Seattle City Light 2016 ANNUAL REPORT | Audited Financial Statements 14 THE CITY OF SEATTLE—CITY LIGHT DEPARTMENT MANAGEMENT’S DISCUSSION AND ANALYSIS (UNAUDITED) AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015 - 14 - 2015 Compared to 2014 Total operating revenues were $882.9 million, a decrease of $3.5 million or (0.4%) from 2014. Retail power revenues at $736.6 million increased $15.8 million, Short-term wholesale power revenues at $61.2 million decreased $35.6 million, Other power-related revenues at $36.8 million decreased $14.0 million, Transfers from/(to) RSA at $23.4 million increased $27.8 million, and Other operating revenues at $24.9 million increased $2.5 million. Retail power revenues were higher due to the 4.2% across-the-board rate increase effective January 1, 2015 and the 0.9% Bonneville pass-through rate adjustment effective in October 2015 despite lower consumption from warmer weather during most of 2015. Actual net wholesale power revenues were lower than budget and as a consequence, $23.4 million net was transferred to operating revenues. In 2014, $4.4 million net was transferred to the rate stabilization unearned revenue account as a result of actual net wholesale energy revenues being higher than budget. The net effect of Transfers from/(to) RSA between years was an increase of $27.8 million. Net Short-term wholesale power revenues were $34.4 million, a substantial decrease of $47.5 million or (58.0%) from net Short-term wholesale power revenues of $81.9 million in 2014. During 2015, earlier snow melt in the mountains, lower than normal spring precipitation, and above average temperatures since May contributed to the lower wholesale energy sales. The resulting less power generated along with lower average wholesale prices also influenced the unfavorable surplus energy revenues. Wholesale power prices remained historically low throughout most of 2015, mainly driven by depressed natural gas prices. Additionally, compared to the average of the last five years, 2015 hydro generation was around 88% and prices were around 80%. Other power-related revenues were lower by a net $8.1 million from 2014, also affected by lower average wholesale power prices along with lower volume available, and thereby causing lower valuation of net power exchange revenues. EXPENSES 2016 Compared to 2015 Operating expenses totaled $795.8 million, an increase of $23.8 million or 3.1% from $772.0 million in 2015. Power-related operating expenses at $348.5 million were lower by $5.8 million or 1.6%. These expenses were comprised of Long-term purchased power - Bonneville and other of $219.8 million, which increased $6.2 million, Short-term wholesale power purchases of $15.1 million, which decreased $11.7 million, Other power expenses of $60.1 million, which increased $0.5 million, and Transmission of $53.5 million, which decreased $0.8 million. Short-term wholesale power purchases were lower because additional power generated during 2016 was used to meet the Department’s load, and lower wholesale prices also affected wholesale power purchased. Bonneville purchased power was higher due to an increase in the Slice product of which the Department’s share is 3.63% of Bonneville’s total system costs. Stateline wind generation power costs were higher during 2016 due to increased $81.9 $34.4 $47.8 $14.9 $26.8 $15.1 $- $20.0 $40.0 $60.0 $80.0 $100.0 2014 2015 2016 (in millions) Short-term wholesale power revenues Net Wholesale Revenue Short Term Purchased Power = $62.9 = $61.2 = $96.8