# Presentation: 106755

**Rating Agencies Update**
***March 3******rd ******and 5th, 2003***

## 
Regional Values

Financials

Safety Net Cost Recovery Adjustment Clause

Liquidity Tools

Energy Northwest

2003 Plan Finance

Summary

**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**

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## 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

- 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**

**Confidential – Sensitive Information**

*We asked the region about values and trade-offs.*

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***Financials***

## 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.

**Confidential – Sensitive Information**

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## Current FY2003 End of Year Forecast

**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.*

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## BPA Financial Condition: November Recap

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

**BPA Financial Condition: *****November Recap***

**Confidential – Sensitive Information**

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**Notes:**
Main Drivers:
Reduction in market prices, mostly over the FY02-03 period: approximately $100M
We did not realize the prices in the summer of FY02 we had forecasted back in May 2002.  This caused a drop in trading floor revenue of approximately $60 M for FY02.  The remaining $40M is spread over the remaining years.
Reduction in assumed energy production from hydro system model results $75M
This was due to updated PNCA OY01 data (FELCC, CRCs, Veccs, Coulee pumping, plant data) from OY00.
Updated to Canadian operation from DOP TSR OY02 from OY00.
This is a normal update done every year.
Additional loss of net revenue in FY02-06: approximately $160M
DSI liquidated damages to bad debt FY02 & 03:  $58 M
Ancillary & Reserve services expense up from TBL by $45M not previously forecasted.  
Security expenses, increased interest rate expenses from capitalizing projects and previously capitalized expenses being expensed instead: $21M
Refund of LB CRAC for Jan-Mar 02 period: $12M
Other misc. stuff: $24M

## BPA Financial Condition: Current Update

- Updated Hydro Forecast
- Updated Secondary Revenue Forecast
- Other Costs

**BPA Financial Condition: *****Current Update***

**Confidential – Sensitive Information**

*Financial Choices Outcomes and Forecast Updates*

***($ in Millions)***

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## BPA Financial Condition Update: Hydro Assumption

**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***

**Confidential – Sensitive Information**

**103 Average**

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

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## BPA Financial Condition Update: Net Surplus Revenues Assumption

**Trading Floor Revenue**

**(Historical and Projected)**

**$-**

**$100.0**

**$200.0**

**$300.0**

**$400.0**

**$500.0**

**$600.0**

**$700.0**

**$800.0**

**FY 1996**

**FY 1997**

**FY 1998**

**FY 1999**

**FY 2000**

**FY 2001**

**FY 2002**

**FY 2003**

**FY 2004**

**FY 2005**

**FY 2006**

**Millions of Dollars**

**-**

**500**

**1,000**

**1,500**

**2,000**

**2,500**

**3,000**

**3,500**

**4,000**

**4,500**

**5,000**

**aMW**

- Current Revenue (millions $'s)

-  Amount (MW-mo) Current Forecast

**Forecasted**

**Historical**

**Confidential – Sensitive Information**

**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 Forecast

- November Revenue Forecast

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

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## BPA Financial Condition Update: Additional Potential Cost Reductions

**BPA Financial Condition Update: *****Additional Potential Cost Reductions***

**Confidential – Sensitive Information**

***($ in Millions)***

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***Safety Net Cost Recovery Adjustment Clause***
***(SN CRAC)***

## 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.

- 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***** **

**Confidential – Sensitive Information**

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

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## SN CRAC: Key Dates

**Confidential – Sensitive Information**

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

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***Liquidity Tools***

## Typical Seasonal Net Cash Flow Profile

**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

**Confidential – Sensitive Information**

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## 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

**Confidential – Sensitive Information**

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

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## Net Billing Timing: Cash Flow and Coverage

**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.*

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## 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.

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## Energy Northwest

**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

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## Energy Northwest

**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

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## Energy Northwest

**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

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## Energy Northwest

**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

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## 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.

- 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**

**Confidential – Sensitive Information**

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## 2003 Plan of Finance (cont’d)

**Confidential – Sensitive Information**

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## 2003 Financing Schedule

**Confidential – Sensitive Information**

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