1. Bonneville Power Administration Significance of Rating Agency Ratings May 2002 Predicisional

2. Bonneville Power Administration 2 A Scenario for the Near Future It’s September 30, 2003, and you’re thinking back over the past 18 months that looked something like the following: –FY 2003 started with $250 million in the Bonneville Fund. –Market prices for power remained in the low $30s. –ENW’s Columbia Generating Station experienced several operational problems that resulted in intermittent output during the year. –Stream flows were substantially below normal. –Expense reductions achieved in 2002 were not sustained in 2003. –ENW debt was extended, with the plan to pay an above scheduled Federal amortization payment of $250 million in 2003. –The scheduled amortization payment is $700 million. –The Bonneville Fund is at $800 million prior to the Treasury payment. You are meeting with all three rating agencies tomorrow and we have no realistic expectation of maintaining our rating.

3. Bonneville Power Administration 3 Rating Downgrade Implications Bond investors view of BPA credit affects the debt restructuring program, thereby our infrastructure program. –Higher interest rates. –Increased bondholder security requirements. –Higher cost to insure bonds. –BPA still bearing the cost of fallout from WNP-4/5 default (currently about $10 to $15 million per year). Counterparties view of BPA credit affects BPA’s power marketing. –Particularly impacts ability to purchase power. –Counterparties will set lower limits on transaction levels. –Potential for requirement to provide security. Contractors will be more concerned about BPA’s ability to honor contract terms.

4. Bonneville Power Administration 4 Rating Downgrade Implications (cont…) Erosion of BPA credit could impact customers’ credit. In the world of Enron, PG&E, Arthur Anderson, etc., the level of outside scrutiny could increase dramatically, with potential impacts on: –Additional borrowing authority efforts. –Debt restructuring. –RTO development –Regionalization/Customer Proposal. All impacts of a downgrade are a matter of degree depending on the level of downgrade and some are complicated by BPA’s position as Federal agency. Downgrades can and do happen quickly, while upgrades require significantly more time (proven track record plus 2 years).

5. Bonneville Power Administration 5 Northwest Publics S&P Ratings History

6. Bonneville Power Administration 6 Southwest Publics S&P Ratings History

7. Bonneville Power Administration 7 West Coast IOUs S&P Ratings History

8. Bonneville Power Administration 8 Key Rating Agency Factors (S&P) Management –Sound financial and operating policies. –Deep and experienced executive team with solid grasp of industry issues, customers, and competitors. Operations –Power supply. –Capital needs and operating efficiency (financial ratio analysis). Competitive Position –Rate projections display a competitive advantage. Markets –Load factors that do not make the system vulnerable to competitive factors. –Stable or increasing population trends. Regulation –Federal, congressional, and regulatory initiatives. –Extent to which management is prepared to deal with ramifications of competition. Service Area Economy –Employers and population trends. Finances –Policies and debt coverage ratios. Legal Provisions –Contracts and bond indentures.

9. Bonneville Power Administration 9 Key Northwest Credit Factors (S&P) Positive operating cash flow. Speed with which deferred balances or short-term borrowing can be repaid. Support from state regulatory bodies or elected city councils regarding full cost recovery. Hedging practices. Trading and marketing strategies (including assumptions regarding off-system sales. Policies regarding cash reserves and debt levels.

10. Bonneville Power Administration 10 Building BPA’s Credit BPA has developed a track record of credibility with the rating agencies through open and regular communication with the agencies, sound business practices, and the following management formula: –Identify potential challenges early. –Develop a strategy that recognizes the reality of the environment and BPA’s position. –Execute the strategy –Adjust the strategy as necessary. –Come within range of expected results. For example: –Fish costs –Competitiveness Project –Subscription –2001 drought and power market –Management of ratepayer relationships

11. Bonneville Power Administration 11 An Alternative Scenario It’s September 30, 2003, and you’re thinking back over the past 18 months that looked something like the following: –A sound Financial Strategy was developed. –Management executed the Financial Strategy as planned, deviating only when absolutely necessary and based upon sound business principles. –The Administrator has informed Treasury that we are making our required payment in full and on time for the 20 th year in a row and making additional amortization payments for the 4 th year in a row. –The Bonneville Fund is at $500 million. –BPA’s credit rating has been maintained at Aa1, AA, and AA- by Moody’s, Fitch, and S&P, respectively. You are meeting with all three rating agencies tomorrow and plan to request upgrades.