2018 Annual Audit Report to the Commission GCPUD Audit Department - - PowerPoint PPT Presentation

2018 Annual Audit Report to the Commission

11/13/18 GCPUD Audit Department 1

Meeting Objectives:

• 1. Principles of Audit Plan

Development

• 2. Status of the 2018 Audit Plan
• 3. Review 2019 Audit Plan
• 4. Moving Forward

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Internal Audit Objectives and Purpose

 Internal auditing is an independent, objective assurance

and consulting activity designed to add value and improve an organization’s operations. Internal Audit helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

(International Professional Practices Framework)  Internal Audit’s objective is fundamentally assurance.

Looking at the past and present to provide reasonable assurance that all activities are being carried out in accordance with written policy, procedures, and applicable regulations.

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INTERNAL AUDIT AND CONTROLS

RISK CONTROL FRAMEWORKS OBJECTIVES

(COSO, ISO 31000) Compliance 1) Control Environment - Sets Tone of Org Operational 2) Risk Assessment Financial 3) Control Activities - Testing Strategic 4) Information and Communication 5) Monitoring Controls: Adequate and Effective

RISK BASED AUDIT PROGRAM

Objectives Scope of Engagement Audit Results Identify Audit Findings Assurance on Controls Prepare and Distribute Report Monitor Implementation of Recommendations Events, Vulnerabilities

Impact Likelihood H,L H,H L,L L,H

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Audit Plan Development

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Audit Plan Development

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Color indicates Assurance / Coverage scores where 1 is the most effective / highest confidence / fully pervasive

1-2

• 3-4

5-6 7-8 9-10

Audit Plan Development

Risked Based Approach

1.

ERM – Risk Assessment

2.

Management & Employee Input

3.

Commission Contributions

4.

Internal Audit Evaluation

Emerging Risks, Trends, and Focus

Internal Audit Charter (adopted by Resolution, 2014) The internal audit plan will be developed based on a prioritization

• f the audit scope using a risk-based methodology, including input

by Senior (Executive) Management and the Commission. The Auditor will review and adjust the plan, as necessary, in response to changes in the organization’s business, risks, operations, programs, systems, and controls.

11/13/18 GCPUD Audit Department 7

2018 Audit Plan Status

Continuous Monitoring Audits

• 1. 2017 P-Card Audit
• 2. Payroll Roster Audit – Ghost Employees
• 3. 2017 Voucher Audit

Risk Based Assurance Audits

• 1. Small and Attractive Asset Audit*
• 2. Net Metered Loss Audit

Generation to BA Load/Customer Request/Metering/Kwh Billed

• 3. Design Build Contract Audit*

11/13/18 GCPUD Audit Department 8

2019 Audit Plan

Key Focus Areas for Audit Activities

Continuous Monitoring Audits

• 1. 2018 P-Card Audit
• 2. 2018 Voucher Audit

Emphasis on PO’s & Procurement Process

Risk Based Assurance Audits

• 1. Payroll Overtime & Upgrade Audit
• 2. Rates & Customer Class Audit
• 3. Net Metered Loss Audit – Continued

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2018 2019 2020 2021

2017 P-Card Audit 2018 P-Card Audit 2019 P-Card Audit 2020 P-Card Audit 2017 Voucher Audit 2019 Voucher Audit 2020 Voucher Audit Payroll Roster Audit Vendor Trend & Employee Cross Check Audit Payroll Roster Audit Small and Attractive Asset Audit Payroll - Overtime & Upgrade Audit Power Distribution and Reliability Audit Customer Deposit & Billing Audit Rates and Customer Class Audit Wholesale Marketing Supply Audit Power Production Audit Net Metered Loss Audit Generation to BA Load Customer Request /Metering/ Billing of Kwh Usage Design Build Contract Consulting Audit Emerging Risks, Trends, and Focus Emerging Risks, Trends, and Focus Emerging Risks, Trends, and Focus Follow-Up: Implementation of Audit Recommendations Follow-Up: Implementation of Audit Recommendations Follow-Up: Implementation of Audit Recommendations Follow-Up: Implementation of Audit Recommendations Audit Placeholders: FCC & CIAC Calculation, Power Request Queue, System of Record for Federal Filings, Finance/Accounting/Bond Compliance, CIP Compliance, Safety, District wide training on Process and Controls Net Metered Loss Audit Generation to BA Load Customer Request /Metering/ Billing of Kwh Usage

THREE YEAR AUDIT PLAN

CONTINUOUS MONITORING AUDITS

2018 Voucher Audit Emphasis on PO's & Procurement Processes

RISK BASED ASSURANCE AUDITS

Moving Forward:

• 1. Washington State Auditor’s Office (SAO)
• Compliance Audit
• 2. Internal Controls
• Environment of Accountability
• Adequate and Effective
• 3. Audit and ERM
• Quarterly Meetings
• Continual Risk Assessment
• 4. Continuing Education and Training

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Questions? Comments? Concerns?

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PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY, WASHINGTON 2019 INTERNAL AUDIT PLAN Introduction

The objective of this document is to present information regarding District and industry wide risks and areas

• f focus that will be the starting point for the 2019 audit strategy and related audit engagements. These focus

areas are and will be derived by using various sources of information including:  Enterprise Risk Management  Commission  The Strategic Plan  Executive Management  General Counsel  Specific recognized process issues  External Audit activities  Manager and Supervisor suggested process review In conjunction with the official planning period, Internal Audit will perform its own assessment of key District and industry risks. This assessment will be based on current and previous year Audit Planning, updated to reflect current information regarding management attention areas, results of audit activities as well as routine process evaluation.

Audit Plan Development Based on Focused Priorities

Purpose: To develop periodic plans for which audits or other process evaluations will be provided. These audits

will be based on the risk assessment performed by Enterprise Risk Management (ERM) and consultations with Executive Management, Managers and Supervisors.

Essential Activities:

 Identify organizations that can be audited and possible focus areas within Grant PUD.  Identify areas or issues that are considered as priorities within Grant PUD based on the risk assessment performed by ERM and through consultations with Commissioners, Executive Management, and divisional stakeholders.  With divisional stakeholders, determine the business objectives, core processes, risks and key success parameters for each division.  Use objectives, core processes, risks and key parameters to determine areas of audit focus.  Outline clear parameters, scope and stakeholder obligations for each audit engagement.  Determine the overall resources required to accomplish the audit plan including any additional resources that may be required to complete and respond to issues that arise during the audits.  In collaboration with primary stakeholders, determine the time period to be covered by the plan.  Obtain Executive Management and Commission approval of the Audit Plan and the resources required to complete the Audit Plan.

Outputs:

 A Periodic internal audit and services plan based on priorities identified by the risk assessment, Executive Management, and other key stakeholders within Grant PUD.  Understanding by Internal Audit of Commission, Executive Management, and stakeholders’ priorities.  Identify opportunities for Internal Audit to improve organizational process, operations and objectives.

2019 - Key Focus Areas for Audit Activities

 Provide reasonable assurance that controls are adequate and effective in obtaining District objectives.  Meet with Executive Management once a Quarter to evaluate areas of focus and direction.  Report to Commission on areas of focus and emphasis bi-annually in May and November.  Continuous Monitoring Audits

• 2018 P-Card Audit
• 2018 Voucher Audit
• Audit PO Process
• Audit Procurement Processes

 Risked Based Assurance Audits

• Payroll – Overtime & Upgrade Audit
• Rates & Customer Class Audit
• Net Metered Loss Audit

 Obtain essential outside training opportunities from professional groups on best practices, tools and techniques for internal auditors.  Ensure flexibility to address emerging risks and trends. 2019 2020 2021 2018 P-Card Audit 2019 P-Card Audit 2020 P-Card Audit 2019 Voucher Audit 2020 Voucher Audit Vendor Trend & Employee Cross Check Payroll Roster Audit Payroll - Overtime & Upgrade Audit Power Distribution and Reliability Audit Customer Deposit and Billing Audit Rates and Customer Class Audit Wholesale Marketing Supply Audit Power Production Audit Net Metered Loss Audit Generation to BA Load Customer Request /Metering/ Billing of Kwh Usage Emerging Risks, Trends, and Focus Emerging Risks, Trends, and Focus Emerging Risks, Trends, and Focus Follow-Up: Monitor Audit Recommendations Follow-Up: Monitor Audit Recommendations Follow-Up: Monitor Audit Recommendations

Proposed Three Year Audit Plan

Continuous Monitoring Audits Risk Based Assurance Audits 2018 Voucher Audit Emphasis on PO's and Procurement Process

Powering our way of life.

Commission Meeting 11/13/2018

Propo posed ed 3-Year ear 10 10% S Slice ce S Sal ale

Items for Discussion

Rich Flanigan, Sr. Manger of Wholesale Marketing and Supply, Grant PUD

• Tie to Strategic Plan
• Proposed Slice Details
• Indicative RFP Process / Slice Valuation
• Non-carbon Language
• Q&A

Slice Attributes tie to Strategic Plan

• Consistent with Strategic Plan Objectives
• Maintain a Strong Financial Position
• Revenue certainty (eliminates water risk)
• Strong premium for ancillary services
• Favored by bond rating agencies
• Provide Long Term Low Rates
• Insulates Grant from hydro variability (operational risk)
• Maximizes value of Grant Hydro capacity, flexibility, energy, and

attributes

Transaction Terms

• 10% 3-year slice of Priest Rapids Project Output

(PRPO) to Avangrid Renewables

• Starting date of 01/01/2019
• Ending date of 12/31/2021
• Current 10% PRPO slice sale to Avangrid Renewables

ends on 12/31/2018

Deal Structure

• Very similar to the terms of the current contract
• AvanGrid is entitled to the following attributes
• Energy
• Capacity
• Pondage
• Ancillary services
• Green attributes (language included to protect under new carbon legislation)
• Dynamic signal
• Hosted in Grant’s Balancing Authority (BA)

Indicative RFP Valuation

• The indicative RFP process was broken down into three (3) phases;
• Phase I – Initial interest and bidding for a 10%, 3-year slice of PRP
• Phase II – Detailed dialogue and second round of bidding from Top 5 bidders
• Phase III – Bilateral negotiations and final round of bidding from Top 2 bidders
• The indicative RFP process was structured as a 10% slice of PRP with a fixed

volume of energy being returned (“buy-back”) to the District. This fixed energy buy-back represented the approximate expected volume of energy under normal or average water conditions

• This “buy-back” was used to isolate the premium for the additional

attributes from PRP (green attributes, ancillary services, regulation, etc.) and help staff make an apples to apples comparison between each bid

Indicative RFP Process

• A total of 14 counterparties participated in the initial phase I of the

RFP

• Counterparties made up of marketers and utilities
• From those 14, the Top 5 bidders moved on to more detailed

discussions with staff about the slice

• After a month of discussion
• Top 5 submitted a second indicative bid
• Top 2 moved on to further bilateral negotiations
• Of the two finalists, Avangrid was the clear winner
• Avangrid finished in the top 2 in each phase of bidding

Validation Data Points

Past Slice Data Points

Start Date End Date Type Term $ / MWh % 1/1/2019 12/31/2021 Proposed Slice 3-year 4.19 $ 16.8%** 7/1/2018 12/31/2018 Current Slice 6-month 3.50 $ 15.5% 1/1/2018 12/31/2018 Current Auction 1-year 2.30 $ 10.5% 1/1/2018 12/31/2018 Current Auction 1-year 1.92 $ 8.7% 7/1/2015 6/30/2018 Previous Avangrid Slice 3-year 3.20 $ 12.0% 12/1/2014 6/30/2015 Bridge Avangrid Slice 7-month 0.90 $ 3.0% *Premium of $10.95 million above value of energy over the 3 years Premium* Contract

Non-carbon Energy Language

• Part of final bilateral negotiations included new

contract language for Non-carbon Energy

• Language is structured to provide Grant protection from

any new legislative carbon fee or tax

• Option for Grant to receive non-carbon energy if Grant is

subjected to a carbon fee/tax

Questions?

 Grant PUD Commission Presentation November 13, 2018

Timeline

• 2004

BPA identifies North Mid-C constraints

• 2006

NW Power Pool South Mid-C Study

• 2008

ColumbiaGrid System Assessment

• 2010

ColumbiaGrid Northern Mid-C Final Technical Report Published

• 2011

Determine cost allocation

• 2012

Construction/O&M Agreements Approved

• 2015

Original Target Date for Project Completion

• 2016

Finding of No Significant Impact (FONSI)

• 2016

Preliminary Design Report with $17.8 Million Cost Estimate

• Oct 9, 2018

Detailed Design Estimate of $23,972,41 – 45 Day Opt out Window begins

Routes Considered

Chosen Route is D-E West Route

Benefits of Project

• Regional solution
• Mitigates congestion on Rocky Reach – Columbia 230kV lines (BPA and Chelan)
• Mitigates impacts of new Grant and Douglas loads
• Balances Columbia 230kV bus loading
• Provides greatest operational flexibility
• Reduces transmission congestion
• Reduces the need to re-dispatch/reduce Rocky Reach and Wells generation –

more challenging without MCHC

• Provides capacity for future system growth – especially in the Quincy area
• Much less expensive than individual utility solutions

Gr Grant’s Share e of proj

• jec

ect C Costs

• Grant’s 16.7% share of the project costs: $4.0 Million
• Grant has already paid project costs of: $567,072

Wher ere w e we Stand No Now

• Grant does not plan to opt out of the project as long as no other

parties opt out

• If a party opts out, Grant will need to meet with the remaining parties

to determine next steps

2019 BUDGET SCENARIOS November 13, 2018

11/7/2018 1

Grant PUD | 2019 BUDGET SCENARIOS

11/7/2018 DRAFT 2

Fiber Scenarios

• “One year” - Base Case - add $7M in Fiber capital in 2019 only
• “Complete the build in 9 years” - add $7M per year in Fiber capital for 9

years

• “Build in 5 years” - add $12.6M per year for the next 5 years

Assumptions

• Debt to Plant is fixed– funding fiber both through equity (excess liquidity)

and debt

• Falling from 60% in 2019 to 56% in 2023.
• Rate Assumptions fixed
• 2019: 2%
• 2020: 1%
• 2021+: 0.1%
• Debt Service Coverage and Excess Liquidity floating

2019 BUDGET SCENARIOS AND ASSUMPTIONS

Grant PUD | 2019 BUDGET SCENARIOS

11/7/2018 3

DEBT SERVICE COVERAGE

Lower DSCs reflect incremental investments

• perating at a loss.

2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 Target 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 2019 Base: +$7M Fiber 2019 Only 1.90 1.91 1.89 1.99 1.96 1.99 2.08 1.99 1.93 1.92 1.80 Sceanrio: +$7M/yr Fiber 1.90 1.91 1.89 1.99 1.95 1.98 2.06 1.97 1.91 1.89 1.78 Scenario: +$12.6M/yr Fiber 1.90 1.91 1.89 1.98 1.94 1.96 2.05 1.96 1.91 1.89 1.78

1.74 1.76 1.78 1.80 1.82 1.84 1.86 1.88 1.90 1.92 1.94 1.96 1.98 2.00 2.02 2018 2019 2020 2021 2022 2023

Debt Service Coverage by Year and Scenario (Budget 2019)

Target 2019 Base: +$7M Fiber 2019 Only Sceanrio: +$7M/yr Fiber Scenario: +$12.6M/yr Fiber

Grant PUD | 2019 BUDGET SCENARIOS

11/7/2018 4

EXCESS LIQUIDITY

Results below reflect that in

• rder to fund additional

investment in the fiber system, cash balances must be drawn upon to maintain the Debt to Net Plant Ratio. Alternatively, additional debt could be issued or retail rates could be raised to fund additional investment in fiber.

figures in millions of USD 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 MINIMUM

• $
• $
• $
• $
• $
• $
• $
• $
• $
• $
• $

2019 Base: +$7M Fiber 2019 Only 61.1 $ 61.7 $ 64.0 $ 66.3 $ 71.3 $ 77.6 $ 84.4 $ 92.5 $ 100.8 $ 106.2 $ 98.4 $ Sceanrio: +$7M/yr Fiber 61.1 $ 61.7 $ 60.7 $ 59.1 $ 59.8 $ 61.2 $ 62.8 $ 65.5 $ 69.7 $ 67.9 $ 57.7 $ Scenario: +$12.6M/yr Fiber 61.1 $ 59.0 $ 55.2 $ 49.9 $ 46.6 $ 43.7 $ 47.2 $ 52.7 $ 60.0 $ 62.6 $ 53.3 $

$- $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.00 2018 2019 2020 2021 2022 2023

Millions

Excess Liquidity by Year and Scenario (Budget 2019)

MINIMUM 2019 Base: +$7M Fiber 2019 Only Sceanrio: +$7M/yr Fiber Scenario: +$12.6M/yr Fiber

Grant PUD | 2019 BUDGET SCENARIOS

11/7/2018 5

Discussion and Direction

Grant PUD | 2019 BUDGET SCENARIOS

11/7/2018 6

APPENDIX A: BASE CASE SUMMARY OF BUDGET ITEMS

figures in thousands of USD Actuals Forecast 2017 2018 2019 2020 2021 2022 2023 TOTAL O&M 116,324 115,340 122,031 127,824 131,497 134,950 136,362 TAXES 16,283 16,698 17,712 18,680 19,356 19,980 20,481 ELECTRIC CAPITAL 55,525 43,761 57,676 63,437 45,524 38,889 32,664 PRP CAPITAL 105,630 80,964 81,278 100,737 63,140 79,413 84,395 DEBT SERVICE (net of rebates) 89,328 87,266 87,538 89,376 92,300 92,081 87,849 TOTAL EXPENDITURES 383,091 344,029 366,235 400,054 351,818 365,313 361,750 Expenditure offsets for deduction Contributions in Aid of Construction (10,649) (11,104) (3,652) (1,202) (1,207) (1,212) (1,218) Sales to Power Purchasers at Cost (41,790) (24,950) (26,355) (22,045) (16,440) (15,036) (14,775) Net Power (+ Expense, - Revenue) (54,753) (58,403) (49,383) (47,999) (61,536) (58,838) (54,000) Conservation Loans (47) (125) (125) (125) (125) (125) (125) TOTAL EXPENDITURE OFFSETS (107,239) (94,582) (79,515) (71,370) (79,308) (75,211) (70,118) TOTAL BUDGETED EXPENDITURES 275,852 249,448 286,720 328,685 272,509 290,102 291,632

Grant PUD | 2019 BUDGET SCENARIOS

11/7/2018 7

APPENDIX B: BASE CASE NET POSITION AND KEY METRICS

figures in thousands of USD Actuals Forecast CONSOLIDATED OPERATIONAL PERFORMANCE 2017 2018 2019 2020 2021 2022 2023 Sales to Power Purchasers at Cost 41,790 24,950 26,355 22,045 16,440 15,036 14,775 Retail Energy Sales 188,473 197,502 211,334 226,071 236,465 246,004 253,525 Net Power (Net Wholesale+Other Power Revenue) 54,753 58,403 49,383 47,999 61,536 58,838 54,000 Fiber Optic Network Sales 6,860 7,832 8,847 9,505 10,045 10,424 10,692 Other Revenues 2,034 1,793 1,809 1,825 1,841 1,857 1,873 Operating Expenses (116,324) (115,340) (122,031) (127,824) (131,497) (134,950) (136,362) Taxes (16,283) (16,698) (17,712) (18,680) (19,356) (19,980) (20,481) Net Operating Income(Loss) Before Depreciation 161,303 158,442 157,984 160,940 175,474 177,229 178,024 Depreciation and amortization (66,206) (69,726) (73,392) (75,917) (77,885) (78,536) (79,395) Net Operating Income (Loss) 95,097 88,716 84,592 85,023 97,589 98,693 98,629 Other Revenues (Expenses) Interest, debt and other income (29,609) (37,143) (30,021) (30,458) (35,689) (34,936) (34,069) CIAC 10,649 11,104 3,652 1,202 1,207 1,212 1,218 Change in Net Position 76,137 62,677 58,223 55,766 63,107 64,970 65,778 Actuals Forecast 2017 2018 2019 2020 2021 2022 2023 NET INCOME 76,137 62,677 58,223 55,766 63,107 64,970 65,778 LIQUIDITY (measured at year end) Elect System Liquidity (Rev + R&C) 157,031 158,988 111,386 114,781 117,598 120,550 123,526 Excess Liquidity 17,263 61,132 61,719 63,975 66,261 71,279 77,601 Days Cash On Hand 621 743 583 570 393 436 436 LEVERAGE Consolidated DSC 1.77 1.90 1.91 1.89 1.99 1.96 1.99 Consolidated Debt/Plant Ratio 65% 62% 60% 59% 58% 57% 56% PROFITABILITY

• Cons. Return on Net Assets (chg. in net assets / net plant)

3.7% 3.0% 2.7% 2.5% 2.8% 2.8% 2.8% Retail Op Ratio (assumes baseline capital) 105% 111% 107% 106% 107% 106% 102%

Q3 2018 BUDGET TO ACTUALS November 13, 2018

11/7/2018 1

Grant PUD | BUDGET TO ACTUALS Q3 2018

11/7/2018 DRAFT 2

Year-to-Date we continue to underrun O&M, Labor and Capital. Labor continues to track slightly below budget, driven by a 4% vacancy rate in FTRs (~595 actual v. 619 planned), that has not been completely offset by increased FTE and Overtime. Net direct charges (O&M, Labor, Capital) are forecast to come in favorable to the 2018 budget by $10.3M, which, given our YTD figures, may be conservative.

2018 DIRECTS YEAR-END PROJECTION OVERVIEW

2018 Budget 2018 YTD % of Annual Budget 2018 Year-End Projection YEP Variance $ YEP Variance % Favorable / Unfavorable Direct O&M 45,428,210 $ 28,855,368 $ 64% 45,073,815 $ (354,395) $

• 1%

Favorable Direct Labor 68,628,539 $ 49,415,795 $ 72% 67,563,219 $ (1,065,320) $

• 2%

Favorable Direct Capital 109,482,965 $ 66,312,680 $ 61% 100,720,570 $ (9,174,276) $

• 8%

Favorable 2018 Directs Total 223,539,714 $ 144,583,843 $ 65% 213,357,604 $ (10,593,991) $ 0% Favorable

Grant PUD | BUDGET TO ACTUALS Q3 2018

11/7/2018 3

2018 DIRECT O&M BY FUNCTIONAL AREA

Year-to-date the District has spent $28.9M in direct O&M expenditures or 64% of the total 2018

• budget. Twenty-three percent (23%) of the annual O&M budget was spent in Q3, down from 28% in

Q2. The District is forecast to spend $45.1M in direct O&M expenditures by year-end which is 1% below the 2018 direct O&M budget of $45.4M. Q4 would need to consume 35% of the budget to meet the end of year forecast. Increased expenditures in the CFO functional area are more than offset by underspending in the CCO functional area.

Functional Area 2018 Budget 2018 YTD YTD % of Annual Budget 2018 Year End Projection YEP Variance $ YEP Variance % Favorable / Unfavorable Board of Commission 60,000 $ 36,120 $ 60% 60,000 $

• $

0% Favorable General Manager 722,046 $ 632,717 $ 88% 722,046 $

• $

0% Favorable Attorney 536,790 $ 483,464 $ 90% 613,190 $ 76,400 $ 14% Unfavorable Chief Customer Officer 5,122,701 $ 2,288,085 $ 45% 4,041,389 $ (1,081,312) $

• 21%

Favorable Chief Operating Officer 27,192,148 $ 17,731,400 $ 65% 27,201,451 $ 9,303 $ 0% Unfavorable Chief Financial Officer 11,794,525 $ 7,656,272 $ 65% 12,402,739 $ 608,214 $ 5% Unfavorable Merchant Wholesale Telecom

• $

27,307 $ UNB 33,000 $ 33,000 $ N/A Unfavorable 45,428,210 $ 28,855,368 $ 64% 45,073,815 $ (354,395) $

• 1%

Favorable 2018 Direct O&M

Grant PUD | BUDGET TO ACTUALS Q3 2018

11/7/2018 4

2018 YEAR-TO-DATE LABOR BY FUNCTIONAL AREA

Year to-Date the District is underrunning FTR which is partially being addressed through higher

• vertime and O&M contracting. The District’s current expectation is to approach 610 FTR by the end
• f the year.

FTE is a cumulative figure for the year-to-date, and reflects seasonal recreation and other

• maintenance. The final FTE is expected to come in only slightly above budgeted levels.

Overtime is running over budget and is expected to end the year $623K over budget (assuming normal “events”). Overtime is both event-dependent and used to partially cover insufficient FTR.

Functional Area 2018 FTR Budget 2018 FTR YTD YTD Variance 2018 FTE Budget 2018 FTE YTD YTD % of Annual 2018 OT Budget 2018 OT YTD YTD % of Annual Board of Commission

• N/A
• $
• $

N/A General Manager 4 5 1

• N/A
• $
• $

N/A Attorney 2 2

• N/A
• $
• $

N/A Chief Customer Officer 58 53 (5) 7.41 7.98 108% 91,476 $ 153,381 $ 168% Chief Operating Officer 437 425 (12) 40.00 33.94 85% 3,978,319 $ 3,433,021 $ 86% Chief Financial Officer 118 110 (8) 7.60 5.21 69% 312,523 $ 268,971 $ 86% Merchant Wholesale Telecom 2 2

• N/A
• $
• $

N/A 619 597 (22) 55.01 47.13 86% 4,382,318 $ 3,855,373 $ 88% 2018 Full Time Regular 2018 Full Time Equivalent 2018 Overtime

Grant PUD | BUDGET TO ACTUALS Q3 2018

11/7/2018 5

2018 DIRECT LABOR BY FUNCTIONAL AREA

Year-to-Date labor of $49.4M, or 72% of the total labor budget, reflects the effect of lower FTR counts, partially offset by increased overtime. Year-end projections are that the District will come in $1.1M under budget as Q3 seasonal FTE activity ramps down and as additional FTRs are hired in Q4.

Functional Area 2018 Labor Budget 2018 Labor YTD Q3 YTD % of Annual Budget 2018 Labor YEP YEP Variance $ YEP Variance % Favorable / Unfavorable Board of Commission 194,787 $ 137,673 $ 71% 194,787 $

• $

0% Favorable General Manager 660,087 $ 500,479 $ 76% 660,087 $ $ 0% Favorable Attorney 335,304 $ 256,051 $ 76% 335,304 $ (0) $ 0% Favorable Chief Customer Officer 6,656,050 $ 3,999,623 $ 60% 5,371,892 $ (1,284,158) $

• 19%

Favorable Chief Operating Officer 49,153,583 $ 36,624,999 $ 75% 49,767,753 $ 614,170 $ 1% Unfavorable Chief Financial Officer 11,628,728 $ 7,729,951 $ 66% 10,964,816 $ (663,912) $

• 6%

Favorable Merchant Wholesale Telecom

• $

167,019 $ N/A 268,580 $ 268,580 $ N/A Unfavorable 68,628,539 $ 49,415,795 $ 72% 67,563,219 $ (1,065,320) $

• 2%

Favorable 2018 Direct Labor

Grant PUD | BUDGET TO ACTUALS Q3 2018

11/7/2018 6

2018 DIRECT CAPITAL BY PROJECT

The table shows projects with a $2M or larger budget. The total of all capital directs is expected to be under budget by $8.8M for a wide variety of reasons driven by project specifics. Fiber underspending in 2018 will be budgeted into 2019 along with any other funds directed by the Commission.

Capital Project 2018 Budget 2018 YTD YTD % of Annual Budget 2018 YEP YEP Variance Favorable / Unfavorable PR Turbine Upgrade 19,491,244 $ 19,616,187 $ 77% 24,608,625 $ 5,117,381 $ Unfavorable PR Generator Rewind 16,868,825 $ 7,415,588 $ 51% 15,438,380 $ (1,430,445) $ Favorable Crescent Bar Island Recreation Area 7,226,923 $ 7,507,961 $ 89% 8,453,474 1,226,551 $ Unfavorable Fiber Expansion 7,000,000 $ 2,200,516 $ 31% 4,500,516 $ (2,499,484) $ Favorable PR Embankment Improvements 6,000,000 $ 856,782 $ 51% 1,260,782 $ (4,739,218) $ Favorable WAN Generator Upgrade 4,931,165 $ 2,783,995 $ 56% 4,245,469 $ (685,696) $ Favorable AMP 4,820,132 $ 6,604,223 $ 137% 6,904,598 $ 2,084,466 $ Unfavorable Distribution System Class 4000 Capital 4,630,000 $ 2,839,775 $ 61% 4,347,179 $ (282,821) $ Favorable WAN Spillgate Rehab 4,346,800 $ 3,737,310 $ 86% 4,997,531 $ 650,731 $ Unfavorable PR Dam Unit Controls 4,235,000 $ 2,534,258 $ 60% 3,579,258 $ (655,742) $ Favorable Mountain View Lineups 10 & 20 3,919,068 $ 725,495 $ 19% 3,925,495 $ 6,427 $ Unfavorable Broadband Customer Connectivity 3,100,000 $ 2,085,984 $ 67% 2,985,984 $ (114,016) $ Favorable Wheeler Road Tap-Warden Switchyard 115k 2,111,000 $ 143,635 $ 15% 870,635 $ (1,240,365) $ Favorable Mt View Substations-Switchyard (Cancelled 2,000,000 $

• $

N/A

• $

(2,000,000) $ Favorable 109,482,965 $ 66,312,680 $ 63% 100,720,570 $ (8,762,395) $ Favorable 2018 Direct Capital by Project

Grant PUD | BUDGET TO ACTUALS Q3 2018

11/7/2018 7

2018 LOADED O&M & CAPITAL YEAR-END PROJECTIONS

O&M Capital Labor* Benefits* Capitalized G&A Inventory Loaded YEP† O&M Elec 14,445,399 $

• $

19,295,366 $ 7,912,967 $ (3,021,242) $ (550,437) $ 38,082,053 $ O&M PRP 30,628,416 $

• $

35,172,943 $ 14,424,310 $ (2,518,286) $ (840,532) $ 76,866,850 $ O&M 45,073,815 $

• $

54,468,308 $ 22,337,277 $ (5,539,527) $ (1,390,969) $ 114,948,904 $ Cap Elec

• $

30,668,670 $ 7,141,925 $ 2,928,880 $ 3,021,242 $

• $

43,760,717 $ Cap PRP

• $

70,051,900 $ 5,952,986 $ 2,441,300 $ 2,518,286 $

• $

80,964,472 $ Capital

• $

100,720,570 $ 13,094,911 $ 5,370,181 $ 5,539,527 $

• $

124,725,189 $ Total Expenditures 45,073,815 $ 100,720,570 $ 67,563,219 $ 27,707,457 $

• $

(1,390,969) $ 239,674,093 $ Loaded Budget Loaded YEP† Loaded Variance Favorable / Unfavorable O&M 110,809,447 $ 114,948,904 $ 4,139,457 $ Unfavorable Capital 139,566,881 $ 124,725,189 $ (14,841,692) $ Favorable Total Expenditures 250,376,328 $ 239,674,093 $ (10,702,235) $ Favorable Year End Projection Components * based on YTD Labor to Capital scaled to Year End Projections for Labor and †other factors will influence the O&M loaded YEPs in Financial Forecast such as

• ther revenues & expenses
• Slightly favorable direct

O&M

• Q3 YTD labor splits 81%

O&M / 19% Capital

• 2018 Budget labor splits

76% O&M / 24% Capital

Grant PUD | BUDGET TO ACTUALS Q3 2018

11/7/2018 8

Questions?

2018-19 Federal and State Legislative Update

• Nov. 13, 2018 - Commission Presentation

State Election Results

• Nov. 2018

State Election Results:

State

Senate Current 2019 Projected Democrat 26* Republican 23 Total 49 House Current 2019 Projected Democrat 50 Republican 48 Total 98

• *Sen. Tim Sheldon (D) caucuses with Republicans.
• 25 Senate seats up for election in 2018.
• All 98 House seats up for election in 2018.
• Current estimate: Democrats increase by 8-12 House seats.

November 2019 Initiative 1631 Yes No Carbon fees

Federal Election Results

• Nov. 2019

Federal Election Results:

Federal

Senate Current 2019 Projected Democrat 47 + 2 Ind. = 49 Republican 51 Total 100 House Current 2019 Projected Democrat 193 Republican 235 Total 428 + 7 vacancies = 435

• Senate Democrats are defending 25 seats (two held by Independents).
• Senate Republicans are defending 8 seats.
• All 435 House seats up for election.
• If Democrats take over majority in the House, as expected, their agenda will likely include

healthcare, rigorous oversight of the Administration, restoring pay-go rules, sequestration and infrastructure, climate change, demand response, energy efficiency, renewables and energy storage.

State Priorities 2018-19

2018-19 State Priorities:

Energy

• If I-1631 passes, focus will be on rulemaking; opposing new energy legislation pending rulemaking.
• Oppose 100% clean energy proposals by 2045-2050 (adds $9.2 billion cost / year in WA)
• If I-1631 fails, continue engagement on Low Carbon or Net Zero Carbon proposals:
• Maintain natural gas (NG) for reliability; critical water planning.
• Provide flexibility to achieve goal in least cost manner, including reinvesting fees, carbon free credits, emission reduction units.
• EIA / I-937 sunsets in first compliance year (e.g. 2030).
• Monitor CA proceedings to protect value for WA hydro.

Rural Broadband

• Three prong approach:
• Coordinate broadband funding bill w/ Governor’s office (some form of reverse auction likely).
• Develop bill proposal with WPUDA support (without a reverse auction component).
• Modify budget bill to expand CERB funding so PUDs qualify (eliminate debt service coverage ratio).

Other Energy

• Support legislation clarifying PUD elective authority to fund/incentivize EV infrastructure projects.
• Oppose installation mandates, preserve local decision-making.
• Monitor changes to Net Metering statute (system limits from 0.5% to 2% and individual system sizes).
• Monitor changes to Fuel Mix reporting statute.
• Monitor with concerns proposed requirements for distributed energy planning.
• Low Carbon Fuel Standard

General

• Monitor State ORCA Task Force through PPC / River Partners / WPUDA.
• Modernize bid limits / Oppose legislation to remove claim notice provisions in construction contracts.
• Mitigate liability for wildfires e.g. authority to trim or remove hazard trees / DNR process.
• Monitor PERS early retirement reemployment legislation.
• Monitor:

Telecommunication pole attachment RCW

Rural Broadband Funding 2018-19 Action Plan

Rural Broadband Funding – Action Plan

• Merge funding concepts into the Governor’s broadband bill, which is likely to include a

reverse auction.

• Introduce WPUDA-supported bill with an oversight committee, without a reverse auction
• r only as a small test pilot.
• Expand funding in budget bill for CERB and ensure PUDs can participate.

Legislative Options Action Plan

Build coalitions with:

• Businesses / Assoc. of WA Business
• WA Ports Association
• WA Farm Bureau
• Meetings w/ Governor’s office, legislators, committee chairs and ranking members.
• Develop and assess core support around the three options.

Organize sponsors for alternative paths.

Risks

• Key legislators have belief that a reverse auction is necessary.
• OFM unable to commit to desired funding levels due to overspending last budget.
• Bill is watered down or modified that are not desired (e.g. right of way access for 5G).

State Energy (Carbon) Policy What’s Next?

State Carbon Policy – What’s Next…

• 100% Clean Energy (technology specific) bills also introduced in 2019 session.
• Utilities likely oppose new energy proposals and pivot focus to I-1631 rulemaking for next 1-2 years:
• Point of taxation – first jurisdictional deliverer / importer
• Default emission rate and carbon content in fuels.
• Commerce Dept. rules re. requirements of Clean Energy Investment Plan
• Stakeholder review process by Commerce, Oversight board and panels.
• Commerce approval of expanded exemptions for EITE industries.

Voter Initiative Passes Voter Initiative Fails

• New: Net Zero Performance Standard that includes:
• Responsible carbon goals for electric sector (pro hydro, preserves some natural gas for reliability).
• Eliminates or replaces the more costly 100% clean concept.
• Cap and trade elements that integrate with other state allowance programs;
• Provides flexibility to achieve goal at least cost.
• Compliance ramps are still being discussed: (80% net clean by 2030, 90% by 2035, 100% by 2045).
• Continue active engagement w/ all stakeholders, PGP, WPUDA, NGOs, IOUs, legislators, etc.
• Seek additional improvements in proposed energy/carbon policy, including:
• Limits to layering of policies and regulations.
• Supersedes I-937 and other more costly energy policies in 2030.

Studies by PGP

• E3 study on reliability impacts associated with low carbon goals.
• WA only transmission cost impacts.

Passes or Fails

• Rep. Tarleton (D) proposal: 100% Clean; No conventional nuclear; 5% natural gas w/ carbon sequestration for

reliability; May use RECs and EE or pay Alternative compliance payment (ACP) of $50/MWh. Creates temporary exemption for reliability; Creates Energy Research Council.

• Senator Ranker (D) may introduce bill (not available at this time).

12

Cost Comparisons & Emissions Impacts

Note: Reference Case reflects current industry trends and state policies, including Oregon’s 50% RPS goal for IOUs and Washington’s 15% RPS for large utilities 100% Reduction HWGS Scenarios 2050 annual cost increase of $18.4 billion is beyond the scale of this chart

“100% Clean” Definition Effective Zero Carbon Zero carbon content energy must be used to serve load in Washington in every hour Renewable or zero-carbon generation or credits > load as measured over a year

Federal Priority Issues 2018-19

2018-19 Federal Priorities:

Pro-Hydro Legislation Passage

• Water Infrastructure Act signed into law on 10/23/18 –
• Sec. 3001 – Extends preliminary permits and start of construction deadlines for hydropower approvals.
• Sec. 3002 – Increases the capacity for exempt small conduit hydro up to 40 MW.
• Sec. 3004 – Establishes a 2 year permitting deadline for non-powered dams and closed loop pumped storage projects.
• Sec. 3005 – Consideration of Early Actions in Relicensing Term up to 50 years (previously 40 years).
• President’s Memo to expedite FCRPS EIS to 2020 before his term expires.

Columbia River Treaty (CRT)

• Principles to Modernize the CRT:
• Reduction in the Canadian Entitlement consistent w/ the actual value of coordinated operations w/ Canada.
• Flood risk management not paid by NW electric rate payers;
• Benefit to ecosystem consistent with the first and second outcome.
• Conclude negotiations within one year; Formal agreement concluded in two years.

Finance & Telecom

• Support S. 5003 (restore Advanced Refunding Bonds) – Opposed by Chairman Brady (R- TX).
• Support S. 1068 (expand Clean Renewable Energy Bonds) – Introduced by Senate Finance Committee Democrats.
• S. 2155 passed – Allows municipal bonds to qualify as high-quality liquid assets for federal bank liquidity standards.
• FCC – Support APPA ‘s efforts to challenge FCC Order (Sept. 26, 2018) removing exemption for small cell

deployments on public power poles.

• Oppose S. 3157 (STREAMLINE Small Cell Deployment Act by Thune (R-SD) and Schatz (D-HI) – Removes FCC

exemption for small cell deployments on public power poles.

• Monitor H.R. 6442 (by Rep. Kilmer, D-WA) – Tax credit to reimburse consumers for broadband infrastructure costs

in rural areas.

Sea Lions

• Support S. 3119 – Endangered Salmon and Fisheries Protection Act, Cantwell (D-WA) and Senator Risch, (R-ID).

Powering our way of life.