Welcome and Introductions

2. Welcome and Introductions

3. CoServ Presentation&Member Input

4. Distributed Generation • July 26, 2007—CoServ’s Board of Directors issued a final decision and order regarding the federal statutory requirement that CoServ consider implementing five new ratemaking standards added to the Public Utility Regulatory Policies Act of 1978 (“PURPA”): • Whether to implement a net metering service • Fuel source diversity plans • Fossil fuel generation efficiency plans • Smart metering program • An interconnection service for its Member-owners

5. Whatis Net Metering? • Net metering is most commonly accomplished by a single meter that runs forward when power is flowing from the utility to the customer and then runs backwards when power is flowing from the customer to the utility. • Net metering would encourage the development of distributed generation by providing a means for customers with on-site generation to be compensated for their investment. • Significant growth in the use of distributed generation by end-use customers could reduce the future and perhaps the existing generation requirements from CoServ’s wholesale power provider resulting in the conservation of energy supplied by the Cooperative. • Providing net metering service would benefit those cooperative Members with on-site generation by providing a means of compensation that exceeds the actual value of the Member’s generation.

6. Conclusions • Net metering provides a small subsidy to the net metering customer and increases the rates of other customer classes. It appears to be contrary to the third purpose of the federal PURPA standards regarding equitable rates for consumers. • The PURPA net metering standard should be adopted with modifications that: (1) make the standard consistent with the DG Manual; (2) limit net metering to electric consumers with onsite qualifying facilities generating 50 kW or less; and (3) ensure the retail electric rates for electric consumers are cost based and designed to minimize subsidization by other electric consumers in the Cooperative’s electric rate classes. • CoServ’s net metering standard says, “retail rates for electric consumers receiving net metering service shall be cost based and designed to minimize subsidization by other CoServ Electric rate classes.”

7. Issues with DG and Net Metering DG and Net Metering can cause: • under-recovery of distribution COS fixed costs • non-DG Members to subsidize the DG Members

8. Issues with DG and Net Metering DG (behind the meter) causes a significant reduction in kWh sales • Our current retail rates recover approximately 2/3 of the distribution COS fixed cost in the variable component of the rate, i.e.: in the energy charge • A significant reduction in kWh usage means under-recovery of distribution COS fixed costs, ultimately requiring a rate increase • If the retail rate does not recover from each DG Member the costs caused by that Member, those costs are recovered from other Members causing the non-DG Members to subsidize the DG Members

9. Issues with DG and Net Metering • Net metering allows the Member to use CoServ as a “bank” for kilowatt hours. • This is the equivalent of borrowing money (kilowatt hours) and paying it back with no interest. • “Borrowing” kilowatt hours causes expense with no ability for CoServ to recover that cost.

10. Issues with DG and Net Metering Net Metering compounds under-recovery of distribution COS fixed costs and creates additional subsidy by non-DG Members for the benefit of DG Members • Net Metering will result in under-recovery of wholesale power costs from the DG Member • Since the meter is permitted to run forward and backward, energy is “borrowed” from CoServ during high cost periods and “returned” during low cost periods. • 100% of wholesale power cost is recovered by CoServ through the PCRF • Wholesale power cost under-recovered from DG Members flows through to all other Members via the PCRF • Wind and Solar DG is intermittent • Permitting excess DG production to be credited on the next billing or paying for excess production increases the subsidy

11. CoServ’s Current DG Policy • October 1, 2010 - CoServ began charging an additional $10 for any Member with a net metered DG system • $10 customer charge per month plus a $10 DG charge • Net metering with no purchase of excess DG production, i.e.: CoServ does not pay for or provide a credit for excess kWh flowing onto the distribution system • Member cannot “bank” excess production as a credit on the next billing month • The Member’s DG output is netted against that which is provided from CoServ and they pay the retail rate for anything over what they produce. In the event a Member produces more than they use, they don’t receive any additional payment for the excess.

12. Is Distributed Generation Tariff –“Penalty or Disincentive”? We’ve been listening! • Members with DG perceive that the additional $10 charge is a “penalty” or providing a “disincentive” for others looking to install this technology • Some Members say that CoServ should provide a subsidy to DG Members to encourage development of renewable technology • Members feel that they should be compensated for excess kWh provided to CoServ

13. Proposed DG Policy - proactive approach • Eliminate perception that CoServ is “anti-DG” while providing for the full recovery of fixed costs • Minimize rate subsidization • Fair and equitable to everyone (Non-DG & DG Members)

14. Proposed DG Policy - proactive approach • Recover 100% of fixed cost in Customer Charge with lower kWh charge • Provide two options for handling DG output: • Net Metering with no payment or credit for excess kWh • No Net Metering with an avoided wholesale energy cost payment for excess kWh, single meter that measures kWh delivered by CoServ and received by CoServ (from the DG), allows DG production to reduce kWh purchased from CoServ but will not “run backwards”

15. Proposed DG Policy - proactive approach • Based on latest cost of service study, CoServ’s Residential customer charge should be ~$30 per month • Currently we charge $10 customer charge and collect the additional fixed cost in the per/kWh charge (variable component)

18. Example of rate options for Residential DG Option 1- Net Metering with no payment for excess kWh

19. Example of rate options for Residential DG Option 2- No Net Metering with payment for excess kWh Payment for excess generation at CoServ’s average annual avoided wholesale energy cost (approx. $0.05 /kWh)

20. Sample DG Flow Diagram Transformer Service Panel DW HVAC Refrig Pool Pump Freezer TV Inverter DG

21. Estimated Excess Power Production (PV Watts)

22. Rate impact for Member (Std. Rate, Current DG rate & Proposed DG rate)

23. Q & A

24. Next Steps: • If proposed approach is approved by Board of Directors: • Develop edits to Tariff and DG Manual and present to Board for approval 4th Quarter 2012 • Test rate changes • Provide written notice to affected DG Members • Notice could provide opportunity for feedback and comments prior to implementation • Implement 1st Quarter 2013 • Monitor Member impact and feedback

25. Thank you for attending the CoServ Electric Distributed Generation (DG) Focus Group August 30, 2012 Distributed Generation, Rebates & Rate Strategy December 2011