Power Production: Cultural Resources Quarter 1 Commission Update - - PowerPoint PPT Presentation

Quarter 1 Commission Update 03/12/19

Powering our way of life.

Power Production:

Cultural Resources

2019 Q1 Business Review

• Major Projects & Work Activities
• Safety performance
• We continued our consultation effort with the Wanapum regarding

potential effects of the PR right bank project on the Wanapum Indian Village.

• Wanapum are completing their project-wide Traditional Cultural Property

review.

2018 Q4 Budget Data

2018 Budget Actuals - 12/31 2018 Q4-YE CAP $ 90,000 $0 $ - O&M $ 1,147,065 $1,097,138 $1,097,138 Labor $ 1,914,797 $1,609,454 $1,609,454 OT $ 41,200 $39,896 $39,896 2018 Labor Budget Actuals - 12/31 2018 Q4-YE Regular $ 1,155,590 $1,048,662 $1,048,662 Other $ 718,007 $520,896 $520,896 OT $ 41,200 $39,896 $39,896

2019 Q1 Budget Data

2019 Budget Actuals - 1/31 Q1 - YEP CAP $ 90,000 $0 $ 90,000 O&M $ 1,106,961 $8,043 $1,206,961 Labor $ 1,673,405 $106,170 $1,673,405 OT $ 36,217 $417 $36,217 2019 Labor Budget Actuals - 1/31 Q1 - YEP Regular $ 1,019,831 $70,024 $1,019,831 Other $ 617,357 $35,730 $617,357 OT $ 36,217 $417 $36,217

2018 Q4 Work Completed

• The District Historic Properties Management Plan stipulates that we

consider project effects on Traditional Cultural Properties (TCPs).

• The Wanapum have identified and documented 28 TCPs within the project

boundary.

• Each of the TCPs is undergoing an assessment of potential project-related

effects.

• The effects assessment will be followed by a mitigation plan to be completed by

March 31, 2020.

• Completion of geodatabase for archaeological site data collection.

2019 Q1-2 Forecast

• Continuation of TCP delineation and effects mitigation plan in

consultation with our Tribal, Federal and State stakeholders

• Continuation of Priest Rapids Right Embankment work
• Ongoing “Town-hall” style meetings with Wanapum regarding effects of project on

Wanapum village

• Task 6 resource monitoring implementation

2019 Forecast

• Use of Allocated Resources
• Staffing – We’re re-allocating staff time from the Wanapum repository

to the archaeology program on a short-term basis in order to assist with PR right-bank work and to help initiate our mitigation and monitoring program

• We have a returning Master’s student intern to assist with repository

work for a temporary three month period.

2019 Forecast

• Potential Management Challenges
• We’ve initiated discussions with Tribal groups, state and federal agencies

regarding mitigation of project-related adverse effects to Archaeological Sites and Traditional Cultural Places (Task 6 of the Programmatic Agreement for Cultural Resources).

• Consultation on PR Right Bank effects to historic resources, including the

configuration of the earth fill and the Milwaukee railroad bed continue.

• We’re bringing Wanapum people in to refurbish and rebuild the large tule-mat

house.

Questions ??

9

Powering our way of life.

Operate Responsibly by Attaining Environmental, Cultural Resource and Regulatory Compliance

Fish and Wildlife Quarterly Business Report

Grant PUD Commission Meeting March 12, 2019

Business Unit Purpose & Goal

The Fish and Wildlife Business Unit uses technology, innovation, strategic thinking, good stakeholder relations and skilled negotiations to ensure we are achieving compliance with our Natural Resources regulatory requirements in a safe, cost efficient and biologically sound manner while helping to maintain the long-term financial health of the District.

2019 Safety Review

• Safety

 No Recordable Incidents to Date;  A total of 24 Job Briefs (as of 2/12/2019);  A total of 7 Job Site Reviews (as of 2/12/2019);  Goal =10%. Currently at 29.1%;  Overall Safety Meeting Attendance = 100%;  Completed review and update of 5 Job Hazard Assessments (JHAs) for critical tasks during 2019;  Completed review and update of Boat Guidance Document for Environmental Affairs.

2019 Safety Review

• Tracking Safety Concerns

 Priest Rapids Hatchery Safety measures;  Ladders to enter/exit fishways;  Fish counting vaults (confined space);  Air monitoring within collection channel;  Snag Tree - Job Hazard Assessment;  Badge Scanner at FW Shop;

2019 Compliance Review

 File 22 annual reports and plans with various agencies;

• Progress & Implementation Report (8 Combined)
• Aquatic Invasive Species Control & Prevention
• Bull trout report and 10 year review
• White Sturgeon annual report
• Pacific Lamprey annual report
• Northern Wormwood Conservation Plan
• Gas Abatement Plan
• Transmission Line Collision Protection
• Bald Eagle Perching/Roosting Protection Plan
• Wildlife Habitat Monitoring, Info & education
• Native Resident Fish
• Fish Spill and total dissolved gas report
• USFWS Annual Recovery report
• USFWS Annual – Special Use Permit

 File 12 reports related to mitigation sites;  File Boundary Adjustment for Nason Creek Acclimation Facility with FERC; Priest Rapids Project FERC License

NMFS 2008 Biological Opinion WADOE 401 Certification USFWS 2008 Biological Opinion Hanford Reach Fall Chinook Protection Program Priest Rapids Salmon and Steelhead Settlement Agreement

2019 LEAN Initiative

• Fish & Wildlife Business Unit: LEAN Initiative

 As part of its regulatory requirements, Grant PUD is required to implement 3 separate funding accounts (No-Net-Impact, Priest Rapids Conservation and Biological Opinion).  Over 100 habitat projects have been implemented to date.

• Fish and Wildlife staff provides contact management and oversight,

invoice review, individual project tracking and reporting.  Goal: Organize the No-Net-Impact and habitat information so retrieval of information for annual reporting is more efficient and accurate.

• Developed consistent process;
• Standard location and organization;
• Develop expectations for FW staff;
• Identified “gatekeeper”;
• Improve reporting accuracy;
• Reduce search time.

2019 Budget Review

Fish & Wildlife Business Unit - Allocated Resources

 Fish & Wildlife Staff 15 Full-Time Regulars (FTRs) 11.06 Full-Time Equivalents (FTEs)

• Fish and Wildlife Manager (1 FTR)
• 0.6 FTEs
• Hatchery & Habitat (6 FTRs)
• 5.0 FTEs
• Anadromous & Resident Fish (5 FTRs)
• 3.0 FTEs
• Wildlife/Botanical (3 FTRs)
• 3.0 FTEs

 Budget

• Operation & Maintenance =

$12,807,101

• Capital =

$ 365,000

• Labor =

$ 2,108,471 2019 Total Budget $15,280,572

Operations and Maintenance = 83.8% Labor = 13.8% Cap = 2.4%

2019 Budget Review – Allocated Budget

Category Budget Actuals ($) For Month Ending (1/31/2019) Year-End Projection ($) Year-End Projection (%) O&M $12,807,101 $42,137 $12,294,816 96% Capital $365,000 $0 $365,000 100% Labor $2,108,471 $110,995 $2,108,471 100% Total $15,280,572 $153,132 $14,768,287 96.6%

2019 Business Activities

Complete engineering alternatives analysis and develop the necessary permit level designs to address Carlton Acclimation Facility Intake Structure issues.

• Summer Chinook Acclimation Facility – Methow River.
• ~182K summer Chinook are acclimated overwinter at this

facility

• River channel is migrating away from facility intake.

2019 Business Activities

Tumwater Dam

• Tumwater Dam Fish Weir (Owned by Chelan PUD)
• Interlocal Cooperative Agreement (ICA) in place that allows GPUD to

utilize the Tumwater weir to collect adult broodstock for GPUD hatchery programs in the Wenatchee River Basin (summer Chinook, Nason Creek spring Chinook).

• The ICA specifically defines the specific cost allocations to each PUD

depending on the type of activity and/or reactive repair.

• Chelan PUD staff has identified erosion and undercutting of the

lowermost section of the fishway adjacent to Tumwater dam.

• CPUD has reported that preliminary estimated could be between $500,000

and $750,000. However a final engineering estimate is not available.

• GPUD’s contractual obligations to support reactive maintenance repairs

is 36% ($270,000).

2019 Business Activities

Evaluate Priest Rapids Hatchery well field and develop a recommendation/plan on next steps (rehabilitate existing wells or new wells).

• Fall Chinook Facility – 5.6 million for the District and 1.7 for US Army Corps of Engineers
• Three of the eight wells were inoperable during a majority of the timeframe when the Priest Rapids

reservoir was operated at lower elevations for Priest Rapids Spillway work/evaluation.

2019 Business Activities

Develop financial analysis and strength, weakness, opportunities and threat analyst (SWOT) for the operation of the Priest Rapids Hatchery.

• Draft financial analysis completed by April 26, 2019;
• Draft SWOT Analysis completed by July 26, 2019;
• Recommendation to Managing Director of PP, COO and CEO/GM by October 31, 2019

2019 Business Activities

 Grant PUD has a requirement to achieve the survival standard for summer subyearling migrating through the Priest Rapids Project Area (86.49%);  Current evaluations are scheduled for 2020, 2021 & 2022;  Priest Rapids Salmon Settlement Agreement does provide flexibility to explore other alternatives to achieve No-Net-Impact for summer subyearlings;  Staff looking at other potential cost-effective and biologically sound approach to achieve No-Net- Impact for summer subyearling Chinook.

2019 Accomplishments

• Program/Project - Accomplishments

 Reduced No-Net-Impact Fund contributions for subyearling summer Chinook by $105,857.94 annually through the use of existing data;

• Based on a revaluation of the estimated NNI liability a $2.7M

NPV over the life of the agreement/license term will be realized.  Reduced monitoring and evaluations costs associated with the white sturgeon program by $40k over a 3 three period;

Powering our way of life.

Powering our way of life.

February 26, 2019

Energy Independence Act Summary (I-937)

Energy Independence Act or I-937

• Washington’s Energy Independence Act (EIA), effective

January 1, 2010, enacted a renewable portfolio standard commonly referred to as ‘Initiative 937” which requires Washington electric utilities serving 25,000+ customers to:

• Undertake all cost-effective energy conservation; and
• Obtain a specified portion of their electricity from new

renewable resources.

Conservation Overview

EIA requires:

• Utilities to pursue all cost-effective conservation. Conservation

targets set using a utility-specific conservation potential assessment.

• Specific requirements for setting, pursuing and reporting on

conservation targets.

• Utilities must update every two-years its conservation potential

assessment for the subsequent 10-year period.

• The 10-year potential determines a two-year (biennial) target
• For public utilities, potential and biennial target must be

approved by its Commission after a Public Hearing

Penalty

A penalty is used to enforce the law.

• A utility that fails to comply with the energy

conservation or renewable energy targets shall pay an administrative penalty to the state of Washington in the amount of $57 for each megawatt-hour of shortfall (as of 2/2017).

• This penalty is adjusted annually and missed target

amounts are carried over to the next biennium.

Roll Over was implemented on

• Jan. 1, 2014

A utility that has excess conservation of its biennial target may transfer the excess to help meet the subsequent two biennial targets.

• No more than 20 percent of any biennial target may

be met with excess conservation savings.

• This benefits us by mitigating the risk to the District

because projects do not arrive at our office in a steady manner.

Grant PUD’s Potential

The District’s 10-year conservation potential is 195,523 megawatt hours (MWh)

Forward look to Grant’s potential per sector

Grant PUD’s Potential and Achieved Targets

Biennium Target MWh Total Target Met MWh 2020 / 2021 36,792 (anticipated) 2018 / 2019 32,149 90,174 (unfinished) 2016 / 2017 27,419 35,223 (unaudited) 2014 / 2015 34,251 37,701 (audited) 2012 / 2013 99,843 118,695 (audited) 2010 / 2011 52,543 104,921 (audited)

Grant PUD’s Expenditures and Achieved Targets

2018/2019 Biennium Details (unfinished)

Target was achieved by the following: Residential – 113 MWh Commercial – 2,917 MWh Industrial – 78,023 MWh Agriculture – 121 MWh NEEA – Estimated 2,000 MWh

Planned Conservation Programs

Residential Insulation Program Conservation Loans BPA Territory Programs LED Low Income Programs Agriculture Hardware VFD System Upgrades Commercial Lighting Industrial Lighting Custom Projects

Pay it Forward Partnership explained:

Pay it Forward Partnership Explained:

Pay it Forward Partnership explained:

Pay it Forward Partnership explained:

Pay it Forward Partnership explained:

Pay it Forward Partnership explained:

Benefits of the Pay it Forward Partnership:

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OBJECTIVE 01

SAFETY PERFORMANCE GOALS

TARGET 2018 YEAR END

3.0 Zero Recordable Incident Rate

OBJECTIVE 02

MAINTAIN A STRONG FINANCIAL POSITION

TARGET

Electric System Liquidity >= $155 MM $258 MM

TARGET

>= 3.6% 4.3%

TARGET

<= 63% 62%

TARGET

>= 1.80X 2.13X Consolidated Return On Net Assets Consolidated Debt To Plant Ratio Consolidated Debt Service Coverage

2018 YEAR END 2018 YEAR END 2018 YEAR END 2018 YEAR END

OBJECTIVE 03

PROVIDE LONG TERM LOW RATES

TARGET

Retail Operating Ratio ‐ Adjusted <= 114% 106%

TARGET

<= 100.0% N/A for 2018

TARGET

>= AA3

(Moody's equivalent)

AA3 "Peer Group of Excellence" Rate Index Ratio District Credit Rating

2018 YEAR END 2018 YEAR END 2018 YEAR END

OBJECTIVE 04

PROVIDE OUTSTANDING SERVICE TO OUR CUSTOMERS

TARGET

Average System Availability Index (ASAI) >= 99.97% 99.99%

TARGET

< 150 min 115 MIN

TARGET

>= 85% N/A

TARGET

12/12 Mo's 10/12 Mo's Customer Average Interruption Index (CAIDI) Retail Customer Satisfaction Survey PRP Total Availability

2018 YEAR END 2018 YEAR END 2018 YEAR END 2018 YEAR END

OBJECTIVE 05

OPERATE RESPONSIBLY

BY ATTAINING ENVIRONMENTAL, CULTURAL RESOURCE AND REGULATORY COMPLIANCE

TARGET

Financial Statement Audit Performance Unqualified Audit Opinion

TBD

TARGET

WA State Audit Office Compliance Audit Performance No Audit Findings No Audit Findings Zero Violations Zero Late Filings

TARGET

FERC / NERC / WECC Electric Reliability Compliance Performance

NO

TARGET

Safety, Health, Cultural Resource and Hazardous Material Performance

NO

TARGET

Timeliness of All FERC and Regulatory Filings

YES YES

2018 YEAR END 2018 YEAR END 2018 YEAR END 2018 YEAR END 2018 YEAR END

OBJECTIVE 06

DEVELOP A SUSTAINABLE BROADBAND NETWORK

TARGET 2018 YEAR END

>= -4.1%

• 3.8%

Return on Invested Capital

PROVIDE LONG TERM LOW RATES

OBJECTIVE 03

PROVIDE OUTSTANDING SERVICE TO OUR CUSTOMERS

OBJECTIVE 04

OPERATE RESPONSIBLY

by Attaining Environmental, Cultural Resource and Regulatory Compliance

OBJECTIVE 05

DEVELOP A SUSTAINABLE BROADBAND NETWORK

OBJECTIVE 06

SAFETY PERFORMANCE GOALS

OBJECTIVE 01

MAINTAIN A STRONG FINANCIAL POSITION

OBJECTIVE 02

2018 INTERIM TARGETS

2018 TARGET Electric System Liquidity Consolidated Return On Net Assets Consolidated Debt To Plant Ratio Consolidated Debt Service Coverage >=$155 MM >= 3.6% <= 63% > 1.80X $258 MM 4.3% 62% 2.13X Average System Availability Index (ASAI) Customer Average Interruption Index (CAIDI) Retail Customer Satisfaction Survey PRP Total Availability >= 99.97% < 150 MIN >= 85% 99.99% 12/12 Mo's 115 MIN N/A for 2018 10/12 Mo's Financial Statement Audit Performance WA State Audit Office Compliance Audit Performance

FERC / NERC / WECC Electric Reliability Compliance Performance Safety, Health, Cultural Resource & Hazardous Material Performance

Timeliness of All FERC and Regulatory Filings

UNQUALIFIED AUDIT OPINION NO AUDIT FINDINGS NO AUDIT FINDINGS ZERO VIOLATIONS ZERO LATE FILINGS

TBD YES NO NO YES Retail Operating Ratio ‐ Adjusted "Peer Group of Excellence" Rate Index Ratio District Credit Rating <= 114% <= 100.0% >= AA3

106% N/A AA3 >= -4.1%

• 3.8%

Zero Recordable Incident Rate 3.0 YEAR END Return on Invested Capital

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March 12, 2019

Q4 2018 Financial Forecast

Agenda

• Major Input Changes from the 2018 Budget
• Comparison of 2018 Budget to Q4 2018 Forecast
• Scenarios
• Implications and Conclusions

List of Changes from 2018 Budget

• Updated Forecasts
• 2018 Year end actual data from Accounting
• 2019 Capital, O&M, Labor primarily align with 2019 Budget including additional $12.6M Fiber

build out

• Retail load forecast from November 2018, same as for Q3 update
• Updated wholesale prices as of February 2019
• Significant Changes YTD
• Electric Debt Restructuring from Q4 2017
• Higher O&M and Capital (2019 Budget)
• Glide Path Debt to Plant to 55% by 2025
• Debt to Plant now fixed and solved to, not forced down with cash
• Lower Rate Increases (2% to 2022, 0.5% thereafter; now 0% 2019, 2% 2020, 1.0% 2021, and

0.1% 2022+)

• No longer forcing rates to achieve Rate of Return or Retail Operating Ratio
• Interest Income calculations

Major Changes from 2018 Budget

• Forecast now reflects sustainable rates, debt, and reserves that reflect financial objectives
• 2018 & 2019
• Increased interest income, Net Wholesale and CIACs raising net income, Debt Service Coverage and Rate
• f Return
• Targeting Debt to Net Plant (DTP) now solved to discrete values and Excess Liquidity and Days Cash on

Hand builds (applies to all time periods)

• 2020 through 2024
• Higher expenses, lower rate increases, and lowering de-levering over time net of restructuring stabilizes

earnings (lower), DSC and DCOH

• Lower net income and higher O&M relative to revenue raises Retail Operating Ratio and lowers Rate of

Return

• 2025 & Beyond
• Retail load forecast consumes all EUDL, meaning that power is being acquired at market to cover load

growth

• Current retail revenues do not reflect non-preference additional revenues (yet)

Q4 Metrics Compared to 2018 Budget

Q4 2018 FF Metrics Compared to 2018 Budget

Scenarios – Debt Service Coverage

1.35 1.40 1.45 1.50 1.55 1.60 1.65 1.70 1.75 1.80 1.85 1.90 1.95 2.00 2.05 2.10 2.15 2.20 2.25 2.30 2.35 2.40 2018 2019 2020 2021 2022 2023

Debt Service Coverage by Year and Scenario (Q4 2018)

Target Q4 2018 Base Q4 2018 Scenario: +20% Price Q4 2018 Scenario: -20% Price Q4 2018 Scenario: No Load Growth Post-2018 Q4 2018 Scenario: -20% Prices and No Load Growth Q4 2018 Scenario: Zero Rate Increases

Scenarios – Excess Liquidity

Implications and Conclusions

• Growing profitable loads is a key business success driver.
• District is net long 2019-2025 and lower prices are a threat, particularly when combined with

no or low load growth.

• Cash accumulation instead of debt reduction combined with lower rate trajectories are in

conflict with meeting Retail Operating Ratio and Rate of Return.

Questions ?

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M E M O R A N D U M March 6, 2019 TO: Jeffrey Bishop, Chief Financial Officer FROM: John Mertlich, Sr. Mgr Financial Planning & Analysis Jeremy Nolan, Lead Financial Analyst SUBJECT: 4th Quarter 2018 Financial Forecast Update Purpose: Provide Highlights of the Q4 Financial Forecast Metrics:

• The District has in place interim and long-term annual target milestones for five financial metrics

through 2023 (Exhibit C).

• Over the 5 year forecast (thru 2023) the current metrics indicate (Exhibits A & B):
• All interim targets are met through 2023 for:
• Liquid Cash,
• Debt to Net Plant, and
• Debt Service Coverage
• Return on Net Assets does not meet the interim or long term objectives in any year.
• Retail Operating Ratio misses the long term target in 2021 and 2022.
• Comparisons between the 2018 Budget and Q4 2018 Forecast can be found in Exhibit D.

Notes of Interest:

• Key forecast updates:
• Out-year O&M, Labor and Capital directs based primarily on 2019 Budget which includes

an additional $12.6M in Fiber expansion capital with associated revenues and expenses.

• Cash in excess of liquidity requirements and PRP Construction Fund needs accumulate in

Excess Liquidity.

• The retail revenue forecast is the same as used in the Q3 Financial Forecast update and

shows the District consuming the EUDL and EUDL ratchet beginning in late 2025, meaning that power is being acquired at market to cover load growth thereafter.

• Retail Revenue increase assumption is 0% in 2019, 2% in 2020, 1.0% in 2021, and 0.1% for all

years thereafter.

• Over the 5 year forecast from 2019-2023 key points include:
• Days cash on hand increases as Debt to Plant (DTP) is solved to annual target levels

dropping to 55% by 2025.

• From 2020 to 2025, the practice of accumulating excess cash instead of debt reduction

combined with lower rate increases compared to the Q3 forecast and 2019 Budget, brings down earnings, lowers DSC, and inhibits meeting the Return on Assets.

• Lower forecasted net income negatively impactes Return on Net Assets in all years.
• Lower retail rate increases coincident with higher O&M and Labor cost structures raises

the Retail Operating Ratio above 100% for all years except 2023.

1

Scenarios:

• All scenarios start with the Base assumptions
• Five Scenarios were run for the Q4 Forecast:
• 20% Wholesale Price Increase
• 20% Wholesale Price Decrease
• No Retail Load Increase Post-2018
• No Retail Load Increase Post-2018 and -20% Wholesale Price Decrease
• Zero Rate Increases
• Scenarios and Debt Service Coverage (Appendix E)
• Debt Service Debt Service Coverage (DSC) is adversely affected in all scenarios through

2024 except higher wholesale energy prices, which improves. In 2025 and beyond the metrics are affected by the current lack of retail revenues associated with Non- Preference customers.

• No Load growth scenarios pose a substantial threat to DSC, particularly when combined

with low wholesale energy prices, indicating that growing profitable loads is a key business driver.

• Scenarios and Excess Liquidity (Appendix F)
• Excess liquidity dropping below $0 in any year would require the District to raise rates,

cut expenses and/or borrow more to avoid consuming working capital and reserves.

• The three highest threats to excess liquidity are:
• Low growth with low wholesale prices
• Low wholesale prices, and
• Zero Rate increases

Conclusions and Path Forward:

• Growing profitable loads is a key business success driver.
• Lower wholesale prices are a threat in the 2019-2025 period, particularly when combined with

no or low load growth.

• Cash accumulation instead of debt reduction combined with lower rate trajectories are in

conflict with meeting Retail Operating Ratio and Return on Net Assets metrics. Recommendation:

• For your information.

2

EXHIBIT A – Summary of Budget Items (in thousands of dollars) Exhibit A - Summary of Budget Items Actuals Budget 2018 2019 2019 2020 2021 2022 2023 TOTAL O&M 112,672 122,104 126,469 132,026 136,085 139,590 141,139 TAXES 16,801 17,713 17,353 18,693 19,829 20,564 21,187 ELECTRIC CAPITAL 43,967 63,276 61,708 61,818 43,893 37,214 30,923 PRP CAPITAL 81,158 81,278 79,971 99,388 61,780 78,017 82,944 DEBT SERVICE (net of rebates) 86,497 87,544 87,498 88,613 91,906 91,898 87,648 TOTAL EXPENDITURES 341,095 371,913 373,000 400,538 353,494 367,282 363,841 Expenditure offsets for deduction Contributions in Aid of Construction (12,485) (3,652) (3,652) (1,202) (1,207) (1,212) (1,218) Sales to Power Purchasers at Cost (31,611) (26,365) (31,232) (24,196) (14,637) (15,244) (14,981) Net Power (+ Expense, - Revenue) (67,186) (49,383) (65,596) (63,939) (76,591) (70,195) (61,631) Conservation Loans (94) (125) (125) (125) (125) (125) (125) TOTAL EXPENDITURE OFFSETS (111,375) (79,526) (100,605) (89,462) (92,561) (86,777) (77,955) TOTAL BUDGETED EXPENDITURES 229,720 292,388 272,395 311,076 260,933 280,505 285,886

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EXHIBIT B – Consolidated Operational Performance (in thousands of dollars) Exhibit B Actuals Budget Forecast CONSOLIDATED OPERATIONAL PERFORMANCE 2018 2019 2019 2020 2021 2022 2023 Sales to Power Purchasers at Cost 31,611 26,365 31,232 24,196 14,637 15,244 14,981 Retail Energy Sales 201,391 211,334 206,698 227,371 244,908 256,266 265,809 Net Power (Net Wholesale+Other Power Revenue) 67,186 49,383 65,596 63,939 76,591 70,195 61,631 Fiber Optic Network Sales 8,260 8,900 8,900 9,643 10,238 10,672 10,995 Other Revenues 2,823 1,809 1,809 1,825 1,841 1,857 1,873 Operating Expenses (112,672) (122,104) (126,469) (132,026) (136,085) (139,590) (141,139) Taxes (16,801) (17,713) (17,353) (18,693) (19,829) (20,564) (21,187) Net Operating Income(Loss) Before Depreciation 181,797 157,975 170,413 176,255 192,301 194,081 192,963 Depreciation and amortization (73,234) (73,481) (73,025) (76,396) (76,569) (75,379) (77,043) Net Operating Income (Loss) 108,563 84,493 97,388 99,858 115,732 118,703 115,920 Other Revenues (Expenses) Interest, debt and other income (31,195) (30,188) (30,063) (31,851) (36,612) (36,585) (36,065) CIAC 12,485 3,652 3,652 1,202 1,207 1,212 1,218 Change in Net Position 89,853 57,957 70,977 69,209 80,327 83,330 81,072 Actuals Budget Forecast 2018 2019 2019 2020 2021 2022 2023 NET INCOME 89,853 57,957 70,977 69,209 80,327 83,330 81,072 LIQUIDITY (measured at year end) Elect System Liquidity (Rev + R&C) 159,201 111,386 111,585 113,458 115,220 116,874 118,508 Excess Liquidity 98,651 59,041 75,602 118,354 139,709 164,964 189,272 Days Cash On Hand 827 576 598 662 388 459 480 LEVERAGE Consolidated DSC 213% 1.91 2.04 2.03 2.17 2.11 2.12 Consolidated Debt/Plant Ratio 62% 60% 59% 59% 58% 57% 56% PROFITABILITY

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

4.3% 2.7% 3.3% 3.1% 3.5% 3.6% 3.4% Retail Op Ratio (assumes baseline capital) 106% 107% 109% 106% 106% 103% 100%

4

EXHIBIT C- District Annual Financial Metric Targets

Metric Target 2018 2019 2020 2021 2022 2023 Liquid Cash >$155M > 250 days Maintain above target Maintain above target Maintain above target Maintain above target Maintain above target Maintain above target Consolidated Debt Service Coverage >1.80x 1.80x Maintain above target Maintain above target Maintain above target Maintain above target Maintain above target Debt to Net Plant <60% Debt 63% 62% 60% Maintain below target Maintain below target Maintain below target Return on Net Assets >4% 3.60% 3.80% 4.00% Maintain above target Maintain above target Maintain above target Retail Operating Ratio <100% 114% 113% 112% 100% Maintain below target Maintain below target Red denotes not achieving metric in current forecast

5

EXHIBIT D- Comparison between 2018 Budget and Q4 2018 Financial Forecast

6

EXHIBIT D- Comparison between 2018 Budget and Q4 2018 Financial Forecast (con’t)

7

EXHIBIT E- Scenarios: Debt Service Coverage Ratios

1.35 1.40 1.45 1.50 1.55 1.60 1.65 1.70 1.75 1.80 1.85 1.90 1.95 2.00 2.05 2.10 2.15 2.20 2.25 2.30 2.35 2.40 2018 2019 2020 2021 2022 2023

Debt Service Coverage by Year and Scenario (Q4 2018)

Target Q4 2018 Base Q4 2018 Scenario: +20% Price Q4 2018 Scenario: -20% Price Q4 2018 Scenario: No Load Growth Post-2018 Q4 2018 Scenario: -20% Prices and No Load Growth Q4 2018 Scenario: Zero Rate Increases

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EXHIBIT F- Scenarios: Excess Liquidity

9

MEMORANDUM

March 5, 2019

TO:

Bonnie Overfield, Senior Manager of Finance (

O'f

FROM: Michael Facey, Controller SUBJECT: Unaudited 2018 Financial Statements and Year End Close Update

Purpose; Circulate preliminary fiscalyear 2018 unaudited consolidated financial statements and

provide update on fiscal year end close timeline.

Year End Close Timeline Update;

• Alltransactions and planned entries booked - Complete - 2/15/19
• Prelim Unaudited Statement of Net Position and Statement of Revenues, Expenses and Changes

in Net Position Available - Complete - 3/4/19

• Statement of Cash Flows, MD&A and Note Disclosures drafted - In Progress
• Moss Adams External Audit - 3/4/2019 to 4/12/2019
• Audited Financial Statements and Moss Adams Audit Results - delivered at Commission Meeting

4/23 or 5/14 depending on audit opinion date (currently expected to be 4/12/19, but will be no later than 4/29/19) Unaudited Preliminary Financial Highlights; All comparisons unless otherwise stated are year to date

(January through December) of 2018 versus 2017.

• Statement of Revenues, Expenses and changes in net position (Income Statement) key drivers:
• Operating Revenues- Total operating revenues of $311.2M were $17.3M or 5.8% higher

than the same period in the prior year.

• Sales to power purchasers at cost were $31.6M, which is a $10.2M or 24.4%

decrease compared to the prior year. The Electric System's load has continued

to grow, which drove the other power purchasers share of power costs from 25% in 2017 to 18% in 2018 (7% absolute reduction or a 28% relative reduction}, which is the primary cause of the 24.4% decrease in Sales to power purchasers

at cost.

• Retail energy sales were $201.6M, which is a $12.9M or 6.9% increase

compared to the prior year. $12.4M of the increase was driven by rate class 15,

with continued growth from the District's largest industrial customer. In addition, 2018 was the first full fiscal year that rate schedules 13RECand 13SS was in effect earning an additional $0.9M in revenue.

• Sales to other utilities were $67.2M, which is a $12.4M or 22.7% increase

compared to the prior year resulting from a $14M increase in EUDL proceeds, $1.1M increase in variance charges related to slice contracts and a $0.6M frequency response service agreement with CAISO. These increases were offset by the new 10% slice contract effective July 1, 2018, which reflected a 20% decrease in wholesale market price conditions compared to the prior contract; partially offset by an increase in the price received for ancillary services.

• Fiber Revenues of $8.3i\/I increased by $1.4M or 20.4% compared to tlie prior

year due to an increase in tal<e rate and build out of the network.

• Other operating revenues increased by$0.8M.
• Operating expenses of $202.7I\/I were $3.9M higher than the same period inthe prior
• year. This was the net result of several items discussed below:
• Administrative and General Expense of $33.4Mdecreased by$4.3Mor

11.5%compared to the prior year; driven by a $2.4M non-cash pension expense entry in accordance with GASB 68 and completion of the Wanapum Spillway Apron Project. Thisproject cost $0.7M and $3.8M in 2018 and

2017, respectively. Other Administrative and General Expenses increased by$1.8M.

• Depreciation and Amortization Expensesincreased by$7M or 11%.This is

driven by the continued addition to plant as Turbine and Generator upgrades continue. $133.2M in capital was spent in 2018, which is relatively close to the 4-year average of $140M. However, the December 31,2018

Construction Work In Progress (CWIP) balance is$133M; a 42%decrease from prior year and 50%decrease from a highof $265M in 2015. CWIP is included in Utilityplant, net, but does not depreciate. Not only were more assets placed in service in 2018 than prior years, but their in-service dates were more heavilyweighted in Q1 of 2018 {$152M of $245.6M total transferred to plant). In prior years, the cost basis of assets placed In service in Q1 of each year totaled $82M, $89M and $26M in 2017,2016 and 2015, respectively; which means 2018 represented almost a 100% increase. These

Q12018 in-service assets included $65M for the first Priest Rapids Turbine and Generator and $16.5M for Crescent BarOff-Islandcapital upgrades.

• Taxes were $16.8M, which was a $0.5IVI or 3.2% increase over the prior year

compared to the $12.9M or 6.9%increase in Retailenergy sales. Increases

in Taxes and Retail energy sales do not align perfectly because City taxes are capped based on consumption within city limits for many of our industrial and commercial customers and because a large portion of privilege taxes is based on generation. The two largest components of tax expense were

$7.9M of PublicUtility Tax(alltied to retail load) and Privilege Taxof $6.2M ($4.2M tied to retail load and $2.0M tied to generation).

• Other Revenues and Expenses:
• Interest and Other income was $11.4M, which was a $1.4M or 11.2%

decrease compared to the prior year. In the prior year, the District received $1.9M of insurance proceeds related to the Central Ephrata Substation

• claim. Interest income increased by $2.6M, but was partially off-set by a

non-cash mark to market unrealized loss that was $2.3M larger than the prior year. These losses are reflected in results as required by accounting guidance, but never realized because management holds investments to

• maturity. Recreation and other miscellaneous income increased by$0.1M.
• Amortization of Debt Premiums of $3.6M decreased by $1.3M or 25.8%

compared to the prior year as a result of the 2011 series I Electric system debt refunding. The refunding of the 2011 rolled debt into longer term 2017 series N&O Issuances, which means premiums are being amortized over a longer life.This caused $1.1IVI of the $1.3iVI total variance.

• Cost of Issuance was $33k in 2018. No debt issuances occurred in 2018, but

$33k of fees associated with the December 2017 issuances (2017 series N&O)were charged in 2018.

• CIAC Revenue of $12.5M increased $1.8M or 17.2% compared to the prior year.
• Statement of net position (balance sheet):
• Total cash and investments of $542.1M were $28.4M or 5.5% less than the same period

in the prior year due to the spending of construction funds on hand.

• Utility plant, net of accumulated depreciation and amortization of $2,100M increased

$51.9M or 2.5%compared to the prior year with $133.2M in capital expenditures (additions to Construction Work In Progress), less $77.1M of depreciation and retirements and $4.2M of miscellaneous adjustments related to intangibles assets,

• Total Outstanding Debt as of December 31,2018 is$1,299M; a $31.6M or 2.4%

decrease compared to the prior year. No debt was issued in 2018.

• Pension obligations related to PERS 1 and PERS 2/3 are $32.7M as of December 31,
• 2018. This is a $13.7M or 29.5% decrease compared to the prior year driven by changes

in the net pension liability that is calculated bythe Washington State Department of

Retirement Services.

• Accrued other post-employment benefits liabilitywas restated in accordance with

accounting guidance for the adoption of GASB 75. The restatement increased the

liability from $2.8M to $6.8M as of December 31,2017. Major fluxes are not expected in this balance goingforward. As of December 31,2018, the liability remained near $7M.

2018 Year End Close Efficiencies;

Overall, the 2018 fiscal year close was complete on February 15,2019, which was over four weeks faster than prior year. This enables year end results to be delivered to management in a timelier manner. This was accompiished by utilizingstaff augmentation for certain tasks that only occur once per year, phasing work from year-end to an interim period in 2017, and due to the hard work of the Accounting team. Recommendation: For your information only.

PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY

STATEMENT OF NET POSITION December 31,2018 AND 2017 CURRENT ASSETS Cash

Investments Restricted funds Cash Investments

Customer accounts receivable, net ofallowance for

uncollectible accounts

Materials and supplies Intercompany receivables Due from power purchasers

Other current assets Total current assets NONCURRENT ASSETS Investments Restricted fiinds Cash Investments Conservation loans

Demand-side management Preliminary expenses

Total other noncurrent assets

Utilityplant, net of accumulateddepreciationand amortization

Total noncurrent assets DEFERRED OUTFLOWS

Net pension, change in proportion Unamortized refunding loss

Total deferred outflows TOTAL ASSETS AND DEFERRED OUTLFOWS OF RESOURCES

2018 2017 Difference 2,823,811 158,089,598

157,027 89,333,062 2,666,784 68,756,535 919,511 101,073,915 46,781,673 42,815,584 (45,862,162) 58,258,331 29,849,023 17,955,612 1,194,120 1,584,123 25,057,438 17,842,542 952,395 1,720,311 4,791,585 113,070 (0) 241,726 (136,188) 313,489,713 224,660,032 88,829,681 122,331,173 122,309,632 21,540 144,180 156,672,013 364,947 413,148 6,004,787 5,285,887 263,783,556 459,163 697,727 5,866,133

(5,141,707) (107,111,543) (94,217) (284,580)

138,654 285,930,247 398,402,099 (112,471,852) 2,097,260,603 2,045,369,857 51,890,746 2,383,190,850 2,443,771,955 (60,581,106) 5,753,562 4,374,163 6,581,748 5,554,245 (828,187) (1,180,082) 10,127,724 12,135,993 (2,008,269) 2,706,808,287 2,680,567,981 26,240,306

PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY UNAUDITED STATEMENT OF NET POSITION December 31,2018 AND 2017 CURRENT LIABILITIES

Accounts payable

Trade

Wages payable Intercompany payables

Accrued taxes

Customer deposits

Accrued bond interest Unearned revenue

Habitat liability

Other current liabilities

Current portion of licensing obligations Current portion of long-term debt

Total current liabilities NONCURRENT LIABILITIES

Accrued other postemployment benefits Long-term unearned revenue Licensing obligations, less current portion Pension obligations Revenue bonds, less current portion Unamortized (discount) premium, net

Total noncurrent liabilities DEFERRED INFLOWS

Net pension, deferred inflow

Total deferred inflows Total liabilities and deferred inflows of resources NET POSITION

Invested in capital assets, net of related debt

Restricted Unrestricted

Total net position

TOTAL LIABILITIES, DEFERRED INFLOWS OF RESOURCES AND NET

POSITION 2018 2017 Difference 22,746,821

34,510,502 (11,763,681) 12,742,207 11,792,820 949,387 (0)

• (0)

7,431,122 7,025,703 405,419 13,831,566 14,899,853 (1,068,287) 29,469,613 28,191,399 1,278,214 4,981,722 8,663,495 (3,681,773) 15,984,784 15,146,046 838,739 39,768 39,768

• 2,283,494

2,313,275 (29,781) 29,240,000 31,635,000 (2,395,000) 138,751,097 154,217,861 (15,466,764) 6,977,140 6,806,106 171,034 2,157,258 5,224,028 (3,066,771) 46,747,953 49,219,861 (2,471,908) 32,686,126 46,370,429 (13,684,303) 1,269,395,000 1,298,635,000 (29,240,000) 36,667,892 41,489,290 (4,821,398) 1,394,631,369 1,447,744,715 (53,113,347) 13,692,570 8,725,079 4,967,491 13,692,570 8,725,079 4,967,491 1,547,075,035 1,610,687,655 (63,612,620) 746,041,350 761,890,227 (15,848,877) 178,004,382 164,985,471 13,018,911 235,687,520 143,004,653 92,682,867 1,159,733,252 1,069,880,352 89,852,900 2,706,808,287 2,680,568,007 26,240,280

PUBLIC UTILITY DISTRICT NO. 2 OF GRANT COUNTY

UNAUDITED

STATEMENT OF REVENUES AND EXPENSES AND CHANGES IN NET POSITION For the Years Ended December 31,2018 and 2017

OPERATING REVENUES

Sales to power purchasers at cost Retail energy sales

Residential

Irrigation

Commercial and industrial Governmental and others Sales to other utilities

Fiber optic network sales

Other

Total operating revenues

OPERATING EXPENSES Generation Transmission Distribution Customer and information services

Fiber optic network operations Administrative and general License compliance and related agreements Depreciation and amortization

Taxes

Total operating expenses

NET OPERATING INCOME

OTHER REVENUES (EXPENSES)

Interest and other income

Interest on revenue bonds and other, net ofcapitalized interest

Federal rebates on revenue bonds

Amortization ofdebt discount/premium

Cost ofdebt issuance

Total other revenue (expenses)

CONTRIBUTIONS IN AID OF CONSTRUCTION CHANGE IN NET POSITION NET POSITION

Beginning ofyear End ofyear

2018 2017 Difference

31,610,564 41,789,742 (10,179,178) 43,160,405 45,270,232 (2,109,827) 25,785,050 24,079,976 1,705,074 130,389,948 118,025,150 12,364,798 2,056,037 1,097,345 958,692 67,185,683 54,753,081 12,432,602 8,260,172 6,860,058 1,400,114 2,822,922 2,034,465 788,457 311,270,782 293,910,049 17,360,733 31,072,379 30,899,901 172,478 6,679,185 5,378,973 1,300,212 13,561,222 14,367,117 (805,894) 5,766,110 5,640,223 125,888 2,265,193 1,921,403 343,790 33,382,985 37,707,840 (4,324,854) 19,945,366 20,385,800 (440,435) 73,234,133 66,205,783 7,028,350 16,801,299 16,283,496 517,803 202,707,872 198,790,535 3,917,337 108,562,910 95,119,514 13,443,395 11,392,090 12,832,958 (1,440,869) (56,746,956) (56,932,385) 185,429 10,551,974 10,555,928 (3,954) 3,641,316 4,907,498 (1,266,182) (33,050) (973,060) 940,010 (31,194,626) (29,609,060) (1,585,566) 12,484,616 10,649,285 1,835,331 89,852,900 76,159,740 13,693,160 1,069,880,352 993,720,612 76,159,740 1,159,733,252 1,069,880,352 89,852,900