738,158 (512,644) 86,731,437 Total utility plant in service 539,854,487 24,767,368 (1,623,373) 562,998,482 Accumulated depreciation (286,258,018) (14,352,624) 1,900,616 (298,710,026)

Property held for future use 2,802,783 (2,013,611) 789,172 Construction work'in progress 40,608,490 47,515,821 (27,291,917) 60,832,394 Net utility plant $ 297,007,742 $ 57,930,565 $ (29,028,285) $ 325,910,022 Water Utility Plant Balance at Balance at Depreciable December 31, December 31, Life -Years 2008 Increases Decreases 2009 Land $ 807,946 $ 621,425 $ - $ 1,429,371 Structure 50 26,623,813 125,636 26,749,449 Pumping 20 7,611,036 373,326 7,984,362 Purification 25 1,252,909 1,252,909 Transmission 28.5 17,250,570 28,493 17,279,063 Reservoirs 50 17,026,504 3,455,596 20,482,106 Distribution 28.5 38,829,386 5,314,652 44,144,038 Services, meters and hydrants 20-28.5 14,632,958 907,080 (71,636) 15,468,402 General plant 3-50 6,746,876 1,701,315 (67,393) 8,380,798 Total utility plant in service 130,781,998 12,527,523 (139,029) 143,170,492 Accumulated depreciation (72,966,529) (3,329,891) 139,029 (76,157,391)

Property held for future use

• 989,578 989,578 Construction work in progress 16,646,566 15,610,339 (11,109,017) 21,147,888 Net utility plant $ 75,451,613 $ 24,807,971 $ (11,109,017) $ 89,150,567 EUGENE WATER & ELECTRIC BOARD 31

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Note 4 - Utilityplant, continued)

Contributed Capital Contributions in Aid of Construction and System Development Charges are paid by developers to cover the cost of new electric and water infrastructure (capital assets). When developers install and cover the costs of the infrastructure directly, those assets are referred to as Contributed Plant Assets.

Note 5 - Cash and investments The Board maintains cash and investments in several fund accounts in accordance with bond resolutions and Board authorization. Descriptions of these fund account types are as follows:

Restricted Cash and Investments

• Customer deposit reserve - Used to account for deposits collected from retail customers and held for future refund or application to customer account balances.

" Construction funds - Used to account for legally restricted cash and investments for the purpose of construction of capital projects. Funds include proceeds from the issuance of bonds and contributions from customers or contractors for construction projects.

" System development charge reserves - Used to account for charges assessed and collected in conjunction with installation of new water services in the Water System and are restricted by State of Oregon Statutes to system enhancements and other related capital expenditures.

• Debt service reserve - Deposits held for debt service coverage pursuant to bond indentures and in lieu of, or replacing, bond sureties.

• Investments for bond principal and interest - Used to account for cash and investments which are restricted by Bond Indentures of Trust for future payment of principal and interest on debt.

Designated Cash and Investments

" Purchased power reserve - Used to account for cash and investments which the Board has designated to reserve for fluctuations in purchased power costs.

• Capital improvement reserve - Used to account for cash and investments which the Board has designated to reserve for capital improvements.

• Carmen-Smith reserve - Used to account for cash and investments which the Board has designated to reserve for relicensing and construction costs at the Carmen-Smith Hydroelectric Project.

32 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008

" Operating reserve - Used to account for cash and investments which the Board has designated to maintain balances in the general account within target levels for payments of emergency operating costs and'self-insured claims.

• Pension and medical reserve - Used to account for cash and investments which the Board has designated to reserve for pension and post-retirement medical costs.

Deposits with financial institutions are comprised of bank demand deposits and savings accounts. The total bank balances, as recorded in bank records at December 31, 2009, were $10.5 million. Of the bank balances, $500,000 were covered by federal depository insurance and $10 million were collateralized with securities.

Custodial credit risk for deposits is the risk that in the event of failure of a depository financial institution, a depositor will not be able to recover deposits or will not be able to recover collateral securities that are in possession of an outside party. Deposits not covered by depository insurance are exposed to custodial credit risk when collateral for deposits is held by the pledging institution or its trust department or agency, but not in the name of the depositor. According to the Board's investment policy, securities are held by the pledging financial institution but not in the Board's name.

The Board's investments during the year, which included obligations of the U.S. Government, are authorized by State of Oregon Statutes and bond resolutions. As of December 31, 2009, the Board held the following investments (Electric and Water Systems combined):

Credit Weighted Average Investment Type Rating Carrying Value Maturity (Years)  % of Portfolio Local Government Investment Pool AA $ 34,160,484 0.562 20.5%

U.S. Agency Securities FHLB 44,828,022 FHLMC 37,776,444 FNMA 30,786,514 FFCB 13,253,717 Other 5,926,939 Subtotal US Agency AAA 132,571,636 0.991 79.5%

Total $ 166,732,120 0.903 100%

Concentration risk is the risk that when investments are concentrated in one issuer, this concentration presents a heightened risk of potential loss. With the exception of pass-through funds, the maximum amount of pooled investments to-be placed in the Local Government Investment Pool is limited by Oregon Revised Statute 294.8 10 to $42.5 million as of December 31, 2009.

The "weighted average maturity in years" calculation assumes that all investments are held until maturity.

EUGENE WATER & ELECTRIC BOARD 33

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Note 5 - Cash and investments, continued)

As a means of limiting its exposure to fair value losses resulting from changes in interest rates, the Board's investment policy limits at least 75% of its investment portfolio to maturities of less than 18 months. Investment maturities are limited as follows:

Minimum Maturity Investment Less than 30 days 5%

Less than 90 days 15%

Less than 180 days 25%

Less than 18 months 75%

Less than 3 years 100%

Custodial credit risk is the risk that, in the event of the failure of the counterparty, the Board will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. All of the aforementioned investments, except for the investments in the Local Government Investment Pool, which are not evidenced by securities, are held in the Board's name by a third-party custodian.

The Board's policy, which adheres to Oregon statutes, is to limit its investments to the top two ratings issued by nationally recognized credit rating organizations. As a general practice, and in a further effort to minimize credit risk, the Board invests primarily in U.S. agency investments and in the Local Government Investment Pool.

34 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Cash and investments consisted of the following:

-2009 2008 Cash and Cash Equivalents and Restricted Cash Short-term Total-Carrying Total Carrying and Investments investments Designated Funds Amount' Amount ELECTRIC SYSTEM Cash on hand $- 11,500 $ $ 11,500 $ 11,497 Cash in bank 2,304 50,434 2,424,580 2,477,318 2,398,756 Investments in the State of Oregon local government investment pool 3,319,764 814,194 16,829,521 20,963,479 23,487,010 Investments - US Agencies 46,406,604 20,876,617 62,658,833 129,942,054 136,532,306 Total electric system 49,728,672 21,752,745 81,912,934 153,394,351 162,429,569 WATER SYSTEM Cash in bank - 355,896 - 355,896 876,137 Investments in the State of Oregon local government investment pool 3,208,893 1,551,004 8,437,108 13,197,005 11,790,164 Investments - US Agencies 2,629,582 -- 2,629,582 12,924,472 Total water system 5,838,475 1,906,900 8,437,108 16,182,483 25,590,773 55,567,147 $ 23,659,645 $ 90;350,042 $ 169,576,834 $ 188,020,342 EUGENE WATER & ELECTRIC BOARD 35

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 6 - Receivables Significant receivables were as follows.

2009 2008 Electric System Water System Electric System Water System Current receivables Accounts receivable 30,292,237 $ 1,754,789 $ 30,883,541 $ 1,581,294 Allowance for doubtful accounts (164,061) (19,628) (165,279) (15,707)

Net accounts receivable 30,128,176 1,735,161 30,718,262 1,565,587 Conservation loans to customers 2,147,340 2,914,220 Interest receivable 778,028 994,976 150,723 Miscellaneous receivables 307,574 35,824 59,201 63,405 Insurance settlement 1,000,000 Mutual aid storm labor 245,000 Note receivable (Bonneville Power Administration) 213,763 225,093 Reimbursement receivable - Harvest Wind 589,984 Renewable Energy Production Incentive (REPI) - - 55,524 Receivables, less allowances $ 34,164,865 $ 1,770,985 $ 36,212,276 $ 1,779,715 Lony-term receivables Conservation loans to customers $ 3,090,119 $ .3,670,414 Note receivable (Bonneville Power Administration) 751,508 965,270 Interest receivable (WGA) 600,108 395,615 Long-term receivables, conservation and other $ 4,441,735 $ 5,031,299 Note 7- Payables Current payables were as follows.

2009 2008 Electric System Water System Electric System Water System Accounts payable $ 19,684,157 $ 568,865 $ 20,357,992 $ 419,009 Construction payables 3,538,702 397,246 2,247,026 662,420 Contributions in lieu of taxes 1,300,348 - 1,276,688 Customer deposits 2,547,808 - 3,115,783 Miscellaneous payables 1,986,023 374,062 2,157,594 337,632 Preliminary investigations payables 285,663 - 162,373 Total payables $ 29,342,701 $ 1,340,173 $ 29,317,456 $ 1,419,061 36 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 8 - Short Term Borrowing (Line of Credit)

As of December 31, 2009, the Board had a taxable non-revolving junior lien line of credit at Bank of America with a maximum borrowing of $46.3 million, expiring May 27, 2010 for the Harvest Wind Project. During the term of the agreement, the Board can borrow at the LIBOR fixed or floating rate plus 1.20%, subject to a floor of 1.95%. At December 31, 2009, the Board had $43 million outstanding.

Note 9 - Other deferred charges and other liabilities Other deferred charges and other liabilities were as follows.

2009 2008 Electric System Water System Electric System Water System Other deferred charges Unamortized bond expense $ 3,021,719 $ 864,246 $' 2,960,494 $ 936,459 Joint-use equipment 100,686 43,299 585,285 249,952 Lease prepayment 203,474 396,897 Fair value of renewable energy certificates 1,361,073 356,286 Prepaid transmission expense - Harvest Wind 1,941,493 Unamortized organizational costs - Harvest Wind 163,549 Regulatory assets Sick leave - upon retirement 1,238,677 271,904 1,305,789 286,637 Net pension obligation - supplemental retirement plan 737,937 161,986 853,959 139,017 Accreted interest - capital appreciation bonds 3,128,439 - 2,637,887 Other deferred charges - $ 11,693,573 $ 1,544,909 $ 8,699,700 $ 2,008,962 Other liabilities Unearned rent revenue $ 396,897 $ , $ 595,346 $

Environmental clean up 254,000 480,000 Member deposits - Public Agency Network 217,872 147,681 Miscellaneous 14,245 14,245 57,828 Fair value of renewable energy certificates 1,361,073 356,286 Regulatory liabilities Sick leave - upon retirement 1,238,677 271,905 1,305,789 286,637 Net pension obligation - supplemental retirement plan 737,937 161,986 853,959 139,017 Other liabilities $ 4,220,701 $ 433,891 $ 3,753,306 $ 483,482 EUGENE WATER & ELECTRIC BOARD 37

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 10 - Investment in WGA/deferred credit - WGA The Board is a party to an Intergovernmental Agency, which is governed equally by the Board and Clatskanie PUD. The Board was obligated to make equity investments in the Western Generation Agency (the Agency) as partial funding for the construction of the Wauna Cogeneration Project (the Project). As of December 31, 1996, the Board had made all required equity investments, totaling $15.1 million, to the Agency. The Project agreements allow the Board to be repaid its equity investment plus a cumulative preferred dividend at 7.875% should the operating revenues of the Project be sufficient to cover operating costs, debt service, plus other reserve requirements. In October 2006, the Agency*

accomplished a refunding of its debt, which allowed the Board to be repaid a significant portion of its remaining equity investment ($10.4 million was repaid in 2006). The balance of the original investment at December 31, 2006 was $2.2 million, and it remained the same at the end of 2009. Repayment of the equity investment is not due until the Agency's Series C 2006 debt is paid off, and.as it is further contingent upon the successful operation of the Project, it is not guaranteed. Should the Project fail to generate sufficient revenues, the repayment of the equity contribution may occur only in part or not at all. At December 31, 2009, the Board had a receivable in the amount of $600,000 ($396,000 at December 31, 2008) for cumulative preferred dividend on the remaining equity investment; revenue is included with investment earnings.

The investment in Western Generation Agency consists of the balance of the initial equity contribution, 50% of the Agency's net income and losses, and distributions from excess cash. Because the Project Agreements allow distributions in excess of the Agency's equity, the investment at December 31, 2009 was a negative balance of $756,000 ($1.1 million at December 31, 2008) reflected as a deferred credit on the Board's Balance Sheets. Under bond agreements, distributions to the.Board are limited to

$400,000 per year. During 2009 distributions of $400,000 were received (and $400,000 was received in 2008).

The Board is committed, through a power purchase agreement, to purchase the output from the Project through the year 2021. The Board has agreed to suspend its agreement with the Agency in favor of a separate purchase power agreement between the Agency and BPA through the year 2016. Financial information for the Project is included in the financial statements of the Agency and may be obtained from the Agency's trustee, Wells Fargo Bank.

Note 11 - Investment in Harvest Wind The Board is a party to a Joint Ownership Agreement (JOA), whereby the Board made an equity investment in the Harvest Wind Project (the Project) a 98.9 megawatt wind generating facility located in Klickitat County, WA. The Board's ownership share of Harvest Wind is 20%. Other owners are Peninsula Light Co., 20%, Cowlitz PUD, 30%, and Lakeview Light & Power, also 30%.

38 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 During 2009, the joint owners of Harvest Wind elected to classify the Project.as an association taxable as a corporation. At the time of the election, all project assets were treated as contributed to the corporation, and the joint owners received shares in proportion to their ownership. Owners share in power output, income and expenses according to their ownership shares.

The investment in Harvest Wind consists of the Board's share of the costs to develop the Project, 20%

of the Project's net income and losses, and any preferred distributions. No distributions were received in 2009. Commercial operations began on December 15, 2009.

At December 31, 2009, the Board recognized investment in Harvest Wind of $41.6 million ($0 at December 31, 2008) including an estimated loss of $95,000 ($0 in 2008). At December 31, 2008, prior to the election to incorporate, the Board had recorded $9.2 million as a preliminary investigation.

The Board is committed, through an energy purchase agreement, to purchase its share of the output from the Project, and pay its share of project expenses through the year 2029. Additionally, the Board is committed, through a transmission service agreement and a transmission payment agreement, to subsidize the initial construction of transmission lines, deposit funds to ensure contract performance, and purchase transmission from the owner of the transmission lines through the year 2029.

Financial information for the Project is included in the financial statements of the Project and may be obtained from the Board.

EUGENE WATER & ELECTRIC BOARD 39

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 12 - Long-term debt Long-term portion of bonds payable was as follows.

2009 .2008 Electric Utility System Revenue and Refunding Bonds 1997 Series, 10-1-97 issue, Serial Bonds 4.80% - 5.00%, due 2010-2011 $ 1,420,000 $ 2,775,000 1998 Series A, 11-15-98 issue Term Bonds, 6.22% - 6.85%, due 2010-2023 8,745,000 9,165,000 2001 Series A, 11-15-01 issue Term Bonds, 6.32%, due 2010-2022 23,855,000 24,500,000 Capital appreciation, 7.13% - 7.21%, due 2023-2027 4,067,556 4,067,556 2001 Series B, 11-15-01 issue Serial Bonds, 4.00% - 5.25%, due 2010-2022 15,205,000 16,130,000 Term bonds, 5.00%, due 2023-2031 19,140,060 19,140,000 2002 Series A, 5-7-02 issue Serial Bonds 5.25%, due 2010-2011 1,670,000 3,245,000 2002 Series B, 6-1-02 issue Serial bonds5.70% - 5.90%, due 2010-2012 2,910,000 4,245,000 2002 Series C, 6-1-02 issue Serial Bonds 3.90% - 5.00%, due 2010-2022 8,865,000 9,415,000 2003 Series, 6-10-03 issue Serial Bonds 3.00% - 5.00%, due 2010-2023 32,215,000 34,105,000 2005 Series, 5-10-05 issue Serial Bonds, 3.75% - 5.0%, due 2010-2020 5,155,000 5,560,000 Term bonds, 4.50%, due 2021 & 2025 3,530,000 3,530,000 2006, Series, 8-24-06 issue Serial Bonds 4.00% - 4.50%, due 2010-2026 11,095,000 11,565,000 2008 Series, Revenue, 7-17)-08 issue Serial bonds 4.00% - 5.00%, due 2010-2028 34,860,000 36,180,000 Term bonds, 5.00%, due 2029-2033 15,995,000 15,995,000 2008 Series, Revenue Refunding, 7-17-08 issue Serial Bonds 4.00% - 5.00%, due 2010-2022 29,785,000 30,505,000 218,512,556 230,122,556 Add unamortized premium 3,671,357 4,112,552 Add accreted interest 3,128,439 2,637,887 Less unamortized refunding costs (1 ;197,470) (1,387,512)

Less unamortized discount (228,077) (266,362)

Electric System bonds payable $ 223,886,805 $ 235,219,121 40 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 2009 2008 Water Utility System Revenue and Refunding Bonds 2000 Series, 6-1-00 issue, Serial Bonds 5.30%, due 2010 $ - $ 520,000 2002 Series, 8-1-02 issue, Serial Bonds 3.25% - 4.70%, due 2010-2022 8,075,000 8,580,000 2005 Series, 8-16-05 issue Serial Bonds, 3.50% - 5.00%, due2011-2025 8,360,000 8,360,000 Term bonds, 4.35%, due 2030 4,180,000 4,180,000 2008 Series, 7-17-08 issue Serial Bonds, 4.00% - 5.00%, due 2010-2026 6,330,000 6,600,000 Term bonds, 4.50% - 5.25%, due 2027-2038 8,755,000 8,755,000 Note payable - Electric 11-15-01 issue, 6.32% - 7.21%, due 2010-2027 3,454,611 3,661,888 39,154,611 40,656,888 Add unamortized premium 185,998 199,571 Less unamortized discount (125,227) (137,626)

Less unamortized refunding costs (1,185,675) (1,273,469)

Water System bonds and note payable 38,029,707 39,445,364 Total long-term portion of debt 261,916,512 274,664,485 Less inter-system payable 3,454,611 3,661,888 Total Systems long-term debt, bonds payable $ 258,461,901 $ 271,002,597 The carrying amount and fair value of current and long-term debt was as follows:

2009 2008 Carrying Fair Carrying Fair Amount Value Amount Value Electric System $ 235,496,805 $ 244,735,380 $ 245,999,121 $ 257,069,571 Water System 35,870,096 38,880,359 37,008,476 39,564,275 Total bonds payable $ 271,366,901 $ 283,615,739 $ 283,007,597 $ 296,633,846 EUGENE WATER & ELECTRIC BOARD 41

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Note 12 - Long-term debt, continued)

The schedule of maturities for principal and interest is as follows:

Electric System Water System Principal Interest Principal Interest 2010 $ 11,610,000 $ 11,424,509 $ 1,295,000 $ 1,646,794 2011 12,345,000 10,898,120 1,225,000 1,589,409 2012 9,895,000 10,309,459 1,270,000 1,543,159 2013 8,990,000 9,849,768 1,325,000 1,494,396 2014 10,050,000 9,409,228 1,375,000 1,442,641 2015 -2019 63,300,000 38,324,630 7,825,000 6,284,221 2020-2024 67,011,717 25,801,195 7,965,000 4,425,728 2025 -2029 28,815,839 19,472,624 6,805,000 2,911,714 2030-2034 18,105,000 2,056,000 4,405,000 1,512,961 2035-2039 - 3,505,000 471,712

$ 230,122,556 $ 137,545,533 $ 36,995,000 $ 23,322,735 The resolutions authorizing the issuance of revenue bonds contain various covenants, sinking fund requirements and obligations with which the Board must comply. The principal and interest requirements are reflected in the supplementary schedule "Long-Term Bonded Debt and Interest Payment Requirements." To comply with sinking fund deposit requirements, the Board deposits monthly one-twelfth of the annual deposit requirement with the trustee, less accumulated interest. The interest payments are made semi-annually on February 1 and August 1, and principal payments on August 1. At December 31, 2009 and 2008, no assets were pledged as security for the outstanding bonds of the Electric and Water Systems.

In July 2008 the Board issued $53.3 million in Electric Utility Revenue Serial and Term Bonds with interest rates from 4.00% to 5.00%, maturing through 2033, with an effective yield of 4.83%, for the Roosevelt Operations Center; and $31.1 million in Electric Utility Revenue Bonds refunding the Series 1998 Electric Revenue Refunding Bonds, with interest rates from 4.00% to 5.00%, maturing through 2022, with an effective yield of 4.47%, a net difference in aggregate debt service between refunding and refunded debt of $1.7 million, and a net economic gain of $1.2 million. Also in July 2008 the Board issued $15.6 million in Water Utility Revenue Serial and Term bonds with interest from 4.50% to 5.05%, maturing through 2038, with an effective yield of 4.93%, for various capital projects.

As of December 31, 2009, the amount of defeased debt still outstanding but removed from the Board's long-term debt amounted to $19.5 million for the Water System. The refunded bonds constitute a contingent liability of the Board only to the extent that cash and investments presently in the control of the refunding trustees are not sufficient to meet debt service requirements, and are therefore excluded from the financial statements because the likelihood of additional funding requirements is considered remote.

42 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Long-term debt activity for the year ended was as follows:

Outstanding Outstanding Issued During Redeemed During December 31, January 1, 2009 Year Year 2009 Electric Revenue Bonds, with interest rates from 3.0% to 6.85%, maturing through 2033 (original issue $267,005,000) $ 126,085,000 $ - $ (4,575,000) $ 121,510,000 Electric Revenue Refunding Bonds, with interest rates from 2.0% to 5.25%, maturing through 2022 (original issue $158,245,000) 85,740,000 (5,695,000) 80,045,000 Electric Revenue Current Interest Bonds, with interest rate of 6.32%, maturing through 2027 (original issue $29,997,556) 29,077,556 (510,000) 28,567,556 Total Electric System 240,902,556 (10,780,000) 230,122,556 Water Revenue Refunding Bonds, with interest rates from 3.5% to 5.0%, maturing through 2030 (original issue $19,155,000) 12,540,000 12,540,000 Water Revenue Bonds, with interest rates from 2.75% to 5.30%, maturing through 2038 (original issue $47,000,000) 25,680,000 (1,225,000) 24,455,000 Total Water System 38,220,000 (1,225,000) 36,995,000 Total bonded debt $ 279,122,556 $ $ (12,005,000) $ 267,117,556 4)

EUGENE WATER & ELECTRIC BOARD 43

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 13 - Power supply resources Bonneville Power Administration Bonneville Power Contracts The Board has a power contract with Bonneville for the purchase of power equal to its full federal entitlement running from October 1, 2001 through September 30, 2011. The amount is equal to approximately three quarters of the Board's current retail load. The Board selected a combination of both "Block" and "Slice of System" power products from those offered by Bonneville. Each component provides attributes that add different kinds of flexibility to the Board's power.portfolio. The "Block" product provides a fixed quantity of power to EWEB that varies according to a monthly annual schedule and adjustments for conservation. Block deliveries were approximately 118 aMW in 2009 and 2008. The "Slice" product consists of a 2.4% Slice share of Bonneville's Federal Base System generation. The annual share remains fixed and will not be adjusted to reflect increases or decreases in a customer's net requirements or individual resources during the term of the contract. The Board's percentage share also will not be adjusted to reflect increases or decreases in the output of the Slice System. However, the amount of actual power received under the Slice Product contract will vary with the performance of the federal based system. In years of heavy water flow, the Board may have rights to power that may be in excess of their needs, and in poor water years the Board would need to augment its share of Slice output with their own generation or market purchases. In December of 2008, the Board entered into agreements 'With Bonneville for Block and Slice running from October 1, 2011 through September 30, 2028. The amount of power the Board will be entitled to under these contracts will be determined based on the Board's actual load during the period between October 1, 2009 and September 30, 2010, with some adjustments specified in Bonneville's Tiered Rate Methodology.

• Bonneville Transmission Contract In 2001, the Board signed the Network Integration Transmission Service (NT) contract with Bonneville to provide transmission for the Board's generation projects and Bonneville power contracts. The current contract term extends through December 31, 2011.

44 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 EWEB-Owned Resources

" Carmen-Smith and Trailbridge Hydroelectric Project EWEB owns and operates the Carmen-Smith Hydroelectric Project (Carmen-Smith Project) within the McKenzie River basin. The Carmen-Smith Project includes the Carmen Power House with two generating units with a nameplate capacity of 52 MW each. The Carmen-Smith Project also includes the Trail Bridge re-regulating facility, with an additional generating unit with a nameplate capacity of 10 MW. The operating license for the Carmen-Smith Project expired on November 30, 2008. The Board submitted an application to relicense the facility to FERC on November 30, 2006. The Board received, and will continue to receive, an annual operating license from FERC until a decision is made regarding a new license. In October of 2008, the Board entered into a settlement agreement with sixteen interested governmental, tribal and non-governmental parties, and submitted an Offer of Settlement to FERC to supplement the license application. The Settlement Agreement provides recommendations for measures that address the resources affected by the continued operation of the Project. The current FERC timeline projects that a final license for the Carmen-Smith Project will be issued in January of 2011.

• International Paper Industrial Energy Center Cogeneration Project The Board and International Paper Company jointly operate a cogeneration facility at the International Paper Springfield plant. The unit, which has a nameplate capacity of 51.2 MW (average output is approximately 20 MW), is owned by the Board, with International Paper providing operation and fuel. Under terms of the current agreement (which expires in 2015), the project costs and output for this unit are shared equally by the parties.

• Leaburg-Walterville Hydroelectric Project The Board also owns and operates the Leaburg-Walterville Hydroelectric Project (L-W Project) on the McKenzie River in Lane County, Oregon. The L-W Project is comprised of two facilities located at different points on the McKenzie River. The Leaburg facility includes a diversion dam on the McKenzie River, a canal and two generating units with a combined nameplate capacity of 15.5 MW. The Walterville facility includes a canal that diverts water from the McKenzie River and one generating unit with a nameplate capacity of 9 MW. In 2001, FERC granted the Board a new hydroelectric license for the L-W Project. The new license is for a term of 40 years.

, Stone Creek Hydroelectric Project.

The Stone Creek Project has one turbine with a peak capability of 12 MW. The facilities are on the Clackamas River approximately 45 miles southeast of Portland. The project is a run-of-the-river development located between two hydroelectric facilities that are owned and operated by PGE. The facility is operated and maintained under contract with PGE, and is licensed through 2038.

EUGENE WATER & ELECTRIC BOARD 45

r NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (EWEB-owned resources,continued)

• Smith Creek Hydroelectric Project The Smith Creek project is a run-of-the-river hydroelectric project on Smith Creek, a tributary of the Kootenai River in Northern Idaho. It is comprised of three units with a combined nameplate capacity of 36 MW. In April 2001, the Board took ownership of the project, which is licensed through 2037.

• Foote Creek I Wind Project The Board and PacifiCorp are the joint owners of the Foote Creek I Wind Project with the Board having a 21.21% ownership, which translates to 8.8 MW of the project capacity. The project.is located along the Foote Creek Rim in Carbon County, Wyoming. EWEB has sold 26% or 2.3 MW of its share to Bonneville under terms of a 25-year power purchase agreement, pursuant to which Bonneville has committed to purchase 15.3 MW of the Project's total capacity. Net of sales to Bonneville, the Board receives approximately 2.5 average MW per year from the Foote Creek I Project.

" Harvest Wind Project The Board, Cowlitz Public Utility District, Lakeview Light and Power, and Peninsula Light Company are the joint owners of the Harvest Wind Project, with the Board having a 20%

ownership share. The project has a nameplate capacity of 98.9 megawatts and is located in Klickitat County, Washington. All project assets are held by a corporation formed by the owners. The Board and other owners have committed to purchase power from the corporation in proportion to their ownership shares through December, 2029.

Contract Resources

" Priest Rapids and Wanapum Hydroelectric Projects Historically, the Board had contracts with Public Utility District No. 2 of Grant County, Washington (Grant County PUD) for a percentage share of the output of the Priest Rapids Project and the Wanapum Project, two large hydroelectric projects on the Columbia River in Washington. A new power purchase contract with Grant County PUD went into effect November 1, 2005. Under this contract, EWEB will continue to purchase power from Grant County PUD, but the volume of that power will diminish over time as Grant County PUD's load grows.

Starting October 1, 2011, the Board will no longer purchase significant amounts of power from Grant County PUD, however, the Board's entitlement from Bonneville will be adjusted to compensate for the decrease in resources.

• Stateline Wind Project In 2002, the Board agreed to purchase 25 MW from Phase 1 of the Stateline Wind Project located in Walla Walla County, Washington and Umatilla County, Oregon. The contract for this power expires on December 31, 2026.

46 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Klondike IH Wind Project The Board has agreed to purchase 25 MW from Phase 3 of the Klondike Wind project located near the town of Wasco in Sherman County, Oregon. The project consists of 200 wind turbines with total generating capacity of about 375 MW. The Board's 25 MW share translates to about 6.7% of total plant capability. The contract for this power expires on October 31, 2027.

Note 14 - Retirement benefits

1. Pension Plan Plan Description The Board participates in the Oregon Public Employees Retirement System (OPERS) and Oregon Public Service Retirement Plan (OPSRP). The pension plan is an agent multiple-employer defined benefit and a defined contribution plan that provides retirement and disability benefits, annual cost-of-living adjustments and death benefits to general service and public safety employees of the state and a majority of local government employees and/or their beneficiaries. The OPERS Board administers both plans, which are established under Oregon Revised Statutes, and acts as a common investment and administrative agent for public employers in the State of Oregon.

OPSRP was created during the 2003 Oregon Legislative session and represents the pension plan for public employees hired on or after August 29, 2003, unless membership was previously established in OPERS, which is a closed plan. All Board employees are eligible to participate in OPSRP after six months of employment. Benefits are established under both plans by State Statute and employer contributions are made at an actuarially determined rate as adopted by the Public Employees Retirement Board (Retirement Board). The OPERS, a component unit of the State of Oregon, issues a comprehensive annual report that includes both pension plans, which may be obtained by writing to PERS.

FundingPolicy State of Oregon Statute requires covered employees to contribute 6% of their salary to the system, but allows the employer,to pay any or all of the employees' contribution in addition to the required employer's contribution. The Board has elected to pay the employees' contributions.

In November of 2006, the Board elected to make a lump-sum payment to OPERS of $7.2 million which lowered the employer contribution rate and OPERS allocated to a "side account" which is tracked separately for rate purposes. The Board's average contribution rate is 16.8 1% of covered payroll. In December 2001, the Board elected to make a lump-sum payment of approximately $29.6 million, which had the effect of lowering the employer contribution rate. The lump-sum payment is recorded as an Other Asset and is being amortized over the funding period of 26 years. The amortization was $1.2 million for 2009 and 2008.

EUGENE WATER & ELECTRIC BOARD 47

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Note 14 - Retirement benefits, continued)

Annual Pension Cost Because all participating employers are required by law to submit the contributions as adopted by the Retirement Board, and because employer contributions are currently calculated in conformance with the parameters of GASB No. 27, Accountingfor Pensions by State and Local Government Employers, there is no net pension obligation to report, and annual required contributions are equal to the annual pension cost. The Board's annual pension cost of $9.3 million for OPERS was equal to the Board's required and actual contributions.

The following table presents three-year trend information for the Board's employee pension plan:

Percentage of Annual Pension APC Fiscal Year Ending Cost (APC) Contributed Net Pension Obligation 12/31/07 $ 9,038,000 100% $0 12/31/08 $ 9,522,000 100% $0 12/31/09 $ 9,337,000 100% $0 The required contribution was determined as part of the December 31, 2007, actuarial valuation using the projected unit credit method. The actuarialassumptions as of the valuation December 31, 2008 included (a) 8% investment rate of return (b) projected salary increases of 3.75% per year, and (c) 2%

per year for cost-of-living adjustments. Both (a) and (b) include an inflation component of 2.75%. The actuarial value of the assets was determined by the market value of assets. The unfunded actuarial accrued liability is being amortized as a level percentage of combined valuation payroll over a rolling three-year period for a change in valuation method begun 2004 and the remainder over a closed period from the valuation date through December 31, 2027.

Funding Status and FundingProgress As of December 31, 2008, the most recent actuarial valuation date, the plan was 67% funded. The actuarial accrued liability for benefits was $281 million, and the actuarial value of assets was $189 million, resulting in an unfunded actuarial accrued liability (UAAL) of $92 million. The covered payroll (annual payroll of active employees covered by the plan) was $35.7 million, and the ratio of the UAAL to the covered payroll was 260%. The 2008 valuation is advisory and does not affect employer contribution rates. Rates effective July 1, 2011 through June 2013 will be calculated in the December 31, 2009 actuarial valuation expected to be completed in the fall of 2010. Employer rates are expected to increase by 6% of payroll in 2011 based on lower than expected investment returns in previous years.

48. EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 The following table presents a schedule of the funding progress for the Board's pension plan:

Actuarial UAAL as a Actuarial Actuarial Value Accrued Unfunded AAL Percentage of Valuation Date of Assets Liability (AAL) (UAAL) Funded Ratio Covered Payroll Covered Payroll 12/31/06 $ 245,867,252 $ 273,110,696 $ 27,243,444 90% $ 32,956,073 83%

12/31/07 $ 257,453,956 $ 278,160,157 $ 20,706,201 93% $ 34,788,039 60%

12/31/08 $ 188,893,782 $ 281,553,582 $ 92,659,800 67% $ 35,686,738 260%

2. The Supplemental Retirement Plan Plan Description The Supplemental Retirement Plan is a single-employer plan providing retirement, death and disability benefits to participants and their beneficiaries. It has been in effect since January 1, 1968 and was last amended and restated July 1988. The objective of the plan is to provide a benefit on retirement, which, together with the benefit from OPERS, will provide 1.67% of the highest 36-month average salary for each year of service. Independent actuaries determine employer contributions.

FundingPolicy There is no required contribution rate as a percentage of payroll, since the only participants currently in the plan are retirees and their beneficiaries. Funding of the plan is made from Board contributions, as needed to meet obligations to retirees, together with earnings on plan assets.

Annual Pension Cost Employer contributions are calculated and made in conformity with the parameters of GASB No. 27.

The Board's annual pension cost is based upon its latest actuarial report, dated January 1, 2009, with the next actuarial valuation for the year ended December 31, 2010 scheduled to be completed during 2011.

The Board's pension liability and the annual required contribution rate were determined as part of the January 1, 2009 actuarial valuation using the unit credit method. The unfunded actuarial accrued liability is amortized as a level percentage of projected annual payroll on an open basis over a 10-year period.

The actuarial assumptions include a rate of return on investment of present and future assets of 6.25%

per year, cost-of-living adjustments of 2.0% per year for postretirement benefits and 1983 Group Annuity Mortality rate.

EUGENE WATER & ELECTRIC BOARD 49

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Annualpension cost, continued)

The Board's annual pension cost and the change in net pension obligation related to the Supplemental Retirement Plan is as follows:

Annual required contribution (ARC) $ 328,329 Interest on net pension obligation 62,061 Adjustment to ARC (123,443)

Annual pension cost 266,947 Contributions made 360,000 Increase (decrease) in net pension obligation (93,053)

Net pension obligation beginning of the year 992,976 Net pension obligation end of the year $ 899,923 The following table presents three-year trend information for the Board's Supplemental Retirement Plan:

Annual Pension Cost Percentage of APC Fiscal Year Ending (,PC) Contributed Net Pension Obligation 12/31/05 $ 364,557 136% $ 1,179,875 12/31/07 $ 272,544 120% $ 992,976 12/31/08 $ 266,947 135% $ 899,923 FundedStatus and FundingProgress As of January 1, 2009, the most recent actuarial valuation date,:the plan was 6.7%Tfunded. The actuarial accrued liability for benefits was $2.4 million, and the actuarial value of assets was $161,300, resulting in an unfunded actuarial accrued liability (UAAL) of $2.2 million. The Board has designated funds of

$2.4 million to fund the supplemental retirement plan. Since the pension plan is a closed plan and funds are designated to fund remaining UAAL, the Board continues to fund the plan on a pay-as-you-go basis of approximately $360,000 a year. The actuarial value of assets represents the market value of investments using recognized pricing services.

The following table presents a schedule of funding progress for the Board's Supplemental Retirement Plan:

Actuarial Value of Actuarial Accrued Unfunded AAL Actuarial Valuation Date Assets Liability (AAL) (UAAL) Funded Ratio 1/1/07 $ 220,440 $ 2,687,112 $ 2,466,672 8.2%

1/1/08 $ 112,200 $ 2,500,363 $ 2,388,163 4.5%

1/1/09 $ 161,317 $ 2,393,643 $ 2,232,326 6.7%

50 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008

3. Post Employment Benefits Plan Other than Pensions Plan Description In addition to pension benefits, the Board provides post employment health care and life insurance benefits to all employees who retire under OPERS or OPSRP with at least 11 years of service. It is a single-employer defined benefit plan. Currently, 426 retirees or surviving spouses of retired employees and 503 active employees are covered under the plan. The life insurance benefit is a fixed amount of

$5,000 per retiree. Health care coverage reimburses 80% of the amount of validated claims for certain medical, dental, vision and hospitalization costs. In 2007 the Board created the Eugene Water & Electric Board Retirement Benefits Trust for other post employment benefits (OPEB) other than pensions. The OPEB trust issues a publicly available set of audited financial statements that can be obtained by writing to the Board.

FundingPolicy The contribution requirements of plan participants are established by the Board and may be amended from time to time. Contributions by the plan participants are based on either a flat rate or a percentage of the premium cost and vary by participant according to years of service, year of retirement, age, and/or plan coverage. In December of 2007, the Board deposited $8.2 million into the OPEB trust to begin funding the trust. It is the Board's intent to pay the actuarially determined OPEB cost annually to the trust. In 2009 the Board contributed $2.9 million into the plan.

Annual OPEB Cost The Board's annual OPEB cost is calculated based on the annual required contribution of the employer (ARC). The ARC is an amount actuarially determined, based on the entry age normal method, determined in accordance with the guidance of GASB Statement 45.

The ARC represents level funding, that if paid on an ongoing basis, is projected to cover normal costs each year and amortize any unfunded actuarial accrued liabilities over a period not to exceed twenty years. The Board's ARC of $2.9 million was equal to the Board's contribution. Therefore, as of year-end, the Board did not have an OPEB obligation (liability).

Other actuarial assumptions include a rate of return on investments of present and future assets of 7%

and 10% annual rate increase in the per capita cost of covered health care benefits for 2009. The health care benefit rate is assumed to decrease gradually to 6% in the year 2017 and remain level thereafter.

The salary scale assumption is 4.5% and the payroll growth rate is 4%.

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan understood by the employer and the plan members) and include types of benefits provided at the time of each valuation, and historical pattern of sharing of benefits costs between the employer and the plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce short-term volatility in accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.

EUGENE WATER & ELECTRIC BOARD 51

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Annual OPEB cost, continued)

The Board's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2009 and the preceding years were as follows:

Annual Pension Percentage of APC Net Pension Fiscal Year Ending Cost (APC) Contributed Obligation 12/31/07 $ 2,898,304 100% $0 12/31/08 $ 2,848,678 100% $0 12/31/09 $ 2,935,311 100% $0 FundingStatus and FundingProgress As of January 1, 2009, the most recent actuarial valuation date, the plan was 28% funded. The actuarial accrued liability for benefits was $35.2 million, and the actuarial value of assets was $7.7 million, resulting in an unfunded actuarial accrued liability (UAAL) of $27.5 million.

The following table presents a schedule of funding progress for the Board's OPEB Plan:

UAAL as a Actuarial Percentage Actuarial Actuarial Value of Accrued Unfunded AAL . Funded of Covered Valuation Date Assets Liability (AAL) (UAAL) Ratio Covered Payroll Payroll 1/1/07 $ 4,423,198 $ 29,051,340 $ 24,628,142 15% $ 31,425,822 78%

10/1/08 $ 8,243,372 $ 34,051,732 $ 25,808,360 24% $ 34,788,039 74%

I/1/09 $ 7,727,719 $ 35,224,929 $ 27,497,210 22% $ 35,686,738 77%

Actuarial valuations on an ongoing plan involve estimates of the value reported and assumptions about the probability of occurrence of events into the future. Examples include assumptions about future employment, mortality, and the healthcare cost trend. Amounts determined regarding the. funded status of the plan and the annual required contributions of employer are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future.

52 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Note 15 - Deferredcompensation The Board offers all employees a deferred compensation plan created in accordance with Internal Revenue Code (IRC) Section 457: The plan permits them to defer a portion of their salary until future years. Participation in the plan is optional. Payment from the plan is not available to employees until termination, retirement, death or unforeseeable emergency.

The Board works with separate investment providers who also provide third-party administration for all deferred compensation program funds. Participating employees have several investment options with varying degrees of market risk. The Board has no liability for losses under the plan, but does have the duty to administer the plan in a prudent manner.

The Board has little administrative involvement with the plan and does not perform the investing function. Therefore, in accordance with GASB No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, the plan assets are not included in the accompanying Balance Sheets.

Note 16 - Trojan Nuclear Plant The Trojan Nuclear Plant (Project) is jointly owned by Portland General Electric Company (PGE),

67.5%; the City of Eugene, acting by and through Eugene Water & Electric Board, 30%; and Pacific Power and Light Company, 2.5%; as tenants in common. The Project ceased commercial operation in 1993 and is being decommissioned. In accordance with GASB No. 14, The FinancialReporting Entity, the Project is reported as a joint venture on the equity method of accounting.

Under the terms of Net Billing Agreements, executed in 1970, BPA is obligated to pay the Board amounts sufficient to pay all of the Board's costs related to the Project, including decommissioning and debt service, notwithstanding the termination of plant output. BPA pays those costs primarily by issuing credits against the Net Billing Participant's purchases of electricity from BPA, but in some cases also makes payments in cash. The Board is required to transfer from its Electric System Fund to the Trojan Project Fund an amount equal to all net billing credits received through this agreement. The Board is then responsible for making payments from the Trojan Project Fund to the Trojan Project for the Board's share of decommissioning costs.

Since BPA is obligated to pay the Board's share of all Trojan Project costs, and has provided the Board with legally binding written assurances of its commitment to that obligation, the Board does not expect the closure and decommissioning of the Trojan Project to have any adverse effect on the Board's Electric or Water Systems. As such, the equity interest in the Project is zero. However, under the terms of the original agreements, if one of the tenants in common fails to perform on their obligation for decommissioning costs, the other tenants may be liable. This obligation may not be covered under the Net Billing Agreement mentioned previously. However, the Board believes this risk is minimal.

EUGENE WATER & ELECTRIC BOARD 53

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 (Note 16 - Trojan nuclearplant, continued)

A summary of the balance sheets for EWEB's share of the Trojan Project as of December 31, 2009 and 2008 is as follows:

Unaudited Audited 2009 2008 Assets Current assets $ 2,537,472 $ 3,747,736 Long-term receivable, BPA, net 42,162,119 41,948,517 Total assets $ 44,699,591 $ 45,696,253 Liabilities Current liabilities $ 1,128,454 $ 1,234,863.

Accumulated provision for decommissioning costs 43,571,137 44,461,390 Total liabilitites $ 44,699,591 $ 45,696,253 The Trojan Nuclear Plant financial statements can be obtained from the Board.

Note 17 - Commitments and contingencies Roosevelt Operations Center The Board broke ground in 2008 for a new operations center to house much of its electric and water staff, equipment, and yard operations. Contractual commitments for construction were $49.7 million at December 31, 2009 ($59.8 million at December 31, 2008).

Electric Projects o Transmission and Distribution Commitments for substation and transmission improvements were $7.7 million at December 31, 2009 ($3.2 million for the Willamette Substation at December 31, 2008).

Carmen-Smith Relicensing Commitments for preconstruction costs to relicense the Carmen Smith Project, were $11.2 million for engineering services and preconstruction road, bridge and communications work

($590,000 at December 31, 2008 for services to reach a settlement agreement submitted to FERC).

An arrangement with the US Forest Service is to provide for maintenance and enhancement measures on the National Forest Service land where the project is located. The Board expects to make annual payments of varying, prescheduled amounts to the Forest Service in accordance with settlement provisions. The payments are to total approximately $1.5 million before inflation indexing over the life of the 50-year license.

54 EUGENE WATER & ELECTRIC BOARD

NOTES TO FINANCIAL STATEMENTS Years ended December 31, 2009 and 2008 Water Projects Contractual commitments for reservoir and pump station improvements were $1.0 million at December 31, 2009, and $7.5 million at December 31, 2008 for expansion of the Hayden Bridge filtration plant.

Self-Insurance The Board is exposed to various risks of loss because of the Board's self-insurance retention, up to the first $1,000,000 of exposure, per occurrence. Excess liability coverage protects the Board after the Board's self-insured limit is exhausted. However, public entities are also protected under State of Oregon tort limits ORS 30.260 - 30.300, which greatly reduces the cost of any single exposure to

$500,000. Consequently, except in extreme cases, the Board's exposure is mitigated by law. The limit is subject to change by State of Oregon legislation.

Claims liabilities recorded in the basic financial statements are based on the estimated ultimate loss as of the balance sheet date, adjusted from current trends through a case-by-case review of all claims, including incurred but not reported claims. Non-incremental claims adjustment costs such as salaries are not included in the claims estimates. At December 31, 2009, a total Claims liability of approximately

$923,000 is reported in the basic financial statements. All prior and current-year claim liabilities were fully reserved and have not been discounted.

Liability Current Year Balance at Claims and Liability Beginning of Changes in Balance at End Year Estimates Claim Payments of Year 2007 General liability $ 817,425 $ (242,837) $ (184,092) $ 390,496 2008 General liability S 390,496 $ 699,938 $ (141,434) $ 949,000 2009 General liability $ 949,000 $ 150,262 $ (176,262) $ 923,000 Claims and Other Legal Proceedings The Board is involved in various litigation. In the opinion of management, the ultimate outcome of these claims will not have a material effect on the Board's financial position beyond amounts already accrued as of December 31, 2009.

Note 18 - Subsequent Events Subsequent events are events or transactions that occur after the balance sheet date but before financial statements are issued or are available to be issued. The Board recognizes in the financial statements the effects of all subsequent events that provide additional evidence about conditions that existed at the date of the balance sheet.

The Board has evaluated subsequent events through March 16, 2010, which is the date the financial statements were issued. There were no subsequent events to recognize in the financial statements.

EUGENE WATER & ELECTRIC BOARD 55

Supp!emental Information

ELECTRIC SYSTEM Long-term bonded debt and interest payment requirements, including current portion Year ended December 31, 2009 Refunding Revenue Bonds Revenue Bonds 2001A Series 1997 Series 1998 Series A Curent Interest 11-4-97 11-15-98 11-15-01 Principal Interest Principal Interest Principal " Interest 2010 S 1,355,000 137,395 420,000 S 612,777 645,000 $ 1,548,400 2011 1,420,000 71,000 450,000 586,653 790,000 1,507,636 2012 475,000 558,663 950,000 1,457,708 2013 505,000 529,118 1,125,000 1,397,668 2014 535,000 497,707 1,310,000 1,326,568 2015 570,000 464,430 1,520,000 1,243,776 2016 610,000 425,385 1,745,000 1,147,712 2017 650,000 383,600 1,990,000 1,037,428 2018 695,000 339,075 2,255,000 911,660 2019 740,000 291,468 2,545,000 769,144 2020 795,000 240,778 2,860,000 608,300 2021 850,000 186,320 3,200,000 427,548 2022 905,000 128,095 3,565,000 225,308 2023 965,000 66,099 867,106 3,097,894 2024 839,611 3,305,389 2025 814,720 3,520,280 2026 789,579 3,740,421 2027 756,540 3,913,460 2028 2029 2030 2031 2032 2033 _

2,775,000 208,395 9,165,000 5,310,168 28,567,556 31,186,300 Less current 1,355,000 420,000 645,000

$ 1,420,000 208,395 8,745,000 $ 5,310,168 $ 27,922,556 $ 31,186,300 EUGENE WATER & ELECTRIC BOARD 56

ELECTRIC SYSTEM Long-term bonded debt and interest payment requirements, including current portion Year ended December 31, 2009 Revenue Bonds Refunding Revenue Bonds Revenue Bonds 2001 B Series 2002 A Series 2002 B Series 11-15-01 5-7-02 5-22-02 Principal Interest Principal Interest Principal Interest

$ 248,766 2010 925,000 $ 1,767,763 1,575,000 170,363 $ 1,335,000 2011 960,000 ,1,730,763 1,670,000 87,675 1,415,000 171,336 2012 1,000,000 1,692,363 1,495,000 88,205 2013 1,040,000 1,652,363 2014 1,095,000 1,597,763 2015 1,155,000 1,540,275 2016 1,215,000 1,479,638 2017 1,275,000 1,415,850 2018 1,345,000 1,348,913 2019 1,415,000 1,278,300 2020 1,490,000 1,204,013 2021 1,565,000 1,125,788 2022 1,650,000 1,043,625 2023 1,735,000 957,000 2024 1,825,000 870,250 2025 1,915,000 779,000 2026 2,010,000 683,250 2027 2,110,000 582,750 2028 2,215,000 477,250 2029 2,325,000 366,500 2030 2,440,000. 250,250 2031 2,565,000 128,250 2032 2033 35,270,000 23,971,917 3,245,000 258,038 4,245,000 508,307 Less Current 925,000 1,575,000 1,335,000 S 34,345,000 $ 23,971,917 $ 1,670,000 $ 258,038 $ 2,910,000 $ 508,307 EUGENE WATER & ELECTRIC BOARD 57

ELECTRIC SYSTEM Long-term bonded debt and interest payment requirements, including current portion Year ended December 31, 2009 Revenue and Refunding Revenue and Refunding Revenue 2002 C Series 2003 Series 2005 Series 5-22-02 6-10-03 05-10-05 Principal Interest Principal Interest Principal Interest 2010 550,000 $ 443,681 $ 1,890,000 $ 1,594,088 $ 405,000 $ .400,300 2011 575,000 420,994 1,950,000 1,537,387 420,000 384,100 2012 600,000 396,556 2,035,000 1,459,388 440,000 366,250 2013 620,000 370,756 2,125,000 1,377,987 460,000 347,550 2014 650,000 343,476 2,200,000 1,292,988 480,000 326,850 2015 680,000 -314,226 2,315,000 11182,987 500,000 -, 305.250 2016 710,000. 282,776 2,435,000 1,067,238 525,000 282,750 2017 740,000 249,051 2,565,000 945,487 550,000 256,500 j 2018 775,000 - 213,531 2,695,000 817,238 570,000 234,500 2019 815,000 175,750 2,835,000 682,487 595,000 210,275 2020 855,000 135,000 2,985,000 540,738 615,000 -184,988 2021 900,000 92,250 3,140,000 391,487 645,000 158,850 2022 945,000 47,250 3,300,000 234,488 675,000 129,825 2023 1,635,000 69,488 705,000 99,450 2024 735,000 67,725 2025 770,000 34,650 2026 2027 2028 2029 2030 2031 2032 2033 9,415,000 3,485,297 34,105,000 13,193,476 9,090,000 3,789,813 Less Current 550,000 1,890,000 405,000

$ 8,865,000 $ 3,485,297 32,215,000 $ 13,193,476 $ 8,685,000 $ 3,789,813 EUGENE WATER & ELECTRIC BOARD 58

ELECTRIC SYSTEM Long-term bonded debt and interest payment requirements, including current portion Year ended December 31, 2009 Revenue Revenue Refunding 2006 Series 2008 Series 2008 Series 08-24-06 7/17/08 7/17/08 Total Electric System Payments Principal Interest Principal Interest Principal Interest Principal Interest Totals 2010 $ 470,000 $ 481,651 $ 1,320,000 $ 2,519,375 $ 720,000 $ 1,499,950 $ 11,610,000 $ 11,424,509 $ 23,034,509 2011 490,000 462,851 1,365,000 2,466,575 840,000 1,471,150 12,345,000 10,898,120 23,243,120 2012 510,000 440,801 1,420,000 2,411,975 970,000 1,437,550 9,895,000 10,309,459 20,204,459 2013 530,000 420,401 1,470,000 2,355,175 1,115,000 1,398,750 8,990,000 9,849,768 18,839,768 2014 550,000 399,201 1,540,000 2,281,675 1,690,000 1,343,000 10,050,000 9,409,228 19,459,228 2015 575,000 374,451 1,490,000 2,204,675 1,950,000 1,258,500 10,755,000 8,888,570 19,643,570 2016 600,000 348,576 1,565,000 2,130,175 2,235,000 1,161,000 11,640,000 8,325,250 19,965,250 2017 625,000 324,576 1,645,000 2,051,925 2,550,000 1,049,250 12,590,000 7,713,667 20,303,667 2018 655,000 299,576 1,725,000 1,969,675 2,895,000 921,750 13,610,000 7,055,918 20,665,918 2019 690,000 273,376 1,810,000 1,883,425 3,260,000 777,000 14,705,000 6,341,225 21,046,225 2020 720,000 245,776 1,905,000 1,792,925 3,650,000 614,000 15,875,000 5,566,518 21,441,518 2021 760,000 216,076 2,000,000 1,697,675 4,085,000 431,500 17,145,000 4,727,494 21,872,494 2022 795,000 184,726 2,095,000 1,597,675 4,545,000 227,250 18,475,9000 3,818,242 22,293,242 2023 835,000 '151,933 2,200,000 1,492,925 - 8,942,106 5,934,789 14,876,895 2024 875,000 116,863 2,300,9000 1,393,925 - 6,574,611 5,754,152 12,328,763 2025 920,000 80,113 2,405,000 1,290,425 - 6,824,720 5,704,468 12,529,188

-2026 965,000 41,013 2,520,000 1,176,188 - 6,284,579 5,640,872 11,925,451 2027 2,640,000 1,056,486 - 5,506,540 5,552,696 11,059,236 2028 2,765,000 931,088 - 4,980,000 1,408,338 6,388,338 2029 2,895,000 799,750 - 5,220,000 1,166,250 6,386,250 2030 3,040,000 655,000 - 5,480,000 905,250 6,385,250 2031 3,190,000 503,000 - 5,755,000 631,250 6,386,250 2032 3,350,000 343,500 - 3,350,000 343,500- 3,693,500 2033 3,520,000 176,000 - 3,520,000 176,000 3,696,000 11,565,000 4,861,960 52,175,000 37,181,212 30,505,000 13,590,650 230,122,556 137,545,533 367,668,089 Less Current 470,000 1,320,000 720,000 - 11,610,000 11,610,000

$11,095,000 $ 4,861,960 $ 50,855,000 $37,181,212 $29,785,000 $ 13,590,650 $ 218,512,556 $137,545,533 $ 356,058,089 EUGENE WATER & ELECTRIC BOARD 59

WATER SYSTEM Long-term bonded debt and interest payment requirements, including current portion Year ended December 31, 2009 Revenue Bonds Revenue Bonds 2000 Series 2002 Series 1-1-00 7-16-02 Principal Interest Principal Interest 2010 $ 520,000 $ 27,560 $ 505,000 $ 362,839 2011 525,000 345,164 2012 545,000 326,264 2013 570,000 305,826 2014 595,000 283,596 2015 620,000 259,796 2016 645,000 234,221 2017 675,000 206,809 2018 710,000 178,121 2019 740,000 147,059 2020 780,000 113,759 2021 815,000 77,879 2022 855,000 40,185 2023 2024 2025 2026 2027 2028, 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 _

520,000 27,560 8,580,000 2,881,518 Less current 520,000 505,000

$ $ 27,560 $ 8,075,000 $ 2,881,518 EUGENE WATER & ELECTRIC BOARD 60

WATER SYSTEM Long-term bonded debt and interest payment requirements, including current portion Year ended December 31, 2009 Revenue Bonds Refunding Revenue Bonds 2005 Series 2008 Series 7-26-05 7/17/08 Total Water System Payments Principal Interest Principal Interest Principal Interest Totals 2010 $ 532,455 270,000 $ 723,940 $ 1,295,000 $ 1,646,794 $ 2,941,794 2011 415,000 532,455 285,000 711,790 1,225,000 1,589,409 2,814,409 2012 430,000 517,930 295,000 698,965 1,270,000 1,543,159 2,813,159 2013 445,000 502,880 310,000 685,690 1,325,000 2,819,396 2014 460,000 487,305 320,000 671,740 1,375,000 1,442,641 2,817,641 2015 475,000 470,055 335,000 657,340 1,430,000 1,387,191 2,817,191 2016 500,000 451,055 350,000 642,600 1,495,000 1,327,876 2,822,876 2017 520,000 426,055 365,000 627,550 1,560,000 1,260,414 2,820,414 2018 545,000 400,055 380,000 612,950 1,635,000 1,191,126 2,826,126 2019 570,000 372,805 395,000 597,750 1,705,000 1,117,614 2,822,614 2020 600,000 344,305 415,000 581,555 1,795,000 1,039,619 2,834,619 2021 630,000 320,305 430,000 564,125 1,875,000 962,309 2,837,309 2022 655,000 295,105 450,000 545,850 1,960,000 2,841,140 2023 675,000 268,905 465,000 526,725 1,140,000 795,630 2024 705,000 241,230 490,000 505,800 1,195,000 747,030 1,942,030 2025 735,000 212,149 510,000 483,750 1,245,000 695,899 1,940,899 2026 765,000 181,830 -535,000 460,800 1,300,000 642,630 1,942,630 2027 800,000 148,552 560,000 436,725 1,360,000 585,277 1,945,277 2028 835,000 113,753 585,000 411,525 1,420,000 525,278 1,945,278 2029 870,000 77,430 610,000 385,200 1,480,000 462,630 1,942,630 2030 910,000 39,585 635,000 357,750 1.545,000 397,335 1,942,335 2031 665,000 329,175 -665,000 329,175 994,175 2032 299,250 695,000 299,250 994,250 2033 730,000 262,763 730,000 262,763 992,763 2034 770,000 224,438 770,000 224,438 994,438 2035 810,000 184,013 810,000 184,013 994,013 2036 855,000 141,488 855,000 141,488 996,488 2037 895,000 96,600 895,000 96,600 991,600 2038 945,000 49,611 945,000 49,611 994,611 12,540,000 6,936,199 15,355,000 13,477,458 36,995,000 23,322,735 60,317,735 Less current 270,000 1,295,000 1,295,000

$ 12,540,000 $ 6,936,199 $ 15,085,000 S 13,477,458 $ 35,700,000 $ 23,322,735 $ 59,022,735 EUGENE WATER & ELECTRIC BOARD 61

ELECTRIC SYSTEM Analysis of certain restricted cash and investments for debt service Year ended December 31, 2009 Bond Funds Interest Principal Debt Service Construction Customer Total Accounts Accounts Reserve Funds Deposit Reserve All Funds Ending balance - December 31, 2008 $ 5,057,624 $ 4,466,957 $ 2,796,502 $ 49,176,998 $ 3,210,057 $ 64,708,138 Proceeds from Line of Credit 43,000,000 43,000,000 Deposits from general fund 11,777,606 11,127,428 - - 22,905,034 Interest earnings 4,814 17,057 6,420 411,589 32,618 472,498 Other transfers (10,183) 10,183 - - 264 264 Receipts 11,772,237 11,154,668 6,420 43,411,589 32,882 66,377,796 Principal payments -. 10,780,000 10,780,000 Interest payments 12,065,140 - 12,065,140 Defeasance Transfers to general fund 57,814,906 697,215 58,512,121 Disbursements 12,065,140 10,780,000 57,814,906 697,215 81,357,261 U.S. agency securities, at market 12,409,267 33,997,337 46,406,604 Cash in bank 2,304 2,304 State of Oregon Local Government Investment Pool - - - 776,344 2,543,420 3,319,764 Ending balance - December 31, 2009 S 4,764,721 S 4,841,625 $ 2,802,922 $ 34,773,681 $ 2,545,724 $ 49,728,673 EUGENE WATER &ELECTRIC BOARD 62

WATER SYSTEM Analysis of certain restricted cash and investments for debt service Year ended December 31,. 2009 Debt Service Construction Total Accounts SDC Reserves Funds All Funds Ending balance - December 31, 2008 $ 2,010,892 $ 6,703,117 $ 11,057,461 $ 19,771,470 Deposits from general fund 3,566,830 2,131,211 5,698,041 Interest earnings 5,187 43,561 168,075 216,823 Receipts 3,572,017 2,174,772 168,075 5,914,864 Principal payments 1,225,000 1,225,000 Interest payments 1,728,327 1,728,327 Transfers to general fund 5,858,859 11,035,673 16,894,532 Disbursements 2,953,327 5,858,859 11,035,673 19,847,859 U.S. agency securities, at market 2,629,582 2,629,582 Investment Pool .3,019,030 189,863 3,208,893 Ending balance - December 31, 2009 $ 2,629,582 $ 3,019,030 $ 189,863 $ 5,838,475 EUGENE WATER & ELECTRIC BOARD 63

Audit Comments (Disclosures and comments required by state regulations)

Oregon Administrative Rules 162-10-050 through 162-10-320, the Minimum Standards for Audits of Oregon Municipal Corporations, prescribed by the Secretary of State in cooperation with the Oregon State Board of Accountancy, enumerate the financial statements, schedules, comments and disclosures required in audit reports.

The required financial statements and schedules are set forth in preceding sections of this report. Required comments and disclosures related to the audit of such statements and schedules are set forth following.

MOSS *ADM LLA carfnRm nmm~iAamwamiTs RU9NUS CONS=MMx REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON THE EUGENE WATER & ELECTRIC BOARD'S COMPLIANCE AND. CERTAIN ITEMS BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN ACCORDANCE WITH OREGON AUDITING STANDARDS To the Board of Directors Eugene Water & Electric Board We have audited the accompanying combined financial statements of the Eugene Water & Electric Board (EWEB) as of and for the year ended December 31, 2009 and have issued our report thereon dated March 16, 2010. 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 auditto obtain reasonable assurance about whether the financial statements are free of material misstatement.

Compliance As part. of obtaining reasonable assurance about whether the EWEB's financial statements are free of material, misstatement, we performed tests of its compliance with certain provisions of'laws, regulations, contracts and grants, including provisions of Oregon Revised Statutes as specified in Oregon Administrative Rules (OAR) 162-010-000 to 162-010-330, as set forth below,- noncompliance with which could have a direct and material effect on the determination of financial statement amounts,:

• The accounting records and related internal control over-financial reporting.

• The amount and adequacy of collateral pledged by depositories to secure the deposit of public funds.

• The requirements relating to debt.

• The requirements relatingto insurance and fidelity bond coverage.

• The appropriate laws, rules andregulations pertaining to programs funded wholly or partially by other governmental agencies.

• The statutoly requirements pertaining to the investment of public funds.

• The requirements pertaining to the awarding of public contracts and the construction of public improvements.

The results of our tests disclosed no matters of noncompliance with those provisions that are required to, be reported under Minimum Standards for Audits of Oregon Municipal Corporations, prescribed by the Secretary of State. However, providing an opinion on compliance with those provisions was not an objective of our audit and, accordingly, we do not express such an opinion.

EUGENE WATER & ELECTRIC BOARD 64

aMTiwe PUSSJC AQWUMTArS RI fflM% WSCV4LTAMS Internal Control-OverFinancial Reportingf In'plannimg arid performing our audit, we considered EWEB's internal control .over financial reporting' as a- basis for determining our auditing procedures for the purpose of expressing our opinion on the.

financial statements, but not for the purpose of expressing an opinion on the effectiveness ofEWEB'sý internal control over financial reporting. Accordingly, we do. not express an opinion on the effedtiveness of EWEB's internal control :over financial reporting.

A.control deficiency exists when the design or operation of a control does not allow management or empldyees,! in the. normal course of perf6rming their assigned functions,, to prevent or. dtect misstatements on a timely basis. A significant deficiency is. a control deficiency,. or combination of control deficiencies, that adversely affect EWEB's ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is, more*than a remote likelihood -that a misstatement of EWEB's financial. statements that is more than inconsequential will not be prevented or detectedby:EWEB's internal-control.

A material weaknessis a significant deficiency, or combinationof significant deficiencies, thatresults:in more&than a., remote likelihood that a material misstatement of the financial statements Will not be, prevented or detected by EWEB's internal control.

Our consideration of the internal control over financial reporting was for the limited purpose. described in'the first paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses.. We did not identify any deficiencies in internal :control over financial reporting that we consider to be material Weaknesses as.defined above.

This report is intended solely for the information and -use of EWEB's management, the Board of

• Commissioners, and the Secretary of Stale, Division of Audits of the State of Oregon.'and is not intended tobe~and should not be usedby anyone other'than these specified parties.

For Moss Adams LLP Portland, Oregon March 16, 2010 EUGENE WATER & ELECTRIC BOARD 65

1000000000000000000000000000000000000000000000000000000000000000000.000.01 1-0000 1000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000000 locooooooooooooooogoo00000000000000000000000000000000000000000000000000000000o0000000000000000000000 EWEB I