Energy Northwest Executive Board Meeting February 27, 2003

2  BPA Financial Status  Typical Seasonal Net Cash Flow Profile  Pushing the Problem Out  Liquidity Bridge vs. Pushing More of the Problem Out  Customers’ Response at Tuesday’s Workshop  ENW and Bonneville’s Continued Relationship Topics to be Covered Today

3 Net Revenue Shortfalls  Despite $350 million in power business line function cost reductions, deferrals and other actions, BPA’s projected power-related expenditures over the period are projected to exceed its revenues by about $900M, without further rate increases and/or cost reductions.  BPA can increase power rates to remedy this shortfall, but this will add to the region’s economic distress. Liquidity  BPA has made its scheduled payments to Treasury on time and in full for the past 19 years. However, it is likely that BPA will have to rely on some unusual measures to meet this year’s payment.  BPA’s financial reserves are at their lowest level since 1988, primarily because of losses in  Without additional strong measures, BPA could easily deplete these reserves this year and be unable to meet current operating expenses.  BPA has a range of cash tools available to address its liquidity challenges, each of which translates to borrowing from the future. BPA sees these tools as a last resort, because they consume borrowing authority needed for critical infrastructure and it is not fiscally prudent to borrow to pay current expenses.  These tools come at a cost and past usage of such tools have limited the number of tools at our disposal. Capital  Significant capital investments are needed in the transmission and hydro systems to meet reliability needs.  Even with the $700 million in increased Borrowing Authority approved by Congress, BPA’s borrowing authority is projected to run out in 2010 assuming Treasury payments for ENW debt extended by deals done or anticipated through 2003 and in 2007 with no further application of ENW debt extension proceeds to Treasury debt.  Use of borrowing to address BPA’s financial challenges would further strain capital availability. BPA Financial Status

4 Typical Seasonal Net Cash Flow Profile Excludes Payment to Treasury ** Values are for illustrative purposes only Net Cash Out Flows Net Cash In Flows (In Millions) $(100) $0- $100 SpringSummerFallWinter SpringSummer

5 BPA has already used a significant number of “cash tools” that have pushed part of the problem out. Total Committed Cash Tools ( $in millions )  Reserve Fund Free-ups ~210  Conservation Augmentation (Accounting Change) ~50  Corps Plant-in-service Deferral~100  Capitalized Spent Fuel Storage Facility ~ 35  ENW O&M ~72  IOU Deferral ~55  Unfunded Liability – Decommissioning Fund ~10  Total ~$532 Estimated Annual Impact ~$70 to $85 These changes will create upward pressure on rates starting in 2004, but having the biggest effect in 2007 and beyond.

6 Liquidity Bridge Vs. Pushing More of the Problem Out If BPA used all these Cash Tools, it would reduce borrowing authority by $1.2 billion and have an annual carrying cost of approximately $50 million.

7 SN CRAC and Cost Level Evaluation Each Year Defer Initial SN CRAC Active Cost Control Involvement by Regional Representatives Review Appropriate Capital Program Levels Review Appropriate Reserve Levels Capitalize Some Expenses Customers’ Response at Tuesday’s Workshop

8 Bonneville’s management and staff would like to thank the ENW Executive Board and their staff for their continued cooperation over the years. Your actions and cooperation has helped Bonneville continue to deliver benefits to the Northwest through very difficult times. Most recently we (I) would like to thank you for:  Authorizing and expediting the issuance of surety bonds to replace reserve accounts  Continuing to support the debt optimization program  Scrubbing O&M budgets and making difficult decisions  Accepting reductions to future incentive payments  Releasing Bank of America settlement funds ENW and Bonneville’s Continued Relationship