1. Jefferson County PUD 1 Presented by: Gary Saleba, President EES Consulting, Inc. A registered professional engineering and management consulting firm with offices in Kirkland, WA and Portland, OR Commission Briefing on Cost of Service and Rate Design Issues September 10, 2014

2. Overview of this Presentation 2 Introductions and Session Objectives Overview of Rate Setting Process Revenue Requirements Assumptions Results Cost of Service Study Methodology Initial Results Rate Design Inherited from PSE Rates Should Follow Costs Recommended Changes

3. Overview of Rate Setting Process Step 1 - Aggregate Revenue Requirement (How much?) Step 2 - Perform Cost of Service Study (Who should pay?) Step 3 - Design Rates (How to collect?) Step 4 - Implement Rates 3

4. 4 Based on 2015 Budget Load Forecast Based on BPA Forecast of Purchases Cash Basis Includes debt service and all capital improvements funded from rates Excludes City utility taxes from revenue and expenses Other revenues offset revenues to be collected from rates Used for Cost of Service/Rates Does not include funding from reserves, weather uncertainty, other factors that may impact the need for a rate change Issues Level and use of reserves Funding source for capital improvements Revenue Requirements Cost Category2015 Amount (million) Revenues at Present Rates$30.1 Purchased Power from BPA$14.8 Operating Expenses$7.1 Taxes$2.1 Debt Service$5.8 Capital Funded from Rates$3.9 Other Revenue-$0.6 Net Revenue Requirement for COSA$33.2

5. Revenue Requirements (cont’d) 5

6. Cost of Service Analysis Introduction 6 Based on 2015 Revenue Requirement Costs Distributed to Customer Classes based on Cost Causation Demand-related, Energy-related and Customer-related Requires Assumptions About Customer Usage for Each Class Revenues Calculated Based on Current Rate Components Expect Differences from PSE PSE has large service area with larger customers and different density Also underlying differences due to power supply source compared to PSE

7. Cost of Service Analysis Results 7 Residential/Farm Classes Residential paying about 90% of costs Not much difference in costs between residential and farm use Cost roughly 12.4 cents/kWh General Service Classes General service paying 120% to 160% of costs Costs roughly 7.5 cents/kWh – not much difference among current general service rate schedules Other Classes Irrigation and lighting hard to measure in a COSA Interruptible schools paying less than general service, but costs are higher PTP paying 99% of costs

8. Rate Design Issues Continue with PSE Rate Form or Go to PUD-Specific Design? Size of Customer Charge Blocking of Energy Charge Seasonality Number of Schedules Net Metering Street Lights Irrigation Rate Treatment Low Income/Elderly Rate Assistance 8

9. Rate Design Detail Schedule 7 – Residential Raise the customer charge to meet expected COSA results? Eliminate or reduce the differential between blocks so that it only reflects difference in BPA Tier 1 and 2 Reducing the Block 2 rate would require either an increase in Block 1 rate or customer charge Example: $16.77 plus 8.62 cents or $23.60 plus 7.98 cents Schedule 8 – Residential and Farm General Service No need for a separate rate? No reason to believe their costs are different than typical residential JeffersonClallam PUDPort Angeles Customer Charge$7.49$23.60$16.77 First 600 kWh8.5011 cents/kWh6.90 cents/kWh6.74 cents/kWh Over 600 kWh10.3589 cents/kWh $9.66 per month 8.5189 cents/kWh 9

10. Schedule 24 – General Service Raise the customer charge to meet expected COSA results? Rate differential should match BPA differential Example: $22.90 plus 8.8 cents or $26.13 plus 8.62 cents Schedule 25 – Medium General Service Rate has too many components Suggest eliminating the blocks – not consistent with cost causation Change demand charge to reflect all peak demand (not just over 50 kW) Make sure demand and energy components match COSA to get right price signals for load factor Not sure three GS rates are needed – combine with Rate 26 Rate Design Detail (cont’d) JeffersonClallam PUDPort Angeles Customer Charge$9.66$26.13$22.90 October – March9.5072 cents/kWh6.90 cents/kWh6.77 cents/kWh Over 600 kWh9.1974 cents/kWh JeffersonClallam PUDPort Angeles Customer Charge$51.77$54.29$45.74 Energy Rate April – September 8.6638 cents/kWh first 20,000 6.9280 cents/kWh over 20,000 October – March 9.4791 cents/kWh first 20,000 6.9280 cents/kWh first 20,000 5.33 cents/kWh4.55 cents/kWh Demand RateApril-September $6.01 per kW over 50 kW October-March $9.01 per kW over 50 kW $2.87$3.89 10

11. Schedule 29 – Seasonal Irrigation & Drainage Pumping Service Rate has too many components Suggest eliminating the blocks – not consistent with cost causation Change demand charge to reflect all peak demand (not just over 50 kW) Make sure demand and energy components match COSA to get right price signals for load factor Rate Design Detail (cont’d) Schedule 29 – Seasonal Irrigation & Drainage Pumping Service $9.56 per month $4.35 per kW over 50 kW April-September $8.83 per kW over 50 kW October-March 6.3718 cents/kWh first 20,000 kWh April-September 5.4831 cents/kWh over 20,000 kWh April-September 9.1225 cents/kWh first 20,000 kWh October-March 6.9678 cents/kWh first 20,000 kWh October-March 11

12. Schedule 26 – Large General Service Combine with Rate 25 Schedule 31 – Primary General Service Combine with Rate 25/26 with primary meter discount? Rate Design Detail (cont’d) JeffersonClallam PUDPort Angeles Customer Charge$104.46$144.57$45.74 Energy Rate6.7061 cents/kWh4.38 cents/kWh4.55 cents/kWh Demand RateApril-September $5.96 per kW over 50 kW October-March $8.94 per kW over 50 kW $4.47$3.89 JeffersonClallam PUDPort Angeles Customer Charge$339.51$144.57$304.96 Energy Rate 6.4918 cents/kWh 4.38 cents/kWh Sept – May 4.57 cents/kWh June – August 2.79 cents/kWh Demand RateApril-September $5.76 per kW over 50 kW October-March $8.64 per kW over 50 kW $4.47 with unspecified contractual discount $4.79 12

13. Schedule 43 – Interruptible Total Electric Schools Eliminate rate? No benefit for interruptible customers with BPA as provider Street Lights Rate for light Rate for pole What about specialty street lights? Rate Design Detail (cont’d) Schedule 43 – Interruptible Total Electric Schools $339.51 per month $4.60 per kW Plus $3.89 per kW critical demand past 11 months 6.066 cents/kWh all energy 13

14. Timing Change when new billing system is put in place Audit accounts and do customer bill analysis in mean time Work towards making sure customers are on the right rate and have the proper meter Rate Design Detail 14

15. Summary/Conclusion 15 Need to Finalize Budget and How to Pay for Capital/Reserve Fund Policy Basic COSA is Sufficient for Now Simplify Rates Along with New Billing System, Minor Adjustments Between Classes