RETAIL RATE REVIEW

1. TULLAHOMA UTILITIES AUTHORITY RETAILRATE REVIEW Our approach to residential and commercial rate realignment

2. Historical Rate Thinking • The original Electric Light Board • Street lighting • Flat fee • Power and Light companies • Metered usage • Customer charge & kWh

3. More History • What about big loads? • What if the big loads don’t use much kWh? • Capacity charges and Demand Charges • Load factor charges • Facilities Charges

4. Along those lines… • What if large loads use power seasonally or infrequently? • Demand ratchets • Minimum bill calculations • Rate floors/rate penalties • Seasonal load factor charges

5. And there’s more… • What if the type of load was heavily motor load and required energizing current (aka bigger wire, transformers, etc). • Reactive meters • Power Factor adjustments

6. Limited Metering capabilities • Westinghouse brought us the kWh meter in 1894 • Relatively unchanged for 100 years except for introduction of: • Demand metering ($$) • Reactive kWh metering ($$$) • Limited recording on tape ($$$$)

7. TVA End use rates • For residential, prescribed kwh metering and a customer charge • For commercial/industrial, outlined a three tier rate, GSA-1, GSA-2, GSA-3 • Why have a three part rate? • Cost of metering • Difficultly allocating fixed generation

8. GSA rate review • GSA-1 under 50kW, 15,000kW • No demand meter (saves costs) • Low customer charge, high kWh • GSA-2 over 50kW or 15,000kw • Higher customer charge • Demand component • GSA-3 over 1000kW • High customer charge, low kWh cost

9. What’s wrong with this rate? • Doesn’t really correlate fixed asset costs to those who require it • Transmission • Distribution • Doesn’t really correlate cost of energy generation with usage. • Wholesale costs of purchased power on peak vs excess capacity

10. TVAs response: TOU • Time of use rates allow TVA to better align energy costs with energy usage. • But what about fixed asset recovery? • TVA is still attempting to recover fixed costs with a volumetric component.

11. TUA Response: Change. • TVA wholesale rate from end-use to Time-of-use energy, and we speculated future structure adjustments • TUA typically peaks concurrently with TVA, so our variable costs align with same time periods • Technology has developed that allowed us to capture interval data for every customer.

12. First response: TOU • TUA was the first to implement mandatory TOU across all customer segments • We implemented an AMI system that would automatically pool usage into on-peak, off-peak, and transition. • This required major programming

13. Retail TOU Implementation Plan • Public meetings • AMI rollout and TOU discussion were combined • RFP for AMI infrastructure • Several venders responded • Required 15 minute interval data • Future ability for load control (2-way) • Need for water readings

14. Implementation Challenges • Few customer complaints • Cycle billing vs calendar month with respect to seasons • Residential – 5 cent summer differential, 3 cent winter differential • TVA rate spread may be insufficient to influence customer behavior. • Declining block in GSA-2

15. Is that enough? • We anticipated TVA rates changing again • We had customers that had large transformers that had shut down • We had a concern that we could no longer rely on guideline increases (partly because we are on-peak)

16. Revenue less power cost vs expense

17. Decoupling the phone bill • Remember long distance deregulation? • TUA wanted a way to evaluate its real distribution costs and couple that to a rate that is fair and recovers our cost equitably. • TVA rates (whatever form they were in) could then be added to bottom.

19. GSA-2 Rate Realignment • Continuing effort to move to a more appropriate correlation between wholesale and retail. • Split demand into two charges: • A facility charge with a 12 month ratchet • A coincident peak demand (TUB peak) • Added a customer realignment charge that phases out to avoid rate shock to low load factor customers.

20. GSA-2 MIGRATION

21. Typical GSA-2 bill comparison • Old Bill:

22. Typical GSA-2 bill comparison

23. One Rate Key Components • Distribution costs: • Fixed Customer charge • Everyone pays the same • Scalable Facilities charge • Everyone pays for what capacity they need (70% ratchet over the year) • Distribution Losses (only local adder in kWh) • Wholesale costs • kWh (TOU) • Coincident Peak (kW)

24. Introduce CP Billing & Facilities Charge Phase in CP charge GSA-3 >1000 kW TUA Rate Re-alignment Timeline Introduce CP Billing Phase out Consumer Alignment Rate GSA-2 50-999 kW >15,000 kWh GSA What about GSA-1? Introduce Facilities Charge & Consumer Alignment Rate Phase Out Alignment Rate Phase IN CP Demand B. Coate 06.02.15 GSA-1 <50 kW <15,000 kWh 500-15000 kWh GSA-1 <500 kWh Apr 2020 Oct 2016 Apr 2018 Apr 2016 Apr 2017 Oct 2015 Apr 2019 Jun 2015

25. GSA-1 Rate Realignment Review • GSA-1 customers will split into two groups: • Single phase customers with 200A or smaller service • Three phase customers or single phase with larger than 200A service

26. Rate Re-alignment Timeline Introduce CP Billing & Facilities Charge Phase in CP charge • GSA Large • CC • Facility Charge • kW • TOU kWh • CP GSA-3 >1000 kW Introduce CP Billing Phase out Consumer Alignment Rate GSA-2 50-999 kW >15,000 kWh Phase Out Alignment Rate Phase IN CP Demand Introduce Facilities Charge & Consumer Alignment Rate >200A or Three phase • GSA Small • CC • TOU kWh B. Coate 06.02.15 GSA-1 <50 kW <15,000 kWh 200A Single Phase Apr 2020 Oct 2016 Apr 2018 Apr 2016 Apr 2017 Oct 2015 Apr 2019 Jun 2015