1

Tacoma PowerEnergy Risk Management/Power Supply Update – Q2’2020

Ying Hall

Energy Risk Manager

Todd Lloyd

Assistant Power Manager, Resource Operations & Trading

August 26, 2020

Section 1Power Supply

3

Power Supply Update

Graph 1: Tacoma System Inflows – Very Volatile Water Year – Adverse Runoff(Tacoma System Hydro Inflows, Water Year 1929 – 2020)

0

2,000

4,000

6,000

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26,000

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Infl

ow

s(c

fs)

5th-95thPercentile

Adverse

Average

2020

2020Projection

4

Power Supply Update

Graph 2: Federal System Inflows – Not as Volatile – Very Good Runoff(Federal System Hydro Inflows, Water Year 1961 – 2020)

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46,000

Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep

Infl

ow

s(K

AF)

5th-95thPercentile

Average

2020

2020Projection

5

Power Supply Update

Graph 3: WY 2020 Tacoma System Inflows – Near Average Water Year

(Tacoma System Inflows Annual Avg., Water Year 1929 – 2020)

0

2,000

4,000

6,000

8,000

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14,000

Infl

ow

s (c

fs) Adverse

Average

1929 -2019

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201

9

6

Power Supply Update

Graph 4: Cowlitz Project’s Elevation – Riffe Lake Refilled in Spring(Cowlitz Elevation, Current vs. Historic)

640

660

680

700

720

740

760

780

Co

wlit

z El

evat

ion

(ft

)

New "Full" (Seismic Limit)

Normal Ops

Full

2020

Historic Range

Projection

7

Power Supply Update

Graph 5: Cushman Project Elevation – Lake Cushman Refilled in Spring(Cushman Elevation, Current vs. Historic)

690.0

695.0

700.0

705.0

710.0

715.0

720.0

725.0

730.0

735.0

740.0

Lake

Cu

shm

an E

leva

tio

n (

ft)

Maximum Allowed Elevation (2020)

Projection

2020

735 ft

Full

Historic RangeHistoric Average

8

Power Supply Update

$0

$10

$20

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$80

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$/M

Wh

Market Index Prices

Forward Market Prices

Budget Prices

Graph 6: Q1/Q2 Market Prices were Below Budget, Forward Prices are Above Budget – Note: Prices only through Q2, Q3 will be Above Budget

(Market vs. Budget Prices, 2018 – 2022)

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-100

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aMW

Actual Sales

Budget Sales

Actual Purchases

Budget Purchases

Power Supply Update

Graph 7: Q2 Sales Higher than Budget, Purchases Lower than Budget due to Healthy Springtime Runoff

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Power Supply Update

Graph 8: Recent Heat Wave Provided Opportunity to Gain Significant Wholesale Revenue from Daily and Realtime Sales(8/15/20-8-19/20 vs. Top 5 Days of 2019)

$0.00

$500,000.00

$1,000,000.00

$1,500,000.00

$2,000,000.00

$2,500,000.00

2020 ($163/MWh Avg) 2019 ($51/MWh Avg)

Section 2Wholesale Net Revenues

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Wholesale Net Revenues

Graph 9: Actual Revenue is $26M Below Budget Biennium-To-Date

(Monthly Actual vs. Budget Wholesale Purchases and Net Revenues)

-$4.00

-$2.00

$0.00

$2.00

$4.00

$6.00

$8.00

Jan

-19

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-19

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-19

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r-1

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g-1

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r-2

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20

Do

llars

(in

Mill

ion

s)

Actual Purchases Budget Purchases Actual Net Revenue Budget Net Revenue

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Wholesale Net Revenues

Graph 10: $26M Below Budget Due to Poor Hydro in 2019, Purchases (Cumulative Wholesale Net Revenue Variance, Jan 2019 – Jul 2020)

-$5.71

-$7.30

$0.92

-$13.73

-$25.82

-$30

-$25

-$20

-$15

-$10

-$5

$0

$5

Dolla

rs (

in M

illio

ns)

Hedging, Balancing, Ancillaries

Market Prices vs. Budget

Customer Demand vs. Budget

Generation vs. Budget (Adverse Water)

Biennium to Date Total

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$79.3

$54.1

$106.1

$57.9

$0

$10

$20

$30

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$110

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-19

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b-1

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rs (

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illio

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Budget Net Revenue (Adverse Water) Net Revenue Projection (Adverse Water)

Net Revenue Projection (Expected Water) - 1/1 Net Revenue Projection (Expected Water) - 5/14

Actuals

Wholesale Net Revenues

Graph 11: High Q1, Q2 Revenues, Projections Remain Below Budget(Cumulative Actual vs. Budget Wholesale Net Revenues, 2019 – 2020)

Expected Water (as of

Jan. 1)

Expected Water

(Current)

Adverse Water

(Budget)

Adverse Water

(Current)

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Wholesale Net Revenue (Million Dollars)

Den

sity

01

02

03

04

0

40 60 80 100

95%

Biennium Budget$79.3M

5%$46.8M

Mean$58.2M $75.7M

Wholesale Net Revenues

Graph 12: Probability of Making Budget Has Decreased to 3%(Risk Model Simulation of Biennial Net Revenues, 2019 – 2020)

3% probability of

exceeding the

biennium budget

of $79.3M

Section 3Hedging Program & Credit Risk

Management

17

Overview

Hedging Program Objective

A hedging program is part of Tacoma Power’s energy risk management policy.

The objective of the hedging program is to:

Stabilize net revenues from wholesale operations

Protect against very low wholesale revenue outcomes

Hedging Program Design

The hedging program enforces dollar cost averaging of surplus sales and prohibits holding deficit positions.

The program has a two year horizon, and utilizes physical forward contracts.

Allowable hedge ratio governed by “hedging bands” that:

Limit the maximum amount hedged far into the future

Require progressively more surplus be hedged as time to delivery gets closer

Hedging Program

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Hedging Program

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ge

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lue

(M

TM

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Settled Hedges Hedges vs. Market (MTM) Cumulative

Graph 13: Hedging Program Values Have Increased(Hedging Program, 2017 – 2020)

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Background

Tacoma Power frequently sells electricity to wholesale trading partners or “counterparties”

Tacoma Power incurs credit exposure –money that the utility could lose in the event of a counterparty default

Credit Risk Management Program

Tacoma Power manages credit risk by:

Extending credit to investment grade counterparties only

Setting exposure limits based on creditworthiness

Daily monitoring of credit quality

Daily monitoring of exposure

Actions include stopping trading with a specific counterparty, requesting collateralization

Credit Risk Management

Overview

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Rank CounterpartyInternal Model

RatingS&P Rating Loss in Event of Default

1 Modesto Irrigation District A+ A+ $1,356,520

2 Avangrid Renewables, LLC BBB+ BBB+ $1,184,978

3 Portland General Electric Co BBB+ BBB+ $610,775

4 Sacramento Municipal Utility District A+ AA- $495,280

5 Morgan Stanley Capital Group, Inc. A- BBB+ $426,957

6 Puget Sound Energy, Inc. BBB BBB $426,193

7 California ISO AA- A+ $346,166

8 PacifiCorp A- A $289,810

9 Eugene Water & Electric Board A+ AA- $215,396

10 Macquarie Energy, LLC A A+ $174,761

Graph 14: Current Credit Exposures Are at Typical Levels(Top 10 Counterparty Credit Exposures)

Wholesale Credit Exposures