2017 Colorado Phase 2 Regulatory Rate Review Frequently asked questions

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1 1 What did Black Hills Energy file? We submitted a Phase 2 Rate Review proposal to the Colorado Public Utilities Commission (PUC) to complete the two-step process of updating electric rates, which were approved by the PUC in December 2016 and implemented on Jan. 1, This Phase 2 filing is not a request for a rate increase, it is simply a plan to appropriately allocate among customer groups the revenue that was approved by the PUC in December 2016 as part of its Phase 1 filing. The proposed changes to customer bills must be approved by the PUC and are revenue-neutral, meaning they would not result in any additional revenue for Black Hills Energy. We expect any changes in bills associated with this filing will not become effective until March What is the goal of this filing? The Phase 2 filing allocates costs by customer group based on energy use by group and proposes new rates to recover the amounts previously approved by the PUC and implemented on Jan. 1, What do these costs include? When customers receive their electric bill each month, they are paying for what it costs to provide energy service. This includes the cost of building, operating and maintaining the system of power plants, wires, poles and equipment to generate and deliver electricity. This also includes the cost of compliance with state and federal environmental regulations and mandates. 4 How are costs allocated among customer groups? To arrive at the proposed Phase 2 allocation, Black Hills Energy leveraged advanced metering infrastructure (AMI), or smart meters, to accurately record customer usage every 15 minutes. Smart meters have enabled a new level of detailed data, previously not available in the rate-making process, to establish the basis for allocating energy use and associated costs to the various customer groups. 5 Does this mean the cost allocation needs to change? Yes. Smart meter data showed that residential customers, making up 90 percent of Black Hills Energy customers, are responsible for more energy use than is recovered in their current rates. As a result, other customer groups, like business customers, have been paying a disproportionally greater share of the cost of service.

2 6 How will this proposed reallocation impact customer bills? As proposed, typical residential bills are expected to increase by $2.41 per month (2.5 percent) based on an average use of 600 kilowatt-hours (kwh) Typical small-business customer bills would decrease by $48.77 per month (13.3 percent) based on an average use of 2,300 kwh. As proposed, residential customers using 500 kwh per month will see no change to monthly bills. Rate Class Typical monthly usage (kwh) Current monthly bill Proposed Phase II monthly bill Monthly increase (decrease) Monthly percent difference Residential - Regular 600 $97.06 $99.46 $ % Residential - Regular 500 $83.87 $83.87 $(0.00) 0.00% Residential - Regular 1,200 $ $ $ % Residential - Net Meter - $17.96 $26.92 $ % Residential - Net Meter 478 $80.97 $ $ % Residential - Other Use 225 $47.63 $46.46 $(1.17) -2.46% Small General Service 2,300 $ $ $(48.77) % 7 What is the Residential Tiered Rate plan being proposed? The Residential Tiered Rate plan is a payment structure that sets a lower price level for basic energy use for residential customers. Use above the basic level is priced at a higher rate and encourages energy conservation. 8 Why are you proposing a Residential Tiered Rate? The Residential Tiered Rate plan is intended to provide an incentive to all customers to reduce energy consumption and provide benefits to lower-usage customers, including low-income customers, who on average use less energy. 9 Will there be an exemption allowed for customers with certain medical conditions? Yes. Under the proposed Residential Tiered Rate plan, customers who have a qualifying medical condition and/or use an essential life support device and whose household income is less than or equal to 250 percent of federal poverty guidelines are eligible for an exemption based on Colorado Public Utilities Commission Rule 3413.

3 10 What options are available to customers that need help with their bills? We provide options for customers to help them manage their energy use and pay their bills. And, we are committed to providing energy assistance programs to help our qualifying customers manage their energy costs. Customers who experience trouble paying their bills are encouraged to contact us at our customer service number as soon as they think they may be experiencing financial difficulties to discuss payment arrangements. We offer many programs like: 44Budget Billing: Our Budget Billing payment plan is a payment option that takes seasonal peaks out of your bill for a more even monthly payment. This is a free service for residential customers. Your monthly balance is calculated based on the average of the previous 12 months actual bills. 44Energy efficiency programs and tips: We offer energy efficiency rebates to help customers manage energy usage and their bills. Go to and to find ways to save money by saving energy, including through our energy efficiency rebates and tips to reduce energy consumption. 44The Black Hills Energy Assistance Program (BHEAP): BHEAP provides bill payment assistance to income-qualified residential electric utility customers. With BHEAP, a monthly credit amount is calculated based on the customer s unique combination of income level and average monthly electric bill amount at their residence. The customer s monthly average bill amount is reduced by the calculated credit, and the customer pays the remaining difference. Eligible customers also receive a credit over a 24-month period to assist with any preexisting past-due amounts. 44Black Hills Cares: We match donations from customers and employees to Black Hills Cares and forward the total amount to energy assistance agencies in donors communities. Customers can designate one-time or monthly donation(s) to Black Hills Cares on their bill stub or by going to www. blackhillsenergy.com. Energy Outreach Colorado distributes those funds on Black Hills behalf to help local families in need. 44Low-Income Weatherization Program: Black Hills, in partnership with local agencies, the U.S. Department of Energy, and the Colorado Energy Office offers a free Weatherization Assistance Program to Colorado s low-income residents, giving them the opportunity to access cost-effective energy efficiency services. This program gives eligible residents the ability to save money on their energy bills through the implementation of energy-efficiency measures.

4 11 What is the Time of Use program being proposed for small commercial customers? We are proposing, for the first time, to pilot a voluntary Time of Use program for small commercial customers to provide better pricing signals to encourage efficient energy use. 12 Why is Black Hills proposing this Time of Use Program? The Time of Use program will help commercial customers with high, intermittent energy use, like sports fields that use lights for short periods of time or churches that primarily run air conditioning on Sunday mornings. Time of Use programs help customers potentially avoid demand charges that can make up more than 75 percent of a total utility bill. 13 Why introduce the Time of Use Program as only a pilot program? By launching this program as a pilot, we will be able to validate assumptions about customer usage patterns and actual bill savings. We would introduce the program to 400 participants and then adjust as needed to ensure the program is providing the maximum benefit. 14 Is there a Time of Use Rate for large commercial customers? Yes. We concluded our voluntary Time of Use pilot program for large business customers at the end of With the successful pilot now concluded, we are proposing to make this program a standard option for our large commercial customers and available on a year-round basis.

5 15 What are the separate charges on my bill? The various charges that appear on a typical bill represent the cost components of providing power and delivering it to your home. There are also charges that are either statutorily mandated or required as a part of governmental requirements on utility operations. The following are brief descriptions of charges that may appear on your bill, depending on the nature of your service and your customer class: 44Customer Charge: A flat rate per month for most fixed costs. 44Demand: Measured in kw. It is a measure of the peak usage for any 15-minute average during the billing cycle. 44Energy: Measured in kwh. It is the total energy consumption during the billing cycle. 44Power Factor: Measured in KVARS. It is a measure of reactive power, i.e. power consumed that does no work. In order to ensure system reliability and efficiency, reactive power must be replaced as it is consumed. 44General Rate Adjustment: A surcharge that makes up for interim rate changes. 44ECA: Energy Cost Adjustment. A variable cost based on the cost of fuel. Changes 4 times a year and is a direct pass through. No profit to utility. 44RESA: Renewable Energy Standard Adjustment. A 2% charge to all customers for renewable energy programs. Required by statute and is a direct pass through. No profit to utility. 44DSM: Demand Side Management. A charge to cover demand side management costs, e.g. lighting rebates, etc. Required by statute and is a direct pass through. No profit to utility. 44TCA: Transmission Cost Adjustment. A kwh charge for interim transmission construction costs. 44Franchise Fee: The undergrounding fee and taxes. Collected by utility, paid to local government. This is a direct pass through, with no profit to utility. Statutorily-mandated charges on the bill include those for demand side management, renewable energy and low-income program funding. Charges related to local government requirements on utility operations include franchise fee and may include the cost of undergrounding power lines and sales tax.