1. Review of 7th Plan Inputs by RTF August 11, 2014

2. RTF Input for Seventh Power Plan Council seeks RTF review of some plan inputs – For conservation supply curve development – Technical aspects of EE measures such as baseline, costs, savings, applicability – Methodology Staff will be bringing a suite of items for RTF review next six months Seeking RTF “decisions” RTF decisions are advisory to the Council

3. Next Meeting: Financing Terms for EE Total Resource Cost approach (TRC) Who pays what part of costs and how paid? Measure costs borne by multiple sponsors – Customer – Wholesale power supplier (BPA) – Utility (retail electric utility) – Utility (retail gas utility or other sponsor) Different financing parameters for each

4. Analysis & Impact All analysis in “real” terms (net of inflation) Base year 2012 dollars for 7P All analysis in present value terms – Council selects discount rate (4% recommended) Financial parameters differ by sector – Residential, Commercial, Industrial, Utility Impact of financial parameters – Subtle change on TRC of supply curves

5. The EE Financing Parameters Four cost categories Term of finance period If financed, what is cost of capital? Interest rate on borrowed money Sponsor ParametersCustomerWholesale Electric Retail Electric Natural Gas Real After-Tax Cost of Capital Financial Life (years) Sponsor Share of Initial Capital Cost Sponsor Share of Annual O&M Sponsor Share of Periodic Replacement Cost Sponsor Share of Administrative Cost Last Year of Non-Customer O&M & Period Replacement

6. Proposed Approach for Inputs (Cost of Capital) Use after tax cost of capital developed by Council for discount rate analysis. Final numbers TBD. Sponsor ParametersCustomerWholesale Electric Retail Electric Natural Gas Real After-Tax Cost of Capital Financial Life (years) Sponsor Share of Initial Capital Cost Sponsor Share of Annual O&M Sponsor Share of Periodic Replacement Cost Sponsor Share of Administrative Cost Last Year of Non-Customer O&M & Period Replacement

7. Methods EE Finance Rates PurchaserMethod ProposedTax Treatment Residential Consumer DOE method. Weighted mix of 12 types of debt and equity in the average U.S. household using data from the Federal Reserve Board’s Survey of Consumer Finances (SCF) for 1989, 1992, 1995, 1998, 2001, 2004, and 2007. Individual tax rate adjustment 27% Business Consumer DOE Method: Capital Asset Pricing Model. Over 4000 businesses surveyed. Mix of debt & equity financing costs. Weighted by ownership class & debt/equity ratios. Corporate tax rate adjustment 35% Bonneville30-year Treasury bonds plus 90 basis pointsNo tax adjustment Investor- Owned Utility Weighted average cost of debt & equity. Debt based on AAA/Baa corporate bonds. Equity 10%. Debt ratio 50%. Corporate tax rate adjustment 35% Municipal Utility AAA Municipal bondsNo tax adjustment CooperativeWeighted average cost of debt & equity. Debt based on 30- Year Treasury bonds plus 100 basis points. Equity 7%. Debt ratio 50%. No tax adjustment

8. Proposed Approach for Inputs (How Much is Financed?) Assume remainder utility costs are expensed. Term=1 equivalent to expense EE Assume BPA portion of EE costs are financed Assume customer portion of costs are financed Sponsor ParametersCustomerWholesale Electric Retail Electric Natural Gas Real After-Tax Cost of Capital TBD Financial Life (years) 20 11 Sponsor Share of Initial Capital Cost Sponsor Share of Annual O&M Sponsor Share of Periodic Replacement Cost Sponsor Share of Administrative Cost Last Year of Non-Customer O&M & Period Replacement

9. Proposed Approach for Inputs (Share of Capital Cost) Remainder split based on last five years RCP data: BPA Direct 30% / Total Utility Get input from CRAC. Use 40% Res, Com, Ind, Ag meas Use 0% for Dist Eff measures

10. Proposed Approach for Inputs (Share of Other Costs) Annual and Periodic O&M costs all paid by customer Split Admin costs paid by utility system based on BPA/Non-BPA cost shares