DEBT OPTIMIZATION PROGRAM

EXECUTIVE SUMMARY

[Program Rationale]{.underline}: The Executive Board rationale for the
Debt Optimization Program is to allow Bonneville to exchange lower
interest Energy Northwest debt for higher interest Bonneville Treasury
debt, thus resulting in substantial interest savings without either
putting later ratepayers in a worse position than they would have been
without the program, or extending the final date by which all Energy
Northwest debt will be completely paid off. The program also has the
effect of freeing up some of Bonneville's federal borrowing authority,
which Bonneville has assured the Executive Board that Bonneville intends
to use for infrastructure and capital improvements, such as
transmission.

[How the Program Operates]{.underline}: On June 30 each year some Energy
Northwest bonds mature and become due and payable. Starting in the
spring of 2000 and each spring since, Bonneville has asked the Executive
Board to not pay, but rather to refinance those bonds with maturities
from 2013-2018. The proceeds from the refinancing go into the Bonneville
Fund, and in September Bonneville pays an amount of principal on
Bonneville's Treasury debt that is equal to the amount of principal
extended on the Energy Northwest debt. In effect, the program exchanges
lower interest-cost Energy Northwest debt and higher interest-cost
Treasury debt, without changing either the amount of the total debt or
the maturity schedule of the total debt.

The Executive Board has been very clear to Bonneville regarding the
Executive Board's expectations that Bonneville apply the Debt
Optimization Program proceeds to Bonneville's Treasury debt as agreed.
However, the Executive Board has never attempted to restrict
Bonneville's use of the interest savings.

[Program Size]{.underline}: Between 2000 (the program's first year) and
2002, \$450 million of lower cost Energy Northwest debt was exchanged
for higher-cost Treasury debt. This year, if the program is conducted as
agreed, an additional \$315 million will be exchanged in 2003, bringing
the total to \$765 million. If implemented to the fullest extent
possible, the Debt Optimization Program is projected to reduce
Bonneville's interest expense by approx. \$350 million, with an average
of about \$20 million per year through 2018, and \$40 million per year
at its peak. But, these savings will result only if the debt exchange
takes place, *i.e.*, that Debt Optimization Program proceeds are applied
to Bonneville's Treasury debt.

[Other Points]{.underline}: Support for the Debt Optimization Program is
not unanimous among Executive Board members. There have been
philosophical objections to extending all or part (especially that
portion attributable to Columbia Generating Station) of the Energy
Northwest debt eligible for the program. A main concern voiced by
several Executive Board members is that the Debt Optimization Program
proceeds won't be exchanged for a like amount of Treasury debt, and
consequently the Executive Board's actions in approving the program will
leave future ratepayers in a worse position than they would have been
had the Executive Board never agreed to the Debt Optimization Program.

To argue for using the Debt Optimization Program proceeds in some way
other than as an exchange for higher cost federal debt is, in effect,
arguing that it is sound fiscal and public policy to require ratepayers
in 2013-2018 to pay Bonneville's current operating expenses.