emerald people’s utility district district’s total net assets increased from $21.0 million in...

KENNETH KUHNS & CO. Certified Public Accountants

570 Liberty Street S.E., Suite 210 Salem, Oregon 97301-3594

Telephone: (503) 585-2550

EMERALD PEOPLE’S UTILITY DISTRICT

AUDIT REPORT

Years Ended December 31, 2008, and 2007

TABLE OF CONTENTS Page Board of Directors and General Manager/Registered Agent 1 Independent Auditor's Report 2 to 3 Management's Discussion and Analysis 4 to 7 Financial Statements: Balance Sheet Exhibit A 8 Statement of Revenues, Expenses and Changes in Net Assets Exhibit B 9 Statement of Cash Flows Exhibit C 10 to 11 Notes to Financial Statements 12 to 24 Required Supplementary Information: Schedule of Funding Progress for Retiree Health Plan Schedule 1 25 Other Supplementary Information: Schedule of Revenues, Operating Expenses and Net Revenues Available for Debt Service Schedule 2 26 Schedule of Bond Debt Service Transactions Schedule 3 27 Schedule of Future Bond Debt Service Requirements Schedule 4 28 Independent Auditor's Comments 29 to 30

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EMERALD PEOPLE'S UTILITY DISTRICT

Board of Directors Bill Tanner PO Box 921 President Pleasant Hill, Oregon 97455 Penny Jordan 91947 Marcola Road Vice-President Springfield, Oregon 97478 Bruce Pilling 2960 Hillside Drive Treasurer Cottage Grove, Oregon 97424 Patti Chappel PO Box 1120 Director Veneta, Oregon 97487 Katherine Schacht 31499 Coburg Bottom Loop Road Director Eugene, Oregon 97408

General Manager/Registered Agent

Frank Lambe 33733 Seavey Loop Road Eugene, Oregon 97405

MANAGEMENT'S DISCUSSION AND ANALYSIS

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EMERALD PEOPLE’S UTILITY DISTRICT

MANAGEMENT'S DISCUSSION AND ANALYSIS The Governmental Accounting Standards Board has issued GASB 34, which requires all governmental entities to add this section to their annual report. It is referred to as the Management's Discussion and Analysis (MD&A). This section is meant to help the reader understand better, through the eyes of management, the financial activities based on current known facts, decisions and other conditions. Please read this with the understanding that it is a summary of the past two years activities, as well as some expected future conditions. Be sure to review the financial statements and accompanying notes that follow this report. OVERVIEW OF THE FINANCIAL STATEMENTS The Annual Audit Report includes Management’s Discussion and Analysis, Financial Statements with accompanying notes, Required Supplementary Information, Other Supplementary Information, Independent Auditor’s Comments and the Independent Auditor’s Report. The financial statements of the District are designed to provide readers with a broad overview of the District’s finances similar to a private-sector business. They have been prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). Under this basis of accounting, revenues are recognized in the period in which they are earned and expenses are recognized in the period in which they are incurred, regardless of the timing of related cash flows. These statements offer short- and long-term financial information about the District’s activities. The Balance Sheet presents information on all of the District’s assets and liabilities and provides information about the nature and amounts of investments in resources (assets) and the obligations to District creditors (liabilities). It also provides the basis for computing rate of return, evaluating the capital structure of the District and assessing the liquidity and financial flexibility of the District. All of the current year’s revenues and expenses are accounted for in the Statement of Revenues, Expenses and Changes in Net Assets. This statement provides a measurement of the District’s operations over the past year and can be used to determine whether the District has successfully recovered all its costs through rates and other charges and to analyze profitability and credit worthiness. The Statement of Cash Flows provides relevant information about the District’s cash receipts and cash payments during the reporting period. This statement reports cash receipts and cash payments resulting from operating, financing and investing activities. When used with related disclosures and information, a statement of cash flows should provide insight into (a) the District’s ability to generate future net cash flows, (b) the District’s ability to meet its obligations as they come due, (c) the District’s needs for external financing, (d) the reasons for differences between operating income and associated cash receipts and payments and (e) the effects on the District’s financial position of both its cash and its non cash investing, capital and financing transactions during the period. The changes in cash balances are an important indicator of the District’s liquidity and financial condition. Notes to financial statements. The notes provide additional information that is essential to a full understanding of data provided in the financial statements. This includes, but is not limited to, significant accounting policies, significant financial statement balances and activities, material risks, commitments and obligations and subsequent events, as applicable. FINANCIAL HIGHLIGHTS

The District’s total assets increased $2.49 million from 2007 to 2008. An increase in utility plant assets of $3.4 million, which includes $996,386 of customer contributions for power line extensions and subdivision development, and an increase in depreciation reserves of $2.3 million left an overall increase in net utility plant of $1.1 million. Cash increased $72,000 and special deposits for bond funds decreased $379,682. Accounts receivable net of the provision for uncollectible accounts increased $322,398.

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Long-term debt decreased $4.0 million. Current liabilities increased by $793,363 including current maturities of long-term debt, which increased $85,150. Other liabilities and deferred credits decreased $669,091, which includes the collection of funds from two large industrial customers for public purpose spending. Public purpose funds decreased by $300,541. Once the industrial customer obtains approval for an energy efficient project, the funds are returned. Cash is held in a separate account to fund this accrual.

Due to the downgrade of the FGIC Surety Bond Series 1996 Reserve Fund, the District is required to

fund $2.9 million over 12 months starting in February 2009. This will be funded with other investments the District is holding.

The District’s total net assets increased from $21.0 million in 2007 to $27.3 million in 2008. The District concentrated on keeping rates stable by keeping cost down, and requiring new line extensions and subdivision development to be paid by customers.

Balance Sheet (thousands)

Assets 2008 2007 Change Net utility plant $ 63,023 $ 61,917 $ 1,106 Notes and Loans Receivable 289 970 -681 Investments in associated organizations 751 0 751 Other Cash and Investments 2,423 2,424 -1 66,486 65,311 1,175 Cash and temporary investments 13,343 13,271 72 Notes & accounts receivable - net 4,063 3,740 323 Other Current Assets 1,197 1,176 21 Total current assets 18,603 18,187 416 Other assets and deferred debits 6,940 6,036 904 Total assets $ 92,029 $ 89,534 $ 2,494 Liabilities Long term debt $ 54,732 $ 58,730 $ -3,998 Current Liabilities 9,140 8,346 794 Other liabilities and deferred credits 803 1,472 -669 Total liabilities 64,675 68,548 -3,873 Net Assets Invested in Capital Assets 4,526 -244 4,770 Restricted for Rate Stabilization Fund 2,375 2,375 0 Restricted for Debt Service 1,599 1,953 -354 Unrestricted 18,854 16,903 1,951 Total Net Assets 27,354 20,987 6,367 Total liabilities and net assets $ 92,029 $ 89,534 $ 2,494

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Revenues

Revenue from sales of electricity, excluding the two large industrial customers, increased $584,021, a 1.9% change from 2007. Revenue for Large Industrial customers decreased $52,422, as a result of Pope & Talbot decreasing production and filing Chapter 11. Pope & Talbot sold the mill to Cascade Pulp & Paper in mid July. Large Industrial customer revenue reflects a fixed contribution to base revenue, any operations and maintenance on the system serving the two mills plus their responsibility to pay debt service for a new substation, property taxes, annexation funding, and transmission services. Miscellaneous electric revenue ($3,466,707 in 2008) increased $3.323 million from 2007 primarily from the $2.8 million increase in sales for resale from the wind power purchase.

Power Supply

Emerald is a full requirements customer of Bonneville Power Administration (BPA). The District purchased 2.9% less energy in 2008, but due to the demand/energy relationship paid 2.58% less for the average kWh price (part of the reduction is due to Residential Exchange rebate, see next paragraph) 3.02 cents per kWh in 2008 compared to 3.10 in 2007. In addition, power cost in 2008 includes $624,616 in transmission services for one large industrial customer, without energy (kWh). The one large industrial customer purchased energy directly from the open market, and is responsible for its own purchases.

The District received some funds and credits as a result of a settlement reached between Bonneville Power Administration (BPA) and the Investor Owned Utilities (IOU’s) receiving the Residential Exchange Program. Emerald received funds in 2008 of $1.6 million in May and $397,564 in October. These funds were applied against the cost of purchase power. The District is receiving credits on the BPA billing statements starting in October 2008 through September 2009 of $126,807. In October 2009 the BPA billing credit changes to $63,000 per month until September 2015.

The District has a purchase power agreement with LLP Wind, LLC to purchase wind power from White Creek Wind Farm. Since we are not yet using the power on our lines we are reselling it to an outside source. When the power is needed for the District it will be brought back on to our lines for customer use. In 2008 our purchase of wind power was $2,744,017 and the resale amount was $2,762,952 with net sales of $18,935.

In 2008 the District formed two Limited Liability Corporations (LLC’s) with our partner Symbiotics, LLC. There now exists Dorena Hydro, LLC and Fall Creek Hydro, LLC that will be the legal entities responsible for the development of two hydroelectric plants we are pursuing. The Dorena Hydro, LLC has obtained the FERC license in October 2008 and is in the design phase of the project. The Fall Creek Hydro, LLC has a FERC permit to study, and is currently working on obtaining the FERC license to construct. The District used $512,338 of Public Purpose funds to help in the development of these projects.

Bonneville is required by federal law to recover all of its costs through the rates it charges its customers and to make various rate filings with FERC. Bonneville’s rates increased significantly because of higher costs incurred by Bonneville during the first five years of the power sales contract. These rate changes were implemented through three separate Cost Recovery Adjustment Clauses (“CRACs”) that applied to rates from October 1, 2001 through September 30, 2006. The CRAC adjustments in these years caused power costs to increase periodically as much as 50%. The recently completed three-year rate case resulted in lower rates beginning in October 2006. Bonneville replaced the three CRACs with one CRAC, a dividend distribution clause and an adjustment for certain fish and wildlife costs that will provide that rate levels for each of the three fiscal years would be subject to an annual adjustment on the basis of forecasted financial results for the prior fiscal year.

In 2008, 52.9% of operating expenses were for acquisition of power. Emerald owns a small methane generation plant at the Lane County landfill. The power is sold back to Bonneville through a billing credits contract. Cost to produce power in 2008 was $7,097 more than 2007, and produced 9.4% increase in power (1,422,715 kWh) due to new wells, landfill expansion and better technology in developing cells. The net benefit to the District as a result of the methane plant in 2008 was $150,778, up from $114,732 from 2007.

Other Operation Expenses

Distribution expense – Operations decreased $102,868 or 9.6%. Maintenance costs increased $481,110 or 23.4%. Cost of customer accounts expense increased $57,126, or 3.8%. Customer service and informational and conservation expense increased $156,783 or 19.3%. Administrative expenses decreased $74,304 or 2.9%.

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Income Statement (thousands)

2008 2007 Difference Percent Sales of electricity $ 32,058 $ 31,474 584 1.9% Large Industrial 1,752 1,805 -53 -2.9% Other Operating Revenues 3,467 143 3,324 2,318.3% Total Operating Revenue $37,277 $33,422 $3,855 11.5% Generation expense -132 -177 45 Purchased power -15,058 -15,125 67 Total cost of power -15,190 -15,302 112 -0.7% Other Operating Expenses -8,548 -8,009 -539 6.7% Depreciation and amortization -4,125 -3,491 -634 18.1% Taxes -873 -826 -47 5.6% Interest and other deductions -3,624 -3,863 239 -6.2% Cost of electric service -32,360 -31,492 -868 2.8% Operating revenues over cost of electric service 4,917 1,930 2,987 Interest and other income 1,450 1,350 100 7.4% Net income $ 6,367 $ 3,280 3,087 94.1% 2009 Budget Review

The 2009 budget was approved at $41,179,840, $279,349 less than the 2008 approved budget and $1,531,036 more than estimated expenditures for 2008. Cost of power is $253,500 higher, operations and maintenance $55,819 higher, general capital expenditures $1,124,921 higher, debt service payments $4,747 higher, and taxes and franchise fees $66,761 higher. General capital expenditures are $1,150,207 higher due to the Dorena and Fall Creek Dam Projects of $1.1 million. The 2009 budget is based on prices (rates) adopted by the Board of Directors September 1, 2007 with an estimated 5% rate increase effective May 1, 2009.

Five year comparison, stated in percentage of total operating revenue

2008 2007 2006 2005 2004 Operating revenues

Thousands of dollars $ 37,277 $ 33,422 $ 33,086 $ 31,988 $ 31,794

Percent 100.0% 100.0% 100.0% 100.0% 100.0%

Deduct: Cost of power -40.7% -45.8% -48.3% -48.4% -49.3%

Other operating expenses -36.3% -36.9% -34.4% -33.4% -34.0%

Net operating revenues 22.9% 17.3% 17.3% 18.2% 16.7%

Interest and other income 3.9% 4.0% 3.9% 2.5% 1.8%

Total net operating revenues,

interest and other income 26.8% 21.4% 21.1% 20.7% 18.5%

Deduct: Interest and other charges 9.7% 11.6% 11.7% 12.0% 12.5%

Net Income 17.1% 9.8% 9.4% 8.7% 6.0%

FINANCIAL STATEMENTS

EXHIBIT AEMERALD PEOPLE'S UTILITY DISTRICT

Balance Sheet

December 31,Assets 2008 2007

Electric plant: (Note 2)In service - at cost 96,818,320$ 93,625,069$ Acquisition adjustment (Note 3) 18,992,352 18,992,352 Construction work in progress 1,555,769 1,339,828

Total electric plant 117,366,441 113,957,249

Less:Accumulated provision for depreciation (39,881,527) (38,305,537) Accumulated provision for amortization

of acquisition adjustment (Note 3) (14,461,958) (13,734,680)

Net electric plant 63,022,956 61,917,032

Other assets and investments:Notes and loans receivable (Note 4) 289,585 969,917 Investments in associated organizations (Note 5) 750,747 - Cash and investments: (Note 6)

Rate stabilization fund 2,375,000 2,375,000 Loan accounts 48,218 48,810

Total other assets and investments 3,463,550 3,393,727

Current assets:Cash and investments: (Note 6)

Cash and cash equivalents 5,703,001 5,502,039 Investments 5,621,738 5,370,996 Special deposits related to bonds 2,017,926 2,397,608

Accounts receivable (net of allowance for doubtful accountsof $63,528 in 2008 and $65,191 in 2007) 4,062,888 3,740,490

Interest receivable - 71,360 Materials and supplies 859,614 747,849 Prepayments 337,445 357,035

Total current assets 18,602,612 18,187,377

Deferred charges: Unamortized debt expense (Note 7) 4,284,410 4,913,101 Preliminary investigation - hydro projects 1,277,320 - Other deferred charges 1,378,113 1,123,253

Total deferred charges 6,939,843 6,036,354

Total assets 92,028,961$ 89,534,490$

The accompanying notes are an integral part of this statement.

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EXHIBIT AEMERALD PEOPLE'S UTILITY DISTRICT

Balance Sheet

December 31,Net Assets and Liabilities 2008 2007

Net assets:Invested in capital assets - net of related debt 4,526,295$ (244,357)$ Restricted for rate stabilization fund 2,375,000 2,375,000 Restricted for debt service 1,599,090 1,952,520 Unrestricted 18,853,835 16,903,375

Total net assets 27,354,220 20,986,538

Long-term debt:Bonds payable, less current maturities (Note 7) 53,215,000 56,910,000 Unamortized premium (Note 7) 1,220,751 1,307,209 Unamortized discount (Note 7) (46,942) (50,335) Loans payable, less current maturities (Note 8) 343,467 562,885

Net long-term debt 54,732,276 58,729,759

Current liabilities:Current maturities of bonds payable (Note 7) 3,695,000 3,510,000 Current maturities of loans payable (Note 8) 204,843 304,693 Accounts payable 2,434,921 2,013,313 Customer deposits 270,907 229,610 Accrued interest 467,054 493,898 Accrued payroll and employee benefits 2,037,695 1,769,176 Other accruals 29,374 25,741

Total current liabilities 9,139,794 8,346,431

Other liabilities and deferred credits:Unamortized gain on debt reacquisition (Note 7) 82,817 99,951 Deferred credits 719,854 1,371,811

Total other liabilities and deferred credits 802,671 1,471,762

Total net assets and liabilities 92,028,961$ 89,534,490$

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EXHIBIT BEMERALD PEOPLE'S UTILITY DISTRICT

Statement of Revenues, Expenses and Changes in Net Assets

Years Ended December 31,2008 2007

Operating revenues:Sales of electricity:

Residential 21,098,348$ 19,432,187$ Commercial and industrial 10,413,081 11,547,897 Irrigation 487,360 437,793 Other 2,896,898 120,905

Other operating revenues 2,381,428 1,883,384

Total operating revenues 37,277,115 33,422,166

Operating expenses:Cost of power 15,189,474 15,301,601 Distribution expense:

Operation 966,604 1,069,472 Maintenance 2,533,784 2,052,674

Customer accounts expense 1,561,574 1,504,448 Customer service and informational and conservation expense 968,313 811,530 Administrative and general expense 2,497,049 2,571,353 Depreciation 3,397,769 2,764,210 Amortization of electric plant acquisition adjustment 727,279 727,279 Taxes 872,775 826,111

Total operating expenses 28,714,621 27,628,678

Net operating revenues 8,562,494 5,793,488

Other income:Investment income 613,933 948,240 Patronage capital credits 482,486 - Gain on sale of plant 5,992 69,626 Miscellaneous income 347,733 331,871

Total net operating revenues and other income 10,012,638 7,143,225

Interest and other deductions:Interest on debt 3,143,954 3,338,096 Less amount charged to construction (48,187) (3,405) Other interest expense 20,697 - Amortization of debt premium, discount, expense and gain 528,492 528,491

Total interest and other deductions 3,644,956 3,863,182

Net income 6,367,682 3,280,043

Net assets - beginning of year 20,986,538 17,706,495

Net assets - end of year 27,354,220$ 20,986,538$

The accompanying notes are an integral part of this statement.-9-

EXHIBIT C


Statement of Cash Flows


Cash flows from operating activities:Cash received from customers 36,996,014$ 33,841,188$ Cash payments for purchased power (15,020,344) (15,296,780) Cash payments to suppliers for goods and services (4,742,302) (3,695,520) Cash payments to employees for services (4,335,438) (4,365,374)

Net cash provided by operating activities 12,897,930 10,483,514

Cash flows from capital and related financing activities:Principal payments on bonds payable (3,510,000) (3,330,000) Principal payments on loans payable (319,268) (292,251) Principal payments on lease purchase obligation - (57,748) Interest payments on debt, net of amount capitalized (3,122,611) (3,359,334) Other interest (20,697) - Construction and acquisition of plant (6,873,826) (8,187,891) Proceeds from sale of plant 10,769 77,011

Net cash used in capital and relatedfinancing activities (13,835,633) (15,150,213)

Cash flows from investing activities:Receipts from notes receivable 219,944 249,189 Receipts from loans receivable 24,424 46,637 Loans receivable advances - (56,010) Net decrease-(increase) in:

Loan debt service reserve 592 (26) Investments (250,742) (346,209) Construction funds - Series 2006 bond issue - 5,609,749 Special deposits related to bonds 379,682 (250,004)

Investment income 685,293 948,240 Investments in associated organizations (399,231) - Payments received for patronage capital credits 130,970 - Miscellaneous income 347,733 331,871

Net cash provided by investing activities 1,138,665 6,533,437

Net increase in cash and cash equivalents 200,962 1,866,738

Cash and cash equivalents - beginning of year 5,502,039 3,635,301

Cash and cash equivalents - end of year 5,703,001$ 5,502,039$


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EXHIBIT C(Continued)


Statement of Cash Flows


Reconciliation of net operating revenues to net cashprovided by operating activities:

Net operating revenues 8,562,494$ 5,793,488$ Adjustments to reconcile net operating revenues to

net cash provided by operating activities:Depreciation 3,397,769 2,764,210 Amortization 727,279 727,279 Decrease-(increase) in:

Accounts receivable (322,398) 397,494 Materials and supplies (111,765) 114,330 Prepayments 19,590 (9,900) Other deferred charges 217,240 217,239

Increase-(decrease) in:Accounts payable 394,812 (79,608) Customer deposits 41,297 21,528 Accrued payroll and employee benefits 268,519 265,871 Other accruals 3,633 1,858 Other deferred credits (300,540) 269,725

Total adjustments 4,335,436 4,690,026

Net cash provided by operating activities 12,897,930$ 10,483,514$

Noncash investing, capital and financing activities:Debt premium, discount, expense and gain 528,492$ 528,491$ Amortization of debt premium, discount, expense and gain (528,492) (528,491) Carrying amount of property sold 4,777 (7,385) Gain-(loss) on disposition of property (4,777) 7,385 Investments in associated organizations (351,516) - Patronage capital credits 351,516 - Deferred installation costs (351,417) 263,653 Deferred installation costs capitalized 351,417 (263,653)

Total noncash investing, capital and financing activities -$ -$


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Notes to Financial Statements December 31, 2008, and 2007

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1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Emerald People's Utility District is a people's utility district organized under Oregon

Revised Statutes Chapter 261 operating principally as a power distribution utility. It has the authority to set rates and charges for commodities and services furnished. The District's service area is primarily located in Lane County and consists of two sectors, one north of Eugene and Springfield, the other to the south and east of Eugene and Springfield. The District also serves two mills in Halsey, Oregon. Substantially all revenues are derived from the sale of electric power to residential, commercial and industrial customers as well as the resale of electric power purchased from the White Creek Wind Project to a power marketer.

The Governmental Accounting Standards Board (GASB) is the accepted standard

setting body for establishing governmental accounting and financial reporting principles. The District applies all applicable Governmental Accounting Standards Board (GASB) pronouncements and all applicable Financial Accounting Standards Board (FASB) statements and interpretations, Accounting Principles Board (APB) opinions and Accounting Research Bulletins (ARB) issued on or before November 30, 1989, unless they conflict with or contradict GASB pronouncements. Additionally, although the District is not subject to the regulations of the Federal Energy Regulatory Commission (FERC), its accounting policies generally conform to the accounting requirements of the FERC. Significant accounting policies are described below.

The preparation of financial statements in conformity with generally accepted

accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Reporting Entity - The financial statements of the District include all financial activities for which the Board of Directors is financially accountable. The District has no component units.

Recognition of Revenue - Utility revenues are recognized on the accrual basis, whereby unbilled revenues are estimated and recorded in the period in which the revenue is earned.

Investments - Investments are stated at fair value.

Investments in associated organizations - Investments in associated organizations consist of patronage capital credits allocated by certain cooperative organizations of which the District is a member and the District’s investment in two limited liability companies (LLC). These investments are stated at cost.

Cash Equivalents - For purposes of the cash flows statement, the District considers all highly liquid investments purchased with original maturities of three months or less to be cash equivalents. Cash and investments shown as segregated funds, construction funds (unspent bond proceeds) and special deposits related to bonds are restricted, and are therefore not considered to be cash equivalents.

EMERALD PEOPLE'S UTILITY DISTRICT Notes to Financial Statements December 31, 2008, and 2007

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1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (Contd)

Materials and Supplies - Inventories of materials and supplies are carried at average cost.

Deferred Items - Established utility accounting procedures permit deferral of items which affect the time at which various items enter into the determination of net income.

Amortization - Bond issuance costs are being amortized over the terms of the respective bond issues. Unamortized loss or gain on debt reacquisition is being amortized over the terms of the respective refunding bond issues, except for unamortized loss related to the Series 2003A Bonds which is being amortized over the remaining term of the Series 1992 Bonds.

Additional significant accounting policies are summarized in Notes 2 and 3. 2 - ELECTRIC PLANT AND DEPRECIATION PROCEDURES:

Electric plant activity for the year ended December 31, 2008 was as follows:

Balance Balance

January 1, 2008 Increases Decreases December 31, 2008

Electric plant not being depreciated:Land 347,941$ -$ -$ 347,941$ Construction in progress 1,339,828 3,736,241 3,520,300 1,555,769

Total electric plant not being depreciated 1,687,769 3,736,241 3,520,300 1,903,710

Electric plant being depreciated:Production 3,495,440 531,030 - 4,026,470 Transmission 1,512,366 4,798 2,540 1,514,624 Distribution 76,734,191 3,501,321 1,136,376 79,099,136 General 11,463,376 313,091 12,691 11,763,776 Intangible plant 71,755 - 5,382 66,373 Acquisition adjustment 18,992,352 - - 18,992,352

Total electric plant being depreciated 112,269,480 4,350,240 1,156,989 115,462,731

Less accumulated depreciation 38,305,537 3,342,372 1,766,382 39,881,527 Less accumulated provision for

amortization of acquisition adjustment 13,734,680 727,278 - 14,461,958

Total electric plant being depreciated, net 60,229,263 280,590 (609,393) 61,119,246

Electric plant, net 61,917,032$ 4,016,831$ 2,910,907$ 63,022,956$

Electric plant is recorded at cost. The cost of additions, renewals and replacements of

property is added to plant, and repairs and maintenance of property is charged to expense. The District capitalizes an allowance for funds used during construction equivalent to the interest cost incurred to finance plant under construction. Property units renewed or replaced are removed from plant at their average cost. The cost of plant retired, plus removal cost, less salvage, is charged to the depreciation reserve.


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2 - ELECTRIC PLANT AND DEPRECIATION PROCEDURES: (Contd)

Provision has been made for depreciation of electric plant on annual straight-line composite rates as follows:

Production plant 3.1% - 15.5% Transmission plant 2.8% Distribution plant 1.8% - 4.0% General plant 2.0% - 14.0% 3 - ELECTRIC PLANT ACQUISITION ADJUSTMENT:

The electric plant acquisition adjustment is the excess cost over the established value of electric plant purchased from Pacific Power and Light Company (currently Pacificorp) in 1983 and 2002. The 1983 acquisition adjustment totaled $16,777,342 and is being amortized over a life of 30 years. The 2002 acquisition adjustment totaled $2,215,010 and is being amortized over a life of 20 years.

4 - NOTES AND LOANS RECEIVABLE:

Notes and loans receivable are comprised of the following as of December 31, 2008, and 2007:

2008 2007Notes receivable:

Biomass Energy Partners II -$ 435,964$ Bonneville Power Administration 143,621 363,565

Weatherization and other loans receivable 145,964 170,388

Total 289,585$ 969,917$

The note receivable from Biomass Energy Partners II represented the balance due under the District's agreement to sell the gas collection system portion of its Short Mountain Methane Generating Plant. The note was due on December 31, 2008 with interest at 12% per annum, and was secured through a lien on the gas collection system. The District reacquired the gas collection system after Biomass Energy Partners II failed to pay the amounts due under the agreement.

The note receivable from the Bonneville Power Administration (BPA) represents the balance due under the District's Conservation Power Plant Agreement with BPA. Under the terms of the agreement, BPA has agreed to reimburse the District for debt service payments made to the State of Oregon, Department of Energy under the Small Scale Energy Loan Program. The proceeds from the Loan Program were used to finance a package of diverse energy conservation programs under the Conservation Power Plant Agreement.

Weatherization loans consist of amounts purchased in connection with the 1983 plant acquisition and amounts loaned under the District's conservation program. Loans purchased in connection with the 1983 plant acquisition are secured through liens against the related property.


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5 - INVESTMENTS IN ASSOCIATED ORGANIZATIONS:

Investments in associated organizations consisted of the following at December 31, 2008:

Fall Creek Hydro LLC 387,513$ Dorina Hydro LLC 11,718 Patronage capital credits invested in National

Rural Telecommunications Cooperative 349,328 All other 2,188

Totals 750,747$

The LLC investments represent the District's fifty percent ownership in the hydro-electric power projects that are being developed by the LLCs.

6 - CASH AND INVESTMENTS:

Cash and investments are comprised of the following as of December 31, 2008, and 2007:

2008 2007

Working funds 970$ 970$ Deposits with financial institutions 5,040,593 4,990,835 Investments held by State of Oregon,

Department of Energy 48,218 48,810 Investments 10,676,102 10,653,838

Total cash and investments 15,765,883$ 15,694,453$

Deposits

Deposits with financial institutions include bank demand deposits. The total bank balance, as shown on the banks' records, was $5,115,268 at December 31, 2008, and $5,129,440 at December 31, 2007. Of these deposits, the total covered by federal depository insurance was $500,000 at December 31, 2008, and $200,000 at December 31, 2007.

Effective July 1, 2008, the Oregon State Treasurer became responsible for monitoring public funds held by bank depositories in excess of FDIC insured amounts, and for assuring that public funds on deposit are collateralized to the extent required by Oregon Revised Statutes (ORS) Chapter 295. ORS Chapter 295 requires depository banks to place and maintain on deposit with a third-party custodian bank securities having a value of 10%, 25% or 110% of public funds on deposit depending primarily on the capitalization level of the depository bank.

Custodial credit risk for deposits is the risk that in the event of a bank failure, the District’s deposits may not be returned to it. The District does not have a policy for deposits custodial credit risk. Of the District’s bank balance, $4,615,268 was exposed to custodial credit risk as of December 31, 2008, because deposits in excess of FDIC insurance were uncollateralized and/or were collateralized but not held by the third-party custodian bank in the District’s name.


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6 - CASH AND INVESTMENTS: (Contd)

Deposits (Contd)

Prior to July 1, 2008, every Oregon municipal corporation was responsible for monitoring its public funds held by bank depositories in excess of FDIC insured amounts, and for assuring that its public funds on deposit were collateralized to the extent required by state law. The District’s deposits were collateralized to the extent required by state law during 2007 and through June 30, 2008. However, under Governmental Accounting Standards Board Statement No. 40, the District’s deposits were exposed to custodial credit risk during this period because deposits in excess of FDIC insurance were uncollateralized and/or were collaterialized but not held by the third-party custodian bank in the District’s name.

Investments Held by State of Oregon, Department of Energy

The investments held by State of Oregon, Department of Energy are in connection with the Small Scale Energy Loan Program and consist of a debt service reserve with a balance of $48,218 and $48,810 at December 31, 2008, and December 31, 2007, respectively.

Investments

State statutes authorize the District to invest in general obligations of the U.S. Government and its agencies, certain bonded obligations of Oregon municipalities, bank repurchase agreements, bankers' acceptances, and the Oregon Local Government Investment Pool, among others. The District has no investment policy that would further limit its investment choices.

The composition of the District's investments as of December 31, 2008, and 2007, is shown below:

2008 2007

Fair Value Percent Fair Value Percent

Money funds 446,018$ 4.2% 121,738$ 1.1%U.S. Government agencies securities:

Federal Home Loan Mortgage Corporation 3,174,480 29.6% 3,362,288 31.4%Federal National Mortgage Association 5,084,888 47.4% 5,094,752 47.6%Federal Home Loan Bank 208,917 1.9% - 0.0%Government National Mortgage Association 183,690 1.7% 240,306 2.3%

U.S. Government securities 477,928 4.5% 479,777 4.5%Investment in Oregon Local Government

Investment Pool 1,049,815 9.8% 1,299,000 12.1%Investments held by State of Oregon,

Department of Energy 48,218 0.4% 48,810 0.5%Other 50,366 0.5% 55,977 0.5%

Total investments 10,724,320$ 100.0% 10,702,648$ 100.0%

The Oregon Local Government Investment Pool is an open-ended, no-load diversified portfolio pool. The fair value of the District’s position in the pool is substantially the same as the value of the District’s participant balance.


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6 - CASH AND INVESTMENTS: (Contd)

Investments (Contd)

The Oregon Local Government Investment Pool is an external investment pool which is part of the Oregon Short-Term Fund. Investment policies are governed by the Oregon Revised Statues and the Oregon Investment Council (Council). The State Treasurer is the investment officer for the Council. Investments are further governed by portfolio guidelines issued by the Oregon Short-Term Fund Board. The Oregon Short-Term Fund does not receive credit quality ratings from nationally recognized statistical rating organizations.

Interest rate risk is the risk that changes in interest rates will adversely affect the fair value of an investment. The Oregon Short-Term Fund manages this risk by limiting the maturity of the investments held by the fund. Weighted average maturities of investments in the Oregon Short-Term Fund at December 31, 2008 were: 67% mature within 93 days, 16% mature from 94 days to one year, and 17% mature from one to three years. Weighted average maturities of investments in the Oregon Short-Term Fund at December 31, 2007 were: 79% mature within 93 days, 5% mature from 94 days to one year, and 16% mature from one to three years.

As of December 31, 2008, and 2007, maturities for the District’s other investments are as follows:

2008 2007Less than One to Two Less than One to TwoOne Year Years One Year Years

Money funds 446,018$ -$ 121,738$ -$ U.S. Government agencies securities 8,651,975 - 8,697,346 - U.S. Government securities 477,928 - 479,777 - Investments held by State of Oregon,

Department of Energy 48,218 - 48,810 - Other 50,366 - 55,977 -

Total 9,674,505$ -$ 9,403,648$ -$

Investments in U.S Government agencies securities consist of U.S. Government instrumentalities which are generally rated AAA by Standard & Poor’s and/or Aaa by Moody's. The District’s investments in U.S. Government securities consist of U.S. Treasury securities which do not require a rating.

Custodial credit risk for investments is the risk that, in the event of the failure of the counterparty, the District will not be able to recover the value of its investments or collateral securities that are in the possession of an outside party. The securities underlying the District’s investment in money funds, U.S. Government agencies securities, and U.S. Government securities are held by the District’s counterparty, not in the District’s name.

The District established a rate stabilization fund as permitted by the District's Master System Bond Resolution. The District funded the rate stabilization fund from temporary cash investments. The Resolution allows the District to use amounts in this fund for its debt service coverage calculation as defined in the District's Master System Bond Resolution.


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7 - BONDS PAYABLE: At December 31, 2008, bonds payable consist of the following: Current Long-Term Electric System Revenue Bonds, Series 1996, due annually through 2013 plus interest at 7.35%. Bonds are not subject to optional redemption prior to their stated maturities. $2,010,000 $9,650,000 Electric System Refunding Revenue Bonds, Series 2003A, due annually through 2022 plus interest from 3% to 5.25%. Bonds maturing on or after November 1, 2014 are redeemable, at the option of the District, on or after November 1, 2013, in whole or in part at par plus accrued interest, if any, to the date of redemption. 560,000 26,710,000 Electric System Revenue Obligations, Series 2003B, due annually through 2022 plus interest from 3% to 4.5%. Bonds maturing on or after November 1, 2014 are redeemable, at the option of the District, on or after November 1, 2013, in whole or in part at par plus accrued interest, if any, to the date of redemption. 390,000 5,855,000 Second Lien Electric Revenue Obligations, Series 2003C, due annually through 2012 plus interest at 4.45%. Bonds are not subject to optional redemption prior to their stated maturities. 550,000 1,805,000 Second Lien Electric Revenue Obligations, Series 2003D (Taxable), due annually through 2012 plus interest at 5.25%. Bonds are not subject to optional redemption prior to their stated maturities. 185,000 620,000 Electric System Revenue Obligations, Series 2006, due annually through 2026 plus interest from 4.25% to 5%. Bonds maturing on or after November 1, 2016 are redeemable, at the option of the District, on or after November 1, 2015, in whole or in part at par plus accrued interest, if any, to the date of redemption. - 8,575,000 Unamortized premium - 1,220,751 Unamortized discount - (46,942) Totals $3,695,000 $54,388,809


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7 - BONDS PAYABLE: (Contd) As of December 31, 2008, scheduled maturities of bond and revenue obligations

principal and interest are as follows:

Total Principal Interest

2009 6,570,854$ 3,695,000$ 2,875,854$ 2010 6,643,962 3,905,000 2,738,962 2011 6,652,689 4,140,000 2,512,689 2012 7,008,990 4,740,000 2,268,990 2013 6,124,313 4,130,000 1,994,313 2014-2018 24,666,468 17,440,000 7,226,468 2019-2023 19,325,595 16,670,000 2,655,595 2024-2026 2,385,185 2,190,000 195,185

Total 79,378,056$ 56,910,000$ 22,468,056$

In 2003, the District extinguished $31,105,000 of Electric System Revenue

Refunding Bonds, Series 1992 by redeeming those bonds with the proceeds of the Electric System Refunding Revenue Bonds, Series 2003A. The excess of the reacquisition price of the extinguished debt over its carrying value is included in deferred charges and is being amortized over the remaining term of the Series 1992 Bonds.

Unamortized debt expense at December 31, 2008, shown in deferred charges includes

$3,291,812 which represents the excess of the reacquisition price of defeased debt over its carrying value for bond issues which were refunded. This unamortized debt expense is being amortized over the terms of the respective refunding bond issues, except for unamortized debt expense related to the Series 2003A Bonds which is being amortized over the remaining

term of the Series 1992 Bonds. Bond issuance costs of $992,598 for Series 2006, Series 2003 and Series 1996 Bonds are also included in unamortized debt expense at December 31, 2008, and are being amortized over the terms of the respective bond issues.

Unamortized gain on debt reacquisition of $82,817 at December 31, 2008 represents the excess of the carrying value of the refunded bond issue over the reacquisition price of the refunded debt. The unamortized gain is being amortized over the term of the refunding bond issue.

Due to a downgrade of the surety bond issued to satisfy the District’s System Reserve

Account requirement on the Series 1996 bond issue, the District is required to fund the reserve account with permitted investments totaling the maximum annual debt service of $2,875,515 over a twelve month period beginning in 2009.


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8 - LOANS PAYABLE:

Loans payable consist of the following amounts due to the State of Oregon, Department of Energy under the Small Scale Energy Loan Program at December 31, 2008, and 2007:

2008 2007

Short Mountain Methane Generating Plant Loan 412,852$ 484,515$ Conservation Power Plant Loan 135,458 383,063

Total 548,310$ 867,578$

The Short Mountain Methane Generating Plant Loan, in the original amount of

$1,067,282, was received during 1994. The proceeds were used to replace funds used for expansion of the plant during 1993. The loan is payable in monthly installments of $7,794, including interest at 6.18% per annum.

In May 1994, the District executed a loan agreement to implement a package of diverse energy conservation programs under a Conservation Power Plant Agreement with BPA to reduce electric power consumption and to promote energy conservation within the District. Under the agreement the District executed a promissory note in the principal sum of $1,000,000 on July 14, 1994, and executed a second promissory note in the principal sum of $1,402,247 on September 19, 1994. The first note is payable in monthly installments of $8,547, including interest at 6.20% per annum. The second note is payable in monthly installments of $12,565, including interest at 4.13% per annum.

Scheduled maturities of loan principal and interest are as follows:

Total Principal Interest

2009 231,328$ 204,843$ 26,485$ 2010 93,528 74,389 19,139 2011 93,528 79,118 14,410 2012 93,529 84,118 9,411 2013 93,528 89,497 4,031 2014 16,480 16,345 135

Total 621,921$ 548,310$ 73,611$


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9 - RETIREMENT PLAN:

The District provides pension benefits for all of its qualified employees through a defined contribution plan. In a defined contribution plan, benefits depend solely on amounts contributed to the plan plus investment earnings. All employees are eligible for the plan after completing one year of service with at least 1000 hours. The plan was authorized by the District's Board of Directors and requires the District to contribute 8.1 percent of salary (excluding overtime and bonuses) and employees to contribute 6 percent of salary. On June 1, 1999, the plan was amended to require the District to contribute 15% of salary for the General Manager. District contributions for each employee (and earnings allocated to the employee's account) are fully vested after five years of continuous service with at least 1000 hours. Contributions for, and earnings forfeited by, employees who leave employment before five years of service are used to reduce the District's current-period contribution requirement.

The total employer contribution requirement was $426,087 in 2008, and $423,258 in 2007. The employee contribution requirement was $298,240 in 2008, and $296,650 in 2007.

10 - POST-EMPLOYMENT HEALTH CARE BENEFITS:

Plan Description

The District administers a single-employer defined benefit healthcare plan. The plan provides post-employment health care benefits for eligible retirees (until age 65) and their dependents through the District's healthcare plan, which covers both active and retired participants. Benefit provisions are established through District policy. The District’s post employment health care plan does not issue a publicly available financial report. The District implemented GASB Statement No. 45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions for the year ending December 31, 2007.

Funding Policy

Contribution requirements are established through District policy. In general, retirees are required to contribute 50% of the standard COBRA premium. Funding was on a pay-as-you-go basis. During 2008, the District contributed $160,724 and participants receiving benefits contributed $58,544 to the plan. During 2007, the District contributed $12,826 and participants receiving benefits contributed $34,559 to the plan.

Annual OPEB Cost and Net OPEB Obligation

The District's annual other post-employment benefit (OPEB) cost is calculated based on the annual required contribution of the employer (ARC), an amount actuarially determined in accordance with the parameters of GASB Statement No. 45. The ARC represents a level of funding that, if paid on an ongoing basis, is projected to cover normal cost each year and amortize any unfunded actuarial liabilities over a 30 year period. The following table shows the components of the District’s annual OPEB cost for the year, amounts actually contributed to the plan, and changes in the District’s net OPEB obligation:


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10 - POST-EMPLOYMENT HEALTH CARE BENEFITS: (Contd)

Annual required contribution 249,633$ Interest on net OPEB obligation - Adjustment to annual required contribution -

Annual OPEB cost 249,633 Contributions made (160,724)

Increase in net OPEB obligation 88,909

Net OPEB obligation - beginning of year 236,807

Net OPEB obligation - end of year 325,716$

The District's annual OPEB cost, the percentage of annual OPEB cost contributed to the plan, and the net OPEB obligation for 2008 and 2007 were as follows:

Percentage ofYear Annual Annual OPEB Net OPEB

Ended OPEB Cost Cost Contributed Obligation

12/31/2007 249,633$ 5.1% 236,807$ 12/31/2008 249,633$ 64.4% 325,716$

Funded Status and Funding Progress

As of January 1, 2007, the most recent actuarial valuation date, the plan was 0% funded. The actuarial accrued liability for benefits was $1,854,994 and the actuarial value of assets was $0, resulting in an unfunded actuarial accrued liability (UAAL) of $1,854,994. The covered payroll (annual payroll of active employees covered by the plan) was $5,823,090 for 2008 and $5,332,715 for 2007 and the ratio of the UAAL to the covered payroll was 32% for 2008 and 35% for 2007.

Actuarial valuations of an ongoing plan involve estimates of the value of reported amounts and assumptions about the probability of occurrence of events into the future. Examples include assumptions about future employment, mortality and the healthcare cost trend. Amounts determined regarding the funded status of the plan and the annual required contributions of the employer are subject to continual revisions as actual results are compared with past expectations and new estimates are made about the future.

Actuarial Methods and Assumptions

Projections of benefits for financial reporting purposes are based on the substantive plan (the plan as understood by the employer and the plan members) and include the types of benefits provided at the time of each valuation and historical pattern of sharing of benefit costs between the employer and the plan members to that point. The actuarial methods and assumptions used include techniques that are designed to reduce the effects of short-term volatility in actuarial accrued liabilities and the actuarial value of assets, consistent with the long-term perspective of the calculations.


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10 - POST-EMPLOYMENT HEALTH CARE BENEFITS: (Contd)

In the actuarial valuation conducted as of January 1, 2007, the frozen attained age actuarial cost method was used. Under this method the excess of the Actuarial Present Value of Projected Benefits of the group included in an actuarial valuation, over the sum of the Actuarial Value of Assets plus the Unfunded Frozen Actuarial Accrued Liability, is allocated on a level basis over the service of the group between the valuation date and assumed exit. This allocation is performed for the group as a whole, not as a sum of individual allocations. The portion of such Actuarial Present Value allocated to a valuation year is called the Normal Cost. Under this method, the Actuarial Gains and Losses are amortized in the same manner as future Normal Costs. Active employees were aggregated into five year age and service cells. Actuarial assumptions included a discount rate of 6% and an annual healthcare cost trend rate of 10% initially, reduced to an ultimate rate of 5% over a 5 year grading period. The District’s unfunded actuarial accrued liability is being amortized using the level-dollar method over a 30 year period.

11 - RISK MANAGEMENT:

The District is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; and natural disasters. The District is a member of Special Districts Insurance Services (SDIS) and pays an annual premium to SDIS for risks of loss including general liability, automobile liability, public official liability and property coverage. Under the membership agreement with SDIS, SDIS is to be self-sustaining through member premiums and will reinsure through commercial companies for claims in excess of certain limits. Settled claims resulting from these risks have not exceeded insurance coverage in any of the past three years.

12 - INCOME TAX STATUS:

The District is a people's utility district organized under Oregon Revised Statutes Chapter 261. As a political subdivision of the State of Oregon, the District is exempt from taxation under the provisions of Section 115 of the Internal Revenue Code.

13 - COMMITMENTS:

Power Purchase Agreements

In June 2005, the District executed a Full Service Power Sales Agreement with the Bonneville Power Administration (BPA) for the period October 1, 2006 through September 30, 2011. Wholesale power rates under this agreement are not fixed.

In December 2008, the District executed a Power Sales Agreement with the

Bonneville Power Administration for the period October 1, 2011 through September 30, 2028. Wholesale power rates under this agreement are not fixed.


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13 - COMMITMENTS: (Contd)

In 2007, the District executed an Energy and Environmental Attributes Purchase Agreement with LL&P Wind Energy, Inc. for the period January 1, 2008 through December 31, 2027 for the purchase of 15 megawatts of capacity from the White Creek Wind Project. The contract price increases annually from $51.97 per MWh in 2008 to $75.71 per MWh in 2027.

Letter of Credit The District is participating in the Bonneville Power Administration (BPA) Flexible

PF Rate Program. Participation in the program required the District to provide BPA with an irrevocable standby letter of credit issued by a bank or other financial institution with the Bonneville Power Administration named as the sole beneficiary. The District entered into an agreement with a bank which issued a letter of credit to BPA in the amount of $3,200,000. This letter of credit is available for draws by BPA for payment of any unpaid Flexible PF Charge which may be included in the District's monthly power bills if the District chooses not to use its own reserves. The District is responsible for the repayment of amounts drawn by BPA plus interest.

REQUIRED SUPPLEMENTARY INFORMATION

SCHEDULE 1


Schedule of Funding Progress for Retiree Health Plan

ActuarialValuation

Date

1-1-07

Actuarial value of assets (a) -$ Actuarial accrued liability (b) 1,854,994

Unfunded actuarial accrued liability (b-a) 1,854,994$

Funded ratio (a/b) 0%

Covered payroll (c) 5,332,715$

Unfunded actuarial accrued liability as apercentage of covered payroll ((b-a)/c) 35%

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OTHER SUPPLEMENTARY INFORMATION

SCHEDULE 2


Schedule of Revenues, Operating Expenses and Net RevenuesAvailable for Debt Service

(1)


Debt Service Coverage as Defined in the Master SystemResolution for System Bonds:

Operating revenues:Sales of electricity 34,895,687$ 31,538,782$ Other operating revenues 2,381,428 1,883,384

Total operating revenues 37,277,115 33,422,166

Operating expenses:Purchased power 15,189,474 15,301,601 Operations, maintenance, administrative and general 8,527,324 8,009,477 Taxes 872,775 826,111

Total operating expenses, excludingdepreciation and amortization 24,589,573 24,137,189

Net operating revenues 12,687,542 9,284,977

Investment income 613,933 948,240 Patronage capital credits 482,486 - Gain on sale of plant 5,992 69,626 Miscellaneous income 165,459 210,133

Balance available for debt service, before rate stabilizationfund activity 13,955,412 10,512,976

Rate stabilization fund activity (2) - -

Balance available for debt service after ratestabilization fund activity 13,955,412$ 10,512,976$

Debt service (3) 5,768,387$ 5,766,244$

Coverage of debt service 241.9% 182.3%

Debt Service Coverage as Defined in the Master Second LienElectric Revenue Obligation Declaration:

Balance available for debt service after rate stabilization fund activity 13,955,412$ 10,512,976$

Debt service (4) 7,016,473$ 6,999,302$

Coverage of debt service 198.9% 150.2%

(1) Source: As defined in the Master System Resolution adopted in 1994 and the MasterSecond Lien Electric Revenue Obligation Declaration adopted in 2003.

(2) As permitted by the Master System Resolution, the District established a rate stabilizationfund during 1997. Transfers from the fund increase the balance available for debt serviceand transfers to the fund reduce the balance available for debt service.

(3) Includes principal and interest maturities for System Bonds consisting of Series 2006 Bonds,Series 2003A Bonds, Series 2003B Bonds and Series 1996 Bonds.

(4) Includes principal and interest maturities for System Bonds described in (3) above, Series 2003CBonds, Series 2003D Bonds and Small Scale Energy Loan Program (SELP) Loans.

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SCHEDULE 3


Schedule of Bond Debt Service TransactionsYear Ended December 31, 2008

Principal TransactionsOutstanding 2008 2008 Outstanding

1/1/2008 Issues Retirements 12/31/2008

2006 Bonds 8,575,000$ -$ -$ 8,575,000$ 2003A Bonds 27,815,000 - 545,000 27,270,000 2003B Bonds 6,630,000 - 385,000 6,245,000 2003C Bonds 2,880,000 - 525,000 2,355,000 2003D Bonds 985,000 - 180,000 805,000 1996 Bonds 13,535,000 - 1,875,000 11,660,000

Totals 60,420,000$ -$ 3,510,000$ 56,910,000$

Interest TransactionsMatured 2008 2008 Matured1/1/2008 Maturities Payments 12/31/2008

2006 Bonds -$ 384,645$ 384,645$ -$ 2003A Bonds - 1,329,900 1,329,900 - 2003B Bonds - 254,019 254,019 - 2003C Bonds (64,081) 128,160 116,478 (52,399) 2003D Bonds (25,856) 51,713 46,988 (21,131) 1996 Bonds - 994,823 994,823 -

Totals (89,937)$ 3,143,260$ 3,126,853$ (73,530)$

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SCHEDULE 4


Schedule of Future Bond Debt Service RequirementsDecember 31, 2008

2006 Bonds 2003A Bonds 2003B BondsYear Principal Interest Principal Interest Principal Interest

2009 -$ 384,645$ 560,000$ 1,316,275$ 390,000$ 244,394$ 2010 - 384,645 575,000 1,299,475 400,000 232,694 2011 - 384,645 590,000 1,280,787 420,000 219,694 2012 410,000 384,645 615,000 1,260,138 375,000 204,994 2013 430,000 367,220 635,000 1,238,612 390,000 191,869 2014 445,000 348,945 2,380,000 1,214,800 405,000 177,244 2015 470,000 326,695 2,475,000 1,119,600 420,000 162,056 2016 495,000 303,195 2,575,000 1,020,600 435,000 146,306 2017 515,000 280,920 2,710,000 885,413 450,000 128,906 2018 540,000 257,745 2,655,000 743,137 470,000 110,906 2019 565,000 233,445 2,795,000 603,750 490,000 91,519 2020 590,000 208,020 2,945,000 457,013 510,000 70,694 2021 615,000 181,470 2,805,000 302,400 535,000 48,381 2022 640,000 153,795 2,955,000 155,138 555,000 24,975 2023 670,000 124,995 - - - - 2024 700,000 96,185 - - - - 2025 730,000 65,560 - - - - 2026 760,000 33,440 - - - -

Totals 8,575,000$ 4,520,210$ 27,270,000$ 12,897,138$ 6,245,000$ 2,054,632$

(a) - Consists of interest due July 1, 2009. The District paid interest due January 1, 2009 in December 2008.

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SCHEDULE 4

Total2003C Bonds 2003D Bonds 1996 Bonds Future

Principal Interest Principal Interest Principal Interest Requirements

550,000$ 52,399$ (a) 185,000$ 21,131$ (a) 2,010,000$ 857,010$ 6,570,854$ 575,000 80,323 195,000 32,550 2,160,000 709,275 6,643,962 600,000 54,735 205,000 22,313 2,325,000 550,515 6,652,689 630,000 28,035 220,000 11,550 2,490,000 379,628 7,008,990

- - - - 2,675,000 196,612 6,124,313 - - - - - - 4,970,989 - - - - - - 4,973,351 - - - - - - 4,975,101 - - - - - - 4,970,239 - - - - - - 4,776,788 - - - - - - 4,778,714 - - - - - - 4,780,727 - - - - - - 4,487,251 - - - - - - 4,483,908 - - - - - - 794,995 - - - - - - 796,185 - - - - - - 795,560 - - - - - - 793,440

2,355,000$ 215,492$ 805,000$ 87,544$ 11,660,000$ 2,693,040$ 79,378,056$

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INDEPENDENT AUDITOR'S COMMENTS

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INDEPENDENT AUDITOR'S COMMENTS Internal Control

We have audited the financial statements of Emerald People's Utility District as of and for the year ended December 31, 2008, and have issued our report thereon dated May 5, 2009. We conducted our audit in accordance with auditing standards generally accepted in the United States of America.

In planning and performing our audit, we considered Emerald People's Utility District's

internal control over financial reporting as a basis for designing our auditing procedures for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the District’s internal control over financial reporting. Accordingly, we do not express an opinion on the effectiveness of Emerald People's Utility District’s internal control over financial reporting.

A control deficiency exists when the design or operation of a control does not allow

management or employees, in the normal course of performing their assigned functions, to prevent or detect misstatements on a timely basis. A significant deficiency is a control deficiency, or combination of control deficiencies, that adversely affects the entity’s ability to initiate, authorize, record, process, or report financial data reliably in accordance with generally accepted accounting principles such that there is more than a remote likelihood that a misstatement of the entity’s financial statements that is more than inconsequential will not be prevented or detected by the entity’s internal control.

A material weakness is a significant deficiency, or combination of significant deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected by the entity’s internal control.

Our consideration of internal control over financial reporting was for the limited purpose described in the second paragraph of this section and would not necessarily identify all deficiencies in internal control that might be significant deficiencies or material weaknesses. We did not identify any deficiencies in internal control over financial reporting that we consider to be material weaknesses, as defined above.

This communication is intended solely for the information and use of the District’s Board

of Directors and management and is not intended to be and should not be used by anyone other than these specified parties.

Other Comments and Disclosures In connection with our audit, nothing came to our attention that caused us to believe the District was not substantially in compliance with:

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ORS Chapter 295 regarding collateral securing depository balances, ORS 294.035 regarding the investment of surplus public funds, the legal requirements relating to debt, ORS Chapter 279 in the awarding of public contracts and the construction of public

improvements, and the appropriate laws, rules and regulations pertaining to programs funded wholly or partially

by other governmental agencies, except as follows: Beginning July 1, 2008, in accordance with ORS Chapter 295, public officials were required

to report the banks they do business with, and contact information for the public official to the State Treasurer. The District did not report this information until March 2009.

However, it should be noted that our audit was not directed primarily toward obtaining knowledge of noncompliance with such requirements. Additionally, we make the following comments: Emerald People's Utility District uses an automated double entry system of accounts. This

system and related accounting records are adequate for the needs of the District. We have reviewed the District's insurance and fidelity bond coverage for compliance with

legal requirements. Since we are not experts in insurance matters, we make no representation as to the adequacy of such coverage.

COMMENDATION

The courteous assistance and cooperation extended to us by employees and officials of the District during the course of the audit are sincerely appreciated.

emerald people’s utility district district’s total net assets increased from $21.0 million in...

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