1 BPA Financial Choices Closeout Presentation for Fitch Ratings November 26, 2002

2 Regional Values We asked the region about values and trade-offs –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

3 Net Revenue Gap Main Drivers: 1.Further reduction in market prices, mostly in the FY02 period 2.Updated hydro energy forecast 3.Uncertainty in payment of liquidated damages by DSIs Prior to any BPA expense reductions, the Power Business Line’s financial situation has eroded since May 2002 May 2002 FY02-06 Forecasted Net Revenue gap = ($860 M) October 2002 FY02-06 Forecasted Net Revenue gap = ($1,200 M)

4 Net Secondary Revenue The net revenue we now expect to receive for our secondary energy is still significantly higher than what we received historically Since the higher net revenue from secondary sales is embedded in the current net revenue forecast, this makes our financial condition heavily dependent on the price of energy and water conditions *FY2001: No net surplus sales due to drought.

5 Actions BPA is Taking to Manage the Gap The financial choices process proposed 5 different ways to help solve our financial problem. Approach #1 – Manage thru Rates Only Approach #2 - Cut Costs & Increase Efficiencies (no rate impact) Approach #3 – Increase Financial Risk to Treasury (No SN CRAC) Approach #4 – Defer Costs & Push Problem to Future Approach #5 - One-Time Adjustment of Rates through SN CRAC BPA is looking to adopt a hybrid of these choices in managing the financial gap. These include: Reducing FY03-06 expenses by $220 M (Approach #2) Deferring $72 M in expenses to the FY07–11 period (Approach #4) Purchasing surety bonds to free up $56 M of ENW reserve funds, which is similar to an expense deferral (Approach #4) Engaging outside parties to try and further reduce costs (Approach #2) Reassess need for SN CRAC after January 1, 2003

6 FY01 vs. FY03-06 Program Spending Reductions PBL Internal Operating Costs have been reduced to below FY01 actual levels PBL Internal Operations includes power portion of Shared Services/Corporate G&A, Power Business Operations, PBL Efficiencies and Generation Development & Coordination. External Expenses includes Telemetering & Equipment for GTA service, Trojan O&M, GTA Wheeling, Colville Settlement and Long-Term Generating Projects. Columbia Generating Station is average of FY00/01 to account for refueling and non-refueling years. F&W Operations: The difference between the 2000 BiOp versus the 1998 BiOp of 59 aMW * $35/MWh market price. Conservation/EE does not include interest or capital expenses. Programs with (*) includes offsetting revenues; excludes Planned Net Revenues for Risk (PNRR). Average Annual Delta November 2002 Update $505$ FY01 Actual Level

7 We Have Significantly Reduced Expenses & More Expense Reductions Are Possible Current achievements: $348M in expense reductions, expense deferrals and cash increases over FY03-06 –$220M in expense reductions –$72M in expense deferrals –$56M in cash increases BPA internal expenses for brought down to 2001 actual spending levels, saving $136M –Cuts in BPA staffing, travel, training, contract labor –Cuts involve risk to customer service, IT systems, succession planning for aging workforce, and energy efficiency and technology initiatives –These risks are acceptable Corps, Reclamation, Energy NW, Conservation, and Renewable costs reduced $84M –Deferred IOU expenses from FY03 to FY04-06: $55M

8 Deferred expenses into next rate period: $72M –Energy Northwest – Fuel strategy ($37M) –Energy Northwest – Condenser tube replacement ($35M) Surety bonds to back-up Energy Northwest debt to free up cash this year: $56M Areas still in play (could be up to $600M) –Fish & wildlife program and operation expenses –Residential and small farm benefits to IOUs –Enron contracts portfolio settlement –Other expense reductions from Energy Northwest –Additional surety bonds to free-up cash for FY04-05 We Have Deferred Some Expenses & Are Planning To Free Up Some Cash

9 FY03-06 Expense Reductions & Deferrals Internal Operating Costs on previous graph. Not portrayed on previous graph. Columbia Generating Station expense deferral on previous graph. Respective amounts portrayed in Corps/Reclamation and Columbia Generating Station bars on previous graph. Not portrayed on previous graph.

10 FY03-06 Expense Reductions & Deferrals Internal Operating Costs on previous graph. Not portrayed on previous graph. Columbia Generating Station expense deferral on previous graph. Respective amounts portrayed in Corps/Reclamation and Columbia Generating Station bars on previous graph. Not portrayed on previous graph.

11 Closing the PBL Net Revenue Gap Combined NR distribution 1) before actions, 2) with highly probable reductions and 3) with highly probable and “low”still under discussion reductions Includes a maximum FB CRAC in FY04-06 in highly probable reductions net revenue and highly probable and “low” still under discussion net revenues Before Actions Net Revenue = ($1.2 B) With highly probable actions net revenue = ($575 M) With highly probable and “low” still under discussion actions net revenue = ($370 M)

12 LB CRAC & FB CRAC – Impact on Rates 0% 10% 20% 30% 40% 50% 60% FY02FY03aFY03bFY04FY05FY06 BPA Fiscal Year Increase over Base Rates LBCRAC increases approximately 8% over May Base Rates in April 2003 $22.3 $31.8 The annual LB CRACs for FY04-06 are expected to exhibit the same seasonality shown in the LB CRACs for FY03a & FY03b. We expect that the FBCRAC triggers to its maximum over FY04-06 resulting in roughly flat rates: $333M

13 SNCRAC – Impact on Rates With only the expense reductions & expense deferrals that are highly probable With expense reductions & expense deferrals that are certain & low - high still under discussion LB CRAC FB CRAC Gap w/High *Assumes secondary revenue achieved at forecasted levels for FY Drop in LB CRAC due to IOU/Public litigation settlement: $200M LB CRAC FB CRAC SN CRAC Gap w/High Gap w/Low

14 SN CRAC – Impact on Rates Under our rate schedule provisions, the safety-net cost recovery adjustment clause (SN CRAC) will “trigger” if the administrator determines 1) BPA forecasts a 50 percent or greater probability that it will nonetheless miss its next payment to Treasury or other creditor, or 2) BPA has missed a payment to Treasury or has satisfied its obligation to Treasury but has missed a payment to any other creditor –The current outlook of our ability to pay Treasury in FY2003 has dropped from the level targeted in our power rate case, but for now is above the level for triggering a safety net CRAC –The probability of paying Treasury is very sensitive to water and market conditions and could go up or down –We are seeking to improve our Treasury payment probability, but unless there is a dramatic increase in net secondary revenue, it is unlikely to get back to historic levels during the rate period

15 Conclusions… We are not proceeding with triggering the SNCRAC rate process right now –Whether or not we trigger the SNCRAC is heavily dependent on … Revenue we receive for our secondary energy which is exposed to market prices and water conditions Additional expense reductions –Fish & wildlife program expenses –Benefits to residential and small farm consumers of IOUs –Contract renegotiations –Other additional expense reductions from Energy Northwest Level of cost deferrals We will reassess whether we will trigger the SNCRAC process after January 1, 2003 –If our hydro condition erodes by 15% this year, our net revenue could decline $150-$200 M –The variability in market prices of + 40% will affect our net revenue by $ M