Snohomish County PUD 2016 Budget

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2 Snohomish County PUD 2016 Budget

3 SNOHOMISH COUNTY PUD 2016 BUDGET TABLE OF CONTENTS CEO/GENERAL MANAGER S MESSAGE...1 ELECTRIC SYSTEM...5 Exhibit 1 Operating and Other Revenue Exhibit 2 Purchased Power, Transmission and Ancillary Services Exhibit 3 Operating and Maintenance Expenses By Profit Center Exhibit 4 Operating Expenses By Cost Element Exhibit 5 Capital Expenditures DIVISIONS Administration (includes Commission, Office of the CEO/General Manager, and Government Relations)...21 Corporate Communications (includes Corporate Communications, Print Shop and Mail Center)...22 Legal Services (includes General Counsel, Records Information Management and SAP Support Compliance)...23 Finance (includes AGM Finance and Treasury, Budget and Financial Planning, SAP Support Finance, Treasury & Risk Management, Meter Reading, Customer Accounting, General Accounting, Contracts & Purchasing, and Warehouse)...24 Customer and Energy Services (includes AGM Customer and Energy Services, Customer Service Experience, Customer Service Support, Customer Service Business Operations, Customer Analytics, Customer Strategy Analytical Planning, Residential and Small Commercial, Market Segments, Senior Manager Energy Services)...25 Facilities and Security (includes Grounds and Engineering, Custodial Services, Facilities Maintenance, Facilities Planning, Security and Business Continuity, and Facilities Administration)...26 Employee Resources and Benefits Information Technology Services (includes AGM ITS, ITS Administration Management, One Project, ITS Automation Projects, Project and Delivery Management, IT Quality Assurance, IT Project Release Management, ITS Operations Management & Architecture, ITS Operations Support, ITS End User Support, Data Base Administration, Enterprise Architecture, ITS Application Management & Architecture, M2C Application Security, EAM/CMP/ALM, and B2R/P2P/H2R/R2D)...28 Power and Transmission Management (includes AGM Power and Transmission, Power Scheduling; Power Supply; Regional Transmission & Compliance and Rates and Economics)...29 Distribution and Engineering (includes AGM Distribution & Engineering, D&E Business Operations, Smart Grid, Asset Management, Local Offices, Everett Region, Everett Region Support, Environmental Affairs, Real Estate, Transportation, Construction Services & Line Training, Vegetation Management, Energy Control Center, Inspection / Scheduling, Apprenticeship Program, Distribution Engineering, Transmission Engineering, GIS / Maps & Records / Drafting, Operational Technology Engineering, System Planning & Protection, Everett Engineering, Plat Development, Substation Engineering, Substation Construction, Metering, Telecommunications, Safety)...30 GENERATION SYSTEM...31 Exhibit 6 Operating Revenues and Expenditures Jackson Hydro Project and Other Generation Renewable Generation and Youngs Creek Hydro Project Woods Creek Hydro Project, Geothermal and Capital Expenditures WATER SYSTEM Exhibit 7 Operating and Other Revenue Exhibit 8 Operating Expenses by Cost Element Exhibit 9 Capital Expenditures Snohomish County PUD 2016 Budget

4 Snohomish County PUD 2016 Budget

5 2016 BUDGET The 2016 Budget for Snohomish County PUD represents a compilation of efforts from the Leadership Team, project leaders and other PUD staff. Every effort has been made to ensure an accurate and straightforward representation of the PUD s revenue and expenditure requirements and a budget plan that upholds the mission, values, and strategic goals of the PUD. I encourage you to visit our website at www. snopud.com to learn more about the PUD and the valuable services we provide to Snohomish County and Camano Island residents BUDGET KEY FEATURES The 2016 Budget and expenditure plan provide funding to develop, maintain, and enhance the PUD s electric, generation, and water systems and continue to provide excellent service to our customers while pursuing renewable resources and all costeffective conservation. The 2016 Operating Budget for the Electric System is $656 million. The expenditure plan also includes $122 million in capital expenditures for system improvements and upgrades; a decrease of $28 million from The 2016 Operating Budget for the Generation System is $15.3 million; $0.3 million higher than The expenditure plan also includes a combined $36 million in capital expenditures for construction and system improvements; an increase of $14 million from The Water System s 2016 Operating Budget is approximately $11.5 million, which is approximately $0.9 million higher than the 2015 Operating Budget. The following highlights some of the major components of the 2016 Electric System Operating Budget and capital expenditures: 4 General rate adjustment There is no general rate increase included in the 2016 Budget. 4 Retail power consumption retail load is expected to be 2.2% lower than 2015 budgeted levels. 4 New connections the estimate for 2016 new premise connections is 3,900; slightly lower than the 4,000 assumed in the 2015 Budget. 4 Distribution system infrastructure major electric distribution infrastructure projects include the construction or upgrades for East Stanwood, Oso, and Beverly Park Substations, Stanwood to Camano 115kV line replacement, and continuation of the wood pole and underground cable replacement programs. 4 Smart grid / energy storage investment includes $19.9 million to continue investment of the smart grid infrastructure, including further substation automation, continuing work on the outage management system and incorporating the energy storage into the grid infrastructure. 4 Operations facility expansion and renovation includes $4.8 million to fund upgrades to the operations facility and related equipment purchases. 4 ONE enterprise resource planning project In 2014, the PUD began a multi-year, utility-wide initiative to replace and integrate its legacy financial, work management, procurement and employee resources software systems. Phase 1 was completed in The expenditure plan includes $19.0 million in ONE project costs for Phase 2 which is scheduled for completion in mid Phase 2 will include the rollout of mobility to operations groups, the expansion of customer and outage management self-services features, and the completion of asset management capabilities. Snohomish County PUD 2016 Budget 1.

6 4 Voice radio system replacement includes $2.3 million for replacement of the existing 900 MHz voice radio system with new equipment and technologies that will enhance the PUD s current communication system to include vehicle repeaters for the use of smaller radios in bucket trucks and auto-gps locating during emergency calls. 4 Reserves utilization the expenditure plan utilizes $7.7 million of the Resource Reinvestment Reserve to fund energy storage projects. 4 Bond proceeds - The PUD issued $141 million in bonds in 2015 and the proceeds are being used to provide funding for qualified system capital improvement efforts over a three-year period. The expenditure plan includes the use of $50 million of the proceeds for projects with qualified expenditures. 4 Energy-efficiency programs the PUD continues investment in energy-efficiency programs in the 2016 Budget with $21.9 million in planned expenditures (these expenditures will be reported as part of Operating and Maintenance). 4 Renewable resource projects includes funding for several renewable resource investments. The table below highlights the major renewable resource projects planned for 2016; the amounts included in the 2016 Budget, and the funding source(s): Renewable Investments 2016 Budget Funding Source(s) Hancock Hydroelectric Project $12.0 million Bond Proceeds Calligan Hydroelectric Project $12.0 million Bond Proceeds Low-Impact Hydro Electric Exploration $3.0 million Resource Reinvestment Reserve 2016 BUDGET RE-MAPPING Snohomish PUD has implemented a new ERP system that includes a change to our financial and budget reporting format. The budget format described in this document is different than previous versions. Historically, we have presented the budget on a modified cash flow basis and balances Sources and Uses of Funds. Our new financial reporting system is designed to capture revenues and expenditures consistent with generally accepted accounting principal (GAAP) financial statements in a Statement of Revenues and Expenses format. We have followed standard system functionality in designing the system and the new budget format for the PUD. Authorized spending levels will not change; however, the reporting format will change. The primary difference is that Capital Expenditures and principal payments on debt service are not part of Operating expenses, but depreciation expense is now a component. The budget book will still outline these expenditures as part of the 2016 Budget. Variances described in this document will be based on the new format. COMPLIANCE WITH COMMISSION POLICY Pursuant to Commission Policy, specifically EL-4 that defines the executive limitation for financial planning and budgeting, the 2016 Budget: w Includes a credible projection of revenues and expenditures; w Maintains cash reserves at levels consistent with Commission policy established in Resolution 5319; w Provides for 2016 Electric System debt service coverage greater than the Commission s 1.75x target; and w Planned use of bond proceeds does not exceed the Commission s target of 40% of non-generation electric system capital. 2. Snohomish County PUD 2016 Budget

7 PUBLIC BENEFIT The PUD remains committed to the benefits of public power for its customers who expect the PUD to respond to the needs of the community. The 2016 Budget includes: n Energy-efficiency programs including residential lighting discounts, incentives for home weatherization improvements, efficient retail products and heat pumps, and comprehensive retrofits for low-income housing efficiency. Incentives also encourage businesses throughout the County to save energy by making efficiency upgrades to lighting, HVAC, motors and process improvements. Significant efforts are made to educate and increase customer awareness of the benefits of energy efficiency for all ratepayers. n Fish and wildlife recovery efforts that are featured at the PUD s hydroelectric projects, including Jackson, Youngs Creek and Woods Creek. In addition, approximately 35% of the PUD s payments for power to BPA, approximately $83 million, fund fish and wildlife recovery on the Columbia River; n Low-income discounts estimated at about $7.0 million are provided by the PUD for qualifying low-income customers; n Public safety information programs are communicated in a variety of ways, including our website, bill inserts, school programs, newspaper ads, and other means; n Trained field employees who live in the communities, keep a watchful eye for customers who may be at risk and provide responsive service during major storm and emergency outage conditions; n Energy education programs serving local area schools with classroom presentations, student workshops, and electrical safety demonstrations; n Environmental sensitivity demonstrated in our power resource development acquisition and construction practices; n The Helping Hands program, funded by employees, which assists low-income seniors with their PUD bills; n The Project PRIDE program, funded by customer donations, which provides financial assistance to low-income families for their PUD electric bills; n Quality jobs and local employment provided by the customer-owned PUD; n The Social Service Agency and LIHEAP (Energy Assistance) support, which provides customers and agencies easier access to customers data at the time assistance is being provided and coordinates pledges to pay; n Tax-exempt financing for capital projects helps maintain stable rates; and n Customer renewable programs that incentivize customer-owned, distributed resources, including qualifying solar photovoltaic systems. STRATEGIC PLAN 2016 OPERATING BUDGET AND AUTHORIZED CAPITAL EXPENDITURE ELEMENTS PUD management worked with the Commission to create a strategic plan that established the values, mission and critical planning assumption of the PUD. The 2016 Budget upholds the values of the plan. The Snohomish County PUD Board of Commissioners and Management Team are taking actions today to build a strong base of sustainable knowledge and physical assets. This will provide a foundation from which our utility can prosper and meet the needs of our customers, while recognizing our environmental stewardship role and the social and economic issues of our community. The Strategic Plan is designed to support the PUD s mission of providing quality water and electric energy products and services. Providing power and water is our core business, but the PUD is more than simply a commodity supplier. We endeavor to increase the value of these products by providing outstanding service, information, customer convenience and safety. The plan identifies 11 areas of strategic focus, and the PUD has identified a sample of related 2016 Budget elements that support that focus as follows: n Serving the Customer Employees who keep our customers best interests in mind in all we do, resulting in loyal customers whose needs are met or exceeded and who value and respect their relationship with the PUD. Related Budget Elements: Communications: education, surveys, customer outreach ($635,000); Customer Service Department ($8.5 million) Snohomish County PUD 2016 Budget 3.

8 n Workforce Maintain a high quality workforce that will consistently fulfill the mission of the PUD. Related Budget Elements: Apprenticeship Program ($1.8 million); Labor Relations ($220,000); Safety Program ($656,000) n Financial Strong, stable financial position evidenced by adequate reserves, prudent debt management, compliance with bond indenture requirements, fiscally sound budget and revenues sufficient to cover expenses. Related Budget Elements: Sale of Renewable Energy Credits and Emissions Sales to offset Renewable Resource Development ($1.2 million); Sales of Excess Transmission ($2.0 million) n Cost & Work Management Manage the human and physical resources and business processes of the PUD to deliver safe, reliable, high quality and cost-effective utility services. Related Budget Elements: Application and infrastructure enhancements and upgrades ($3.3 million); Safety Program ($656,000) n System Continuity & Reliability Water/electric supply and delivery systems that stand ready to safely and reliably serve existing and future customers. Related Budget Elements: Smart Grid Infrastructure ($8.9 million); Energy Storage Project ($11.0 million); Major Storms ($2.2 million); Replacement of Aging Water Mains and meters ($2.8 million); Cable and Wood Pole Replacement Programs ($11.4 million); Vegetation Management ($7.8 million) n Resource Portfolio Sufficient sustainable energy and water resources available at reasonable costs to meet current and future needs. Related Budget Elements: Wind energy contract purchases ($39.0 million); Energy Efficiency acquisition of energy savings ($21.5 million); Lake Stevens Water Treatment Plant Operations ($80,000) n Assets/Facilities Management Secure, safe and adequate facilities to house employees, public interaction, equipment and supplies. Related Budget Elements: Facilities and Security Department ($13.7 million); Cyber Security Program ($555,000) n Technology & Innovation Knowledgeable and prudent implementation of the right technology and innovative ideas and methods at the right time to effectively and efficiently meet the mission of the PUD. Related Budget Elements: Applications and infrastructure enhancements and upgrades ($3.3 million); Smart Grid Technology ($8.9 million), Energy Storage ($11.0 million) n Leadership, Relationships & Partnerships Perceived and acknowledged as a respected and desirable utility service provider, community and industry leader and business partner. Related Budget Elements: Government Relations ($548,000); Industry and Community Organization Memberships ($725,000) n Environmental & Social Responsibility A PUD and community that embraces the concept of wise and socially sensitive use of resources resulting in protection of the environment and those most economically vulnerable, as well as reduced cost and risk to the PUD and its ratepayers. Related Budget Elements: Charitable Giving Campaign (from PUD employees) ($163,000); Low-Income/Senior Low-Income bill assistance ($7.0 million); Project Pride Program ($50,000); Helping Hands Program ($10,000); Social Service Agency and LIHEAP Grant Coordination ($120,000); Environmental Affairs ($588,000) n Growth Successfully manage the impacts of growth while sustaining high levels of service and availability. Related Budget Elements: The 2016 Budget assumes 3,900 new electric connections and 300 new water connections. 4. Snohomish County PUD 2016 Budget

9 2016 BUDGET The Electric System operates primarily to provide electrical service to approximately 337,000 customers in Snohomish County and Camano Island. The Electric System purchases the majority of the electrical energy it sells to customers from the Bonneville Power Administration (BPA). The Electric System consists of the PUD s transmission lines, substations, distribution lines, transformers, meters, and general plant. It also includes customer service, engineering and design, energy-efficiency services, and administrative functions that support the construction, operations and maintenance of the transmission and distribution system. ASSUMPTIONS The 2016 Budget reflects staff s electric load forecast based on an economic forecast for Snohomish County and a power resource forecast that includes staff s best estimates of wholesale market prices. The 2016 Budget for the Electric System is based on the following assumptions for revenues, power resources, and other factors: Revenue Assumptions 4 Energy Rates The 2016 Budget does not include a general rate adjustment. 4 Load Forecast PUD retail loads are expected to be 2.2% lower than loads forecast in the 2015 Budget. 4 New Connections The 2016 Budget reflects projected new connections of 3,900. The 2015 Budget assumed 4,000 new connections. Revenues from customer reimbursed work are projected at $19.5 million for Wholesale Revenues The 2016 Budget includes $38.5 million in wholesale energy revenues. Wholesale revenues reflect wholesale market sales resulting from balancing resources with load. Power available for wholesale market sales comes from BPA s Slice product, as well as other power agreements, and its availability is budgeted based on Columbia River Basin water levels at approximately 87% of average. Based on current price forecasts, the average wholesale price for revenues from system load balancing used in the 2016 Budget is $27 per MWh. Snohomish County PUD 2016 Budget 5.

10 4 Cash Reserve Transfers The PUD maintains four cash reserve accounts as follows: On-going Long-term Reserves u The Operating Reserve, which represents a minimum 90 days of non-power budgeted expenses in order to provide adequate working capital during unforeseen events such as natural disasters, economic downturns, customer loss, and revenue interruption; u The Power Market Volatility Reserve, which hedges against risks associated with wholesale market exposure resulting from power supply portfolio imbalances created by such elements as weather, contract purchase/product variability, fuel prices, load variances or resource failure; and u The Self-Insurance Reserve, which represents the estimated cost to support self-insured retention and insurance carrier deductibles; and Project Specific Reserve u The Resource Reinvestment Reserve, which represents the proceeds of the sale of operational assets to be utilized to fund capital investments in new assets. The on-going, long-term reserves are expected to remain in place over time to address business risks. The project specific reserve is expected to be utilized as the costs it is designed to address are spent. In addition, the Electric System periodically sells tax-exempt bonds in order to fund a portion of its capital infrastructure and other major capital projects. The PUD issued $141 million of tax-exempt bonds in 2015 to partially fund capital expenditures for the next three years. The PUD plans to utilize approximately $7.7 million from the Resource Reinvestment Reserve to fund the Energy Storage Demonstration Project (MESA) in 2016; additionally, revenues from the sale of renewable energy credits (RECs) and grant reimbursements, projected at $1.2 million and $1.5 million in 2016, will be used to reimburse the reserve. 4 Re-budgeted Projects The expenditure plan includes funding from the Operating Reserve for approximately $3.6 million in capital projects that were budgeted in 2015 and have been re-budgeted since the projects will not be completed in 2015 due to delays. As a result, unspent funding is expected to be available at the end of 2015 that will fund these projects. Purchased Power and Transmission Assumptions 4 Bonneville Power Administration (BPA) The 2016 Budget reflects a long-term power purchase agreement effective October 1, 2012, through September 30, 2028, for the purchase of up to 811 amw through the Block and Slice products. The BPA power contract represents 85% of the PUD s 2016 power purchases and 72% of the PUD s total power and transmission costs. 4 Block Product Forty-seven percent of the PUD s energy contract with BPA comes from the Block product. The Block product provides the PUD with power in flat monthly amounts that average 3.4 million MWh over a contract year. The amount of energy the PUD receives each month is based on the PUD s historical monthly load shape. In 2016, the total annual cost of the Block product will be $113.5 million. 4 Slice Product Fifty-three percent of the PUD s energy contract with BPA comes from the Slice product. The Slice product is delivered in variable amounts that reflect the actual output of the Federal Base Power System. It provides the PUD with the ability to follow its customer loads by storing and dispatching energy on an hourly basis within the contractual constraints and physical limits of the Federal Base Power System. Under the Slice product, the PUD takes responsibility for managing its portion of the Federal Base Power System and assumes the inherent risks. If snowpack and water conditions are above average in the region, the energy output is also above average. If snowpack and water conditions are low, the PUD s energy supply is correspondingly reduced. As a purchaser of the Slice product, the PUD has an obligation to pay its pro-rata share of BPA s actual operating costs. The PUD s share of the 6. Snohomish County PUD 2016 Budget

11 Slice of the Federal Base Power System is approximately 5%. The majority of the PUD s short-term wholesale market sales are from surplus Slice energy, which varies with the seasonal and daily variations in the Slice product s output. The 2016 Budget estimates receiving 3.9 million MWh from BPA s slice product at a cost of $133.4 million. 4 Slice True-Up Adjustment After the end of each fiscal year, BPA trues up the difference between its actual costs and the budget for the fiscal year through the Slice True-Up Adjustment. The result can be a charge or credit. The 2016 Budget reflects a credit of $1.5 million to the PUD for the 2015 True-Up Adjustment based on historical results. 4 Residential Exchange Program As a part of the Residential Purchase and Sale Agreement with Bonneville, the PUD became eligible to participate in the BPA Residential Exchange Program for fiscal years 2016 and The 2016 Budget includes $2.2 million of Residential Exchange Credits to be passed on to eligible customers. 4 Transmission and Ancillary Services The PUD relies on long-term transmission capacity from the BPA transmission network to transport its power supply from the source of generation to the customers it serves. The PUD contracts with BPA for approximately 1,618 MW of firm point-to-point capacity. The 2016 Budget includes $36.2 million for BPA transmission capacity and $16.7 million for ancillary services. 4 Jackson Hydroelectric Project The Electric System is expected to purchase 363,931 MWh of power from the Jackson Hydroelectric Project, a component of the PUD s Generation System, at a cost of $23.2 million in the 2016 Budget. This represents 5.7% of the Electric System s anticipated 2016 power resource costs. 4 Small Hydroelectric Projects The Generation System owns two small hydroelectric projects in Snohomish County: the Woods Creek Project and the Youngs Creek Project. The 2016 Electric System Budget includes $2.1 million in purchased power expenditures related to these projects. In 2015, the Generation system began construction on two new small hydroelectric projects in King County along the Skykomish River: the Calligan and Hancock Creek projects. 4 Forward and Short-term Market Purchases The 2016 Budget includes 427,529 MWh, estimated to cost $14.0 million, for forward and short-term market purchases anticipated to satisfy the PUD s retail loads in excess of its firm resources to manage short-term load and resource variations. Of this amount, $5.1 million represents forward purchases which were already committed as of August These costs are offset by wholesale power market sales. 4 Renewable Power Resources In 2006, the voters of Washington State approved Initiative 937, which requires that most electric utilities, including the Snohomish County PUD, acquire renewable energy sources and pursue all cost-effective conservation. Beginning in 2013, The PUD elected to meet its I-937 renewables target using the financial path or cost cap method. Under the cost cap method, the PUD s incremental investment in renewable resources is expected to meet or exceed the required four percent threshold through The PUD has acquired eligible renewable resources from its own resources and long term power supply contracts including the White Creek Wind Agreement, the Wheat Field Wind Agreement, the Hay Canyon Wind Agreements, and the Hampton Lumber Mill Agreement. The PUD also is recognized for achieving eligible resources including its Solar Express Program, incremental hydro from the PUD s Woods Creek Hydroelectric Project, and Renewable Energy Credits from Bonneville s resource portfolio. The 2016 Budget includes an expected 513,098 MWh or total power from the three wind power purchase contracts and the Hampton Lumber Mill power purchase Agreement for a total cost of $40 million. Other Assumptions 4 Full-time Equivalent Employees (FTE) The 2016 Electric System Budget includes 1,055 FTEs, a decrease of 2 from the 2015 Budget. Snohomish County PUD 2016 Budget 7.

12 COMPARATIVE ANALYSIS Schedule 1 is a summary comparing the Electric System 2016 Operating and Expenditure Budget with Schedule 1 ELECTRIC SYSTEM COMPARATIVE FINANCIAL DATA ($000 s) Budget Budget Operating Revenues Energy Retail Sales $ 568,012 $ 592,231 Energy Wholesale Sales 51,391 38,471 Other Operating Revenues 19,985 19,289 Total Operating Revenues $ 639,389 $ 649,991 Operating Expenses Purchased Power $ 330,544 $ 349,128 Transmission & Ancillary 52,001 52,863 Operations & Maintenance 1 160, ,356 Taxes 34,765 36,141 Depreciation 49,069 50,806 Total Operating Expenses $ 629,927 $ 656,294 Net Operating Income $ 12,461 $ (6,302) Interest Income & Expense $ 12,183 $ 7,300 Interest Charges (15,300) (17,297) Contributions 19,005 19,517 Net Income $ 28,349 $ 3,217 Cash Adjustments to Net Income Capital Expenditures $ (146,364) (122,222) Debt Service Principal (15,119) (9,699) Depreciation 49,069 50,806 Loan Repayments and Other 19,709 20,204 Estimated Changes in Reserves $ (64,356) $ (57,694) 1 Energy-Efficiency Program $22,664 $21,914 Operating Revenues Projected retail energy sales are $24.2 million higher in the 2016 Budget due to a 1.9% general rate increase and BPA cost pass-through adjustment that were implemented in Wholesale energy revenues are $38.5 million in the 2016 Budget, $12.9 million lower than the 2015 budget. This decrease reflects a lower volume of excess power and much lower market sales prices expected in 2016 reflecting the current forward price forecast. Other Operating revenues are $19.3 million in the 2016 Budget, a slight $0.7 million decrease from 2015 levels. Other Operating revenues include sales of renewable energy credits, sales of the PUD s transmission capacity, grant reimbursements, customer fees and other revenues. Operating Expenses Total 2016 Operating expenditures of $656.2 million are $29.4 million higher than the 2015 Budget. The relative amount of the expenditure categories are illustrated in Chart A. Purchased power costs of $349 million are $18.5 million higher than the 2015 Budget. This increase is primarily the result of BPA wholesale power and transmission rate increases effective October 1, Transmission and Ancillary costs of $52.9 million are $0.8 million higher than 2015 budget levels. This increase is primarily the result of an increase in transmission rates from BPA. 8. Snohomish County PUD 2016 Budget

13 Operating and maintenance (O&M) expenditures in the 2016 Budget are $6.8 million higher than the level included in the 2015 budget, primarily due to increasing medical insurance and pension costs. Operating and maintenance expenditures also include spending on energy-efficiency programs, and the 2016 Budget is much the same as 2015 budget levels. The PUD s energy-efficiency programs include energyefficiency incentives, low-income weatherization and other programs that provide opportunities for customers to reduce their energy bills. Budgeted taxes of $36.1 million are $1.4 million higher than 2015 reflecting higher retail sales. Taxes include a 3.873% state excise tax and a 2.14% percent county privilege tax. Estimated Deprecation expenditures of $50.8 million are $1.7 million higher than Depreciation is an estimate of the reduced value of the PUD s fixed assets and are part of operating expenditures in the 2016 budget. Average Rates Residential 9.8 per kwh Commercial 8.7 Industrial 7.4 Wholesale The PUD also sells energy into the wholesale power market during periods when the PUD s owned and contracted resources don t precisely match the PUD s load. Wholesale energy sales for the 2016 Budget related to load and resource balancing is estimated at $38.5 million, which includes $18.5 million in forward sales already committed through August Chart B provides a breakdown of the Electric System s energy sales components. Cash Adjustments to Net Income The 2016 Budget reflects a $28.2 million decrease in capital expenditures from The decrease from 2015 is primarily attributable to the completion of the major capital portion of the ONE program, the completion of the South County Office in 2015, a lower level of MESA Energy Storage Project costs in 2016, and less spending on capital infrastructure project in Budgeted capital expenditures for 2016 also include expansion, upgrades and maintenance of the electric distribution system infrastructure, including funding for line extension and plat work, distribution system line improvements and state requested relocation work. Debt service principal expenditures in the 2016 Budget are $3.4 million lower than the 2015 Budget as a result of the repayment of series 2005 Electric System Bonds. ENERGY SALES Retail Retail energy sales included in the 2016 Budget are sales within the PUD s service territory to residential, commercial and industrial customers. Sales to retail customers represent 94% of the Electric System s total energy sales revenue. Projected average rates for these categories are as follows: PURCHASED POWER The purchased power budget reflects a strategy for the power supply that focuses on securing stable, reliable power at predictable prices while keeping risk within acceptable levels. The PUD continues to rely on its traditional sources of power: Bonneville Power Administration purchases and the PUD s hydroelectric projects: Jackson, Youngs Creek and Woods Creek. The PUD receives 84% of 2016 Budgeted power purchases from BPA consistent with the terms of the BPA power supply agreement. It also re Snohomish County PUD 2016 Budget 9.

14 ceives power from long-term contract purchases for renewable energy from White Creek Wind, Hay Canyon Wind, Wheat Field Wind, and Hampton Lumber Mills. In addition, PUD power purchases include short-term and market purchases necessary to balance energy demand with power supply. Chart C illustrates the PUD s purchased power included in the 2016 Budget in terms of MWh purchased, while Chart D indicates the relative cost of the different power resources. Market purchases made for load/resource balancing are included. Note that while BPA provides 84% of the power purchases of the PUD, it only makes up 68% of the total cost of purchased power, 72% including the cost of transmission and ancillary services. OPERATING AND MAINTENANCE (O&M) EXPENDITURES Operating and maintenance (O&M) expenditures are designed to meet increasing customer service, system reliability and power quality expectations; maintain existing assets at appropriate operating levels in accordance with the industry standards and practices; operate the electric system in a safe and effective manner; and maintain a trained and skilled workforce. The PUD continues to provide excellent customer service at the lowest cost possible while managing the electric system growth and the increased maintenance requirements. Operating and maintenance expenses in the 2016 Budget are $167.4 million, which includes energy-efficiency programs. O&M expenditures account for 26% of total PUD expenditures. O&M expenditures included in the budget are sufficient to maintain our customer responsiveness and system reliability. Exhibit 3 (starting on page 16) provides detail for O&M expenditures by department. In addition, the division summaries provide detail for O&M expenditures by cost category. O&M expenditures include those costs incurred in: w operating and maintaining the electric distribution system to provide reliable service to our customers. This effort includes the regular maintenance of lines and stations, response to customer outages, and tree trimming efforts; w providing effective customer service through the call center, local offices, account control and front line operations, as well as executive account attention and effective communications; w maintaining an effective program that ensures the safety of employees in the performance of their duties; w providing the internal support needed to serve our customers effectively in areas such as employee resources and safety, finance and accounting, material procurement and management, and information technology; w providing maintenance and upkeep of our facilities, vehicles, and equipment; w ensuring compliance with environmental and other government regulations; and w supporting the policy-making, regulatory and management oversight functions; and maintaining an effective energy-efficiency program. ENERGY-EFFICIENCY & CUSTOMER RENEWABLES PROGRAMS The PUD continues to acquire all cost-effective and achievable energy-efficiency resources and has allocated a 2016 conservation budget of $21.9 million. Energy conservation targets for the biennium will be in keeping with state-mandated I-937 requirements. PUD conservation programs are designed so that all customers residential, commercial and industrial have an opportunity to become more energy efficient. This budget includes approximately $0.8 million to fund renewables 10. Snohomish County PUD 2016 Budget

15 programs: the Solar Express program, which promotes customer purchases of renewable solar equipment; and the Planet Power program, which funds local solar demonstration projects, using voluntary financial support from customers. Energy-efficiency revenue sources for 2016 include recapture of $5.0 million of BPA Energy Efficiency Incentives (EEI); and $1.5 million of conservation loan repayments. The 2016 Budget includes continued enhancements to our Energy-Efficiency program portfolio and meets several regulatory requirements: I-937; new federal standards for lighting, appliances and equipment; increased building energy performance requirements included in new Washington state energy codes; and high efficiency goals for the region in the 6th Power Plan. Staff will also be heavily engaged with the development of the region s 7th Power Plan, due out in Energy-efficiency programs for 2016 include: w Incentives for residential insulation, high-efficiency windows and for efficient heat pumps (air source, ground source, and ductless); w Retail discounts on LEDs, fluorescent lights and fixtures, and other high-efficiency appliances and electronics; w Builder incentives for efficiency upgrades that exceed the levels set by building code in residential new construction, single- and multi-family homes; w Custom incentives to businesses for installing a wide variety of energy-efficient technologies, especially high-use lighting and HVAC equipment, at commercial and industrial customer sites; w Incentives for commercial building new construction and data center efficiency projects; w Rebates for energy-efficient commercial lighting, kitchen equipment and other end-uses; w Energy information services to promote savings from operational and behavioral practices, including a Resource Conservation Management Program (RCM), which targets school districts and other public entities across the County; and Strategic Energy Management (SEMS) for industrial facilities; w Incentives for qualifying solar photovoltaic systems for residential, commercial, and industrial customers; and w Planet Power funding of solar PV community demonstration projects. The 2016 Budget also includes resources for: w Advancing innovative program development and design; w Infrastructure development, including the integration of a comprehensive tracking and reporting system; w Marketing and promotion through the PUD s Be An Energy Smarty Pants campaign; w Trade ally network training and development, supporting new jobs in the community; w Measurement, evaluation and continuous improvement of program performance; Snohomish County PUD 2016 Budget 11.

16 w Leveraging data to inform more sophisticated strategic planning and target market segments for energy-efficiency resource acquisition; w Market research at the local level as well as leveraging regional research efforts; and w Technology demonstration and evaluation projects conducted in Snohomish County with support from EPRI, BPA and NEEA. CAPITAL EXPENDITURES The 2016 expenditure plan includes costs related to expansion, upgrades and maintenance of the electric distribution system infrastructure, including funding for depreciated cable replacement, distribution system line improvements, and state requested relocation work. In addition, capital expenditures include the costs of the Smart Grid Project including energy storage capabilities, telecommunications infrastructure, information systems applications and hardware, capital work on PUD facilities and purchases of vehicles and equipment. Capital expenditures are categorized in three types: system infrastructure construction, new connection construction, and other capital expenditures. The major capital projects included in the 2016 expenditure plan are presented in the table below. Additional detail on the capital program may be found in Exhibit 5. Significant 2016 Electric System Capital Projects/Programs ($000 s) ONE Project $ 12,631 Energy Storage Project 11,017 Beverly Park Substation 9,984 Smart Grid Infrastructure 8,879 Cable Replacement Program 5,805 Wood Pole Program 5,584 Operations Expansion/Renovation Project 4,768 Stanwood to Camano 115kV line 4,016 IT Application Improvements and Enhancements 3,686 Local Office Design and Development 1,110 System Infrastructure Construction The electric system is planned, designed and constructed to provide dependable capacity and maintain continuity and quality of service to PUD customers. The system infrastructure construction program focuses on continuous improvements to the PUD s electric system. The program involves reliability improvements, upgrades, expansion of existing facilities and construction of new electric system infrastructure to meet both changing load patterns and new load growth. The electric system program also focuses on providing customer voltage with proper power quality and system operational efficiency. The 2016 System Infrastructure Construction expenditure plan is $49.1 million. This electric system construction figure reflects a realistic estimate of the project costs expected to be incurred in The System Infrastructure Construction Plan consists of four categories as follows: 4 Major Capital Expansion Projects The steady growth and changing load patterns of residential, industrial and commercial customers continues to require new facilities and property as well as increase peak load demands. The purpose of this program is to provide increased electric system capacity by constructing new facilities. This category consists of large specific system expansions, such as new substations and new lines. These projects generally extend over a number of years. The 2016 expenditure plan for this program is $17.4 million. 4 Major Capital Upgrade Projects A reliable, cost-effective and safe electric system network requires that facilities be upgraded to provide anticipated levels of service. The upgrades to the existing facilities are prompted by localized load growth, land-use changes and infrastructure expansions. This category consists of large specific system upgrades, such as substation upgrades or line reconductoring. The expenditure plan for this program in 2016 is $8.8 million. 4 Capital Asset Management Programs The existing electric system facilities must be routinely refurbished and/or replaced to provide a reliable, cost-effective and safe system. This program provides for facility relocations, replacement of malfunctioning or deteriorated plant and improving 12. Snohomish County PUD 2016 Budget

17 operational efficiency. Each of the programs included in this category consists of specific improvement projects that are continuous and on-going over a number of years. The 2016 expenditure plan is $20.8 million for this program. 4 Other Capital Outlay This program funds anticipated but as yet unidentified work, such as emergency line expansions and replacements and substation improvements. This category consists of small system improvements that experience indicates are necessary each year. This program s expenditure plan for 2016 is $2.1 million. New Connection Construction The new connection construction portion of the capital expenditure plan funds the PUD s response to customer requests for new electrical service, upgrades to existing services and other services including street and area lighting, as well as new equipment such as transformers and meters. This construction work is classified in three different categories. Type 1 work includes overhead and underground secondary and primary services, convenience poles, underground primary systems for plats, and reimbursable overhead and underground line construction. Type 2 work includes the purchase costs and the installation costs for transformers and meters. Type 3 work includes service poles, overhead and underground line construction, overhead street lights, area lights, and street lights for underground plats. Funding for customer service construction is based on 3,900 new service connects derived from the PUD s load forecast. The projected cost for 2016 is estimated at $24.4 million to serve the PUD s projected 2016 new connections plus other customer service requirements. Other Capital Expenditures In addition to system infrastructure and new connection construction, the PUD annually plans for capital expenditures related to PUD facilities design, construction and upgrades, development and implementation of smart grid infrastructure, purchase and implementation of software applications, purchases of transportation equipment, purchases of replacement information technology equipment, communications equipment, and storm restoration funding. Funding for these other capital expenditures totals $44.5 million in the 2016 expenditure plan. The replacement of aged vehicles and equipment reaching the end of their useful lives is necessary to ensure safe operation, reliable service and optimal efficiency. Vehicle and equipment replacements are planned by Transportation Services with the intent to remove them from service before extensive maintenance costs and downtime are realized. Replacement criteria are based on a combination of factors including age, utilization, specific maintenance issues, changes in technology and changes in stakeholders business needs. New technology is continually being investigated to reduce environmental impact and improve workforce efficiency. The 2016 expenditure plan includes $3.7 million for new and replacement vehicles and equipment. The Information Technology Services capital expenditure plan supports the technology infrastructure (such as servers, network, applications, and telecommunications) that provides the basic framework for the PUD s computer and communications systems. The 2016 expenditure plan includes $16.3 million in funding for hardware, network, application improvement, telecommunications, and costs associated with Phase 2 of the ONE Project. The Facilities department expenditure plan for capital expenditures related to design, construction, upgrade and replacement of the PUD facilities. The 2016 expenditure plan includes $5.9 million related to the Operations Center Renovation and Expansion project, design work for a new Arlington local office, and road improvements necessary for the construction of the future Monroe office. The 2016 expenditure plan includes the cost of major storm restoration capital expenditures of $.3 million. The O&M expenditure plan includes an additional $1.9 million in funding for major storm restoration in This estimate is based on the normal, average annual cost of actual expenditures for major storm events. Other capital expenditures also includes $5.5 million for the telecommunication projects related to wireless attachments, microwave replacement, and wireless infrastructure, $8.9 million for development and implementation of Smart Grid infrastructure, including additional substation automation and development of an outage management system and planning and design for a meter data management system, and $11.0 million for an energy storage project funded by grant proceeds and the Resource Reinvestment Reserve. Snohomish County PUD 2016 Budget 13.

18 2016 Budget Electric System Operating and Other Revenue Exhibit 1 Operating Revenues Budget Energy Sales Budget MWh Mills/KWh Amount Residential $ 334,346,938 3,390, $ 333,268,098 Commercial 193,637,352 2,386, ,766,839 Industrial 36,457, , ,364,496 Street Lights 3,570,173 20, ,831,255 Total Retail Energy Sales 568,012,293 6,435, ,230,689 Forward Wholesale Market Sales $ 19,174, , $ 18,523,952 Wholesale Market Sales 32,216, , ,947,314 Total Wholesale Energy Sales $ 51,391,404 1,426, $ 38,471,266 Total Energy Sales $ 619,403,697 7,861,562 $ 630,701,955 Other Operating Revenues Transmission Sales $ 2,000,000 $ 2,000,000 Damage Claim Reimbursements 1,000,000 1,000,000 Miscelaneous Operating Expense Reimbursements 1,200, ,000 Surplus REC and Emission Sales 665,046 1,232,503 BPA ECA Reimbursement 6,000,000 5,000,000 Miscellaneous Service Charge Revenue 6,265,025 6,390,326 Rents from Electric Property 2,855,204 3,166,488 Total Other Operating Revenues $ 19,985,275 $ 19,289,316 Total Operating Revenues $ 639,388,972 $ 649,991,271 Other Revenue Grant Revenues/Reimbursements $ 5,840,120 $ 1,527,999 Interest Income and Expense Investment Income 2,500,000 2,500,000 BAB's Subsidy 2,286,526 2,284,062 Intercompany Loan Interest - Generation System 1,381, ,560 Subtotal - Interest Income 6,168,214 5,597,622 Contributions Cash Contributions 15,467,569 15,929,144 Reimbursable by Others 2,537,264 2,588,008 Non-Cash Contributions 1,000,000 1,000,000 Subtotal - Contributions 19,004,833 19,517,153 Intercompany Loan Principal - Generation System 17,482,498 18,049,926 Salvaged Materials 800, ,000 Conservation Loan Revenues 1,600,000 1,528, Snohomish County PUD 2016 Budget

19 2016 Budget Electric System Purchased Power, Transmission and Ancillary Services Exhibit 2 Total Total MWh's Budget MWh's Budget BPA Block 3,275,702 $ 106,045,539 3,366,798 $ 113,473,801 BPA Block 3,275, ,045,539 3,366, ,473,801 BPA Slice Base 3,847, ,757,112 3,854, ,904,962 Slice True-up - (1,500,000) - (1,500,000) BPA Slice Subtotal 3,847, ,257,112 3,854, ,404,962 BPA Lookback Credit/REP Customer Refund - (8,500,000) - (8,500,000) Residential Exchange Credit (2,200,000) Total BPA Power Costs 7,122, ,802,651 7,221, ,178,763 Generation System: Jackson Hydro 362,629 20,337, ,931 23,194,794 Generation System - Other - 18,363,870-29,100,330 Youngs Creek 18,159 1,754,633 18,218 1,671,633 Woods Creek 1, ,272 1, ,562 Total Generation System 382,339 47,925, ,706 54,401,320 Other Renewable Power Sources: Packwood 14, ,000 14, ,000 Qualco 3, ,784 3, ,697 Klikitat PUD Green Power 14,590 1,019, Hampton Lumber Mills 16,056 1,084,691 16,104 1,114,358 Wind Power Contracts 508,082 38,442, ,098 39,011,232 Total Other Renewable Power Sources 556,682 41,250, ,197 40,875,287 Market Power Purchases Forward Purchases 214,400 8,032, ,000 5,101,005 Market/Short Term Purchases 140,848 4,834, ,529 8,863,725 Total Market and Short-Term Purchases 355,248 12,866, ,529 13,964,729 Other Power Purchases Small Power Producer , ,657 Other Non-Power Services - 3,687,125-3,696,350 Total Purchased Power 8,417,394 $ 330,544,364 8,580,462 $ 349,128,106 Transmission and Ancillary Services Transmission Services - 36,474,340-36,173,387 Ancillary Services - 15,526,627-16,689,181 Total Transmission and Ancillary Services $ 52,000,967 $ 52,862,568 Snohomish County PUD 2016 Budget 15.

20 2016 Budget Electric System Operating and Maintenance Expenses - By Profit Center Uses of Funds - by Profit Center CC FTE (1) Budget FTE (1) Budget General Manager F ,464 Commission F ,624 Government Relations F ,012 Total Administration $ 2,633, $ 2,299,100 Employee Resources Department F ,699,356 Employee Benefits F ,108,027 Total Employee Resources and Benefits $ 52,420, $ 59,807,384 Corporate Communications F ,085,970 Print Shop F ,089 Mailroom F ,460,167 Total Corporate Communications $ 5,089, $ 5,313,227 General Counsel F ,218,596 Records Management F ,937 SAP Support Compliance F ,745 Total Legal Services $ 3,743, $ 3,630,278 AGM Finance and Treasury F ,424 Budget and Financial Planning F ,815 SAP Support Finance F ,114 Contracts and Purchasing F ,133,183 Warehouse F ,601,989 Meter Reading F ,816,180 Customer Accounting F ,962,928 Treasury & Risk Management F ,058,468 General Accounting F ,724,064 Total Finance $ 15,081, $ 17,288,165 Grounds and Enginnering F ,104,555 Custodial Services F ,984,937 Facilities Maintenance F ,854,276 Facilities Planning F ,412,040 Security and Business Continuity F ,357,303 Facilities Administration F ,743 Total Facilities and Security $ 9,524, $ 10,060,854 Customer Service Support F ,362,878 Customer Service Experience F ,056,188 AGM Customer and Energy Services F ,288,899 Business Operations F ,837 Customer Analytics F ,150,412 Customer Strategy, Analytics and Planning F ,758,020 Residential F ,313,798 Strategic Segments F ,961,204 Strategic Accounts F ,093 Sr. Manager Energy Services F ,006,246 Total Customer and Energy Services Division $ 35,676, $ 35,296,575 Exhibit Snohomish County PUD 2016 Budget