1. Responding to Market/Demand Erosion – Tacoma’s Approach CASCADE WATER ALLIANCE 15 TH ANNIVERSARY CELEBRATION 1 Sean Senescall Tacoma Water Rates & Financial Planning Manager May 15, 2014

2. Understanding Market/Demand Erosion: Forecasted and Actual Demands (1954-2060) 2

3. Understanding Market/Demand Erosion: Demands by Customer Class (1989-2013) 3

4. Understanding Market/Demand Erosion: Single Family Residential Population and Per Capita Demand (2000-2013) 4

5. Responding to Market/Demand Erosion: Rate Design – Fixed vs. Variable Recovery 5

6. Responding to Market/Demand Erosion: Understanding the Market 6

7. 2005 AGREEMENT ENVISIONED FUTURE REGIONAL DEMAND INCREASES AGREEMENT INCLUDED “TAKE OR PAY” PROVISION REGIONAL WATER SUPPLY SITUATION SHIFTED RESTRUCTURED AND FIXED PAYMENT STREAM ENABLED CASCADE TO TRANSFER ITS CAPACITY PURCHASES TO CONNECTED CUSTOMERS (10 MGD, ADD) ACKNOWLEDGED THAT ACTUAL WATER PURCHASES WERE UNLIKELY IN THE MEDIUM-TERM Responding to Market/Demand Erosion: Renegotiation with Cascade Water Alliance 7

8. WHOLESALE CAPACITY IS UNDERUTILIZED INEFFICIENT REGIONAL INVESTMENT PLANS New water resource and water right development Infrastructure (treatment, transmission, supply) COST STRUCTURE CAN BE AN OPPORTUNITY PRICING FLEXIBILITY MAY BE NECESSARY EVERY SYSTEM IS UNIQUE (BUYERS AND SELLERS) Responding to Market/Demand Erosion: Wholesale Market Pricing Approach 8

9. MARKET DEVELOPMENT Less emphasis on provincial autonomy and control Focus on efficient options, cooperation, flexibility ECONOMIC DEVELOPMENT PRICING FLEXIBILITY CALCULATED RISK-TAKING = FINANCIAL OPPORTUNITY Looking to the Future 9