The budget has been updated to reflect the most current information for revenues and expenditures as listed below.

Transcription

1 Memorandum Date: October 18, 2017 To: From: Subject: Board of Directors Jason Frisbie, General Manager/CEO Dave Smalley, Deputy General Manager and Chief Financial Officer Shelley Nywall, Controller 2018 Proposed Annual Budget Public Hearing As previewed during the September budget work session, staff anticipated changes to the 2018 Proposed Annual Budget. The updated budget includes total revenues of $223.5 million and total expenditures of $276 million, including a board contingency appropriation of $23 million. Net income is now projected to be $23 million with debt service coverage at 2.50 times. The budget has been updated to reflect the most current information for revenues and expenditures as listed below. Amount Favorable (Unfavorable) $2.4M $0.7M ($57K) $3.1M Revenues Surplus Sales Interest Income Municipal Sales Description The price for surplus sales has been updated with the most recent forecast adjusted for Platte River s market. The average price is increasing 2 percent to $23.12 from $22.67 per MWh, which represents $0.4 million of the change. Due to the increase in price, the volume of sales increased 13 percent representing the majority or $2.0 million of the change. The significant decrease in capital additions paired with a slight increase in interest rate projections resulted in an increase in interest income. The Tariff 7 rate increase was removed to keep the rate flat at $25/MWh, partially offset by small adjustments as a result of the model update. Total increase in revenues Amount Favorable Operating Description (Unfavorable) Expenses ($2.0M) Fuel The generation from the coal units increased as a result of increasing the surplus sales price, partially offset by a small decrease in natural gas usage from modeling results. ($0.6M) Operating Expenses ($0.6M) IT consulting services for network assistance and system engineering are required due to resource constraints and the need to complete required projects, such as the acceleration of the PC replacement cycle to ensure all employees are on the same platform. Other expenses include

2 MEMO 2018 Proposed Annual Budget Public Hearing October 2017 Page 2 of 4 ($0.4M) ($3.0M) Purchased Power PCs for the replacement project, insurance compliance and tracking software, and cyber security software services. ($0.1M) Expenses were included for the permitting, marketing, and administration of the community solar program. Other expenses were updated relating to Xcel s transmission ancillary services tariff, the fiber locating project, SONET equipment, and substation maintenance. $0.1M Wheeling expenses are decreasing due to a rate reduction from WAPA. Reclassifications were made between production and transmission for proper classification of SCADA Services as a transmission function. Fewer reserves will be held on Platte River resources due to an increase in the surplus sales price resulting in higher reserve purchases from Xcel Energy. In addition, Xcel Energy increased the tariff for purchased reserves. Community solar was included and, pending contract negotiations, is anticipated to be online in the fall of These increases were partially offset by a reduction in supplemental purchases from modeling results. Total increase in operating expenses Debt expense was impacted by the updates to capital additions for the 2018 Budget. The change is listed below. Amount Favorable (Unfavorable) ($0.5M) Debt Expense Allowance for Borrowed Funds During Construction Description The updates to capital additions and project fund interest income resulted in a decrease in the amount of interest capitalized. Capital projects were also reviewed and updated for the 2018 Budget. The changes are listed below. Amount Favorable (Unfavorable) Capital Additions Description $17.7M Headquarters Campus Decrease as the timeline for project completion was extended to $0.8M Bottom Ash and Reclaim Pond Coal Combustion Residuals Compliance Decrease as scope and costs were more clearly defined. $0.7M ($16K) Generator Stator Rewind Rawhide Unit 1 Server and Application Monitoring Software Decrease as a result of separating the online monitoring system from this project into a standalone project described below. New project to add a module to the existing SolarWinds monitoring suite. This software will identify issues and root cause of application problems with the ability to customize monitoring.

3 MEMO 2018 Proposed Annual Budget Public Hearing October 2017 Page 3 of 4 ($20K) Cyber Asset Management ($20K) Copier Replacement Electric Operations ($0.1M) ($0.1M) ($0.2M) ($0.5M) ($0.6M) $17.7M Voltage Regulator Upgrade Fixed Fire Suppression System Combustion Turbines Soot Blower Replacement GenAdvisor Generator Online Monitoring System Rawhide Unit 1 Windy Gap Firming Project New project to replace the software that monitors the configurations of the servers and workstations in the operation technology system environment to ensure the systems comply with NERC CIP standards. New purchase of a Canon copier as the current one is due for replacement. The new copier will be faster, have better image quality, and cost less per copy/print. Increase as a new estimate was received from the vendor. Increase due to adding required climate controlled buildings to house each fire suppression system. Existing project which requires funds in 2018 to continue to replace and standardize all retractable soot blowers for Rawhide Unit 1 to ensure unit heat rate and reliability. New project to install a monitoring system during the 2018 outage. The system provides information on condition of equipment, reduces inspection time, and will assist in mitigating unplanned outages. Increase as a result of a change in method of calculating interest during construction costs. Total decrease in capital additions Contingency appropriation was impacted by the updates to operating expenses and capital additions for the 2018 Budget. The change is listed below. Amount Favorable (Unfavorable) $2.0M Contingency Appropriation Contingency Appropriation Description The contingency appropriation represents approximately 10 percent of operating expenses and capital additions and has been updated because of the changes in those categories.

4 MEMO 2018 Proposed Annual Budget Public Hearing October 2017 Page 4 of 4 The following table summarizes the 2018 Proposed Annual Budget and outlines impacts from the current changes made to the revenue and expenditure categories. $ in Thousands Proposed Budget Price Updates & Model Impacts Other O&M Net Increase Capital Decrease & Depreciation* Favorable (Unfavorable) Changes Updated Proposed Budget Revenues Sales to Municipalities $ 197,073 $ (57) $ (57) $ 197,016 Sales for Resale 21,037 2,439 2,439 23,476 Interest and Other Income 2, ,048 Total Revenues $ 220,479 $ 3,061 $ 3,061 $ 223,540 Operating Expenses Purchased Power $ 34,173 $ (352) $ (352) $ 34,525 Fuel 47,692 (1,963) (1,963) $ 49,655 Production 45,205 $ $ 44,861 Transmission 16,830 (368) (368) $ 17,198 Administrative and General 24,741 (626) (626) $ 25,367 Total Operating Expenses $ 168,641 $ (2,315) $ (650) $ (2,965) $ 171,606 Debt Expenses $ 20,272 $ (513) $ (513) $ 20,785 Capital Additions Production $ 42,048 $ (18) $ (18) $ 42,066 Transmission 3,271 (3) (3) 3,274 General 32,984 17,684 17,684 15,300 Total Capital Additions $ 78,303 $ 17,663 $ 17,663 $ 60,640 Total Expenditures $ 267,216 $ (2,315) $ (1,163) $ 17,663 $ 14,185 $ 253,031 Contingency Appropriation $ 25,000 $ 2,000 $ 2,000 $ 23,000 Total Expenditures and Contingency $ 292,216 $ (2,315) $ (1,163) $ 19,663 $ 16,185 $ 276,031 Net Income $ 23,417 $ 746 $ (1,163) $ (10) $ (427) $ 22,990 *Depreciation expense increased by approximately $10K impacting net income. Attached is the 2018 Proposed Budget at a Glance reflecting the most recent changes. No other changes are anticipated at this time. If additional changes arise, the Board will be informed as soon as reasonably possible to ensure budget adoption in December. A public hearing will be held at the Board meeting to receive comments on the 2018 Proposed Annual Budget. Public notice of the hearing was posted in the four municipalities local newspapers in September. Staff will give a presentation on the changes to the budget at the Board meeting. Attachment

5 Memorandum Date: September 20, 2017 To: From: Subject: Board of Directors Jason Frisbie, General Manager/CEO Dave Smalley, Deputy General Manager and Chief Financial Officer Shelley Nywall, Controller 2018 Proposed Annual Budget Work Session Attached is a copy of the 2018 Proposed Annual Budget for your review. Also included for reference is the 2018 Proposed Budget at a Glance document. Staff will give a presentation on the proposed budget at the Board meeting. The presentation will focus on key activities in 2018 with less emphasis on budget-to-budget comparisons; however, the detail slides and related trend information will be included in the slide deck for your reference. We are continually refining the budget as the market-based model is updated each quarter and new information becomes available regarding operating and capital expenses. The outcome of the changes is anticipated to be insignificant and will not impact the rate increase. Those changes will be discussed at the October Board meeting. A second review session and the required public hearing are scheduled for October. Board adoption is scheduled for December. Attachments

6 2018 Proposed Annual Budget

7 Table of Contents General Manager s Budget Message... 1 Platte River s Budget Process... 5 Budget Process... 5 Budget Schedule... 5 Board of Directors and Senior Management Team... 6 Vision, Mission, and Values... 7 Strategic Initiatives... 8 Key Goals and Activities... 9 Financial Review Financial Summary...12 Comparative Statements of Revenues and Expenses...13 Budget Summary Revenue and Expenditure Budget Budget Contingency Source and Use of Funds Revenue and Expenditure Detail Electric System Resources Power Resources Resources and Deliveries Operating Revenues Municipal Loads Wholesale Municipal Rates Municipal Sales Surplus Sales and Other Electric Revenue Surplus Sales Wheeling Revenues Other Revenues Interest and Other Income...31 Operating Expenses Purchased Power Fuel Production Transmission Administrative and General Debt Service Expenditures Long-Term Debt Outstanding Debt Service Coverage Capital Additions Capital Additions Summary Production Capital Additions Transmission Capital Additions General Plant Capital Additions Acronyms and Terms... 63

8 To the Board of Directors I am pleased to provide you Platte River Power Authority s 2018 Annual Budget. The budget supports Platte River s mission, values, strategic plan, and financial plan established by you for the organization. In addition to the traditional budget-to-budget comparisons, this document now includes a list of key goals and activities planned for 2018 that support our strategic initiatives. This new format is the first step of a longer-term effort to review and renew the overall budget process to more effectively explain our plans for the future. Our story includes the five strategic initiatives you identified, which provide direction for the next three to five years (see page 8). Listed below are those initiatives and the key activities planned to support each. These initiatives and supporting activities will allow Platte River to continue to manage costs and operate our infrastructure in a safe, reliable, and compliant manner, while taking advantage of new opportunities and expanding on our record of environmental stewardship. 1. Customer Solutions/Products Jason Frisbie General Manager/CEO Demand Side Management (DSM) DSM programs help reduce consumers demand for and use of electricity, which not only benefits customers but also Platte River operations. These programs include energy efficiency (EE), demand response (DR), and distributed energy resources (DER). We collaborate with municipalities to implement DSM programs and focus resources on the most cost effective programs that benefit everyone (i.e., Common Programs ). The municipalities focus the majority of their DSM resources on programs that align with their respective policies or goals, but provide some funding to expand Common Programs or further leverage collaborative efforts. The budget for EE programs continues to expand, consistent with the Strategic Plan, Integrated Resources Plan (IRP), and DSM/EE Funding Policy. EE products and services are helping more customers lower their energy bills, reduce the need for new resources, improve environmental performance, and support the regional economy. To manage and support a residential energy audit and rebate program, currently done by a contractor, our budget includes two new staff positions directly funded by the municipalities. By bringing these services in-house, we will improve continuity, control, and flexibility, which will also lead to greater program savings. We will continue implementation of the DR pilot program with partner municipalities through 2018 to learn how DR resources can be operated by Platte River to maximize system level benefits and to help identify the value of specific resources. Once completed, we will jointly review results and determine next steps including how DR can be operated in an organized energy market to efficiently align wholesale and retail value through a combination of rates or incentives. We will also continue to collaborate with municipal staff to develop a DER strategy. Our objectives are the adoption of new, proven technologies that maintain or improve reliability and manage risks while offering customers viable options for self-generation. Customized Resource Plan Platte River staff will take the next steps to develop the Customized Resource Plan (CRP) by building upon the draft results provided to the municipalities in July We will work with each municipality to evaluate and determine a set of resource planning options that align with municipal goals. We will then produce additional cost analyses specific to the resource options of interest, and begin to create the administrative and pricing programs necessary to manage each customized resource portfolio Proposed Annual Budget 1

9 Rate Tariff Framework To improve overall transparency and support integrated solutions among our Customer Solutions/Products, we will continue to develop a more robust rates framework that will include a clear rates policy and revisions to cost allocations. 2. Resource Diversification and Alignment Renewable Resource Additions Platte River produces approximately 9 percent of its energy through 108 MW of renewable resources (78 MW wind, 30 MW solar) under long-term contracts and we will proactively incorporate more renewables within the next few years. Our staff in 2018 will finalize potential contracts, secure transmission, prepare to integrate these additional renewable resources, and consider new opportunities to incorporate more renewable energy or emerging technologies, as directed by the 2016 IRP Action Plan and strategic initiatives. Community Solar Project and Program We plan to unveil a new 5 MW community solar program during 2018 to provide solar power. From a single solar project, we and our municipal owners will help meet growing customer demand for solar energy resources and better integrate solar generation into our system operations. Staff will also work with municipal partners to promote the new community solar program to retail customers. 3. Organized Energy Market Participation Platte River, along with seven other regional utilities, plans to join the Southwest Power Pool, a regional transmission organization (RTO) and organized wholesale energy market. This will enable Platte River to: (1) pool energy resources over a larger footprint; (2) use existing transmission systems more efficiently; (3) increase the integration of renewable resources; (4) improve transmission and interconnection planning; and (5) potentially lower costs to our owner municipalities. Risks include exposure to congestion costs, higher market energy prices during unexpected resource outages, and regional cost responsibilities with new transmission infrastructure development. However, we believe the benefits of RTO participation are greater than the risks by a significant margin, not just in the short-term, but also the long-term. Most budgeted expenses cover items needed during the onset of entering a market, such as software and modeling tools. Additional investment will need to be made for staff and other tools and resources to successfully implement and operate in an organized energy market. 4. Infrastructure Advancement Service Reliability In 2018, we will make a significant, proactive investment in Rawhide Unit 1 to ensure service reliability. We plan a six-week maintenance outage to replace the original turbine generator and re-wind the original generator stator, as well as, perform inspection and maintenance on the boiler and other critical assets. Other projects include the upgrade of high voltage motor control centers, the replacement of the 102 feed water heater, replacement of the air pre-heater baskets, and an upgrade to the voltage regulator system. These future projects are necessary to maintain plant reliability and maximize its efficiency. Environmental Responsibility During the outage, we plan to replace and upgrade the bottom ash system of the unit to comply in advance with federal and state solid waste management regulations. This system will also provide redundant capabilities allowing for maintenance while the unit remains online. In addition, staff will prepare for closure of two ash ponds in the first quarter of Windy Gap Firming Project Platte River is a participant in this regional water storage project to secure the long-term water needs of the Rawhide Energy Station. Planning for this project began in 2003 and it should become operational by A portion of the $95 million debt financing planned in 2018 will help fund construction of this project. Headquarters Campus Project We plan to break ground on the new headquarters campus in spring The new facility will help us better manage the next generation of technologies and new market challenges and opportunities. It will also provide the communities with better access to the region s energy experts and the policy leaders who will guide our clean energy future. A portion of the $95 million debt financing planned in 2018 will help fund construction of this project Proposed Annual Budget

10 Physical security We will embark on a multi-year effort to improve the physical security of Platte River s substations and generating facility by building control rooms along with enhanced video surveillance and intrusion detection. These systems will meet or exceed all NERC/CIP requirements for physical security and will align with our plans to join an RTO. Cyber security Aligned with physical security, we will enhance our focus on implementing enterprise-wide cyber security principles and best practices, with the goal of ensuring the continued security of the business network. We strive to proactively address this rapidly changing environment through regular technology updates. Communication infrastructure We will make three significant investments in technology during First, the Control Center and its underlying telecommunications and fiber optic infrastructure must be moved as part of the new Headquarters Campus Project without interrupting electric operations, SCADA, and protective relaying. This will require considerable planning and testing prior to execution. Second, we will perform significant work on the redundant fiber line to Estes Park, which will ensure reliable fiber communications capabilities between Estes Park and Platte River. During the year, staff will continue locating, auditing, and digitizing fiber assets into the management system in time for completion in early Third, staff will continue to monitor the municipalities broadband initiatives and work with each to support future implementation. In 2017, for example, we helped investigate strategies for the efficient use of the fiber network. The results will be analyzed in 2018 and we will collaborate on next steps. 5. Community Outreach Communications and Marketing Plan Platte River will develop a plan that supports the boardapproved Community Support and Involvement Policy and advances the key initiatives of the organization, including new market opportunities, CRP, emerging renewable energy products, rate innovations, expanded community support/outreach, and the new headquarters campus. Collaboration Platte River will continue to enhance collaboration and communication with municipalities and local/regional stakeholders through regular meetings and electronic communications, sharing of best practices, and by providing support to municipal communicators when and where needed. Rate Design Philosophy Platte River s Strategic Financial Plan (SFP) is designed to provide long-term financial sustainability by generating adequate cash flows, maintaining access to low cost capital, effectively managing risk, and providing stable and competitive wholesale rates. Based on the 2018 Budget projections, a rate increase was not required to meet minimum SFP targets this year, but it is critical to note that current estimates forecast the need to raise rates by approximately 2.3 percent per year. This increase is driven in part by continued portfolio diversification, general cost escalations, and infrastructure investment. As part of our planning efforts, we recommend providing our municipal owners and those whom they serve a more predictable path of smaller annual rate increases rather than dramatic increases in out years. The 2018 Budget therefore calls for a 2 percent increase to the Tariff Schedule 1: Firm Resale Power Service (Tariff 1) Demand and Energy seasonal charges. This strategy will not only help our owner municipalities improve their long-term budgeting processes, it will also maintain a strong balance sheet for Platte River by generating additional reserves, thus reducing the need for future debt financing Budget Summary In addition to the activities noted above, the 2018 Budget supports ongoing operations and maintenance expenses. The budget results for surplus sales, fuel, and purchased power are based on an in-house hourly dispatch model and related expenses that are based on contract terms, escalations, and/or third party projections. Operations and maintenance and administrative and general expenses are determined by the needs of the organization. Management held multiple work sessions to thoroughly review the budget justifications, resulting in overall reductions of operations and maintenance expenses, as well as capital additions Proposed Annual Budget 3

11 Total revenues for 2018 are projected to be $220.5 million, an increase of $3.5 million from the 2017 Budget. Expenditures are forecast to be $292.2 million, reflecting an overall increase of $20.7 million when compared to the 2017 Budget. The budget includes a $5 million increase in the contingency appropriation to $25 million that can be used to meet circumstances unforeseen at the time the budget was prepared. Historically, contingency was a fixed amount. Beginning 2018 and going forward, the amount will represent approximately 10 percent of operating expenses and capital additions to better align with fluctuations in the budget. Expenditures in excess of revenues will be funded by prior reserves and reimbursed with funds from the 2016 and 2018 debt financings. Details of the revenues and expenditures are contained in the subsequent sections of this document, along with a budget-to-budget comparison. Next steps in the budget process include a budget work session on September 28, A public hearing with review of the proposed budget will also be held on October 26, 2017, and an action item will be included on the December 7, 2017, board agenda to adopt the budget. Once adopted, a copy of the 2018 Budget will be filed with the State of Colorado. We look forward to the challenges and opportunities that will be presented in 2018 and working with you over the next few years on implementing our strategic plan. As always, we appreciate your continued leadership and support. Jason Frisbie General Manager/CEO Proposed Annual Budget

12 Budget Process Platte River is a political subdivision of the State of Colorado and is subject to the Local Government Budget Law, C.R.S , et seq. Platte River accounts for its financial operations as a proprietary fund and the 2018 Budget has been prepared using the accrual method of accounting and accepted governmental budgeting practices. Since Platte River operates as a proprietary fund, it is not subject to Colorado s Taxpayer s Bill of Rights provisions. The statutory deadline for submission of Platte River s annual budget to its board of directors is October 15 of each year. By that date, a notice is published in newspapers of general circulation stating that the annual budget is available for inspection by the public. The date and time for the public hearing is also published. The budget document can be found on Platte River s website at and at Platte River s headquarters at 2000 East Horsetooth Road, Fort Collins, Colorado. State law allows Platte River to carry over into 2018 any unexpended balance of funds appropriated for 2017 expenditures. The 2017 unexpended amounts may be due to construction delays, change in scope, or payment timing differences and will be determined after the December 31, 2017, year-end closing. The amounts required in 2018 to complete 2017 projects will then be transferred to the appropriate budget categories in The 2018 capital additions will be funded either from current operations and/or proceeds from the 2016 and 2018 debt financings. Budget Schedule 2018 Proposed Annual Budget 5

13 Photo to be added. Board of Directors Platte River is governed by an eight-person board of directors designed to bring relevant expertise to the decision-making process. The board includes two members from each of the owner municipalities. The mayor may serve or designate some other member of the governing board of their owner municipality to serve in their place on Platte River s Board of Directors. Each of the other four directors is appointed to a four-year staggered term by the governing body of the owner municipality being represented by that director. Photo to be added. Senior Management Team Platte River operates under the direction of a general manager/ceo who serves at the pleasure of the board of directors. The general manager/ceo is the principal executive officer with full responsibility for planning, operations, and administrative affairs of Platte River. The senior management team also includes a deputy general manager/chief financial officer, a chief operating officer, a chief administrative services officer, a general counsel, a chief strategy officer, and an executive assistant to the general manager/ceo Proposed Annual Budget

14 Our Mission Our Vision Provide safe, reliable, environmentally responsible, and competitively priced energy and services. As a respected leader and responsible energy partner, improve the quality of life for the citizens served by our owner communities. Values Our values define who we are and how we conduct our business. Employees are essential to our success and their ability to demonstrate this set of foundational values is critical to the execution of our strategic initiatives and operational goals. Communication of and commitment to these values is important as we navigate future challenges. Adherence to these values will enhance customer satisfaction both internally and externally, and will bolster the long-term viability of our organization and communities. Safety Working safely to protect the public, our employees, contractors, and the assets we manage. Integrity Being ethical and holding ourselves and contractors accountable to conduct business in a fair, honest, transparent, compliant, and environmentally responsible manner. Service Providing quality service at a competitive price while being responsive to our owners needs. Respect Encouraging constructive dialogue that promotes a culture of inclusiveness, recognizes our differences, and accepts differing viewpoints. Operational Excellence Engaging employees and contractors to strive for excellence and continuous improvement. Sustainability Maintaining financial integrity, minimizing our environmental impact, and supporting responsible economic development in our owner communities. Innovation Striving to be creative, pioneering, and the best in class at solving tough challenges with resourcefulness and non-traditional approaches Proposed Annual Budget 7

15 Strategic Initiatives Platte River is engaged in many important activities that support our Mission and Vision. These strategic initiatives provide direction for the next three to five years in specific areas that are critical to our future success. They are intended to be clear and actionable, yet flexible enough to allow creativity in terms of tactics required to achieve them. Customer Solutions/Products Through this initiative, we will provide our owner municipalities and their customers with choices that enable them to achieve their energy goals in new ways. We recognize that our owner communities have varied motivations for exploring alternative energy solutions, and diverse expectations from Platte River. It is also clear that Platte River must seek collaborative, integrated solutions to deliver desirable outcomes for the owner communities and their customers. Examples of potential solutions include: Distributed energy resource strategies and systems integration (supporting energy efficiency and demand-side technology products and services) Customized resource portfolios Consolidated value-added services Enhancements to electric rate design that increase transparency and support integrated solutions Resource Diversification and Alignment Decisions regarding future resource technologies and systems integration will be driven by regulatory compliance, diverse community needs, and risk mitigation. In order to provide new solutions for our owner communities and their customers and to continue cost-effectively providing reliable electric supply resource mix changes will be required over time. Key aspects of this initiative include: Strategies for exiting the Craig Station coal facilities Expanded wind and solar resources Collaboration and integration regarding community solar and distributed resource options Organized Energy Market Participation Organized energy markets in the mountain west region will be a key driver for the future of our industry. Opportunities include pooling of energy resources over a larger footprint, more efficient utilization of existing transmission systems, increased integration of renewable resources, improved transmission/interconnection planning, and lower costs to our owners. Risks include exposure to additional congestion costs, higher market energy prices during unexpected resource outages, and loss of local control over transmission infrastructure development. Key areas of focus include: Updated purchasing and selling strategies Enhanced analytics and staff skill development required for organized energy markets Risk identification and exposure mitigation Infrastructure Advancement Platte River s generation and transmission assets continue to perform well, through investment in capital improvements and maintenance. However, additional investments are needed, including: Physical and Cyber Security Communication infrastructure Water storage enhancements Headquarters campus Community Outreach A positive perception of Platte River and its value to the communities we serve is critical to our future. We must clearly and transparently tell our story through expanded communications, broader public outreach, enhanced co-branding with the municipalities, and broader use of evolving social media and other technologies. Leveraging of resources can be achieved through expanded partnerships and collaborations as we align with identified priorities of our owner communities Proposed Annual Budget

16 Key Goals and Activities Platte River is a wholesale generation and transmission provider that delivers reliable and competitively priced energy and services in a safe and environmentally responsible manner. Platte River consistently takes a proactive approach to its responsibilities as a member of the Northern Colorado community by investing in preventative maintenance, through early adoption of regulatory mandates, by enhancing and improving infrastructure, and by maintaining its financial sustainability. These proactive measures allow Platte River to meets its goals of focusing on the needs of its customers and providing high quality service. The focus for 2018 will include a planned maintenance outage at Rawhide, firming a critical water source, and improving infrastructure with several production and transmission capital projects. Platte River will continue its proactive commitment to environmental responsibility through a new bottom ash removal system at Rawhide, which will improve solid waste management and further reduce mercury emissions through more aggressive use of flue gas chemical processes. Investments will continue in cyber security and physical security to keep data, equipment, and employees safe. Staff will focus on preparing for the formation of an organized energy market, expanding DSM programs, optimizing the fiber network, preparing for the NERC/CIP compliance audit, expanding collaboration and communications with stakeholders, and integrating renewable energy into the system. Also, a debt financing is planned to support two major capital projects: Headquarters Campus Project and the Windy Gap Firming Project. Platte River s strategic initiatives support this proactive approach through several key goals and activities in the 2018 Budget listed on the next page. Below are the operating expenses and capital additions shown by category of significance. Operating Expenses and Capital Additions: $246.9 Million Transmission 5% DSM 3% Market Purchases 1% General Business 9% Generation 35% Contract Renewables & Hydro 13% Facilities 15% Fuel 19% 2018 Proposed Annual Budget 9

17 Generation Six-week outage at Rawhide Unit 1 to upgrade turbine generator, replace bottom ash system to proactively comply with future federal and state solid waste management regulations, as well as boiler and other maintenance High voltage motor control center switchgear replacements Rotary car dumper conversion to variable frequency drives enabling full utilization of the aluminum railcars Windy Gap Firming Project development Rawhide coal stockpile survey to improve accuracy Engineering document conversion project completion Emerson control system training continuation NERC/CIP compliance audit support Solid waste management requirements for future federal and state regulatory requirements, i.e., decommission bottom ash ponds, monofill process changes, and related permitting Mercury emissions reduction of 33 percent to /lb per GWh of generation with increased use of BPAC to comply with mercury removal regulations Transmission Organized energy market preparations Boyd Substation completion Oil circuit breakers replacements Battery bank replacements NERC/CIP compliance audit Vegetation management compliance Municipal broadband support and optimization of fiber network Fiber locate, audit, and digitize into the fiber management system Redundant fiber route to Estes Park completion Infrastructure planning and implementation for Headquarters Campus Project (telecom and fiber systems) Customer Service EE program expansion DR pilot program completion DER exploration Community solar program development Communications Overarching marketing and communications plan development that aligns with and supports the organization s strategic plan Communications plan development and implementation for key activities, including organized energy markets, customized resource plan, emerging renewable products, rate development, community outreach, and the Headquarters Campus Project Collaboration with communications staff of municipalities and local/regional stakeholders Transmission outage communication plan Emergency preparedness and crisis communications alignment Existing communication channels or tactics (e.g., social media) expansion General Business Organized energy market preparations Property rights audit Windy Gap Firming and Rawhide Unit 1 outage support Rate framework development Financial and pension audits Risk management enhancements Project management continuation Leadership training emphasis Employee health and wellness programs Proposed Annual Budget

18 Facilities Headquarters campus design and construction Wall and reinforcement restoration of buildings at Rawhide Energy Station (multi-year project) Information Technology Enterprise cyber security program Hardware and software upgrades Infrastructure planning and implementation for Headquarters Campus Project and organized energy market preparation Security and Safety Low impact physical security CIP compliance standards implementation at the Rawhide Energy Station and substations (secure key access points at the plant and control centers) Video surveillance coverage for faster intrusion detection and appropriate response at the Rawhide Energy Station Emergency management program (improve response plans, proactive approach, better preparation for disaster recovery, and enhance community partnerships) Soft tissue injury prevention through programs such as active release techniques program Qualified electrical worker training on NFPA 70E compliance Industrial hygiene monitoring (high-hazard tasks and environments) Resource Planning Organized energy market analysis and intelligence and model enhancements Wind resource expansion in supply portfolio Renewable energy supply integration Markets and emissions outlook Alternative generation analysis Distribution/wholesale joint modeling effort Customized resource planning 2018 Proposed Annual Budget 11

19 Financial Review Financial Summary The Local Government Budget Law of Colorado, generally accepted accounting principles, Platte River s Fiscal Resolution, General Power Bond Resolution, and SFP provide the framework for Platte River s financial activities. The 2018 Budget was developed in compliance with this framework, as well as having an adaptive strategy to effectively maintain reliability, manage risk, and ensure regulatory compliance. Platte River is committed to sound financial and management planning. The key to meeting this commitment is in following the goals of the SFP, which include a minimum annual net income of $6 million, minimum total debt service coverage of 1.50 times, a debt-to-capitalization ratio of 50 percent or less, and a target minimum of 200 unrestricted days cash on hand. The SFP is designed to provide long-term financial stability by generating adequate cash flows, maintaining access to low cost capital, providing stable and competitive rates, and effectively managing financial risk. Financial results shown below for 2018 are positively impacted by a reduction in depreciation expense, which is a non-budgeted expense. Depreciation expense is approximately $2.6 million lower in 2018 primarily as a result of approximately $177 million of original Rawhide Energy Station assets that are now fully depreciated. In addition, during 2017, Platte River sold Windy Gap water units generating $39 million in proceeds. The sale will be recognized through 2046, the projected remaining useful life of Rawhide Unit 1, positively impacting net income by $1.3 million each year. The sale proceeds also increase available reserves, which reduces future debt financing requirements. The following table is a comparison of the key financial indicators SFP Targets Actual Budget Estimate (2) Budget Net income ($000) $6 Million Minimum $ 17,965 $ 11,762 $ 11,708 $ 23,417 Debt service coverage 1.50 Times Minimum 1.78x 1.65x 1.64x 2.56x Debt-to-capitalization ratio 50% or Lower 28% 31% 32% 35% Unrestricted days cash on hand (1) 200 Minimum Other Selected Data ( $000) Accumulated net assets $ 516,437 $ 525,449 $ 528,145 $ 551,562 Dedicated reserves and available funds (1) $ 143,647 $ 114,218 $ 151,075 $ 182,073 Long-term debt, net $ 250,838 $ 223,568 $ 223,568 $ 300,474 Capital additions $ 38,384 $ 52,310 $ 47,763 $ 78,303 (1) Amounts shown for 2017 Budget were restated from the adopted 2017 Annual Budget document. (2) 2017 Estimate represents seven months actual and five months budget adjusted for revised projections on all budget schedules Proposed Annual Budget

20 Comparative Statements of Revenues and Expenses Operating Revenues Actual Budget Estimate Budget Sales to municipalities $ 185,213,723 $ 191,943,294 $ 190,819,041 $ 197,072,600 Sales for resale and other 20,079,504 23,305,399 22,795,251 21,037,036 Total operating revenues 205,293, ,248, ,614, ,109,636 Operating Expenses Purchased power 33,270,508 35,430,832 35,435,186 34,173,236 Fuel 46,360,663 48,800,015 48,761,416 47,691,528 Operations and maintenance (1) 57,480,647 65,589,129 65,583,989 62,034,405 Administrative and general (1) 17,366,272 22,036,208 21,431,354 24,741,607 Depreciation (1) 27,219,736 26,436,900 26,139,694 22,504,195 Total operating expenses 181,697, ,293, ,351, ,144,971 Operating income 23,595,401 16,955,609 16,262,653 26,964,665 Nonoperating Revenues (Expenses) Interest income 1,083,493 1,158,551 1,328,693 2,119,794 Other income 846, , , ,629 Interest expense (10,065,757) (9,582,070) (9,582,067) (10,946,142) Amortization of bond financing costs (1) 1,542,603 2,122,665 2,123,015 2,193,015 Allowance for funds used during construction 1,137, , ,992 2,835,851 Net (decrease) increase in fair value of investments (1) (174,112) 49, ,541 (6,244) Total nonoperating revenues (expenses) (5,630,578) (5,193,352) (4,554,594) (3,548,097) Income $ 17,964,823 $ 11,762,257 $ 11,708,059 $ 23,416,568 (1) Actual and estimate include nonappropriated expenses of vacation accrual, depreciation expense, amortization of bond financing costs, and unrealized investment holding gains and losses Proposed Annual Budget 13

21 Budget Summary Revenue and Expenditure Budget 2018 Budget Compared to 2017 Budget The 2018 Budget includes total revenues of $220.5 million, an increase of $3.5 million over the 2017 Budget. Expenditures total $292.2 million, a $20.7 million increase over the 2017 Budget. The 2018 Budget includes a contingency appropriation of $25 million, an increase of $5 million, that can be used to meet expenditures that could not be foreseen at the time the budget was prepared. This amount represents approximately 10 percent of the operating expenses and capital additions planned for Operating expenses are projected to be $168.6 million, a decrease of $3.2 million. Capital additions total $78.3 million, an increase of $26 million. Debt service expenditures are projected to be $20.3 million, decreasing $7.1 million based on scheduled debt service payments. A new debt financing of approximately $95 million is planned for Expenditures in excess of revenues will be funded by prior reserves and reimbursed with funds from the debt financing that occurred in 2016 and the new debt financing planned for Described below are significant revenue and expenditure items contained in the 2018 Budget compared to the 2017 Budget. Revenues are expected to increase $3.5 million mainly as a result of increases in municipal sales and interest income, offsetting decreases in short-term surplus sales. Major revenue items are described below. Municipal sales are projected to increase $5.1 million in 2018 due to an average 2 percent Tariff 1 rate increase and the 4 percent Tariff Schedule 7: Renewable Energy Service (Tariff 7) rate increase. Energy deliveries and total billing demand are projected to increase 0.9 percent and 0.3 percent, respectively. Interest income is expected to increase $0.9 million as a result of higher projected interest rates. Short-term surplus sales are decreasing $2.2 million due to lower projected surplus sales prices and energy. The average price is 3 percent lower than 2017 at $22.67 per MWh. Energy to be sold is also decreasing 9 percent due to the planned maintenance outage described below and lower market prices which, at times, are less than the marginal cost of generation Proposed Annual Budget

22 Operating expenses are expected to decrease $3.2 million. Production expenses represent the largest decrease of $4.2 million followed by purchased power of $1.3 million and fuel expense of $1.1 million. Administrative and general expenses are expected to increase $2.7 million and transmission expenses $0.6 million. The following are significant items impacting the change in operating expenses. Maintenance Outage: A six-week maintenance outage is planned for Rawhide Unit 1 for $12.9 million, which includes personnel expenses and additional operations and maintenance expenses. The ten-day maintenance outage in 2017 better defined scope of work and costs for this outage. Details of the maintenance outages can be found in the Operating Expenses Production section of this document. Replacement power for the planned maintenance outage consists of purchasing power in addition to running the combustion turbines. The majority of the increase of $2.1 million in supplemental purchases is for the outage. The outage accrual policy is to accrue 100 percent of the estimated costs ahead of the planned maintenance outage and reverse those amounts the year of the outage to alleviate a significant increase in expenses. A portion of the outage expenses will be accrued in 2018 up to the outage, then the cumulative amount accrued will be reversed in the months of the outage resulting in a net reversal of $9.1 million, comprised of $7 million in operations and maintenance expenses and $2.1 million in replacement power. An eight-week maintenance outage for Craig Unit 2 took place in 2017 and no outages are planned for either Craig unit in 2018, therefore lowering expenses by $2.7 million. Coal Expense (overall coal expense is decreasing $1.2 million): Rawhide Unit 1 coal expense is decreasing $1.9 million as a result of lower generation due to the planned maintenance outage. Pricing is increasing 5 percent per ton based on market pricing. In 2018, the Craig units will be served with a single source of coal, Trapper Mine, as the Colowyo Mine coal contract will expire at the end of Coal expense is increasing $0.7 million. Higher generation is expected as 2017 had the Craig Unit 2 eight-week planned maintenance outage. The soft surplus sales market is anticipated to continue. The delivered coal price is decreasing 7 percent as lower prices per ton are driven by fixed costs recovered over an increase of tons mined. Renewable Resources and DSM: The DSM budget has increased $2.2 million for the expansion of programs, bringing Platte River s total DSM budget to $7.9 million. Most of this funding is in the area of energy efficiency. Expanding EE programs is included in Platte River s Strategic Plan, Integrated Resources Plan, and board-approved Demand Side Management Energy Efficiency Funding Policy. EE is an economical way to help customers make costeffective improvements to their facilities while also helping Platte River and the municipalities reduce load growth, delay the need for new resources, and reduce greenhouse gas emissions. Increasing the investment in EE is being phased in over several years and long-term funding goals are based on an energy efficiency potential study that identified a level of program investment that is cost effective compared to supply side options. Platte River will continue to refine its energy efficiency programs to ensure funding and results remain consistent with identified energy efficiency potential. In addition, funding is provided for a DR pilot program and exploration of other distributed energy resources. The long-term power purchase agreements for 78 MW of wind generation are increasing $0.4 million due to contract price escalations. The purchased power expense for hydropower from Western Area Power Administration (WAPA) is decreasing $0.5 million due to a proposed rate reduction for removal of the drought adder Proposed Annual Budget 15

23 Salaries and Benefits (these expenses were developed in accordance with the board policy on Employee Total Compensation; salaries and benefits reflect an increase of $1.6 million): Regular wages are increasing $1.2 million and include staffing increases, a market based adjustment of 3.1 percent, and projected position step increases. There are three new positions planned, two that will support DSM programs and will be fully reimbursed by the municipalities, and one that will support SCADA. The sources for the salary adjustment include data from a variety of published sources, both regional general industry and from other utilities. Overtime reflects an increase of $0.6 million, which is mainly attributable to the Rawhide Unit 1 planned maintenance outage. Benefits are decreasing $0.2 million. The defined benefit pension expense is decreasing $0.4 million mainly due to above-target market returns and actuarial plan assumptions. Medical and dental expenses are expected to increase $0.1 million based on a mid-year projection provided by Gallagher Benefit Services using historical claims and industry cost projections. There is an additional increase in social security of $0.1 million following the increase in wages. Other Expenses: The closure of two ash impoundments due to federal and state solid waste management regulations is planned for the first quarter of Since this activity is an environmental retirement obligation, $1.1 million will be expensed in Other operations and maintenance expenses are reduced from the 2017 Budget by a net of $1 million and are described in detail sections of this document. A debt financing for approximately $95 million is planned for 2018 to fund capital additions for the Headquarters Campus Project and the Windy Gap Firming Project. Overall debt service expenditures are decreasing $7.1 million based on scheduled debt service payments. Series GG bonds will be paid off in 2018 and $2.3 million is included in the debt service payments for the new debt. Interest of approximately $2.8 million will be allocated to capital projects during construction, partially offsetting debt service expenditures. Capital additions are projected to increase $26 million to $78.3 million. The increase is primarily driven by the Headquarters Campus Project and planned maintenance outage projects. General plant capital projects are expected to increase $20.7 million and production capital projects are increasing $14.5 million, while transmission capital projects are expected to decrease $9.2 million. The capital additions do not include unspent 2017 capital funds that may be carried over into the 2018 Budget. Descriptions and details of the capital projects can be found in the Capital Additions section of this document Proposed Annual Budget Proposed Annual Budget

24 Budget Contingency The budget includes a contingency appropriation of $25 million, representing a $5 million increase over the 2017 Budget. Historically, contingency was a fixed amount. Beginning in 2018 and going forward, the amount will represent approximately 10 percent of the operating expenses and capital additions to better align with fluctuations in the budget. The contingency can be used to meet unexpected expenditures that could not be foreseen at the time the budget was prepared. Events that may require the use of the contingency include unplanned generation or transmission outages, significant increases in power market or natural gas prices, unplanned expenses to maintain power supply to the municipalities, or the adoption of an accounting policy which impacts expenditures. It may also be used for existing capital projects that require expenditures above those budgeted as the result of scheduling changes, payment timing differences, changes in work scope, price fluctuations, or new projects the board of directors deem important to be started before the next budget year. The contingency has been used four out of the last nine years and a contingency transfer is expected in 2017 for capital projects. Prior to transferring contingency to an expense category, staff must notify the board of directors of the reason for the transfer and present a resolution proposed for adoption. Contingency Appropriation Appropriated Year Budget ($000) Amount ($000) % Purpose 2008 $20, $20, $20,000 $6,000 30% 2011 $20,000 $5,407 27% 2012 $20, $20, $20, $20,000 $6,640 33% 2016 $20,000 $1,200 6% 2017 $20,000 - (1) - Additional expenditures for timing changes related to the 230kV transmission expansion capital projects. Cost overruns for the 230kV transmission capital projects. Additional expenditures for several capital projects including the Craig Unit 2 NOx removal, the fiber route to Estes Park, and the control room for the digital control system, as well as ancillary services related to additional wind generation. Additional expenditures for the initial progress payments for the generator rotor replacement project and the generator stator rewind project to be completed during the 2018 planned maintenance outage. (1) Contingency transfer for capital projects are projected to be requested at the December 2017 Board of Directors meeting Proposed Annual Budget 17 17

25 Source and Use of Funds Source of Funds Actual Budget Estimate Budget Operating revenues Municipal sales $ 185,213,723 $ 191,943,294 $ 190,819,041 $ 197,072,600 Surplus sales - short-term 15,769,400 18,638,431 18,102,921 16,416,800 Wheeling 4,310,104 4,666,968 4,692,330 4,620,236 Total operating revenues 205,293, ,248, ,614, ,109,636 Other revenues Interest income 1,074,864 1,208,492 1,378,634 2,113,550 Other income 846, , , ,629 Total other revenues 1,920,896 1,706,044 1,883,866 2,369,179 Total revenues 207,214, ,954, ,498, ,478,815 Funds from prior reserves and debt financing 15,185,419 54,551,058 30,475,153 71,737,665 Total Sources $ 222,399,542 $ 271,505,795 $ 245,973,311 $ 292,216,480 Use of Funds Operating expenses Purchased power $ 33,270,508 $ 35,430,832 $ 35,435,186 $ 34,173,236 Fuel 46,360,663 48,800,015 48,761,416 47,691,528 Production 44,631,912 49,402,477 50,508,505 45,204,785 Transmission 12,797,626 16,186,652 15,113,154 16,829,620 Administrative and general 17,365,740 22,036,208 21,453,126 24,741,607 Total operating expenses 154,426, ,856, ,271, ,640,776 Debt service expenditures Principal 20,660,415 18,317,504 18,317,504 12,162,085 Interest expense 10,065,756 9,582,070 9,582,067 10,946,142 Allowance for funds used during construction (1,137,163) (560,009) (960,992) (2,835,851) Total debt service expenditures 29,589,008 27,339,565 26,938,579 20,272,376 Capital additions Production 19,962,784 27,479,045 28,701,048 42,048,513 Transmission 13,030,897 12,519,887 11,270,212 3,270,863 General 5,390,404 12,311,114 7,792,085 32,983,952 Total capital additions 38,384,085 52,310,046 47,763,345 78,303,328 Total expenditures 222,399, ,505, ,973, ,216,480 Contingency appropriation - 20,000,000-25,000,000 Total Uses $ 222,399,542 $ 271,505,795 $ 245,973,311 $ 292,216,480 (1) Excludes projections for contingency transfer for capital projects to be requested at the December 2017 Board of Directors meeting. (1) (1) Proposed Annual Budget

26 Revenues and Expenditures $ Millions $207.2 $217.0 $215.5 $ Actual 2017 Budget 2017 Estimate 2018 Budget Operating Expenses Debt Service Expenditures Capital Additions Revenues _ Source and Use of Funds Funds from Prior Reserves and Debt Financing 24% Surplus Sales Shortterm 6% Wheeling 2% Interest and Other Income 1% Municipal Sales 67% 2018 Sources Municipal Sales $ 197,072,600 Surplus Sales - Short-term 16,416,800 Wheeling 4,620,236 Interest and Other Income 2,369,179 Total Revenues $ 220,478,815 Funds from Prior Reserves and Debt Financing 71,737,665 Total Sources $ 292,216,480 Administrative & General 8% Board Contingency 9% Debt Service Expenditures 7% Purchased Power 12% Transmission 6% Production 15% Capital Additions 27% Fuel 16% 2018 Uses Capital Additions $ 78,303,328 Fuel 47,691,528 Production 45,204,785 Purchased Power 34,173,236 Administrative & General 24,741,607 Debt Service Expenditures 20,272,376 Transmission 16,829,620 Total Expenditures $ 267,216,480 Board Contingency 25,000,000 Total Uses $ 292,216, Proposed Annual Budget 19

27 Revenue and Expenditure Detail Actual Budget Estimate Budget REVENUES Municipal sales $ 185,213,723 $ 191,943,294 $ 190,819,041 $ 197,072,600 Surplus sales - short-term 15,769,400 18,638,431 18,102,921 16,416,800 Wheeling 4,310,104 4,666,968 4,692,330 4,620,236 Interest income 1,074,864 1,208,492 1,378,634 2,113,550 Other income 846, , , ,629 Total Revenues 207,214, ,954, ,498, ,478,815 Funds from prior reserves and debt financing 15,185,419 54,551,058 30,475,153 71,737,665 Total Revenues and Prior Funds $ 222,399,542 $ 271,505,795 $ 245,973,311 $ 292,216,480 EXPENDITURES Personnel Expenses Salaries Regular wages $ 24,176,734 $ 26,401,730 $ 25,505,246 $ 27,591,932 Overtime wages 1,374,135 1,481,864 1,515,222 2,072,701 Total Salaries 25,550,869 27,883,594 27,020,468 29,664,633 Benefits Pension - defined contribution 662, , , ,000 Pension - defined benefit 3,284,063 5,070,351 5,070,351 4,679,368 Social security 1,828,472 2,078,898 2,013,698 2,195,792 Long-term disability 151, , , ,000 Medical and dental 3,189,366 3,567,600 3,640,444 3,684,996 Recruiting 127, , , ,000 Life insurance 146, , , ,000 Accidental death 20,258 22,000 21,353 22,000 Workers' compensation 193, , , ,000 Unemployment compensation 33 10,000 2,528 10,000 Salary and pension services 321, , , ,477 Total Benefits 9,926,463 12,818,188 12,637,047 12,624,633 Total Personnel Expenses 35,477,332 40,701,782 39,657,515 42,289,266 Less charged to capital and other 1,879,586 2,245,899 1,459,051 2,103,261 Total Operating Personnel Expenses 33,597,746 38,455,883 38,198,464 40,186,005 Materials and Expenses Office expenses 5,113 69,680 63,704 70,960 Safety expenses 167, , , ,420 Furniture and equipment 91,530 90,200 79,424 85,300 Local business expense 193, , , ,158 Postage and deliveries 24,003 35,760 28,919 35,368 Rawhide O&M materials 3,454,457 4,550,278 4,513,561 5,957,041 Other O&M materials 354, , , ,338 Rawhide coal 29,280,094 30,316,596 28,892,510 28,524,006 Yampa coal 14,706,397 17,163,314 17,615,258 17,846,329 Oil 111, , , , Proposed Annual Budget

28 Actual Budget Estimate Budget Materials and Expenses (continued) Natural gas (Rawhide A, B, C, D, and F) $ 1,574,347 $ 226,985 $ 1,282,579 $ 301,971 Natural gas (Craig startup) 117, ,000 81, ,000 Gasoline and diesel 135, , , ,160 Tools, shop, and garage equipment 126, , , ,150 Purchased power 32,089,297 34,557,525 34,561,879 36,263,389 Yampa operating expenses 11,234,637 13,136,985 12,938,571 10,372,409 Computer equipment 365, , , ,400 Wheeling expense 4,165,322 4,684,213 4,385,507 4,599,330 Outage accrual 3,794,450 5,293,948 5,293,948 (9,124,033) Total Materials and Expenses 101,992, ,906, ,292,622 96,543,696 Contractual Services Rawhide contracted services 3,811,200 4,200,586 5,601,458 13,187,847 Other contracted services 4,970,843 8,026,852 7,395,159 7,434,707 Insurance 1,165,758 1,224,800 1,176,462 1,205,900 Travel and training 718, , , ,008 Telephone services 184, , , ,354 Utilities 531, , , ,194 Dues, memberships, and fees 592, , , ,690 Trustees fees 30,134 36,536 37,835 43,748 Water leases and rents 3,443, , , ,825 Other leases and rents 92,794 98, , ,206 Economic development 60,000 60,000 60,000 60,000 Fiscal impact payment 61,099 61,099 61,099 61,099 Energy efficiency - rebates/incentives 3,137,113 4,450,000 4,454,984 6,498,000 Demand response - rebates/incentives - 321,846 83, ,957 Total Contractual Services 18,797,870 21,450,362 21,753,911 31,867,535 Financing Expenses Principal 20,660,415 18,317,504 18,317,504 12,162,085 Interest expense 10,065,756 9,582,070 9,582,067 10,946,142 Allowance for funds used during construction (1,137,163) (560,009) (960,992) (2,835,851) Other financing expenses 38,201 43,600 26,390 43,540 Total Financing Expenses 29,627,209 27,383,165 26,964,969 20,315,916 Capital Additions Personnel expenses 1,639,520 1,963,957 1,636,725 1,748,764 Capital expenditures 36,955,149 50,169,566 46,736,566 73,773,713 Capital reimbursements and trade-in value (1,347,747) (383,486) (1,570,938) (55,000) Allowance for funds used during construction 1,137, , ,992 2,835,851 Total Capital Additions 38,384,085 (1) 52,310,046 47,763,345 78,303,328 Total Expenditures 222,399, ,505, ,973, ,216,480 (1) Contingency appropriation - 20,000,000-25,000,000 Total Expenditures and Contingency $ 222,399,542 $ 271,505,795 $ 245,973,311 $ 292,216,480 (1) Excludes projections for contingency transfer for capital projects to be requested at the December 2017 Board of Directors meeting Proposed Annual Budget 21

29 Electric System Resources Power Resources Platte River s power resources include generation from coal and natural gas units, allocations of federal hydropower from WAPA, wind and solar purchases, spot market purchases, and a forced outage exchange agreement. Coal Coal-fired generation includes Rawhide Unit 1 (280 MW), located 25 miles north of Fort Collins, and 18 percent ownership in Craig Units 1 and 2 (154 MW combined), located in northwest Colorado. Natural Gas Gas-fired combustion turbines located at Rawhide Energy Station (Rawhide) include five simple cycle combustion turbines, which includes four GE 7EAs (65 MW each) and a GE 7FA (128 MW). The combustion turbines are utilized to meet peak load demand, to provide reserves during outages of the coal-fired units, and to make short-term surplus sales. Hydropower Hydropower is received under two long-term contracts with WAPA. Colorado River Storage Project (CRSP) contract rate of delivery amounts are 106 MW in the summer and 136 MW in the winter. Actual capacity available varies by month. During the summer season, available capacity ranges from 51 MW to 60 MW. In the winter season, available capacity ranges from 72 MW to 85 MW. Loveland Area Projects (LAP) capacity is 30 MW in the summer and 32 MW in the winter. Wind Wind generation includes 78 MW provided under long-term power purchase agreements. The agreements are for deliveries from Spring Canyon Wind Energy Center (60 MW) in Colorado, Silver Sage Windpower Project (12 MW) and Medicine Bow Wind Project (6 MW), both in Wyoming. Solar Solar generation includes 30 MW provided under a long-term power purchase agreement from the Rawhide Flats Solar facility located at Rawhide. In addition, Platte River purchases solar capacity of approximately 4 MW and 0.5 MW from Fort Collins and Loveland, respectively. For these two facilities, the municipalities retain the renewable attribute. Other Purchases Spot market purchases provide energy to satisfy loads, replacement power during outages, and reserve requirements. Forced Outage Exchange Agreement Platte River has a forced outage exchange agreement with Tri-State Generation and Transmission, Inc. (Tri-State), whereby in the event that either Rawhide Unit 1 or Tri-State s Craig Unit 3 is out of service the other utility will provide up to 100 MW of generation on a short-term basis Proposed Annual Budget

30 Generation by resource is determined utilizing an in-house market-based hourly model which incorporates resource availability, purchase power contract terms, and market-based assumptions. The table summarizes the power resources available with related generation, capacity factors, and costs to either generate or purchase energy Actual Budget Estimate Budget Power Operations Rawhide Unit 1 (280 MW) Generation (GWh) 2,218 2,292 2,228 2,056 Capacity factor 90.2% 93.4% 90.8% 83.8% Fuel cost ($/MWh) $ 13.4 $ 13.4 $ 13.2 $ 14.1 O&M cost ($/MWh) Total Rawhide ($/MWh) $ 24.3 $ 25.2 $ 25.9 $ 32.8 Craig Units 1 and 2 (154 MW) (1) Generation (GWh) Capacity factor 60.5% 59.3% 60.3% 66.1% Fuel cost ($/MWh) $ 18.4 $ 22.2 $ 22.2 $ 20.7 O&M cost ($/MWh) Total Craig ($/MWh) $ 31.8 $ 38.0 $ 37.6 $ 31.5 Combustion Turbines (388 MW) (2) Generation (GWh) Capacity factor 1.2% 0.1% 0.9% 0.2% Fuel cost ($/MWh) $ 39.2 $ 49.0 $ 42.8 $ 44.8 O&M cost ($/MWh) Total Combustion Turbines ($/MWh) $ 69.7 $ $ 86.2 $ Purchased Power WAPA-CRSP (106 MW-Summer/136 MW-Winter) (3) Generation (GWh) Capacity factor 47.3% 47.4% 48.9% 47.4% Total WAPA-CRSP ($/MWh) $ 27.1 $ 27.1 $ 26.7 $ 27.1 WAPA-LAP (30 MW-Summer/32 MW-Winter) Generation (GWh) Capacity factor 40.2% 40.3% 41.7% 40.3% Total WAPA-LAP ($/MWh) $ 39.2 $ 34.6 $ 34.1 $ 29.7 Wind (78 MW) (4) Generation (GWh) Capacity factor 46.0% 43.0% 41.7% 43.2% Total Wind ($/MWh) - Delivered $ 46.2 $ 48.7 $ 48.7 $ 49.6 Solar (30 MW) Generation (GWh) Capacity factor 12.9% 24.8% 22.3% 24.7% Total Solar ($/MWh) $ 53.5 $ 53.5 $ 53.5 $ 53.5 Solar - Municipal Programs (4.5 MW) (5) Generation (GWh) Capacity factor 17.4% 19.3% 16.6% 18.8% Total Solar - Municipal Programs ($/MWh) $ 37.7 $ 35.3 $ 33.3 $ 31.2 Other Purchases Energy (GWh) Total Other Purchases ($/MWh) $ 25.1 $ 27.1 $ 23.1 $ 24.8 (1) Craig Units 1 and 2: 77 MW each = 154 MW (2) Rawhide Units A, B, C, D = 260 MW, Rawhide Unit F = 128 MW (3) WAPA-CRSP capacity amounts shown represent the Contract Rate of Delivery. Actual capacity available varies by month. During the summer season, available capacity ranges from 51 MW to 60 MW. In the winter season, available capacity ranges from 72 MW to 85 MW. (4) Medicine Bow = 6 MW, Silver Sage = 12 MW, Spring Canyon = 60 MW (5) Solar - Fort Collins = 4 MW, Solar - Loveland = 0.5 MW; the municipalities retain the renewable attribute Proposed Annual Budget 23

31 Resources and Deliveries Total Resources = 4,087 GWh LAP 110 GWh Solar 65 GWh Forced Outage Exchange 23 GWh Combustion Turbines 7 GWh Other Purchases 130 GWh Wind 296 GWh Solar - Municipal Programs 7 GWh CRSP 502 GWh Rawhide Unit 1 2,056 GWh Craig Units 1 & GWh Total Deliveries = 4,087 GWh Surplus Short-term 724 GWh Losses and Other 77 GWh Forced Outage Exchange 23 GWh Municipalities 3,263 GWh Proposed Annual Budget

32 Operating Revenues Operating revenues of $218.1 million are anticipated during 2018, a $2.9 million increase from the 2017 Budget. Municipal sales are projected to be $197.1 million, short-term surplus sales $16.4 million, and transmission wheeling revenues $4.6 million. The municipal revenues are based on Platte River s load forecast and wholesale rates. Short-term surplus sales are for a term of one year or less and include seasonal, monthly, and hourly spot market sales. The spot market prices are based on current market projections. Wheeling revenues represent payments from other utilities for the use of Platte River s transmission system Operating Revenues ($000) Actual Budget Estimate Budget Municipal Sales $ 185,214 $ 191,943 $ 190,819 $ 197,073 Surplus Sales Short-term 15,769 18,638 18,103 16,417 Wheeling 4,310 4,667 4,692 4,620 Total Operating Revenues $ 205,293 $ 215,248 $ 213,614 $ 218,110 $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Municipal Sales Surplus Sales - Short-term Wheeling 2018 Proposed Annual Budget 25

33 Municipal Loads Platte River s long-range load forecast is developed using an econometric model that incorporates independent variables including population, employment, and weather. The forecast also includes demand and energy changes anticipated from EE programs. The 2018 Budget monthly demand and energy load projections were based on the Ten-Year Official Load Forecast resulting in an increase of 0.3 percent for billing demand and 0.9 percent for energy Municipal Loads Actual Budget Estimate Budget Summer Peak Demand (MW) Winter Peak Demand (MW) Billing Demand (MW) 6,021 6,164 6,135 6,183 Energy (GWh) 3,216 3,235 3,203 3,263 Municipalities Energy Usage GWh JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2016 Actual 2017 Estimate 2018 Budget Proposed Annual Budget

34 Wholesale Municipal Rates Platte River s General Power Bond Resolution and Power Supply Contracts with the municipalities require that wholesale rates be established to provide revenues sufficient to meet operation and maintenance costs, capital additions, and debt obligations. Additionally, wholesale rates are required to provide an earnings margin adequate to meet bond covenants and provide for the establishment and maintenance of necessary reserves. A 2 percent increase in the Tariff 1 rate to the municipalities is scheduled to take effect January 1, The renewable premium for Tariff 7 is proposed to increase 4 percent to $26 per MWh. It is estimated that the average rate to the municipalities, after the increases, would be $60.39 per MWh. In 2018, Platte River s wholesale rate will continue to be among the lowest in the region. Average Municipal Rate $/MWh $57.58 $59.33 $59.57 $ Actual 2017 Budget 2017 Estimate 2018 Budget 2018 Proposed Annual Budget 27

35 Municipal Sales Total municipal revenues in 2018 are projected to be $197.1 million, an increase of $5.1 million over the 2017 Budget. Demand revenues are projected to be $58.5 million, an increase of $1.4 million, and energy revenues are projected to be $135.9 million, an increase of $3.6 million. Municipal revenues also include $2.7 million in renewable energy premiums, an increase of $0.1 million over the 2017 Budget Actual Budget Estimate Budget Fort Collins Demand MW 2,836 2,884 2,884 2,919 Energy MWh 1,541,509 1,534,393 1,528,612 1,562,183 Demand $ 25,582,764 $ 27,326,088 $ 27,361,797 $ 28,153,169 Energy 61,924,138 62,802,329 62,536,807 64,940,863 Renewable energy premium 1,823,998 1,899,994 1,899,994 1,975,999 Total Fort Collins $ 89,330,900 $ 92,028,411 $ 91,798,598 $ 95,070,031 Longmont Demand MW 1,553 1,581 1,587 1,593 Energy MWh 812, , , ,828 Demand $ 14,098,604 $ 15,019,000 $ 15,103,665 $ 15,459,332 Energy 32,499,962 33,048,517 32,896,931 34,219,837 Renewable energy premium 519, , , ,614 Total Longmont $ 47,117,902 $ 48,608,490 $ 48,541,569 $ 50,241,783 Loveland Demand MW 1,280 1,328 1,313 1,312 Interruptible demand MW Total Demand MW 1,417 1,479 1,446 1,449 Energy MWh 639, , , ,320 Interruptible energy MWh 91, , ,414 96,720 Total Energy MWh 731, , , ,040 Demand $ 11,635,317 $ 12,643,990 $ 12,546,492 $ 12,749,973 Energy 25,615,637 26,627,899 25,921,380 26,965,215 Interruptible 4,220,351 4,466,890 4,529,181 4,235,898 Renewable energy premium 131, , , ,999 Total Loveland $ 41,603,304 $ 43,876,280 $ 43,134,554 $ 44,094,085 Estes Park Demand MW Energy MWh 131, , , ,025 Demand $ 1,871,598 $ 2,031,833 $ 2,007,246 $ 2,084,579 Energy 5,230,955 5,336,755 5,275,549 5,518,136 Renewable energy premium 59,064 61,525 61,525 63,986 Total Estes Park $ 7,161,617 $ 7,430,113 $ 7,344,320 $ 7,666, Proposed Annual Budget

36 Municipal Sales (continued) Actual Budget Estimate Budget Total Municipalities Demand MW 6,021 6,164 6,135 6,182 Energy MWh 3,124,727 3,128,163 3,099,771 3,166,356 Interruptible energy MWh 91, , ,414 96,720 Total Energy MWh 3,216,471 3,235,257 3,203,185 3,263,076 Demand $ 53,188,283 $ 57,020,911 $ 57,019,200 $ 58,447,053 Energy Energy 125,270, ,815, ,630, ,644,051 Interruptible 4,220,351 4,466,890 4,529,181 4,235,898 Total Energy 129,491, ,282, ,159, ,879,949 Renewable energy premium 2,534,397 2,639,993 2,639,993 2,745,598 Total Municipal Sales $ 185,213,723 $ 191,943,294 $ 190,819,041 $ 197,072,600 Surplus Sales and Other Electric Revenue Total surplus sales and other electric revenues for 2018 are projected to be $21 million, a decrease of $2.3 million from the 2017 Budget. The budget includes short-term surplus sales of $16.4 million and wheeling revenues of $4.6 million Actual Budget Estimate Budget Surplus Sales $ 15,769,400 $ 18,638,431 $ 18,102,921 $ 16,416,800 Wheeling Revenue 4,310,104 4,666,968 4,692,330 4,620,236 Total Surplus and Wheeling $ 20,079,504 $ 23,305,399 $ 22,795,251 $ 21,037,036 $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Surplus Sales Wheeling Revenue 2018 Proposed Annual Budget 29

37 Surplus Sales Short-term surplus sales are projected to be $16.4 million, a decrease of $2.2 million. Energy to be sold will be less as a result of lower generation due to the planned maintenance outage of Rawhide Unit 1 and a continued soft surplus sales market. The estimated average short-term sales price is $22.67 per MWh versus $23.38 per MWh included in the 2017 Budget. The short-term surplus energy sales represent 724 GWh, a decrease of 9 percent Surplus Sales Actual Budget Estimate Budget Surplus Sales ($000) $ 15,769 $ 18,638 $ 18,103 $ 16,417 Short-term Energy (GWh) Average Price ($/MWh) $ $ $ $ Wheeling Revenues Platte River charges other utilities for the use of its transmission system per Tariff Schedule 4: Wholesale Transmission Service (Tariff 4). The wheeling revenues include charges for network transmission service for delivery to various Xcel Energy and Tri-State substations over Platte River s transmission system. The transmission system usage rates are adjusted annually based on the prior year s actual transmission system costs and loads. Also included is a long-term contract with PacifiCorp for 29 MW of capacity on the Craig-Bonanza transmission line. Wheeling revenues are projected to be $4.6 million, a decrease of $0.1 million. The decrease is based on a lower load projection received from Tri-State and a reduced Tariff 4 rate Wheeling Revenues ($000) Actual Budget Estimate Budget Craig-Bonanza $ 918 $ 910 $ 918 $ 916 Network and Other 3,392 3,757 3,774 3,704 Total Wheeling Revenues $ 4,310 $ 4,667 $ 4,692 $ 4, Proposed Annual Budget

38 Other Revenues Interest and Other Income Interest and other income of $2.4 million is anticipated for 2018, an increase of $0.7 million over the 2017 Budget. Interest income is estimated to be $2.1 million. This is a $0.9 million increase due to a projected increase in interest rates. Other income of $0.3 million includes fiber and tower leases, in addition to other miscellaneous revenues and is $0.2 million less than the 2017 Budget due to the expiration of a water lease to a local municipality. Interest and Other Income ($000) Actual Budget Estimate Budget Interest Income $ 1,075 $ 1,208 $ 1,379 $ 2,113 Other Income Total Interest and Other Income $ 1,921 $ 1,706 $ 1,884 $ 2,369 $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Interest Income Other Income 2018 Proposed Annual Budget 31

39 Operating Expenses Operating expenses to perform the operations of generating and delivering electricity include purchased power, fuel, production, transmission, and administrative and general expenses. Total operating expenses in 2018 are estimated to be $168.6 million, a decrease of $3.2 million from the 2017 Budget. Decreases in production, purchased power, and fuel are partially offset by increases in administrative and general and transmission expenses Operating Expenses ($000) Actual Budget Estimate Budget Purchased Power $ 33,270 $ 35,431 $ 35,435 $ 34,173 Fuel 46,360 48,800 48,761 47,692 Production 44,632 49,402 50,509 45,205 Transmission 12,798 16,187 15,113 16,830 Administrative and General 17,366 22,036 21,453 24,741 Total Operating Expenses $ 154,426 $ 171,856 $ 171,271 $ 168,641 $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Purchased Power Fuel Production Transmission Administrative and General Proposed Annual Budget

40 Purchased Power Purchased power includes purchases made under long-term contracts for hydropower, wind energy, solar energy, and renewable energy credits. Spot market purchases provide energy to satisfy loads, replacement power during outages, and reserve requirements. An accrual for estimated future replacement power costs during specified maintenance outages is also included. Total purchased power is projected to be $34.2 million in 2018, a decrease of $1.3 million from the 2017 Budget. Purchases of $5.2 million are required to replace power during outages, meet peak loads, and purchase reserves. This is an increase of $2 million mainly due to an increase in purchases to serve load requirements during the Rawhide Unit 1 planned maintenance outage. Purchased reserves are decreasing mainly due to a tariff rate reduction in the supplemental reserve charge related to wind integration. The replacement power outage accrual includes a reversal of $2.1 million to offset the replacement power required for the Rawhide Unit 1 planned maintenance outage. During 2018, $16.9 million in hydropower will be purchased from WAPA to meet a portion of the municipalities load requirements. WAPA-LAP is proposing a rate reduction for removal of the drought adder, resulting in a $0.5 million decrease. Wind purchases are projected to be $9.9 million, an increase of $0.4 million based on price escalations from the long-term power purchase agreements. Wind is purchased from the following facilities: Spring Canyon of $7 million, Silver Sage of $2.2 million, and Medicine Bow of $0.7 million. Solar purchases include $3.5 million from the long-term power purchase agreement for the Rawhide Flats Solar facility. In addition, $0.2 million is planned to be purchased from the Fort Collins and Loveland solar programs. Renewable energy credits are $0.6 million, which is a slight decrease from the 2017 Budget Proposed Annual Annual Budget Budget 33 33

41 Purchased Power Actual Budget Estimate Budget WAPA Purchased Power Loveland Area Projects (LAP) Demand (kw-mo) 372, , , ,606 Demand $ $ 2,023,251 $ 1,784,784 $ 1,784,784 $ 1,535,136 Energy (kwh) 109,536, ,536, ,136, ,536,421 Energy $ $ 2,268,499 $ 2,002,326 $ 2,068,134 $ 1,721,911 Total LAP $ 4,291,750 $ 3,787,110 $ 3,852,918 $ 3,257,047 Colorado River Storage Project (CRSP) Demand (kw-mo) 1,450,002 1,450,002 1,450,002 1,450,002 Demand $ $ 7,511,010 $ 7,511,010 $ 7,511,010 $ 7,511,010 Energy (kwh) 502,466, ,466, ,890, ,466,838 Energy $ $ 6,125,071 $ 6,125,071 $ 6,313,079 $ 6,125,071 Total CRSP $ 13,636,081 $ 13,636,081 $ 13,824,089 $ 13,636,081 Total WAPA $ 17,927,831 $ 17,423,191 $ 17,677,007 $ 16,893,128 Other Purchases Energy (kwh) 67,074,000 39,267,721 78,919, ,920,181 Energy $ $ 1,685,570 $ 1,062,925 $ 1,823,050 $ 3,214,891 Reserves $ $ 2,181,284 $ 2,153,387 $ 1,929,022 $ 1,992,030 Total Other Purchases $ 3,866,854 $ 3,216,312 $ 3,752,072 $ 5,206,921 Wind Energy (kwh) 314,911, ,044, ,783, ,406,316 Energy $ $ 9,924,660 $ 9,553,277 $ 9,224,121 $ 9,911,267 Solar Energy (kwh) 11,305,464 65,184,776 58,485,255 64,858,619 Energy $ $ 604,268 $ 3,484,128 $ 3,126,023 $ 3,466,693 Solar - Municipal Programs Energy (kwh) 6,227,770 7,604,196 6,544,884 7,404,439 Energy $ $ 234,693 $ 268,428 $ 217,935 $ 231,068 Forced Outage Exchange $ (978,657) $ - $ (28,375) $ - Other Power Charges $ (11,171) $ 24,000 $ 4,907 $ - Renewable Energy Credits $ 520,819 $ 588,189 $ 588,189 $ 554,312 Replacement Power Outage Accrual $ 1,181,211 $ 873,307 $ 873,307 $ (2,090,153) Total Purchased Power $ 33,270,508 $ 35,430,832 $ 35,435,186 $ 34,173, Proposed Annual Budget

42 Purchased Power $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget LAP CRSP Wind Solar Solar - Municipal Programs Renewable Energy Credits Other & Exchange Outage Accrual Energy Purchased GWh 1,200 1, Actual 2017 Budget 2017 Estimate 2018 Budget LAP CRSP Wind Solar Solar - Municipal Programs Other 2018 Proposed Annual Budget 35

43 Fuel Fuel expense includes coal purchased for Rawhide Unit 1, Craig Units 1 and 2, and natural gas expense for the combustion turbines. Rawhide Unit 1 coal is purchased under a long-term market based contract with Cloud Peak Energy. Coal for the Craig units for 2018 is purchased under the long-term contract with Trapper Mining, Inc. Prior to 2018, coal was also purchased under a long-term contract with Colowyo Coal Company which will expire at the end of Natural gas is purchased at market prices as needed. Total fuel expense is forecasted to be $47.7 million, a decrease of $1.1 million. Fuel expenses are decreasing $1.9 million for Rawhide Unit 1, mainly due to lower generation as a result of the planned Rawhide Unit 1 maintenance outage. Pricing is increasing 5 percent per ton based on market pricing. The Craig facilities fuel expenses are increasing $0.7 million as higher generation is expected due to the completion of the Craig Unit 2 eight-week planned maintenance outage in However, a continued soft surplus sales market is expected to continue. Delivered coal pricing for the Craig units is decreasing by 7 percent. Lower prices per ton are driven by fixed costs recovered over an increase in tons mined. Natural gas for the combustion turbines is increasing $0.1 million as a result of higher generation due to market-based model projections and the planned maintenance outage. The delivered gas price is $3.35 per MBtu, a 7 percent decrease from the 2017 Budget, which is also based on current third party market projections Actual Budget Estimate Budget Rawhide Unit 1 Coal burned MBtu 22,418,027 23,191,964 22,585,060 20,810,227 $/MBtu $ 1.30 $ 1.30 $ 1.27 $ 1.37 Coal expense $ 29,054,021 $ 30,074,096 $ 28,670,422 $ 28,503,506 Car lease and other 226, , ,088 20,500 Oil 99,889 95, , ,000 Fuel ash disposal (46,000) Fuel handling 281, , , ,413 Testing and analysis 41,085 51,665 40, ,000 Total Rawhide Unit 1 $ 29,702,592 $ 30,832,588 $ 29,371,934 $ 28,945,419 Craig Units 1 and 2 Coal burned MBtu 8,352,431 8,157,145 8,191,342 9,093,194 $/MBtu $ 1.76 $ 2.10 $ 2.15 $ 1.96 Coal expense $ 14,723,302 $ 17,134,293 $ 17,610,733 $ 17,846,329 Trapper post-mining reclamation (16,905) 29,021 4,523 - Oil 11,725 20,000 19,932 15,000 Natural gas 117, ,000 81, ,000 Fuel handling 248, , , ,809 Total Craig Units 1 and 2 $ 15,083,724 $ 17,740,442 $ 18,106,902 $ 18,444,138 Rawhide Units A, B, C, D, and F Gas burned MBtu 478,392 56, ,834 83,379 $/MBtu $ 3.28 $ 3.58 $ 3.46 $ 3.35 Natural gas expense $ 1,569,553 $ 203,666 $ 1,268,002 $ 279,085 Other gas expense 4,794 23,319 14,578 22,886 Total Natural Gas $ 1,574,347 $ 226,985 $ 1,282,580 $ 301,971 Total Fuel $ 46,360,663 $ 48,800,015 $ 48,761,416 $ 47,691, Proposed Annual Budget

44 Fuel $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Rawhide Unit 1 Craig Units 1 and 2 Combustion Turbines Fuel Unit Cost Per MBtu $/MBtu Actual 2017 Budget 2017 Estimate 2018 Budget Rawhide Unit 1 Craig Units 1 and 2 Combustion Turbines 2018 Proposed Annual Budget 37

45 Production Production expenses include operating and maintenance expenses (excluding fuel) incurred at the Rawhide generating station, Craig generating stations, and power operations. Total 2018 budgeted production expenses of $45.2 million reflect a decrease of $4.2 million from the 2017 Budget. Rawhide Unit 1 expenses are projected to be $31.4 million, the same as the 2017 Budget. There are several items impacting Rawhide Unit 1 in The Rawhide Unit 1 maintenance outage is scheduled for six weeks in the fall of The size and scope of the outage is nearly as extensive as the last major outage in It is not common for Rawhide to have sixweek outages in consecutive outage seasons. The main reason for the six-week schedule is the duration requirements of the turbine generator upgrade and the bottom ash replacement projects. These two projects are the largest in scope, complexity, and cost. Other projects include the upgrade of several high voltage motor control centers, the replacement of the 102 feed water heater, replacement of the air pre-heater baskets, and an upgrade to the voltage regulator system. In addition to these major projects, there will be extensive repair and replacement work in the back pass section of the boiler. This work is very labor intensive and will require a great deal of coordination to complete. Other major activities include the overhaul of the turbine valves, extensive inspections of the boiler, burners, cleaning and inspection of critical motors, replacement of a critical boiler feed pump and condensate components, cleaning and inspection of all ductwork, inspections and repairs of the spray dryer absorber equipment and bag house, inspections of the circulating water system and condenser, as well as other outage related inspections and repairs. Total capital projects for the outage are estimated to be approximately $33.7 million. The total cost of the operations and maintenance expenses are projected to be approximately $12.9 million. Accrual of 100 percent of future major outage maintenance costs was previously approved by the board of directors to help stabilize wholesale rates to the municipalities, thus reducing the impact on expenses in the year of the outage. After the outage, the ash ponds will no longer be used and are planned for closure in the first quarter of 2019 due to federal and state solid waste management regulations. The 2018 accrued expense is $1.1 million. Other increases in expenses include personnel expenses, other environmental expenses for waste management, and a building wall and reinforcement restoration project. Partially offsetting these increases are decreases in expenses related to the 2017 planned maintenance outage, finalizing the document conversion project, and a reduction in chemical usage due to the outage and process changes. Other expenses for non-routine projects and ongoing operations and maintenance were also reduced from the 2017 Budget. Craig Units 1 and 2 expenses total $9.6 million, a decrease of $3 million mainly as a result of the planned maintenance outage that occurred in Production expenses for the combustion turbines are projected to be $1.3 million, $0.1 million less than the 2017 Budget, mainly due to personnel expenses. Power operations expenses are $2.9 million, which are down $1.2 million primarily due to moving SCADA services from a production function to a transmission function for proper classification. Expenses are planned in 2018 for software and training in preparation of entering an organized energy market Proposed Annual Budget

46 Production Actual Budget Estimate Budget Rawhide Unit 1 Personnel Expenses Regular wages $ 9,220,311 $ 9,924,789 $ 9,883,646 $ 10,410,716 Overtime wages 842, , ,396 1,325,339 Benefits allocation 3,826,081 4,900,664 5,056,911 4,879,399 Total Personnel Expenses 13,889,021 15,621,655 15,850,953 16,615,454 Operations and Expenses Office expenses 22,322 28,350 23,896 83,700 Safety expenses 87, , , ,300 Local business expense 14,612 16,100 12,309 36,800 Postage and deliveries 5,996 10,560 7,058 14,068 O&M materials and supplies 3,630,817 4,756,063 4,714,529 6,181,271 Gasoline and diesel 79,186 98,020 77, ,600 Tools and shop equipment 66,663 80,550 95,218 84,550 Computer equipment 107,833 86,240 93,986 93,200 Total Operations and Expenses 4,015,050 5,178,283 5,125,256 6,747,489 Contractual Services Contracted services 3,770,114 4,148,921 5,522,056 13,082,847 Insurance 474, , , ,100 Travel and training expenses 187, , , ,408 Telephone services 58,224 58,804 60,634 60,974 Utilities 394, , , ,320 Dues, memberships, and fees 45,957 42,435 39,405 49,347 Outage accrual 2,613,239 4,420,641 4,420,641 (7,033,880) Total Contractual Services 7,544,470 9,841,186 11,162,864 7,343,116 Windy Gap Nonallocable expenses 2,052, Rawhide operating portion 1,398, , , ,825 Total Windy Gap 3,451, , , ,825 Total Rawhide Unit 1 Production 28,899,623 31,376,369 32,816,909 31,422,884 Craig Units 1 and 2 Yampa operating expenses 10,865,640 12,549,271 12,443,409 9,569,069 Fiscal impact payment 61,099 61,099 61,099 61,099 Total Craig Units 1 and 2 Production 10,926,739 12,610,370 12,504,508 9,630,168 Total Thermal Production 39,826,362 43,986,739 45,321,417 41,053,052 Rawhide Units A, B, C, D, and F Regular wages 396, , , ,135 Overtime wages 51,660 45,150 45,606 43,315 Benefits allocation 170, , , ,319 O&M materials and supplies 151, , , ,395 Contracted services 192, , , ,627 Insurance 258, , , ,300 Travel and training expenses - 8,500 8,676 18,000 Telephone services Utilities 1,823 2,000 1,982 2,000 Dues, memberships, and fees 1,040 1,040 5,945 6,000 Total Rawhide Units A-D, and F Production 1,224,050 1,375,159 1,301,504 1,272, Proposed Annual Budget 39

47 Production (continued) Actual Budget Estimate Budget Power Operations Expenses Regular wages $ 2,214,781 $ 2,268,049 $ 2,238,959 $ 1,762,457 Overtime wages 43,971 89,784 72,080 61,924 Benefits allocation 851,694 1,069,049 1,020, ,134 Local business expense 4,222 3,784 2,531 2,000 O&M materials and supplies 2,287 2,500 10,790 2,000 Yampa operating expenses 24,985 35,393 20,246 34,764 Computer equipment 42, ,970 52,088 - Contracted services 315, , , ,182 Travel and training expenses 65,581 71,773 65,362 54,350 Telephone expenses 16,443 16,660 16,993 16,056 Dues, memberships, and fees 200 1, ,175 Total Power Operations Expenses 3,581,500 4,040,579 3,885,584 2,879,042 Total Production $ 44,631,912 $ 49,402,477 $ 50,508,505 $ 45,204,785 Generation Output GWh 3,500 3,000 2,500 2,000 1,500 1, Actual 2017 Budget 2017 Estimate 2018 Budget Rawhide Unit 1 Craig Units 1 and 2 Combustion Turbines Production $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Rawhide Unit 1 Craig Units 1 and 2 Combustion Turbines Power Operations Proposed Annual Budget

48 Transmission Transmission expenses include all operations and maintenance expenses incurred on Platte River s regional transmission system, Platte River s share of operating and maintaining jointly owned transmission facilities, ancillary services for regulation of wind and solar, and wheeling expenses paid to WAPA and/or others. Platte River s share of joint ownership projects include costs for the Ault-Fort St. Vrain, Craig-Bonanza, Hayden-Blue River, Craig-Ault transmission lines, and the Yampa Project transmission costs. The joint ownership project budgets were developed by the operating agents and approved by the participants through the engineering and operating committees. The 2018 budgeted transmission expenses total $16.8 million, reflecting an increase of $0.6 million. Personnel expenses are increasing $1.4 million primarily as a result of a reclassification of SCADA expenses from a production function to a transmission function for proper classification. Further, more wages are allocated to operations and maintenance and less to capital projects in A new position for a SCADA supervisor is also included. The Yampa Project s transmission expenses are increasing $0.2 million for planned work on the transmission lines. The water line near the Longmont Northeast Substation is planned to be completed in 2018 for $0.1 million, a reduction of $0.4 million from 2017 when the project was started. Joint facilities expenses are planned for $0.2 million mainly for compliance vegetation management, a reduction of $0.3 million to better align expenses with actual spend. WAPA s Craig-Ault transmission line outage continues into 2018, but for a shorter period of time. As a result, wheeling expenses are less than the 2017 Budget by $0.1 million. Ongoing operations and maintenance expenses are planned to decrease $0.2 million Actual Budget Estimate Budget Personnel Expenses Regular wages $ 3,465,723 $ 4,140,187 $ 4,029,975 $ 5,201,206 Overtime wages 265, , , ,660 Benefits allocation 1,417,755 2,027,980 2,020,670 2,295,244 Total Personnel Expenses 5,148,927 6,481,928 6,342,304 7,845,110 Materials and Expenses Office supplies 4,587 9,000 10,578 9,000 Safety expenses 6,376 12,805 10,723 9,270 Local business expense 8,675 8,204 8,885 10,100 Postage and deliveries 3,968 5,700 7,773 5,300 O&M materials and supplies 188, , , ,866 Gasoline and diesel 32,122 32,000 27,459 32,100 Tools and shop equipment 48,372 33,200 23,696 32,000 Computer equipment - 2, ,900 Total Materials and Expenses 293, , , ,536 Contractual Services Contracted services 2,418,170 3,656,602 3,228,490 3,021,502 Travel and training expenses 102, ,032 97, ,270 Telephone services 56,900 55,649 53,572 58,306 Utilities 17,224 19,964 15,592 14,070 Dues, memberships, and fees 406, , , ,367 Leases and rents 92,794 98, , ,134 Yampa transmission expenses 95, ,421 98, ,995 Total Contractual Services 3,190,323 4,517,445 4,024,034 4,046,644 Total Transmission 8,632,304 11,502,439 10,727,647 12,230,290 Transmission by Others Wheeling expense 4,165,322 4,684,213 4,385,507 4,599,330 Total Transmission $ 12,797,626 $ 16,186,652 $ 15,113,154 $ 16,829, Proposed Annual Budget 41

49 Transmission $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Personnel Expenses Materials and Expenses Contractual Services Wheeling Proposed Annual Budget

50 Administrative and General Administrative and general expenses include all expenses incurred that are not directly allocated to capital or assignable to fuel, production, or transmission expenses. These expenses are budgeted by operations, maintenance, and DSM functions. The 2018 Budget projects administrative and general expenses to be $24.7 million, an increase of $2.7 million. The DSM budget is increasing $2.2 million to $7.9 million in accordance with the Strategic Plan, Integrated Resources Plan, and Demand Side Management Energy Efficiency Funding Policy. This budget includes EE programs and DER programs. Personnel expenses are increasing $0.5 million mainly due to the proposed market adjustment and step increases. Other expenses represent a net increase of $0.2 million mainly for consulting services related to the organized energy market, information technology, rate development, budget analysis, and a marketing and communications plan. If an organized energy market moves forward, the modeling software will be enhanced to accommodate the new business model. Partially offsetting this increase is a reduction in facilities maintenance expenses with a focus on the Headquarters Campus Project. Expenses of $0.2 million were removed for the marketing and development of the community solar program as the details of the program are worked through Actual Budget Estimate Budget Operations Personnel expenses Regular wages $ 7,408,147 $ 7,880,075 $ 7,729,120 $ 8,429,747 Overtime wages 41,938 28,640 40,072 33,000 Benefits allocation 2,838,929 3,593,606 3,609,147 3,550,464 Total Personnel Expenses 10,289,014 11,502,321 11,378,339 12,013,211 Office Operations and Expenses Office expenses (23,884) 23,430 26,430 30,460 Furniture and equipment 89,322 79,600 70,480 18,500 Local business expenses 83,559 88,944 68,689 69,758 Postage and deliveries 13,290 16,500 12,004 15,000 Gasoline and diesel 24,004 17,400 19,284 23,460 Computer equipment 215, , , ,300 Total Office Operations and Expenses 401, , , ,478 Safety and Training Expenses Safety expenses 7,125 8,300 7,412 35,300 Local business 700 2, ,000 Contracted services 5,248 1,450 1,349 24,200 Dues, memberships, and fees 910 1, Wellness and incentive program 120, , , ,550 Travel and training expenses 296, , , ,830 Total Safety and Training Expenses 430, , , ,780 Contractual Services Contracted services 437, , , ,249 Travel and training expenses 58,078 70,440 59,674 86,150 Telephone services 34,479 33,804 33,889 35,469 Utilities 117, , , ,804 Dues, memberships, and fees 24,633 38,920 46,310 47,188 Other financing expenses 38,200 43,600 26,390 43,540 Total Contractual Services 711, , ,705 1,058,400 Insurance 432, , , ,500 Board and Enterprise Expenses Local business expense 17,038 7,000 8,123 7,000 Travel and training expenses 4,328 23,200 17,391 27, Proposed Annual Budget 43

51 Operations (continued) Actual Budget Estimate Budget Board and Enterprise Expenses (continued) Dues, memberships, and fees $ 113,217 $ 121,425 $ 113,836 $ 142,285 Trustees fees 30,134 36,536 37,835 43,748 Economic development 60,000 60,000 60,000 60,000 Total Board and Enterprise Expenses 224, , , ,033 Reporting and Other Expenses Office expenses 2,734 9,500 3,101 4,600 Local business expenses 35,806 33,000 36,657 38,000 Contracted services 104, ,250 95, ,090 Total Reporting and Other Expenses 143, , , ,690 Planning and Customer Service Expenses Contracted services 282, , , ,421 Travel and training expenses 3,410-1,782 - Total Planning and Customer Service Expenses 285, , , ,421 Total Administrative and General Operations 12,918,704 14,694,520 14,472,636 15,271,513 Maintenance Building and Grounds Maintenance Materials and supplies 54,521 94,800 88,651 48,280 Tools and shop equipment 4,655 7,100 7,992 12,200 Contracted services 369, , , ,310 Total Buildings and Grounds Maintenance 429, , , ,790 Computer Maintenance Contracted services 641, ,541 1,010,581 1,154,491 Total Computer Maintenance 641, ,541 1,010,581 1,154,491 Office Equipment Maintenance Contracted services 749 3,000 2,083 1,000 Telephone services 17,436 15,641 19,650 17,949 Total Office Equipment Maintenance 18,185 18,641 21,733 18,949 Vehicle Maintenance Materials and supplies 18,352 14,400 16,024 20,400 Tools and shop equipment 137 3,000 1,250 6,000 Contracted services 8,514 10,000 10,782 59,100 Total Vehicle Maintenance 27,003 27,400 28,056 85,500 Security Maintenance Materials and supplies 26,604 8,300 20,207 11,200 Tools and shop equipment 6,769 2,400 2,895 2,400 Contracted services 44, , ,310 64,335 Total Security Maintenance 78, , ,412 77,935 Total Administrative and General Maintenance 1,194,122 1,512,872 1,510,770 1,593,665 Demand Side Management Expenses Energy Efficiency Contracted services 115, , , ,472 Rebates/incentives 3,137,113 4,450,000 4,454,984 6,498,000 Total Energy Efficiency Expenses 3,252,914 5,251,970 5,251,970 7,309,472 Distributed Energy Resources (DER) Contracted services - DER - general ,000 Contracted services - DER - demand response - 55,000 47,919 35,000 Rebates/incentives - DER - demand response - 321,846 83, ,957 Contracted services - DER - electric vehicles ,000 Total Distributed Energy Resources - 376, , ,957 Total Demand Side Management Expenses 3,252,914 5,628,816 5,383,475 7,876,429 Community solar - 200,000 86,245 - Total Administrative and General $ 17,365,740 $ 22,036,208 $ 21,453,126 $ 24,741, Proposed Annual Budget

52 Administrative and General $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Personnel Expenses Operations Maintenance Demand Side Management Community Solar 2018 Proposed Annual Budget 45

53 Debt Service Expenditures The 2018 Budget includes debt service expenditures of $20.3 million, a decrease of $7.1 million from the 2017 Budget. Principal repayments are decreasing $6.2 million and interest expense is increasing $1.4 million, based on scheduled debt payments. Series GG will be paid off in 2018; however, a new debt financing of approximately $95 million is planned for 2018 and the related debt service payments represent $2.3 million of the overall debt expense. Interest during construction of approximately $2.8 million will be allocated to capital projects in 2018, an increase of $2.3 million over the 2017 Budget. The projects identified to be funded with the new debt, the Headquarters Campus Project and the Windy Gap Firming Project, will be allocated $2.1 million and the 2016 debt financing projects of Rawhide Unit 1 and transmission will be allocated $0.7 million of the interest during construction. Debt Service Expenditures ($000) Actual Budget Estimate Budget Principal $ 20,660 $ 18,318 $ 18,318 $ 12,162 Interest Expense 10,066 9,582 9,582 10,946 Power Revenue Bond Service 30,726 27,900 27,900 23,108 Allowance for Funds Used During Construction (1,137) (560) (961) (2,836) Net Debt Service Expenditures $ 29,589 $ 27,340 $ 26,939 $ 20,272 Power Revenue Bond Service $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Principal Interest Expense Proposed Annual Budget

54 Long-Term Debt Outstanding Long-term debt outstanding on December 31, 2018, is projected to be $300.5 million consisting of fixed-rate debt issued under Platte River s General Power Bond Resolution. The weighted average cost of debt during 2018 is forecast to be approximately 3.5 percent. Power Revenue Bonds Actual Budget Estimate Budget Series GG $ 30,520,000 $ 12,755,000 $ 12,755,000 $ - Series HH 8,185,000 8,085,000 8,085,000 7,985,000 Series II 31,955,000 26,270,000 26,270,000 26,170,000 Series JJ 147,230, ,230, ,230, ,605,000 Series KK (1) ,000,000 Total Power Revenue Bonds 217,890, ,340, ,340, ,760,000 Unamortized bond premium 32,948,360 29,227,725 29,227,725 25,713,536 Total Net Long-Term Debt $ 250,838,360 $ 223,567,725 $ 223,567,725 $ 300,473,536 (1) Estimated amount of Series KK debt issuance planned for Credit Ratings for Power Revenue Bonds Platte River is committed to maintaining a strong credit rating, which is a significant factor in determining cost of debt. The senior lien debt credit is rated AA by all three credit rating agencies: Moody s, Fitch, and Standard & Poor s (S&P). The key factors in determining these ratings are the diversity and economic strengths of the municipalities, Platte River s financial position, management expertise, and overall competitive position. Platte River s competitive position is determined, in part, by analyzing various financial indicators, such as wholesale rate competitiveness, debt service coverage, and various balance sheet ratios including debt-to-capitalization and working capital. Bond Issue Moody's Fitch S&P Series GG Aa2 AA AA Series HH Aa2 AA AA Series II Aa2 AA AA Series JJ - (1) AA AA (1) A credit rating was not obtained from Moody's for the Series JJ debt issuance Proposed Annual Budget 47

55 Debt Service Coverage Debt service coverage is a key indicator of financial strength and is reviewed by the credit rating agencies when assessing Platte River s credit quality. Debt service coverage is a measure of Platte River s ability to generate cash to pay bondholders. Under the General Power Bond Resolution, Platte River is required to charge wholesale electric energy rates to the municipalities that are reasonably expected to yield net revenues for the forthcoming 12-month period that are at least equal to 1.10 times total power bond service requirements. Under the General Power Bond Resolution, Platte River has established a Rate Stabilization Reserve Account. Deposits to this account are a reduction to current net revenues for purposes of computing debt service coverage. Future withdrawals will increase net revenues for purposes of computing debt service coverage and could assist Platte River, at such time, in meeting its wholesale rate covenant. Withdrawals from the reserve account have not occurred to meet debt service coverage in Platte River s history and the current Rate Stabilization Reserve Account is a balance sheet item of $20 million Actual Budget Estimate Budget Net Revenues Operating revenues $ 205,293,227 $ 215,248,693 $ 213,614,292 $ 218,109,636 Operating expenses, excluding depreciation (154,478,090) (171,856,184) (171,211,945) (168,640,776) Net operating revenues 50,815,137 43,392,509 42,402,347 49,468,860 Plus interest and other income 1,920,896 1,706,044 1,883,866 2,369,179 Net revenues before rate stabilization 52,736,033 45,098,553 44,286,213 51,838,039 Rate Stabilization Deposits Withdrawals Total net revenues $ 52,736,033 $ 45,098,553 $ 44,286,213 $ 51,838,039 Bond Service Power revenue bonds $ 30,726,171 $ 27,899,574 $ 27,899,571 $ 23,108,227 Allowance for funds used during construction (1,137,163) (560,009) (960,992) (2,835,851) Net revenue bond service $ 29,589,008 $ 27,339,565 $ 26,938,579 $ 20,272,376 Coverage Power revenue bonds 1.78x 1.65x 1.64x 2.56x Proposed Annual Budget

56 Capital Additions Capital additions are budgeted by production, transmission, and general plant functions. Capital additions include expenditures of five thousand dollars or more for property, equipment, or construction projects with an estimated useful life greater than two years. Expenditures less than five thousand dollars are reflected within the operating expense budget. In general, capital additions consist of projects aimed at improving system reliability, replacing and upgrading aging infrastructure, implementing technology improvements, and firming water resources. These projects are necessary to maintain a reliable low cost energy system. Project management continues to be a focus for The project management framework establishes guidelines for initializing, planning, executing, controlling, and closing a project. All capital and operations and maintenance projects that meet certain criteria follow this framework. This process will continue to evolve striving towards operational excellence. The 2018 capital additions total $78.3 million: $42 million for production, $3.3 million for transmission, and $33 million for general plant. In total, this represents a $26 million increase over the 2017 Budget. A portion of unspent 2017 Budget capital additions will be requested to be carried over into the 2018 Budget, which the estimated amounts are specified within each project description Capital Additions ($000) Actual Budget Estimate Budget Production $ 19,963 $ 27,479 $ 28,701 $ 42,048 Transmission 13,031 12,520 11,270 3,271 General plant 5,390 12,311 7,792 32,984 Total Capital Additions $ 38,384 $ 52,310 $ 47,763 $ 78,303 $ Millions Actual 2017 Budget 2017 Estimate 2018 Budget Production Transmission General Plant 2018 Proposed Annual Budget 49

57 Capital Additions: $78.3 Million Windy Gap Firming Project 3% Purchases 2% Compliance 2% Yampa 1% Asset Management & Maintenance 8% Major Outage (Environmental & Reliability) 43% Headquarters Campus 41% The focus of the 2018 capital additions will be outage projects and the Headquarters Campus Project. Capital additions are required to ensure reliability and compliance, improve efficiency, or because they are reaching the end of their useful life Proposed Annual Budget