1 City of Port Angeles Strategic Planning Presentation June 7, 2011 Presented by: Gary Saleba, President EES Consulting, Inc. A registered professional engineering corporation with offices in Kirkland, WA; Bellingham, WA; and Portland, OR Telephone (425) Facsimile (425)

2 Agenda Introductions and Session Objectives Background on EES Consulting, Inc. Financial Impacts Of: Impact of the BPA Rate Increase Demand Side Management (DSM) Demand Response (DR) Other Financial Considerations Cost of Service Study (COSS) Key Performance Objectives Salient Comments and Closing

3 About EES Consulting, Inc. Registered Professional Engineering and Management Consulting Firm Formed in 1978 Offices in Bellingham, Kirkland, and Portland Professional Staff – ½ Engineers, ½ Other Professionals Clientele Consists of Utilities, Large Industrial Customers, Regulatory Commissions throughout North America Primary Lines of Business Engineering design/construction management Resource and strategic planning Regulatory affairs/expert witness Rates / cost of service Demand side management Background of EES Senior Consultants

4 Impact of New BPA Rates on the City New TRM Rates from BPA Beginning October 2011 “Tier 1” rate for lower-cost federal power resources (HWM) “Tier 2” rate for new load growth at market rates New TRM demand charge priced at market prices Charges the incremental demand above grandfathered amount (CDQ) Load following charge Charges and credits based on difference between City energy use and BPA’s hydro / thermal resource shape Overall power supply increase estimated at 12% starting October 2011 Equates to at least a 6% retail rate increase Will be adjusted every two years going forward Overall transmission rate change estimated at 0%

5 BPA Tiered Rate Methodology (TRM) Rates TRM Includes a Large Flat Monthly Customer Charge (~90% of bill) in Addition to the Demand and Load Shaping Charges Below

6 Impact of BPA Rate Increase

7 Impact of New BPA Rates on the City How to Deal with Growth Energy efficiency Demand response Everyone pays New Large Single Load Policy Financial Reserve Levels Significant power bill fluctuations (monthly variation up to $2 million) Existing rate stabilization fund Existing unrestricted cash balance

8 Electric Unrestricted Cash Balance

9 Demand Side Management Demand Side Management has Two Primary Components: Energy efficiency Demand response The Target for Energy Efficiency could be to Keep the City’s Total Electricity Requirements Under HWM and Out of Tier 2 The Target for Demand Response could be to Control Peak Demand and Therefore Reduced TRM Demand Charges. Also Helps Reduce Capacity of Local Distribution Facilities. Effective DSM Can Optimize Low-Cost Tier 1 Power from BPA and Reduced or Eliminate Demand Charges

10 Energy Efficiency Objective – The Objective for Offering Energy Efficiency Programs is to Delay or Avoid the Need to Purchase Tier 2 or Market-Priced Electricity In 2009 EES Consulting Completed an Energy Efficiency Potential Assessment to Determine the Amount and Cost of Energy Efficiency Available to the City The potential assessment indicated that 0.34 aMW of energy efficiency is available per year from the residential and commercial sectors at $30/MWh Another 0.4 – 0.5 aMW per year is available from the industrial sector In 2012 a Conservation Plan Will be Required by BPA

11 Energy Efficiency– Strong Performance by City Energy Efficiency Achievements FY07 - FY09 BPA-Funded BPA Funded aMW 2007 Customers aMW/10,000 Customers Cowlitz PUD , City of Port Angeles , Franklin PUD , Pend Oreille PUD0.3558, Richland , Lewis PUD , Tacoma Power , Snohomish PUD , Benton PUD , Inland Power , Clark PUD , Grays Harbor PUD , Clallam PUD , Mason PUD # , Seattle City Light , TOTALS/AVG ,369,

12 Energy Efficiency– Summary The City has a Strong History of Energy Efficiency Achievements Low cost, high impact programs to date The City is one of the leaders in terms of savings per customer Effective Energy Efficiency Programs Can Further Delay the Need for Tier 2 Purchases, Subject to Any New Large Single Loads The City has Significant Energy Efficiency Potential Energy Efficiency Programs May Cause Upward Rate Pressure Initially Initial program and incentive costs ($500K - $1M) BPA to double funding in October 2011 City has spent $300,000/year of ratepayer funds each of the last 2 years Those who participate will pay less, even if rates increase In the long run, rates will be lower Overall the City Can Serve More Customers with the Same kWh

13 Demand Response (DR) Demand Response is a Way to Control Utility Peak Demand by Offering Incentives to Shift or Reduce Individual Customer Peaks at Critical Times Current City DR Project List Automated Metering Infrastructure (AMI) Installation Residential DR Pilot Commercial & Industrial DR Pilot

14 Demand Response (DR): Advanced Metering Infrastructure Goals and Objectives To provide the City the ability to implement DR Project Summary AMI installation the first step to implementation of DR City replacing all electric and water meters with AMI Installation to be complete by end of 2011 Total project cost approximately $4.4 million Project Status Installation currently under way

15 Demand Response (DR): Residential DR Pilot Goals and Objectives Reduce City’s local demand above its specified CDQ Reduce wholesale power supply costs to residential customers Minimize perceived impact (e.g., discomfort) to residential customers Maximize residential customers’ acceptance of DR Delay or eliminate BPA transmission system upgrades DR Project Summary Perform economic evaluation of DR equipment (e.g., water heater controls, home area networks and thermal storage devices) installed at residential properties against a baseline control group following 1 year of data collection Expected savings for pilot group = 387 kW/month Project Status Delayed until AMI installation and testing complete, data collection to begin 2012 Project Co-Funding From BPA $426,000

16 Demand Response (DR): Commercial & Industrial DR Pilot Goals and Objectives Delay or eliminate BPA transmission system upgrades Reduce the City’s local demand above its specified CDQ Reduce wholesale power supply costs to the City’s electric utility customers Work with BPA to reduce demand on BPA’s transmission system using OpenADR communications protocol DR Project Summary Evaluate the cost effectiveness of DR equipment (e.g., process controls) installed at 9 commercial and industrial facilities following 1 year of data collection Expected savings for pilot group = 3.2 MW Project Status Customer agreements currently under review Project Co-Funding From BPA $298,000

17 Demand Response (DR): Summary The City has a Very Active DR Strategy Infrastructure is being built Pilot studies underway The AMI System will Enable the City to Better Optimize and Minimize Customer Peak Demand

18 Other Financial Considerations Will The City Purchase the Fiber Optic Network?

19 Cost of Service Study (COSS) – TRM Study Cost of Service Study – Performed in July 2010 Focus on TRM and Retail Rate Design NOT COSS Rates Revenue requirement study showed - 5.3% increase needed 2.3% approved by City Council Cost allocation showed – no major realignment needed However- does not take into account post-2011 power supply rates Rate design goals Collection of fixed costs Cost based Price signals  TOU  Demand rates

20 Cost of Service Study (COSS) Seasonal Time-of-Use was the City Council Approved Rate Design for All Customer Classes (~200 commercial customers with demand rate) Winter and summer seasons Customer base charge Peak, shoulder, and off-peak energy charge Inclining block demand rate (only applies to ~200 commercial customers) Demand rate: 95% similar to current rates, 5% at new demand rate (avg. $9.5/kW) Similar to City’s current Municipal water pump rate design Sends Correct Price Signal Without too Much Complexity Encourages Customers to: Shift loads to lower-priced off-peak hours Reduces peak demand and winter energy consumption Peak and Off-Peak Periods Should Reflect BPA’s Time of Use Periods Demand may be modified to reflect City’s requirements

21 Updated BPA Peak Hours, Off-Peak Hours, Shoulder Hours and Demand via 24-Hour Time Clock

22 Electric Rate Design Including Season Rates (Winter/Summer)

23 Financial Consider building operating reserves beyond minimums necessary Energy Efficiency Cheapest option for load growth Continue pursuing cost effective programs Demand Response Continue implementation Next is Pilot Program and evaluation Rates Future rate increase should be applied only to the base charge to reduce financial risk Develop New Large Single Load Policy Survey customers for interest in green energy rate options Conduct a cost of service analysis in 2013 after TRM is fully in place and 12 months AMI Recommended Key Performance Objectives

24 Conclusions/Salient Comments If it Was Easy, It Would Have Already Been Done If You Don’t Do It, Someone Else Will Better to Have No Business than Bad Business Better to be Roughly Right, than Precisely Wrong