OPALCO Board Meet ing - March 2016

2015 Year End Financial Report Introduction

OPALCO 2015 Year End Financial Report – page

TIER is back to a conservative 2.51Equity % of Total Cap at healthy 53%

Revenue is on budgetExpenses reduced

2015 Year End Results: Summary

2

OPALCO 2015 Year End Financial Report – page

OPALCO 2015 Year End Results: Statement of Operations

3

$0M

$5M

$10M

$15M

$20M

$25M

Budget Actual

Revenuevariance: -$-115,223

Total Operating Expensevariance: -$923,482

Cost of Powervariance: -$665,738

Headline

• Beginning of year: Budget revenue was down big

• Mid-year: Invoked revenue recovery add-on

• End of year: Budget revenue down, but budget expenses down more.

Net Margin: $759,959

OPALCO 2015 Year End Financial Report – page 4

$0M

$2M

$4M

$6M

$8M

$10M

$12M

$14M

$16M

$18M

$20M

$22M

$24M

$26M

2013 2014 2015 2016Actual Actual Actual Budget

BPA Power Cost

Current Capital Projects

All Other Accounts

G&A

Future capital project and Capital credit planning

Operations

Member Services

Communication Maint.

Energy Savings Dept.

Permitting/Environment

Energy Assistance

OPALCO Revenue AllocationNewCo StartupRIC Startup

OPALCO 2015 Year End Financial Report – page

2016 Budget: Capital Projects

5

$0M

$2M

$4M

$6M

$8M

2012

2013

2014

2015

2016

2017

2018

2019

2020

DistributionTransmissionGrid Control Backbone

Headline

• Transmission: peak is Lopez San Juan submarine cable

• Distribution: Normal under-grounding to improve reliability

• Grid Control Backbone: Expansion to improve

• reliability

• field communications

• preparing for intermittent local renewable energy resources

submarine cable

installation completes

$0M

$4M

$8M

$12M

$16M

2012

2013

2014

2015

2016

2017

2018

2019

2020

ActualProjected

Total Capital ProjectsMajor Capital Projects

OPALCO 2015 Year End Financial Report – page

2016 Budget: Financial Metrics

6

$0M

$1M

$2M

2012

2013

2014

2015

2016

2017

2018

2019

2020

$0M

$1M

$2M

$3M

2012

2013

2014

2015

2016

2017

2018

2019

2020

$0M

$10M

$20M

$30M

$40M

$50M

$60M

2012

2013

2014

2015

2016

2017

2018

2019

2020

$0M

$3M

$6M

DebtInterest

Depreciation & Amortization

$40M

$45M

$50MEquity

Margin

0

1

2

3TIER

Rock Island pays back $7.5M

Submarine Cable on the books RUS: highest 2 out of 3 years,

averaged must be over 1.25

Actual

Actual

2015 Forecast

2015 Forecast

OPALCO 2015 Year End Financial Report – page

Debt Equity Ratio

7

0%

100%

200%

300%

400%

500%

600%

700%

800%

1975

1980

1985

1990

1995

2000

2005

2010

2015

2020

Actual Forecast

OPALCO 2015 Year End Financial Report – page

Annual Account Additions

8

0

1,000

2,000

3,000

4,000

5,000

1980 1985 1990 1995 2000 2005 2010 2015

New service additions peaked in the 1990s, during

the real estate boom.

SJC

Tot

al E

nerg

y D

eman

d (k

Wh)

0M

50M

100M

150M

200M

250M19

3519

4019

4519

5019

5519

6019

6519

7019

7519

8019

8519

9019

9520

0020

0520

1020

1520

2020

2520

3020

35

2013 215 million kWh

1937 OPALCO founded

Energy

Source: OPALCO

Headline

• Exponential growth in 20th Century

• Transitioning to low growth in 21st Century

OPALCO Energy Demand

Annual Account Additions

Population drives growth of energy demand

OPALCO 2015 Year End Financial Report – page

Annual Account Additions

10

0

1,000

2,000

3,000

4,000

5,000

1980

1985

1990

1995

2000

2005

2010

2015

Ramp up energy efficiency programs

SJC

Tot

al E

nerg

y D

eman

d (k

Wh)

0M

50M

100M

150M

200M

250M19

3519

4019

4519

5019

5519

6019

6519

7019

7519

8019

8519

9019

9520

0020

0520

1020

1520

2020

2520

3020

35

Source: OPALCO, Cisco VNI

Energy

SJC population

growth, fuel

switching

slow population

growth,AC, fuel switching

warming world, EE&C

programs, heat

pumps, local

renewable energy

Headline

• In the 20th Century, SJC electric energy demand was driven by:• population growth and • fuel switching from wood, propane and fuel oil heating

• In the 21st Century, SJC energy demand is projected to be flat - driven up by: • slow population growth, and• emerging load from AC and fuel switchingand driven down by: • Energy Efficiency & Conservation programs (EE&C), • reduced heat load due to a warming world, and increased use of super efficient heat pumps.

OPALCO Energy Demand

OPALCO 2015 Year End Financial Report – page

Revenue and Expense: Trend Analysis

12

3/16/2016

$-

$0.01

$0.02

$0.03

$0.04

$0.05

$0.06

$0.07

$0.08

$0.09

$0.10

$0.11

$0.12

$0.13

$0.14

2010 2011 2012 2013 2014 2015

$/KW

h

OPALCO Revenue and Cost of ElectricityOpalco Revenue

BPA Expense

Distribution Operations

Distribution Maintenance

Total General & Administrative

Depreciation & Amortization less FOBB

Long Term Interest less FOBB

FOBB Depreciation + Long Term Interest

Linear (Opalco Revenue)

Linear (BPA Expense)

FOBB = Fiber Optic Back Bone

4.5% per yr

4.5% per yr

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2009 2010 2011 2012 2013 2014 2015

% N

et M

argi

n

Net Margin

$-

$0.010

$0.020

$0.030

$0.040

$0.050

$0.060

$0.070

$0.080

$0.090

2010 2011 2012 2013 2014 2015

$/KW

h

Total Non-Energy Expenses

6.1% per yr

3/16/2016

-

50,000,000

100,000,000

150,000,000

200,000,000

250,000,000

2010 2011 2012 2013 2014 2015

KWh

Sold

per

Year

KWh Sold to Members

Residential Commercial

Ave decline in electricity consumption = 3%/yr since 2011

OPALCO 2015 Year End Financial Report – page

When growth is flat, but power and fixed costs continue to rise, …

13

OPALCO 2015 Year End Financial Report – page

Manage grid wiselyInvest in things that reduce costs

Find new sources of revenue

14

Three Options

Rock Island

OPALCO 2015 Year End Financial Report – page

Rock Island 2015 Year End Results: Statement of Operations

16

OPALCO 2015 Year End Financial Report – page 17

Roc

k Is

land

Sub

scrib

ers

0

500

1,000

1,500

2,000

2,500

3,000D

ec Jan

Feb

Mar Ap

rM

ay Jun

Jul

Aug

Sep

Oct

Nov

Dec Jan

Feb

Mar Ap

rM

ay Jun

Jul

Aug

Sep

Oct

Nov

Dec Jan

Rock Island Subscriber Growth: Actual, Goal, Trend

Source: Rock Island

2015 2016 2017

Fiber

LTE Wireless

LTE GoalTrends

DSL/Canopy

Fiber Goal

Headline • Fiber installation growing exponentially,

but expected to max out at about 42 new connects per month

• LTE wireless has been in testing phase, we are now starting to ramp up connects, quickly growing to about 125 connects per month

Notes • January 2016 rainy season slowed fiber

deployments, pace will quicken with drier weather

• LTE wireless growth trend will be less exponential once we have a few more months of actual growth data

Thank You