Analysis of City of Bainbridge Island

D.Hittle & Assoc. municipalization study

Andy Wappler Vice President, Customer Operations and Communications Bainbridge Island City Council June 6, 2017

What can we do together?

Green Direct – building western Washington’s first wind farm

• Mercer Island, Bellingham, Olympia and King County

• REI, Starbucks and Costco

Solar Choice – new option for residential customers Green Power – growing Island participation Reliability – new transmission line and substation Smart grid – new customer technology

PSE wants to serve Bainbridge Island

Hittle study: too many risks, too many unknowns

1) Rising costs

2) Unrealistic assumptions

3) Critical questions

4) Biased, not objective

Red Flags

Rising costs are already reversing predicted savings

January May

January study

$57.7 m new city debt

$13.1 m 10-year savings

May study

$62.4 m new city debt

$3.6 m 10-year savings

Rising costs

January May

Rising costs

Risks are growing and benefits shrinking right from the start

Rising costs are already reversing predicted savings

Hittle failed to correctly model key costs

1) Operations building will cost $2 million

2) Taxable municipal bonds at 5%

3) City eligible for low-cost Rural Utility Service (RUS) loans

Unrealistic assumptions

Fact: Taxable municipal bonds average 6%

Fact: Clallam PUD’s operations building $11 million

Fact: RUS funding rules prohibit cities over 20,000 people

Real-world fact-check reveals Hittle’s inaccuracies

Hittle cut costs with unrealistic infrastructure model

Unrealistic assumptions

Hittle made millions of dollars in unrealistic assumptions

Hittle failed to correctly model key costs:

1) No PSE transmission system

2) No PSE easements or property

Fact: New utility would need to own

Fact: New utility would need to own

PSE Agate Pass transmission lines Rebuilt 2013-2015

Hittle doesn’t answer: What happens after “Day One?”

Critical questions

After “Day One?” Hittle analysis

New transmission line No specifics

New substation No specifics

Increased undergrounding No specifics

Enhanced tree-trimming No specifics

Community energy projects No specifics

Electric vehicles No specifics

Residential solar No specifics

Energy efficiency No specifics

Low-income assistance No specifics

Loss of PSE taxes No specifics

Executive Summary, p. 6

“The risks associated with natural disasters could have more of an impact on a local City electric system.”

Hittle doesn’t answer: What happens in a natural disaster?

Critical questions

Hittle raises critical questions it doesn’t answer

Hittle provides 6 business cases

4 rely on 5% bonds

2 rely on RUS funding

Section 7, Table 9, p. 64

Biased, not objective

Hittle’s study does not provide objective analysis

Hittle stacked the deck toward municipalization

1) Rising costs

2) Unrealistic assumptions

3) Critical questions

4) Biased, not objective

5) Failed Jefferson study

Red Flags

Hittle study: too many risks, too many unknowns

Hittle 2008 study Jefferson Co. 2017

$66.1 m new debt $115.5 m new debt

$62.2 m savings Zero savings since 2013

Local renewable energy None

Energy efficiency & solar Less than PSE

Local control Open meetings violation

Financial stability • Borrowing from water fund

• Failed State audits

Improved reliability No capital investment

2013-2016

Failed Jefferson study

Hittle’s Jefferson study was wrong on every key factor

Rising costs, unrealistic assumptions, critical questions and bias

Hittle study errors

No certified appraiser

Incorrect valuation method

Inaccurate startup costs

No analysis of financial and operational risks

Concentric Energy Advisors

$146.8 m city debt

$36.6 m 10-year cost increases

Certified General Appraiser

Municipal utility consultant

Concentric study: stress-tested, realistic assumptions

pse.com/bainbridge PSE on Bainbridge Island (Facebook)

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What can we do together?

Reliability, Sustainability, Community

PSE wants to serve Bainbridge Island