THE CORPORATION OF THE CITY OF PENTICTON

ELECTRIC RATE INCREASE FACT SHEET

The City of Penticton has received notice of an increase in the cost of electricity that is
purchased from FortisBC of approximately 11.6%. In conjunction with the City of
Penticton's public input policy the City is required to provide details of the cost of
purchasing electricity and the impact of the approving various levels of electric rate
increases. The proposed Electric Rate increase is scheduled to take effect in February.

The City purchases power from FortisBC at wholesale rates and resells the power at
retail rates. The margin between retail and wholesale is utilized by the City to operate
the Electric Utility as well as to return a dividend to the citizens of Penticton which is
utilized for various capital works projects throughout the City. Without this dividend the
capital works budget would be reduced accordingly.

The cost to the average residential user (869 kwh / month) will rise from $76.43 to
$85.29. This equates to an additional cost of $8.86 per month.

Buy at Wholesale, Sell at Retail

Pros:
• maintains dividend to City of Penticton's Capital Budget
• maintains a Return on Assets that is consistent with other Public Utilities
• maintains rate consistency with rural areas and other municipalities in our region

Cons:
• profit being utilized for capital outside of the electrical fund
Buy at Wholesale, Sell at Wholesale

Pros:
• provides competitive advantage to local businesses
• provides benefit to lower income customers

Cons:
• capital program of COP will be reduced
• electrical capital works program may be affected as Master Plan underway to
identify future capital requirements

The future capital works within the Electric Capital Budget is yet to be determined due to
a Master Plan currently being undertaken. This report is projected to be completed prior
to the 2011 year end and the future capital requirements will be included within future
budgets. This will material affect the 2012 and beyond capital budgets.

The following tables illustrate the options of Flowing the Electrical Rate increase at
Retail rates or Wholesale Rates.

Buy at Wholesale, Sell at Retail

FP Forecast Forecast Forecast Forecast

Revenues 2011 2012 2013 2014 2015

Electrical Energy Sales 30,473,200 33,520,520 36,872,572 38,716,201 40,652,011

Recoveries 475,300 480,200 481,400 482,600 483,800
TOTAL REVENUE 30,948,500 34,000,720 37,353,972 39,198,801 41,135,811

FP Forecast Forecast Forecast Forecast

Expenditures 2011 2012 2013 2014 2015

Electrical Energy Purchases 23,717,110 26,088,821 28,697,703 30,132,588 31,639,218

Operations 3,409,175 3,363,200 3,379,000 3,394,800 3,410,700

Electric Capital 2,085,640 754,000 759,000 774,000 789,000
Capital Dividend to Gen Revenue 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000

TOTAL EXPENDITURES 32,211,925 33,206,021 35,835,703 37,301,388 38,838,918

Surplus / ( Deficit ) (1,263,425) 794,699 1,518,269 1,897,412 2,296,893

Gross Margin 1.28 1.28 1.28 1.28 1.28

Buy at Wholesale, Sell at Wholesale

FP Forecast Forecast Forecast Forecast

Revenues 2011 2012 2013 2014 2015

Electrical Energy Sales 29,929,900 32,324,292 34,910,235 36,306,645 37,758,911

Recoveries 475,300 480,200 481,400 482,600 483,800
TOTAL REVENUE 30,405,200 32,804,492 35,391,635 36,789,245 38,242,711

FP Forecast Forecast Forecast Forecast

Expenditures 2011 2012 2013 2014 2015

Electrical Energy Purchases 23,717,110 26,088,821 28,697,703 30,132,588 31,639,218

Operations 3,409,175 3,363,200 3,379,000 3,394,800 3,410,700

Electric Capital 2,085,640 754,000 759,000 774,000 789,000
Capital Dividend to Gen Revenue 3,000,000 3,000,000 3,000,000 3,000,000 3,000,000

TOTAL EXPENDITURES 32,211,925 33,206,021 35,835,703 37,301,388 38,838,918

( Deficit ) (1,806,725) (401,529) (444,068) (512,143) (596,207)

Gross Margin 1.26 1.24 1.22 1.20 1.19

The total increases to electrical charges for 2011 are derived from 3 different
calculations:

1. COSA (Cost of Service Analysis)

2. Revenue Requirements
3. Flow through Power Purchases from BC Hydro

FortisBC has received approval for a 6.6% rate increase effective January 1, 2011 and
a further approximate increase of 2.5% is expected on April 30 for the Cost of Service
Analysis (COSA) along with the BCHydro power purchase interim increase of 2.5%. The
exact amount of the Power Purchase increase will not be known until later in the year.

During the rate hearings BCUC ruled that specific items within the Capital Expenditure
Submission of FortisBC should be recovered via Revenue Requirements. The original
revenue requirement submission by FortisBC requested a 5.2% increase. BCUC
increased this by 1.4% for the capital expenditures that were removed from the Capital
Expenditure submission.

The COSA rebalancing submission was accepted by BCUC and they have ruled that a
2.5% increase for 2011, 2012 & 2013.

The Interim Flow Through power purchase by FortisBC has been approved by BCUC to
be 2.5%. This will be finalized later in the year.

In summary the cost to the City of Penticton to purchase power from FortisBC will be
increasing by 11.6% for 2011.

In addition the COSA has resulted in a reduction in the amount the industrial and
commercial rate class pays. It will be up to each Municipality to determine how they will
be dealing with this. It is anticipated that a 2% decrease in rates will have to be done to
the commercial properties.

Traditionally the City of Penticton has done two rate adjustments in the past. The first is
for the FortisBC Revenue Requirements for the year, usually done in January. The
second is for the BC Hydro Power Purchase Flow through which is not known until
September. Staff is recommending that only one increase be done in 2011.
The cost to the average residential user (defined as 1000 kwh/month) will rise from
$87.95 to $98.15. This equates to an additional cost of $10.20 per month.

DISCUSSION

Council Policy states that a staff report be posted prominently on its website at least 7 business
days prior to a consultative process. The public consultative process will be advertised and
conducted like a public hearing prior to council making a decision on electrical rate changes.

ALTERNATIVES:

1. Accept the recommendation at 11.6%.

2. Increase rate at Wholesale level of 9.6%.

Doug Leahy, CMA

Treasurer