1. 1 City Light Rate Design- Review Presentation to Review Panel January 2013

2. Today’s Presentation  Policy Framework for City Light Rates  Rate Design – 2013 Rates 2

3. 3 Resolution 31351 (May 2012) General Policy Framework  Covers rate setting, rate design and marginal cost allocation  Some objectives may conflict—balance needed  Efficient use of resources—appropriate shares of costs  Predictability from year to year  Public involvement—information and participation

4. 4 Resolution 31351 Rate Design Policies  Encourage efficient use of power supply and distribution resources (rates based on marginal cost)  Higher rates for higher consumption (blocks of energy)  Residential 1 st block of energy-essential needs, priced below average cost of service  No declining demand charges  Time-of-use rates where feasible  Low-income rates lower by at least 50%

5. 5 Resolution 31351 Limitations  Does not cover every aspect of cost allocation and rate setting  Other guidelines: Historical decisions by Council Seattle Municipal Code Suburban franchise agreements

6. 6 Overview of Rate Design

7. 7 Review of Basic Energy Terms  Watt: a measurement of the rate of electricity use  Kilowatt (kW): standard unit of electric power = 1,000 watts, a short-term measure of maximum demand  Kilowatt-hour (kWh): a measure of the flow of electricity over an hour--10 100-watt lights on for 1 hour = 1 kWh

8. 8 Review of Basic Rate Schedule Terms  Energy charge: a charge per kWh.  Demand charge (aka “capacity charge”): a charge per peak (“instanteous” or “maximum”) kW.  Base service charge (aka “customer charge”): a charge that is billed whether any electricity is used or not. Applies to SCL residential classes.  Minimum charge: a charge that is billed only if the amount billed for energy use is less than this amount. Like BSC but applies to SCL non-residential classes.

9. 9 Residential Rate Design: Translating Council Policy Guidance to Rates  Second block rate should “reflect” marginal cost of energy to the customer  First block rate should be below average cost of service  BSC should equal 50% of marginal customer cost (recovery of billing/account/meter reading costs)

10. 10 Residential Rate Design: Inputs for 2013 City Rates Annual kWh load (MWh)2,483,852 First block load (MWh) 1,229,639 Second block load (MWh) 1,254,213 # Meters (City + suburbs)369,234 MC of customer service (City + suburbs) $42.3M Revenue Requirement$208.9M

11. 11 Residential Rate Design City Rates, 2013  Goal: Balance 3 rate elements to meet policy goals & revenue requirement  Step 1: Base Service Charge 50% MC Cust Svc x $42.3M = $21.2M $21.2M/369,234 meters/365 = $.1570/day City BSC Revenue = $17.4M (302,936 meters)  Step 2: 2 nd block rate 2012 rate + 6.8% + block differential = $.1071 [Note: MC ~ $.1052/kWh] $.1071 x 2 nd block kWh = $134.3M Revenue  Step 3: 1 st block rate Rev Req $208.9M-BSC $17.4M-2 nd block $134.3M) /1 st block kWh = $0.0466 2 nd block rate $.1071/kWh 1 st block rate $.0466/kWh BSC $.1570/day

12. 12 Residential Rates: Structure  Two energy blocks Low-cost first block of kWh (10/day Summer, 16/day Winter) Higher-cost second block of kWh  Base service charge (BSC) 2013 Residential-City Rates 1 st block per kWh$0.0466 2 nd block per kWh$0.1071 BSC/day$0.1570

13. 13 Low-Income Residential Rates  Same structure as regular Residential (1 st & 2 nd block energy charges, BSC)  Set at 40% of average Residential rate by jurisdiction  Adjusted 2 nd block:1 st block relationship to encourage energy conservation ------------------------------------------------ No. low-income customers: 14,000+ (4%) Rate subsidy 2013: $9.3M

14. 14 Minimum Charge Example Calculation Small General Service, 2013 Marginal Costs

15. 15 Small General Service (< 50 kW/month): Structure, Policy and Rate Design  Translating Policy into Rates: Min. charge = 50% of MC of customer service No BSC allows more $ in energy charge (closer to MC)  Math: Revenue Requirement $ / forecast kWh = ¢/kWh $72.6 M / 1,014,087,866 kWh = $0.0716 Structure2013 Rates Flat energy rate/kWh$0.0716 Minimum charge/day$0.26

16. 16 Peak Demand Charges - Policy  Medium, Large, High Demand GS  Marginal Cost of: Transformers – 100% Service drops – 100% Transformer losses – 50% Remaining distribution*  Non-network – 10%  Network – 5% *In-service area transmission, substations, wires, meters

17. 17 Peak Demand Charge Example Calculation Medium General Service-Nonnetwork, 2013 Marginal Costs

18. 18 Medium General Service Rate Design: MGS-City, Inputs for 2013 Rates Annual kWh load1,612,580,914 Annual kW of peak demand 4,319,940 Revenue Requirement$100.5M

19. 19 Medium General Service: City (50 kW – 999 kW/month): Structure & Policy  Translating Policy into Rates: Min. charge = 50% of MC of customer service Demand charges incorporate more MC of distribution  Math: Demand: $2.13 x 4,319,940 = $9.2M Rev Req $100.5M - $9.2M = $91.3M Rev Req Energy Energy charge: $91.3M/1,612,580,914 kWh = $.0566 Structure2013 Rates Flat energy rate/kWh$0.0566 Flat demand rate/kW$2.13 Minimum charge/day$0.62

20. 20 Large and HD General Service  Translating Policy into Rates: Min. charge = 50% of MC of customer service Peak kW rate: See Demand Charge slide Off-peak kW rate = Transformer ownership discount rate Peak/offpeak kWh rate differential: Peak/offpeak MC energy

21. 21 Off-Peak Demand Charge = Transformer Ownership Discount

22. 22 Large General Service Rate Design: LGS-City, Inputs for 2013 Rates Annual kWh load788,787,927 Peak 486,452,338 Offpeak 302,335,589 Annual kW of demand1,934,459 Peak 1,913,958 Offpeak 20,501 Revenue Requirement$48.1M

23. 23 Large GS-City: Math, 2013

24. 24 Large (1,000-9,999 kW/month) and High Demand General Service (10,000+ kW/month) StructureLGS City 2013 Rates Peak energy charge/kWh$0.0657 Off-peak energy charge/kWh$0.0438 Peak demand charge/kW$1.52 Off-peak demand charge/kW$0.23 Minimum charge/day$16.39

25. 25 How LGS-City Rates x kW/kWh = LGS-City Revenue Requirement