1. Jefferson County PUD Preliminary Cost of Service and Rate Design Results December 9, 2014 Presented by: Gary Saleba, President EES Consulting, Inc. A registered professional engineering corporation with offices in the Seattle and Portland metropolitan areas Telephone (425) 889-2700 Facsimile (425) 889-2725 saleba@eesconsulting.com EES Consulting EES

2. Agenda Objectives Review of Rate Setting Process Electric Rate Study Assumptions COSA Results Electric Rate Design Policy Input Needed COSA Results and Proposed Rate Options Specific Electric Rate Design Proposals Summary of Electric Rate Study Policy Issues EES Recommendations Pole Attachment Rate Water/Wastewater Results Water/Wastewater Recommendations Questions / Answers 2

3. Objectives Review Equity of Current Cost of Service Analysis (COSA) and Rate Design Goal is every customer pays fair share Cost allocations driven by usage, density and delivery voltage Rate Restructuring Simplify current rate schedule structures and administration Make rates PUD-specific Address local concerns 3

4. Objectives (cont’d) Traditional Rate Setting Principles/Bonbright Principles Rates should meet revenue requirement Rates should be cost based Rates should be easy to understand and administer Rates and the cost allocation process should conform to generally accepted rate setting techniques Rates should provide revenue stability to the utility and rate stability to the consumer RCW Legal Requirements (80.28.005) Fair, just, reasonable and sufficient 4

5. Review 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 5

6. Electric Rate Study Assumptions June 2013 –May 2014 Actual Loads Calendar Year 2015 Test Period/Budget Revenues Calculated Using Current Rates and Billing Determinants Forecast O&M Expenses per 2015 Budget Power Supply and Production Expenses Based on BPA Rates/Projected Loads Debt Service Assuming No New Debt Capital Improvement Projects per the Budget and Funded by Rate Revenues and Reserve Fund 6

7. COSA Results Summary of Revenue Requirement 7 Revenues2015201620172018 Present Rate Revenues$30,126,902$30,781,403$31,049,687$31,409,098 Other Income$617,573$636,100$655,183$674,839 Total Revenues$30,744,475$31,417,503$31,704,870$32,083,937 Expenses Generation$14,838,505$16,085,205$16,437,055$17,315,982 Transmission$1,344,426$1,384,759$1,426,302$1,469,091 Distribution$3,198,066$3,294,008$3,392,828$3,494,613 Customer Accounts and Services$800,000$824,000$848,720$874,182 Administration and General$1,809,579$1,863,866$1,919,782$1,977,376 Capital Projects$3,892,000$4,757,000$2,637,500$2,447,500 Taxes$2,103,500$2,166,605$2,231,603$2,298,551 Interest and Debt Service$5,800,000 Total Expenses$33,786,076$36,175,443$34,693,790$35,677,294 Surplus (Deficiency) in Funds-$3,041,600-$4,757,940-$2,988,920-$3,593,358 Fund Balance (prior to rate increase)$9,365,275$4,607,335$1,618,415-$1,974,942 Total Required Increase (Decrease)9.9%15.1%9.4%11.2%

8. Electric COSA Results Revenue to Cost Ratios 8 Revenues at Current Rates Adjusted Ratio Minimum System Adjusted Ratio 100% Demand Residential (7)$18,754,67189.1%88.9% Farm Service (8)477,34875.7%89.4% General Service (24)4,070,992165.0%192.9% Small Demand (25)1,891,428146.5%132.3% Large Demand (26)675,410149.1%134.5% Primary (31)915,562134.2%113.3% Irrigation (29)7,47226.7%21.0% Interruptible Schools 43460,91277.2%65.3% Street & Hwy Lighting187,20471.3%81.5% PTP2,685,903100.7% TOTAL$30,126,902100.0% Accurate to +/- 10%

9. Electric Rate Design Policy Input Needed Determine Overall Rate Adjustment How much and when to adjust rates May want small increase over multiple years or one time increase Timing depends on policy direction and software upgrades Determine Method for Allocating Rate Increase Across Classes Across-the-board COSA based Move toward +/- 10 percent Develop Proposed Rates PSE rates do not reflect JPUD costs Appropriate to simplify and combine some rate schedules Evaluate size of customer charge Consider eliminating block rates and seasonal differentials What to do about net metering and senior, disabled and/ or low income discounts New large single load policy 9

10. COSA Results and Proposed Rate Options Residential 10 Proposed Rate Options COSA indicates above-average rate increase Increased customer charge justified by COSA and comparable utility rates Implement minimum bill? Remainder of increase to energy charge Move to flat energy rate, or reduce block rate differential to be consistent with flat rates for BPA purchases and comparable utility rates? Schedule 8 not needed if Schedule 7 moves to flat rate

11. Specific Electric Rate Design Proposals Commercial/Industrial 11 Existing Rates Schedule 24 – No demand charge, seasonal energy charge Schedule 25 – Seasonal demand charge >50 kW, seasonal and declining block energy charge Schedule 26 - Seasonal demand charge >50 kW, flat energy charge Schedule 31 - Seasonal demand charge >50 kW, flat energy charge Proposed Rate Options COSA indicates below-average rate increase Establish 2 rates – with and without demand charge Schedule 24 customer charge increased and consider eliminating or reducing seasonal energy differential to better match BPA costs Schedule 25/26/31 – consider having demand charge cover all kW (not just amount over 50 kW), consider eliminating or reducing seasonal differences, eliminate declining block structure Handle primary service through discount to demand and energy charges rather than separate rate

12. Specific Electric Rate Design Proposals Other Classes Irrigation Current rates are complicated with declining block energy rates and seasonal for both demand and energy Consider move to general service rate Interruptible Schools Less benefit of interruption to JPUD than to PSE Only paying 65% -75% of Costs Consider move to general service rate 12

13. Specific Electric Rate Design Proposals Other Classes (cont’d) Lighting Simplify rates with each rate reflecting a range of usage rather than one rate for each type of light Differentiate rates based on who owns the pole Comparable utility rates 0  100W = $10/month 100W  = $15/month Pole  = $ 5/month Port Townsend street lights Put on same schedule as above Monthly charge for balance of City-related lighting costs Port Townsend Paper Pass through of BPA charges plus admin fees and taxes Apply standard % rate increase to administrative fees Need to re-evaluate when Clallam PUD transaction finalized 13

14. Specific Electric Rate Design Proposals Other Classes (cont’d) Net Metering Historical practice – 100 kW cap/.5%of peak load or 500 kW total Current issues with net metering Options for going forward Discounts Disabled/senior existing Low income possible $500K to $1M in discounts $3 to $6 per month to recover from others Staff addition at 1 FTE to administer $.50 per month Consider forgiving the customer charge as the crediting mechanism New Large Single Loads Less than 10 MWa Issues with BPA-tiered rates Options Other PUD precedents 14

15. Summary of Electric Rate Study Policy Issues Revenue Requirement Size of increase – one time or multiple increases Timing of increases COSA Move towards COSA results Go across the board Rate Design Simplify/consolidate/eliminate Size of customer charge/minimum bill Blocking Seasonality Net metering Discounts Street lights New large single load rate 15

16. EES Recommendations Revenue Requirement 10% one time increase Implement in CY 2015 COSA Go across the board next year Move to +/- 10% of COSA in subsequent years where rate design changes are revenue neutral 16

17. Rate Design Increase all customer charges Residential to $15 - $20/month Minimum bill an option at $25/month Commercial/Industrial 0 – 50 kW without demand meter Greater than 50 with demand meter Discount for primary metering Eliminate farm, irrigation and school rates No blocking or seasonality Lighting rate with and without pole Break at 100W Special contract with City Discounts Policy call on who/how much Like waiving customer charge as method of crediting Should implement new large single load policy before PUD needs it Net metering Policy call Current policy generous for those using it EES Recommendations (cont’d) 17

18. Pole Attachment Rate Methodology Follows Washington State Regulations (RCW 54.04.045) Based on PSE records for number of poles and plant values Average gross plant per pole times carrying cost Assignable space divided by average 3 contacts per pole Resulting Rates Current rate of $12 per attachment RCW based rate equals $25.03 per attachment Added revenues of $152,000 Recommendation Raise rate to $15 - $20 per attachment Refine needed input data Raise rate to full RCW rate next year 18

19. Water/Wastewater Results 19 Summary of Water/Wastewater 2015 Budget Converted to Cash Basis Present Rate Revenues $1,961,506 Other Charges$32,473 Interest Income$2,000 Total Operating Revenues$1,995,979 Purchased Water$16,000 Operations$450,000 Maintenance$360,000 Customer Accounts$118,853 Customer Service$130,000 Admin & General$107,184 Maintenance Gen Plant$60,000 Capital funded from rates$90,000 Long-term debt cost$451,796 Taxes$95,545 Total Operating Expenses$1,878,378 Operating Income$115,601

20. Water/Wasewater Recommendations No Rate Increase Needed to Cover Cash Basis Work Towards Eliminating Customer Charge Difference Between Systems Quimper=$21.50, Group A=$17.50, Group B=$20.00 Option 1: change all to $20.00 right away, reduces revenues roughly $20,000 Option 2: Raise Group A to $19.50 and Group B to $21.50, adds roughly $30,000 and raise Group A again the following year Consumptive Rates and Commercial Rates are the Same for All Systems, No Changes Needed Continue to Keep Different SDC’s by System Due to Historic Basis for the Charge No Change to Wastewater Rate of $26 20

21. Questions / Answers 21