Parker-Davis Project

1. Parker-Davis Project Informal Rate Meeting April 22, 2009

2. Meeting Agenda • Overview of Parker-Davis Project Rate Methodology • Ratemaking Assumptions • Rate Determinants • Proposed FY 2010 Service Rates • Next Steps and Questions

3. Rate Methodology • Service rates are calculated annually for a future five year cost evaluation period • When possible, revenues and costs are directly assigned to generation or transmission revenue requirements • All other costs and revenues are allocated to generation or transmission revenue requirements in the Cost Apportionment Study

4. Rate Methodology • Any excess revenue from prior periods (carryover) is applied to revenue requirements in the cost evaluation period

5. Standard Ratemaking Assumptions • Actual work plans are used for O&M expenses when available. Work plans are escalated for inflation in remaining years of cost evaluation period • Most recent Ten Year Plans from Western and the Bureau of Reclamation are used to project capital requirements • Transmission and generation service reservations are based on contractual data

6. Purchase Power Assumptions • Purchase Power estimates are normally based on the most recent hydrology (March 24-Month Study) and a static amount is used for each year of the rate calculation • Given the volatility of energy prices, the 24-Month Study will be used for the first year of the rate calculation and the most recent actual expenses for the remaining four years • This treatment will reduce annual purchase power estimates by approximately $640k

7. Other Revenue Assumptions • Western has analyzed the Other Revenue projections in previous rate calculations and determined that the projections have been too conservative • As a result, Other Revenue projections in rate calculations will be increased from $4 million to approximately $8 million annually • Note: Previous conservative estimates of Other Revenue still benefited rate calculations via carryover. No revenue was lost.

8. Basic Substation Assumption • At the Ten Year Plan meeting in 2008, Western disclosed that the estimated costs of soil remediation for Basic Substation was $18.6 million • Western is continuing to seek non-reimbursable funding for the remediation and will exclude the estimated costs from the rate calculations pending the final outcome of the funding request

9. Transmission Rate DeterminantsAverage Transmission Expenses During Cost Evaluation Period (in millions)

10. Transmission Rate DeterminantsAverage Transmission Expenses During Cost Evaluation Period (in millions) Total: $51.1

11. Generation Rate DeterminantsAverage Generation Expenses During Cost Evaluation Period (in millions)

12. Generation Rate DeterminantsAverage Generation Expenses During Cost Evaluation Period (in millions) Total: $14.7

13. FY10-14 Rate Information

14. Next Steps • Information regarding the P-DP rates to be posted on Western’s website: http://www.wapa.gov/dsw/pwrmkt/RateAdjust/Main.htm • Proposed rates finalized and effective for October 2009 service month

15. Questions/Comments Western Contacts: Jack Murray 602-605-2442 jmurray@wapa.gov Scott Lund 602-605-2441 slund@wapa.gov