rating agencies update march 3 rd and 5th, 2003

Rating Agencies UpdateMarch 3rd and 5th, 2003

2

Regional Values

Financials

Safety Net Cost Recovery Adjustment Clause

Liquidity Tools

Energy Northwest

2003 Plan Finance

Summary

Topics to be Covered Today

Confidential – Sensitive Information

3

The region still values:

BPA paying Treasury on time Meeting our ESA and Northwest Power Act fish and wildlife performance

obligations Delivering value to the region in the form of public benefits programs and

low rates

However, what we’ve heard from customers is that the pendulum has swung in terms of the focus/underlying goal:

In the early 2000s, the region wanted BPA to emphasize reliability over cost-minimization

Now and for the foreseeable future, our customers are most concerned about the costs and the impact of near-term rates in the context of the depressed regional economy

Regional Values


We asked the region about values and trade-offs.

Financials

5

FY2002 Summary

In FY2002 BPA had positive Net Revenues, but financial reserves dropped $440 million.

Based on audited actuals, BPA ended FY2002 with:

Operating Revenues of $3.5 billion Operating Expenses and Interest of $3.5 billion Net Revenues of $9 million with debt optimization , ($308) million without debt

optimization Financial Reserves of $188 million Non-Federal Project Debt Service Coverage Ratio of 4.9

BPA met its FY2002 payment responsibility to the United States Treasury in full and on time for the 19th consecutive year.

Of BPA’s payments of $1.06 billion in FY2002, approximately $266 million was due to the debt optimization program.

BPA has prepaid a total of $450 million since FY2000.


6Confidential – Sensitive Information

FY 2003 First Quarter Review: Forecast of Year-End Results ($ in Millions)

Current FY2003 End of Year Forecast

BPA currently expects to end the year with between $100 million to $200 million in reserves.

FY2002 Rate Case Target

Actuals for FY2003 Low High

Revenues 3,495 2,989 3,380 3,680

Expenses 3,524 2,878 3,220 3,320

Net Revenues (29) 111 160 360 1/

End of Year Financial Reserves 2/188 1,228 100 200

FY2003

FY2003 Forecast

Footnotes1/ Financial forecasts are highly volatile and will change with market prices and water conditions. Net Revenues forecast based on internal first quarter review. Includes $270 million in expense reductions due to refinancing Energy Northwest debt. Absent these expense reduction, principally resulting from debt management actions, BPA's net revenues would range from ($160) million to $40 million.

2/ Financial reserves equal total cash plus deferred borrowing and extraordinary use of cash tools.

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Probability Distribution

In November, prior to any BPA expense reductions (Financial Choices), the Power Business Line forecasted a net revenue gap of $1.2 billion.

$(3,000)

$(2,500)

$(2,000)

$(1,500)

$(1,000)

$(500)

$-

$500

$1,000

$1,500

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85% 90% 95%

$ in

Mil

lion

s

November 2002 FY02-06 Forecasted Net Revenue Gap = ($1.2B)

BPA Financial Condition: November Recap


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Key Drivers of Remaining Net Revenue Gap• Updated Hydro Forecast

• Updated Secondary Revenue Forecast

• Other Costs

BPA Financial Condition: Current Update


Financial Choices Outcomes and Forecast Updates

($ in Millions)

FY02-06 Net Revenue Gap (from November 2002 with FY02 Actuals) ($1,200)

BPA Expense Reductions & Deferrals from Financial Choices 300Additional Revenues in FY04-06 (FB CRAC plus flat rates) 550More Cost Effective Fish Recovery Program 80Estimated Changes in 4(h)(10)(c ) and FCCF Fish Credits 100Reduction in FY03 Revenues Due to Reduced Hydro Supply & Other Changes (200)Reduction in Hydro Supply in FY04 and Secondary Revenues in FY04-06 (550)

New Net Revenue Gap - FY02-06 ($920)

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January - July Runoff at The Dalles1929- 2002

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50

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100

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1929 - 2002

Jan

uary

- J

uly

Ru

no

ff (

millio

n a

cre

feet)

2003 Current Forecast: 75.6 maf

Key Driver

• BPA updated its hydro assumption to reflect the current forecast.

• BPA updates its hydro assumptions periodically throughout the year.

BPA Financial Condition Update: Hydro Assumption


103 Average

BPA Lowered its Hydro Assumption from 103 maf (Average) to 75.6 maf

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Trading Floor Revenue(Historical and Projected)

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$100.0

$200.0

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FY 1996 FY 1997 FY 1998 FY 1999 FY 2000 FY 2001 FY 2002 FY 2003 FY 2004 FY 2005 FY 2006

Mill

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s o

f D

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rs

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aMW

Current Revenue (millions $'s) Amount (MW-mo) Current Forecast

ForecastedHistorical


BPA Financial Condition Update: Net Surplus Revenues Assumption

Key Drivers

• Updated hydro assumption for FY 03 from 103 maf to 75 maf, which reduced anticipated secondary sales by around 900 aMW.

• Revised price forecasting methodology FY 04-06 to more conservative approach.

Amount (MW-mo) November ForecastNovember Revenue Forecast

BPA currently expects a reduction of $650 million in secondary revenues through 2006.

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BPA continues to look for additional cost reductions to close the net revenue gap. These reductions include, but are not limited to the following:

BPA Financial Condition Update: Additional Potential Cost Reductions


($ in Millions)

Total FY2003-2006 Additional Potential Cost Reductions

Settlement of Litigation over IOU Residential Benefits $200More Cost Effective Fish Recovery Program Benefits 80Additional Power Resource O&M Cost Reductions 50Power Resource Contract Renegotiation 30Additional Overall Debt Service Reduction 140Total $500

Safety Net Cost Recovery Adjustment Clause

(SN CRAC)

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Bonneville’s long standing goal has been to set rates that achieve an 88% five-year Treasury payment probability. Bonneville expects that it will not use this standard in developing the SN CRAC proposal. Bonneville expects to reserve the ability to adjust rate levels under the SN CRAC again during the FY02-06 rate period if the revenues from this first adjustment are later determined inadequate, causing a multi-year TPP to be less meaningful.

Throughout Rate Period Standard: 50% probability that BPA can make all its Treasury payments in full and on time for the FY 2004 - 2006 rate period.

End of Rate Period Standard: 80% probability that BPA will make its FY 2006 Treasury payment as well as repaying any amounts missed in FY 2003 through FY 2005.

The $920 million net revenue gap for the FY 2002 - 2006 period is forecast to be closed to $0 by the end of FY 2006 and reserves significantly replenished to about $350 million.

SN CRAC: Financial Criteria


SN CRAC financial criteria assume no use of cash tools (to be discussed later).

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SN CRAC: Key Dates


BPA will start to receive SN CRAC revenues beginning as soon as October 1, 2003

Initial Proposal March 17

Prehearing/BPA Direct Case March 31

Parties File Direct Case April 17

Litigants File Rebuttal May 2

Draft ROD Issued May 23

Final ROD- Final Studies June 30

Rates Go Into Effect October 1

Draft 2003 SN CRAC Schedule

Liquidity Tools

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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

Spring Summer Fall Winter Spring Summer


17

Pushing the Problem Out

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 Deferral of Condenser Tube Replacement ~35 ENW Fuel Procurement Strategy ~37 IOU Deferral ~55 Unfunded Liability – Decommissioning Fund ~10 Total ~$532

Estimated Annual Impact 2007-11 ~$70 to $85

These changes will create upward pressure on rates starting in 2004, but having the biggest effect in 2007 and beyond.

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Liquidity Tools to Bridge the Gap


BPA has a number of liquidity tools to bridge gaps due to short term cash flow shortfalls.

Liquidity Tool ($ in millions)

$250 M Treasury Note 250

Apply Treasury Payment to FY2004-2006 Expenses 315

Recognize Previous Prepayments 470

Defer Treasury Payment 170

TBL Forecasted Positive Net Revenues 25

FY03 Potential


Publicly-owned utilities 939 1,797 Aluminum industry 421 58 Investor-owned utilities 701 378 Other power sales 1 1 Sales outside the Northwest Region 1,084 638

Total Sales of Electric Power 3,146 2,872 Transmission and other revenues 1,133 660

Total Operating Revenues 4,279 3,532

Publicly-owned utilities percent of Total Operating Revenues 22% 51%

Net Billing Obligations 733 499

Publicly-owned utilities percent of Net Billing Obligations 128% 360%

D. Load buydown of most DSI load

2) The proportion of Publicly-owned utilities revenues is significantly higher.

3) Net Billing Obligations, particularly with the Debt Optimization program, are significantly lower.4) Most, but not all, Publicly-owned utilities are participants in the Net Billed Projects; some transmission revenues are subject to net billing agreements.

C. Settlement of most of the IOU Residential Exchange for cash payments instead of power sales

Additional Key Points:

1) The absolute amount of revenues from Publicly-owned utilities has increased significantly, providing substantially more security for the net billed bonds. This increase is due to:

A. Substantial rate increase at the beginning of the new rate period (October 1, 2002)

B. Substantial increase in sales commitments to Publicly-owned utilities

Net Billing Timing: Cash Flow and Coverage

Revenues 2001 2002($ in millions)

ENW now receives about 90% of its entire budget only four months into its fiscal year. Revenue from Net Billing Participants is now about half of BPA’s total revenues and double compared to previous years.

20

Summary and Basis of BPA’s Credit Strength

BPA has a continuing statutory obligation to set rates to recover all costs.

Despite two years of highly adverse circumstances, BPA has the capability to fully recover its costs through the remainder of the current rate period.

In the face of strong customer resistance, the Administrator of BPA has resolved to trigger the SN CRAC process.

Due to the existence of the timely rate-setting mechanisms and the Slice product for recovering costs, customers absorb more of the risks of hydro supply and secondary market prices.

The necessity for BPA carrying high reserves to mitigate risk has diminished due to the three CRAC mechanisms.

BPA has consistently demonstrated through the last several years and rate periods, that management will seek to assertively apply all available financial and legislative tools necessary to keep the agency on a firm financial footing.

The net billing agreements offer bondholders 4.9 times (x) coverage.


Energy Northwest

Columbia Generating Station Performance

Operating Performance/Generation Calendar Year 2002 was the best in history Current run of 372 Days is the longest in history Fiscal Year 2002

9,261,873 megawatts- New Record 92.0% Capacity Factor- New Record 95.4% Plant Availability Factor

Operating Performance/Cost $20.60 per megawatt hour (FY2002) $27.26 per megawatt hour (FY2003)*

*Due To Bi-annual refueling outage


Energy Northwest

Nuclear Regulatory Actions/INPO Evaluations

NRC Regulatory Actions Notice of Violation (December 2001) (Yellow Finding)

Emergency Preparedness Program Deficiencies Closed with NRC/ May 2002

Notice of Violation (June 2002) (White Finding) Electrical Breaker Design Modification/Failures Closed with NRC/January 2003

INPO Evaluations September 2002 rating of “1” (Excellent) October 2002 rating of “2” (Exemplary)

Areas for Improvement Equipment Performance Outage Performance Material Condition NRC Actions/Notices


Energy Northwest

Columbia Generating Station Refueling Outage

Last Outage- July 2001

Historically Columbia operated on a 12-month fuel cycle

1998 Decision to transition to 24-month fuel cycle

Two transition fuel cycles completed

Next scheduled refueling outage expected to start in May 2003

Increased plan availability and net generation to Bonneville


Energy Northwest

Columbia Generating Station Fuel Storage Facility

On-Site storage of spent fuel required by the delay in DOE Site and construction of national repository

Columbia initial Dry Storage Cask System construction completed for $32.7 MM

Casks transported from reactor building (Spent Fuel Pool) to on-site concrete pads Sufficient to handle spent fuel through 2010/Expandable First Cast Transported – September 2002 Total of five casks transported by December 2002

Completed off-loaded of enough spent fuel to provide sufficient room for fuel reloading Next outage expected in May 2003

25

Goals of the 2003 installment of the Energy Northwest/ Bonneville Power Administration Debt Optimization Program:

Extend $238,675,000 currently maturing principal (7/1/03);

Current refund $974,950,000 callable bonds (7/1/03) for savings;

Repay Salomon Smith Barney Bridge Loan.

2003 Plan of Finance


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2003 Plan of Finance (cont’d)

Series 2003 1,2,3-A

Tax-Exempt Fixed Rate Current Refunding Maturities: $670mm 2008-2017 Insurance: XL/MBIA plus uninsured portion

Series 2003 1,2,3-B

Taxable Fixed Rate financing of equity contribution and bridge loan repayment for the nuclear spent fuel facility (Columbia Project)

Maturities: $45mm 2009 Insurance: MBIA

Series 2003 1-C

Tax-Exempt Auction Rate Current Refunding Maturities: $200mm in 2016-2017; Project One Insurance: XL

Series 2003 3-D-1

Tax-Exempt VRDO Current Refunding Maturities: $100mm in 2018; Project Three Insurance: MBIA Liquidity: Dexia

Series 2003-3-D-2

Tax-Exempt VRDO Current Refunding Maturities: $100mm in 2018; Project Three Insurance: FSA Liquidity: Dexia

Series 2003 3-E

Tax-Exempt VRDO Current Refunding Maturities: $100mm in 2016-2017; Project Three Letter of Credit: J.P. Morgan


27

2003 Financing Schedule


Ratings Needed March 11

Fixed Rate Pricing – Series 2003 A,B March 18

Fixed Rate Purchase – Series 2003 A,B March 20

Variable Rate Pricing – Series 2003 C,D,E April 8-9

Closing – All Series April 10

rating agencies update march 3 rd and 5th, 2003

Documents

financial condition

pptbpa financial condition

hydro assumptions

pptfy2002 summaryin

positive net revenues

pptthe region

pptfinancials w

forecast updates