1. Pasadena Water and Power Electric Rates Workshop: Cost of Service Analysis and Rate Proposals

2. Pasadena Water and Power Agenda Introduction Review of Rate Structure and Proposed Adjustments Customer Bill Impact Mitigation Strategies and Alternatives Rate Comparison to Other Utilities Cost of Service Analysis 2

3. Pasadena Water and Power INTRODUCTION 3 Year Rate Proposal: 2.7%, 2.4%, 2.2% 3

4. Pasadena Water and Power 4 Project Timeline DateActionNotes May 2012 – May 2013ECOS analysisBy Burns & McDonnell June 2013 Burns & McDonnell Report completed June – September 2013 Staff update of ECOS model November 2013ECOS discussion with MSC December 2013 -January 2014Staff review and update of data and ECOS model Actual FY 2013 financial results and 2014 budget January 28, 2014 Updated discussion with MSC March 31, 2014City Council Workshop May 2014Set Public Hearing date June 2014Public Hearing and rate approval July 1, 2014Rate adjustment effective date

5. Pasadena Water and Power Purpose of Analysis and Rate Proposal Rate study last performed in 2002 Proposition 26 – requires that all rates and charges be cost-based Changes in City Council goals for renewable energy, other programs Changes in utility industry – distributed generation, electric vehicles Ensure fiscal responsibility and viability of electric utility Ensure rates are fair for all customers 5

6. Pasadena Water and Power REVIEW OF RATE STRUCTURE AND PROPOSED ADJUSTMENTS 6

7. Pasadena Water and Power Electric Rate Structure 7 Major Cost Drivers Distribution and Customer Charges: Call center, billing, customer service Distribution system operations and maintenance Debt service PAYGO for capital investment Energy Services Charge: Debt Service for GT5 project Renewable energy premiums Cap and trade program Market gas and energy purchases Transmission Services Charge: Operations, maintenance and portion of capital costs for transmission assets Public Benefits Charge: Rebate programs Assistance programs Pass-through component: adjusted in accordance with provisions of Light and Power Rate Ordinance to offset changes in the cost of energy, transmission and public benefit programs Requires Council approval

8. Pasadena Water and Power Revenue From Each Rate Component 8

9. Pasadena Water and Power Alignment with City Goals 9 Maintain fiscal responsibility & stability Cost Based Rates Maintain Fiscal Health Support City Programs Ensure Public Safety Distribution Master Plan Responsible Capital Investment Improve, Maintain & Enhance Infrastructure Prudent Operations & Maintenance Regulatory Compliance Support & Promote Quality of Life & Economy Accurate Meter Reads Reliable Service

10. Pasadena Water and Power Number of Full Time Equivalent employees: Distribution Operations & Maintenance FTE: 97.2 Distribution Capital FTE: 74.3 Customer FTE: 32.3 Administrative FTE: 39.0 Total FTE242.8 10 Distribution and Customer Charges

11. Pasadena Water and Power Distribution and Customer Charges Rate Design/Modification 11 CurrentProposed D C D&C Existing change in D&C by Tier Usage Charge 0-250$6.02 251-350$12.32$6.30105% 351-450$24.94$12.61102% 451-550$35.97$11.0344% 551-650$45.43$9.4626% 651-750$56.47$11.0324% 751-1000$67.50$11.0320% 1001>$89.57$22.0733% $ kWh Existing Distribution and Customer Charge rate structure does not meet cost of service practice PWP’s proposed recommendation provides more balanced impact among customer groups $7.76 1.5¢/kWh 11.65¢/kWh 350 750 8.5¢/kWh $

12. Pasadena Water and Power 12 Proposed Rate Adjustments: Distribution and Customer Charges

13. Pasadena Water and Power Formula Rate Adjustments for FY2015 - Energy and Public Benefits Charge 13

14. Pasadena Water and Power Power Supply FTE: 52 14 Energy Charge (Adjusted by formula)

15. Pasadena Water and Power PBC FTE: 7.25 15 PBC Charge (Adjusted by formula)

16. Pasadena Water and Power Combined Projected Rate Adjustments 16 8.3%2.4%2.2% Future adjustments to energy, transmission and PBC rates are uncertain: Market costs for energy and gas Renewable energy goals and costs Results of IRP update Transmission projects and costs Efficiency and rebate program goals

17. Pasadena Water and Power 17 Additional Rate Considerations Time of Use Adjust the time-of-use (“TOU”) pricing periods: Winter hours Summer hours Holidays and weekends are off peak hours Electric Vehicle Establish electric vehicle rates for single- family residential customers and multifamily residential customers. On-peak and off-peak rates shall be based on the price of market energy during the period. Feed-in- Tariff Minimum of 100 kW to 1 MW renewable energy distributed generation. Incentivize customers to locate their CEC certified facilities at high load concentration areas within the distribution system. Contracts for up to 20 years. Economic Development Rider Available to new and existing customers adding a minimum of 100 kW to the system load. Customer must qualify for the City’s Economic Development Program. Eligible commercial customers will have two discount options.

18. Pasadena Water and Power CUSTOMER IMPACT 18

19. Pasadena Water and Power Residential Customers - Consumption Distribution 19

20. Pasadena Water and Power Rate Impact on Residential Customers 20

21. Pasadena Water and Power Residential Customer: 200kWh Monthly Electric Bill Impact 21 Account Summary Proposed Bill 200 kWh Service Detail Current Bill 200 kWh Service Detail Cust & Dist Charge $ 6.02 Energy Charge 200 kwh @ 0.09323 $18.65 Transmission Charge 200 kwh @0.00821 $1.64 Total $26.31 Account Summary Electric Service $26.31 Public Benefits Charge $1.15 Total $27.46 Customer Charge $7.76 Distribution Charge $3.00 Energy Charge 200 kwh @ 0.10006 $20.01 Transmission Charge 200 kwh @0.00821 $1.64 Total $32.41 Electric Service $32.41 Public Benefits Charge $1.37 Total $33.78 (Monthly Summer Bill Excluding Tax and Surcharges) $6.32

22. Pasadena Water and Power Residential Customer: 300kWh Monthly Electric Bill Impact 22 Account Summary Proposed Bill 300 kWh Service Detail Current Bill 300 kWh Service Detail Cust & Dist Charge $12.32 Energy Charge 300 kwh @ 0.09323 $27.97 Transmission Charge 300 kwh @0.00821 $2.46 Total $42.75 Account Summary Electric Service $42.75 Public Benefits Charge $1.72 Total $44.47 Customer Charge $7.76 Distribution Charge $4.50 Energy Charge 300 kwh @ 0.10006 $30.02 Transmission Charge 300 kwh @0.00821 $2.46 Total $44.74 Electric Service $44.74 Public Benefits Charge $2.06 Total $46.80 (Monthly Summer Bill Excluding Tax and Surcharges) $2.33

23. Pasadena Water and Power Residential Customer: 700kWh Monthly Electric Bill Impact 23 Account Summary Proposed Bill 700 KWH Service Detail Current Bill 700 KWH Service Detail Cust & Dist Charge $56.47 Energy Charge 700 kwh @ 0.09323 $65.26 Transmission Charge 700 kwh @0.00821 $5.75 Total $127.48 Account Summary Electric Service $127.48 Public Benefits Charge $4.02 Total $131.50 Customer Charge $7.76 Distribution Charge $46.03 Energy Charge 700 kwh @ 0.10006 $70.04 Transmission Charge 700 kwh @0.00821 $5.75 Total $129.58 Electric Service $129.58 Public Benefits Charge $4.80 Total $134.38 $2.88 (Monthly Summer Bill Excluding Tax and Surcharges)

24. Pasadena Water and Power Small Commercial Customer Monthly Electric Bill Impact 24 Account Summary Proposed Bill 2,000 KWH Service Detail Current Bill 2,000 KWH Service Detail Customer Charge $14.16 Distribution Charge $89.50 Energy Charge 2,000 kwh @ 0.09151 $183.02 Transmission Charge 2,000 kwh @0.00821 $16.42 Total $303.10 Account Summary Electric Service $303.10 Public Benefits Charge $11.48 Total $314.58 Customer Charge $8.16 Distribution Charge $103.57 Energy Charge 2,000 kwh @ 0.09821 $196.42 Transmission Charge 2,000 kwh @0.00821 $16.42 Total $324.57 Electric Service $324.57 Public Benefits Charge $13.72 Total $338.29 $23.71 (Monthly Summer Bill Excluding Tax and Surcharges)

25. Pasadena Water and Power Large Commercial Customer Monthly Electric Bill Impact 25 Account Summary Proposed Bill 50,000 KWH; 150 KW Service Detail Current Bill 50,000 KWH; 150 KW Service Detail Customer Charge $60.22 Distribution Charge $1,633.50 Energy Charge 50,000 kwh @ 0.09588 $4,794.00 Transmission Charge 50,000 kwh @0.00821 $410.50 Total $6,898.22 Account Summary Electric Service $6,898.22 Public Benefits Charge $287.00 Total $7,185.22 Customer Charge $20.27 Distribution Charge $2,031.10 Energy Charge 50,000 kwh @ 0.10290 $5,145.00 Transmission Charge 50,000 kwh @0.00821 $410.50 Total $7,606.87 Electric Service $7,606.87 Public Benefits Charge $343.03 Total $7,949.90 $764.68 (Monthly Summer Bill Excluding Tax and Surcharges)

26. Pasadena Water and Power Customer Assistance Programs Name of Programs Benefits No. of Accounts Average Monthly Usage (kWh) 0 - 100101 - 200201 - 300301 - 400401 - 500501 - 600601 - 700701 - 1000 > 1000 Basic $7.50 credit/month (after taxes) 3,56812364194174144228213819169 Cares $7.50 credit/month (after taxes) and Public Benefits Charge Credit 5142393120906538333418 Cares Plus $7.50 credit/month(aft er taxes) and PBC Credit and Utility User Tax 1,78811136942526618914310013055 Medical Equipment Based $7.50 credit/month (after taxes) 551254798118 Total No. of Accounts 5,9252581,1051,4911,101703472279366150 26

27. Pasadena Water and Power RATE IMPACT MITIGATION AND ALTERNATIVES Electric Cost of Service Study 27

28. Pasadena Water and Power Rate Mitigation Actions 28 Energy  $9 million from 2011 FERC settlement o Provides equity funding for GT5 repowering project  Increased efficiency of GT5 repowering project o Efficiencies effective beginning FY 2016 Transmission  Apply any settlement funds from Los Angeles for overcharges o Approved by City Council in October 2013 Managed CostsCareful management of vacancies and workforce size Maximum lifecycle for vehicles and equipment Refunding opportunities for outstanding bonds Restrict travel and training for maximum benefit

29. Pasadena Water and Power Rate Option Impacts 29

30. Pasadena Water and Power Rate Adjustment History Electric Rate Adjustments since 2005 Rate Component When Last Adjusted Rate Action Transmission Services Charge July 2006Reduced approximately 0.3¢ per kWh Public Benefits ChargeJuly 2008Increased by approximately 0.3¢ per kWh Energy Charge (PCA)October 2010Increased by 0.5¢ per kWh Distribution and Customer Charge July 2012Increased by approximately 0.3¢ per kWh 30

31. Pasadena Water and Power ELECTRIC RATE COMPARISON TO OTHER UTILITIES PWP’s Proposed Rates Remain Comparable to Neighboring Utilities 31

32. Pasadena Water and Power Bill Comparisons for Residential Customers 32 Darkest shade indicates higher comparative bill at given level of usage. For example, at 200 kWh/month, Riverside is the highest and Burbank is the lowest. PWP will be mid-range in comparative bills except at the 400 and 500 kWh levels of consumption.

33. Pasadena Water and Power Next Steps 33 DateAction Item March 2014 City Council Workshop April 2014 Customer education and feedback, City Council field reps, district meetings, public library event, Chamber of Commerce, large customer groups, social media postings, media updates April 2014 MSC Action Item – rate proposal and recommendation to set public hearing April 2014 City Council – set public hearing date April - May 2014 City Council Action Item – Consider rate proposal July 2014 Rate action effective

34. Pasadena Water and Power COST OF SERVICE ANALYSIS Electric Cost of Service Study 34

35. Pasadena Water and Power Key Inputs to ECOS 35 Financial Adopted FY 2014 Operating Budget Annual Revenue Requirements: Based on forecasted cost escalations and known changes in annual costs Capital Improvements: Capital expenditures based on adopted FY 2014 Capital Budget Debt Service: Based on principal and interest payments on currently outstanding revenue bonds and projections of debt service General Fund Transfer: Annual transfer of 9% (included in rate of return requirement) Rate Base Return Requirement: A rate base calculated by adding the net utility plant in service and construction work in progress to a working capital allowance of 60 cash days of operations and maintenance expenses, and subtracting capital contributions Operational Sales Growth: Energy sales are forecast as flat (unchanged) during seven year financial forecast Customer Growth : Modest projected growth of <1% for each class; historical average relationship between energy sales and number of customers expected to continue in the future System Load: Based on projected annual energy sales with distribution loss of about 5% (typical industry average for utilities with similar energy resources) Load Shape and Peak Demand: Forecast of customer classification-specific energy sales and peak demand are based on 3-years historical data for FY 2009 - 2012 and budget year projections for FY 2013

36. Pasadena Water and Power Breakdown of cost-of-service Labor/Burden$30.4 Services and Supplies, Internal Services, and Other Operating Costs $19.2 Energy Costs$93.6 Transmission Costs$26.0 Public Benefits programs$7.8 Depreciation and Amortization$18.9 Debt Service$19.5 General Fund Transfer$16.5 Total cost-of-service$231.9 Non-rate Revenues Wholesale Sales$11.4 Climate Change Revenues$6.1 PTO Transmission Revenues$14.3 Investment Earnings and Other Non-operating Revenues $8.2 Total Non-rate Revenues$40.0 Revenue Requirements (in million $) Total Cost-of- Service $231.9 Less: Non-rate Revenues- 40.0 Revenue Requirements$191.9 Revenues required from electric rates. Burns & McDonnell Report (FY13 Based): Cost of Service $224.0 Non-rate Revenues $37.3 Revenue Requirement $186.7 36 Cost of Service Summary (in $millions)

37. Pasadena Water and Power Cost of Service Process 37

38. Pasadena Water and Power Financial Performance 38

39. Pasadena Water and Power Prioritization of Rate Components 39 Distribution and Customer Rates and Demand Ratchet Pay-go Rate of Return and General Fund Transfer Higher Lower Economic Development Green Power Premium Distributed Generation & Net Metering (FIT) Demand Response Time of Use and Electric Vehicle rates Debt Service Coverage PBC