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Water-LessInk

B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Post-2011 Review Workgroup 1: Model for Achieving Programmatic Savings April 9, 2014 B O N N E V I L L E P

O W E R A D M I N I S Please dont put your call on hold. I will have to disconnect you if you do. T R A T I O N B O N N E V I L L E P O W E R A D M I N I S

T R A T I O N Agenda Check In / Roll Call Follow Up Items / Action Items Guests: Peter Stiffler, Power Rates and Tim Johnson, General Counsel Review Existing Recommendations & Outstanding Issues Self Management of Utility Incentives Next steps - 2:50 pm Adjourn 3:00 pm 3 B O N N E V I What L L E P O W E R A D M I N I S Action Items Who T R A T I O

N When/Outcome Morph Large Project Fund issue into capturing large projects and introduced to Workgroup 4 BPA February 10 Request for a Finance Representative to attend an upcoming workgroup meeting BPA February 18 Check with legal re passing on the responsibility for acquiring to the utilities, a la the EPA model (the utility would be BPAs agent)? BPA Not possible. Clear Air and Clean Water Acts have statutory provisions that allow state requirements with EPA oversight; the NPA has no such statutory provisions. If a portion of utilities opt-out of BPA BPAs capital borrowing, would the costs of borrowing be allocated to the cost pool and potentially lead to a transfer of costs to the utilities that dont opt-out. Is there a way to figure this out in the near term? Determined the answer is no. BPA would not support such a cost transfer under any potential new framework. 4 B O N N E V I What L L E P O W E R

A D M I N I S Action Items Who T R A T I O N When/Outcome Request for BPA to provide a general estimate of BPA cost to implement the self-management of incentives approach BPA Deferred until the workgroup can better define the working parameters. Obtain from BPA just how low the 75/25 split could go BPA Not a simple answer; under consideration based on workgroup outcomes. Update the Facts & Figures Document based on data requests from the workgroup BPA March 20 Eugene Big Tent Meeting Obtain a copy of the 1986 BPA policy on acquire BPA March 5 Cost savings calculations associated with selfmanagement of utility incentives Tacoma, Snohomish, Others March 5 One-pager on CIR/IPR meetings BPA Feb 26, Posted online Clarification on Issues 6, 7 and 8

BPA March 5 5 B O N N E V I What L L E P O W E R A D M I N I S Action Items Who T R A T I O N When/Outcome Follow up with Finance on 3rd Party Financing / roll-over issue, BPA back stop, etc. BPA / Workgroup 1 members March 5 Pros/Cons on conservation prepay Workgroup 1 members March 5 Share Tacomas retail rate

impact analysis with the workgroup BPA to distribute April 1 Representative from BPA rate staff attend a workgroup meeting BPA April 9 Post a copy of the 1986 BPA policy on acquire on the Post2011 website BPA March 26 6 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N BPA Working Assumptions BPA must fulfill its statutory obligations, e.g., BPA must acquire conservation (defined in BPA policy as an exchange of funds) Any proposal must work within the existing Regional Dialogue policy and contracts Decisions need to be made in the context of other dynamic agency drivers (e.g., CIR,

IPR, Access to Capital) Funding levels will be decided in the CIR and IPR processes Any proposal must be consistent with BPAs financial and procedures and reviewed by BPA finance for consistency with sound business principles Any proposal should not adversely impact customers that choose not to pursue a particular alternative Any proposal should not consider a menu of services approach to funding of EE costs/services (i.e., picking which EE costs to pay for) BPA will pursue 3rd party financing effective FY16 (October 1, 2015). 7 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Issue Resolutions Issue #1: EEI Allocation Methodology Using TOCAs Problem statement: The current methodology for allocating EEI funds on a TOCA basis is not aligned with customer conservation potential and may inefficiently/ineffectively allocate available funding. Recommendation: Status quo: allocation is based on TOCAs without consideration of potential. If not TOCA based, a TOCA-split allocation based partly on TOCAs and the remaining funds are made available to low-cost/lowest $/kWh projects (to be defined) or redistributed via some other methodology (e.g., conservation potential). 8 B

O N N E V I L L E P O W E R A D M I N I S T R A T I O N Issue Resolutions Issue #2: Two-Year EEI Budgets, aka Roll Over Problem statement: Customer EEI budgets are allocated per rate period and any EEI funds remaining at the end of a rate period cannot be rolled over to the next rate period, i.e., the funds are use or lose within a two year time horizon. Recommendation: Under 3rd Party Financing, customers are able to roll over to the next rate period an amount of unused EEI funds tied to specific projects or programs. Roll-over extension possibly liked to regional target achievements (if OK, an extension is possible; if not, then limit the roll-over). Develop some criteria for evaluation of the extension policy. BPA must be willing to prohibit the roll-over as well. 9 B O N N E V

I L L E P O W E R A D M I N I S T R A T I O N Issue Resolutions Issue #3: BPA Redirect of EEI Funds Problem statement: EEI budgets not being spent should have those remaining funds available to other utilities as supplemental funding. BPA must determine whether or not it will exercise its right to redirect EEI funds prior to the end of the rate period and make those funds available to other customers. Recommendation: BPA does not exercise its redirect funds during the FY 2014-2015 rate period and subsequent rate periods. While FY12-13 impacts were minimal, there needs to be some context to develop a threshold that gives PPPBPA the discretion to redirect a utilitys EEI funds, especially if targets are at risk. 10 B O N N E V I L L E P O

W E R A D M I N I S T R A T I O N Issue Resolutions Issue #4: BPA Backstop Role Problem statement: BPAs existing backstop role is not explicitly defined and some customers and stakeholders would like more clarity. Recommendation: BPAs role would be conditional. If it appears the targets are in jeopardy, the recommendation is for BPA to hold conversations with the region (customers and stakeholders), to share the specifics on the target underachievement. Collectively, we should discuss how BPA will implement its backstop role in order to achieve the target. 11 B O N N E V I L L E P O W E R A D M I N

I S T R A T I O N Issue Resolutions Issue #7: Performance Payments for Regional Programs Problem statement: Customers can claim performance payments for savings resulting from regional programs even though most administration costs are borne by the program implementer. This increases the overall cost of the regional program (and makes fewer funds available for acquisition of savings) where a utility may not actually incur costs Recommendation: Status quo - utilities can claim performance payments for regional programs that cover labor costs. 12 B O N N E V I L L E P O W E R A D M I N I S T R A T I

O N Outstanding Issue #6 Limitations of the Post-2011 Framework Problem Statement The design of the Post-2011 framework may be constraining public powers pursuit of all cost-effective conservation consistent with the NW Power Act, which was a core principle of the initial Post-2011 public process. Additionally, the framework is based on BPA paying for energy savings on a widget-by-widget basis, which may not afford the opportunity for public power to capture savings via new, innovative programmatic approaches. Options A. Explore: BPA, customers, and stakeholders explore any inherent constraints of the Post-2011 framework to acquiring all cost-effective conservation and capturing savings via new programmatic approaches. 13 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Outstanding Issue #8 Regional Program Administration Problem Statement BPA administration of regional programs (e.g., Energy Smart Grocer) is more difficult without the direct acquisition program model and when funding commitments are variable or not firm. In order to optimize regional program performance and lower administrative costs, the region would benefit from considering conditions under which a direct acquisition program would be appropriate or by securing firm incentive funding commitments ahead of budget-years to appropriately size and focus the

third party implementers efforts. Options A. Status quo: BPA has neither control of funding to directly acquire savings via a regional program nor a mechanism to secure firm utility funding commitments for regional programs. B. Direct acquisition: Under certain conditions, BPA is able to control a portion of incentive funding to directly acquire savings via a regional program. C. Firm utility commitments: Prior to finalizing a third party contract for a regional program, BPA has the ability to secure firm utility funding commitments for the program. D. Other Provide guiding principles for BPA to consider in regional program administration 14 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Guiding Principles Discussion Comment: the current pledge model opens risk for over scope contract terms or vice versa For existing programs, determine if there is a customer benefit before changing Determine who would be impacted (Pubic Power, NEEA, ETO, IOU) BPA to flush out initial thoughts on new programs Funnel ideas through USB; further design assistance from all customers before contracting Always incorporate utility/notification in the process Align activity with I-937 reporting/timing BPA federal procurement requirements 15

B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Outstanding Issue #5 Self Management of Utility Incentives What is the workgroup trying to solve? How do we achieve BPAs savings goals while: A. relieving pressure on BPAs capital borrowing; B. offering customers some flexibility (e.g., 100% or partial selfmanagement of incentives); C. offering some customers the ability to avoid having BPA incur capital costs on their behalf; and D. avoiding complicated and costly implementation of alternatives 16 B O N N E V I

L L E P O W E R A D M I N I S T R A T I O N Separating the Components 1. How should BPA finance the incentive costs for BPAs savings acquisition? Expense Capital Relationship between near/long term costs 2. How should BPA structure its incentive funding relationship with customers? Alternatives are considered in the following slides 17 B O N N E V I L L E P O

W E R A D M I N I S T R A T I O N Some Working Assumptions All non-incentive EE costs (e.g., regional third party contract costs) are collected on a TOCA-basis, which is no change from the status quo, and the alternatives are focused only on incentives. These scenarios are the result of conversations within the workgroup and not representative of the views of BPA Finance Dept. Members of the workgroup that work on rates have performed an initial analysis on the impacts on rates. They estimate ~$20M shift from capital to expense equates to ~1% rate increase in the PF rate. Energy Efficiency is currently indifferent to how funds are allocated (capital or expensed), but recognize the CIR and IPR processes underway. As we work through the options, we recognize other pros/cons may surface as conversations continue. These alternatives may not be mutually exclusive. Please consider offering additional insights as each option is presented. 18 B O N N E V I L L E P O W E R A D

M I N I S T R A T I O N Status Quo Todays Model Brief description Pros 75/25 programmatic split remains and incentives continue to be capitalized Cons Keeps things simple Model is understood Successful in achieving FY12/13 targets Implications/Additional Considerations Scoring Doesnt fully address some customers concerns about BPA incurring capital costs on their behalf Doesnt provide an option for 100% self-management of incentives without capitalizing costs (under the current model) Doesnt relieve any EE pressure on BPAs capital borrowing Higher overall costs in the long run due to borrowing costs 19 B O N N

E V I L L E P O W E R A D M I N I S T R A T I O N Revise down the 75/25 programmatic split for all utilities (on a regional level) Brief description Pros Customers, on average, take on more responsibility for delivering savings without BPA funding, which would result in proportionally reduced EEI budgets for all customers Cons Partially addresses some customers concerns about BPA incurring capital costs on their behalf when they expense conservation at the retail level Relieves some EE pressure on BPAs capital borrowing

Doesnt fully address some customers concerns about BPA incurring capital costs on their behalf Doesnt provide an option for 100% selfmanagement of incentives Higher overall costs in the long run due to borrowing costs Long term adjustments will have rate impacts Implications/Additional Considerations Scoring As the percentages change and less funding flows through BPA, what accountability mechanism would be needed to ensure adequate savings are delivered to meet BPAs savings commitments? 20 B O N N E V I L L E P O W E R A D M I N I S T R

A T I O N Expense Rate Credit Brief description Pros The EE capital budget would be moved to expense and customers would receive their EEI budgets broken down into a monthly rate credit Cons Addresses some customers concerns about BPA incurring capital costs on their behalf Relieves all EE pressure on BPAs capital borrowing Lower overall costs in the long run due to no borrowing costs Doesnt provide an option for 100% selfmanagement of incentives Near term rate impact for customers (theres flexibility on the timing of the transition to expense) Implications/Additional Considerations Scoring How would the program be designed differently, if at all, from the last rate credit construct, i.e., would there be an opportunity to improve on the previous expense rate credit? Are there implications for reporting of savings to BPA 21 B O N

N E V I L L E P O W E R A D M I N I S T R A T I O N Capital Rate Credit Brief description Pros A monthly rate creditfor debt service costs not incurredwould be given to those customers that elect to 100% self-finance their savings acquisition Cons Addresses some customers concerns about BPA incurring capital costs on their behalf Relieves some EE pressure on BPAs capital borrowing (i.e., not causing BPA to borrow)

Provides an option for 100% self-management of incentives BPA borrows less under this approach Is very complicated from a BPA cost recovery/rate making perspective Higher overall costs in the long run due to borrowing costs Takes away flexibility in setting rates Implications/Additional Considerations Scoring For those customers electing the capital rate credit, what accountability mechanism would be needed to ensure savings are delivered and would other customers be impacted either from a budget or savings delivery expectation perspective? 22 B O N N E V I L L E P O W E R A D M I N I S

T R A T I O N Flexible Budgets Rate Adder Brief description Pros Customers can elect more or less than their TOCAbased BPA incentive budgets; costs are collected in rates in the form of a rate adder (as opposed to a credit approach) Cons Addresses some customers concerns about BPA incurring capital costs on their behalf Provides an option for 100% self-management of incentives If capitalized, relieves some EE pressure on BPAs capital borrowing Is simpler from a BPA cost recovery/rate making perspective than some other options Provides all customers flexibility whether incentives are expensed or capitalized Makes for a more complicated BPA budgeting process due to customer flexibility If incentives are capitalized, higher overall costs in the long run due to borrowing costs Implications/Additional Considerations Scoring What accountability

mechanism would be needed to ensure adequate savings are delivered to meet BPAs savings commitments? What are the implications for BPA budgeting if customers are able to elect their budget amounts? Could budget flexibility be used to address capturing large projects? 23 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Desired Outcomes Proposals that are implementable Make the overall efficiency we accomplish better Meet BPAs requirements Appreciate the role of the utility Helps utilities acquire savings through easier operational mechanisms Agreement amongst the WG that were on the same page moving forward (even if it means giving up on our

personal perspective) Allow time for the WG members to process the outcomes 24 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Desired Outcomes, contd Regardless of size, all utilities can aggressively participate in BPA programs and obtain energy savings Encourage lowest cost resources; reduce barriers to lowest cost acquisition Work judiciously to stay on schedule Early identification of show-stoppers Try to maintain the flexibility of Option 1 and Option 2 customers, especially as it relates to custom projects We can freely express opinions Keep what works 25 B O

N N E V I L L E P O W E R A D M I N I S T R A T I O N Issue Slides To Keep as a Point of Reference if we need to have them during our discussion Items noted in green indicate the group has consensus on that Issue/Topic. 26 B O N N E V I L L E P O

W E R A D M I N I S T R A T I O N Issue #1 - EEI Allocation Methodology Using TOCAs (Scoping Doc. Item 1) Problem statement The current methodology for allocating EEI funds on a TOCA basis is not aligned with customer conservation potential and may inefficiently/ineffectively allocate available funding. DECISION: Option A represents group consensus, with possible revisit to Option C. Option E moved to Issue #9. A. Status quo: allocation is based on TOCAs without consideration of potential. B. Conservation potential: allocation is based on conservation potential (a uniform way to calculate potential would likely be needed, e.g., a standardized Conservation Potential Assessment). C. TOCA-split: allocation is based partly on TOCAs and the remaining funds are made available to low-cost/lowest $/kWh projects (to be defined) or redistributed via some other methodology (e.g., conservation potential). D. Utility request: allocation is based on requests from utilities without consideration of potential (similar to the BPA bilateral funding model prior to October 1, 2011). E. EEI opt-out: electing utilities opt-out of the EEI paradigm if certain conditions are met. This option does not include opting out of paying for the BPA-managed portion of EEs capital budget (see also Utility Self-Funding issue below). 27 B O N N E V I L L E P O W E R

A D M I N I S T R A T I O N Issue #2 Two-Year EEI Budgets, aka Roll Over (Scoping Doc. Item 2) Problem Statement Customer EEI budgets are allocated per rate period and any EEI funds remaining at the end of a rate period cannot be rolled over to the next rate period, i.e., the funds are use or lose within a two year time horizon. Options A. Status quo: BPA continues to confine EEI budgets to a single rate period. B. Roll over: Customers are able to roll over unused EEI funds to the next rate period. C. Project-specific roll over: Customers are able to roll over to the next rate period an amount of unused EEI funds tied to specific projects (or for certain sectors). D. Five-year estimate: BPA offers a preliminary five-year budget to customers to help with long term planning. 28 B O N N E V I L L E P O W E R A D M I N I

S T R A T I O N Issue #3 BPA Redirect of EEI Funds (Scoping Doc. Item 3) Problem Statement The EE Post-2011 Policy Framework states, If the [EEI] budget is not being spent, a utility will be notified that a portion of the remaining funds will be made available to other utilities as supplemental funding. Other utilities that are on-track or ahead on spending expectations would then have access to all available funding.4 To allow an opportunity for customers to adjust to the new EEI mechanism, the EE Post-2011 Implementation Program states, ECA Implementation Budgets will not involuntarily be reduced during the FY 2012-2013 rate periodHowever, following the FY 2012-2013 rate period, BPA will periodically review a customers activities and consult with it prior to reducing its ECA Implementation Budget Moving into the FY 2014-2015 rate period, BPA must determine whether or not it will exercise its right to take back EEI funds prior to the end of the rate period and make those funds available to other customers. Options A. Status quo: BPA does not exercise its take back right during the FY 2014-2015 rate period and subsequent rate periods. B. Take back: BPA will exercise its right to take back funds that remain unspent near the end of a rate period. 29 B O N N E V I L L E P O W E R A D M I N I S T R A

T I O N Issue #4 BPAs Backstop Role (Scoping Doc. Item 4) Problem Statement BPAs existing backstop role is not explicitly defined and some customers and stakeholders would like more clarity. The EE Post-2011 Policy Framework provided the following on BPAs backstop role: If the programs in place at any given time are insufficient to achieve the necessary level of savings, then new programs, as well as looking at other avenues, would be explored and evaluated, to meet the targets.6 Options A. Status quo: BPAs backstop role, as defined today, remains as-is. B. Explicit definition: BPAs backstop role is more explicitly defined. C. No backstop: BPA has no backstop role. D. Conditional: BPA has a backstop role only under certain conditions or for a certain segment of customers. 30 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Issue #5 Utility Self-Management of Incentives (Scoping Doc. Item 9) Problem Statement The existing 75% BPA-funded and 25% utility self-funded split for

delivering programmatic energy savings was created in the Post-2011 framework. Some utilities would like to take this further and opt-out of paying in rates for EEI funding only. Additionally, some utilities would like BPA to consider using a Cost of Service Analysis to determine the allocation of BPAs expense and capital costs. Options A. Status quo: the 75/25 split remains as-is. B. Percentage change: a split remains but the 75/25 percentages are adjusted either up or down. C. EEI opt-out: electing utilities opt-out of the EEI paradigm if certain conditions are met. This option does not include opting out of paying for the BPA-managed portion of EEs capital budget. (BPA will entertain well-formed proposals that meet specific criteria supplied by BPA.) D. Cost of Service Analysis: BPA costs are allocated to customers using a Cost of Service Analysis. 31 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Issue #6 Limitations of the Post-2011 Framework (Scoping Doc. Item 11) Problem Statement The design of the Post-2011 framework may be constraining public powers pursuit of all cost-effective conservation consistent with the NW Power Act, which was a core principle of the initial Post-2011 public process. Additionally, the framework is based on BPA paying for energy savings on a widget-by-widget basis, which may not afford the opportunity for public power to capture savings via new, innovative programmatic approaches. Options A. Explore: BPA, customers, and stakeholders explore any inherent constraints of the Post-2011 framework to acquiring all cost-effective conservation and capturing

savings via new programmatic approaches. 32 B O N N E V I L L E P O W E R A D M I N I S T R A T I O N Issue #7 Performance Payments for Regional Programs (Scoping Doc. Item 14) Problem Statement Customers can claim performance payments for savings resulting from regional programs (e.g., EnergySmart Grocer) even though most administration costs are borne by the program implementer. This increases the overall cost of the regional program (and makes fewer funds available for acquisition of savings) where a utility may not actually incur costs. Options A. Status quo: utilities can claim performance payments for regional programs that cover labor costs. B. Restriction: utilities cannot claim performance payments for regional programs that cover labor costs (perhaps unless they can document that they incurred costs). 33 B O N N E

V I L L E P O W E R A D M I N I S T R A T I O N Issue #8 Regional Program Administration (Scoping Doc. Item 15) Problem Statement BPA administration of regional programs (e.g., Energy Smart Grocer) is more difficult without the direct acquisition program model and when funding commitments are variable or not firm. In order to optimize regional program performance and lower administrative costs, the region would benefit from considering conditions under which a direct acquisition program would be appropriate or by securing firm incentive funding commitments ahead of budget-years to appropriately size and focus the third party implementers efforts. Options A. Status quo: BPA has neither control of funding to directly acquire savings via a regional program nor a mechanism to secure firm utility funding commitments for regional programs. B. Direct acquisition: Under certain conditions, BPA is able to control a portion of incentive funding to directly acquire savings via a regional program. C. Firm utility commitments: Prior to finalizing a third party contract for a regional program, BPA has the ability to secure firm utility funding commitments for the program. 34

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