At its meeting this Thursday, the Sacramento Municipal Utility District (SMUD) Board
of Directors will consider the need for a general rate increase that would go into effect later
this year. If the Board decides to proceed, it would hold public workshops and a hearing
before initiating any rate changes.

SMUD General Manager and CEO John DiStasio is recommending a two-step rate
action. The first step would be a 9.5 percent rate increase to take effect September 1, after the
Sacramento region’s demanding summer peak-use period is over. The second step would be
a 3.5 percent rate increase in January 2011.

The economic recession has greatly impacted electricity revenue, while turmoil in the
credit markets has caused borrowing costs to rise and interest earnings to plunge. There are
other factors as well that are adversely affecting SMUD’s budget and have contributed to
SMUD staff requesting the rate increase from the Board of Directors:

• SMUD’s reserve fund, which is needed to cover unforeseen disruptions in the
wholesale power market, could be depleted, forcing SMUD to seek immediate
emergency rate hikes.

• SMUD and other utilities are vying to secure contracts for more renewable energy,
for which costs are rising.

• SMUD needs to upgrade an aging energy infrastructure to ensure continued reliability
and meet new federal grid security and reliability requirements.

• SMUD’s natural gas contracts executed in 2008 were significantly more costly than
the contracts they replaced.

SMUD is making every effort to limit the impact of economic factors on its
customers through aggressive cost containment in all discretionary areas of the 2009
budget and is continually reassessing spending until the economy stabilizes. “Our first
priority is maintaining outstanding customer service and reliability. We have cut every
expense not critical to providing this service level,” said DiStasio. “Given the extreme
external uncertainties we must take measures now to avoid serious financial
consequences for our customers in the future.”

SMUD has implemented many belt-tightening measures to lessen the rate impact to its
customers:

• In 2008, SMUD saved about $65 million through budget cuts and other mitigating
factors such as early completion of Rancho Seco decommissioning and recouping
funds from companies that overcharged SMUD during the energy crisis.

• SMUD staff has cut its budget by $25 million in 2009 and up to $40 million by
2011. Some of those cuts include reducing the number of positions through
attrition.

• SMUD is also forgoing cost of living adjustments for its non-union employees,
which make up about half of SMUD’s payroll.

• Staff is delaying some capital projects related to system expansion and those not
needed due to slower customer growth, which will save money. SMUD delayed
capital projects in 2008 that saved about $30 million. These delays will not
diminish the quality of SMUD’s reliability or customer service in any way.

Even with the recommended increase, SMUD rates would still be among the lowest in
California and would be approximately 23 percent lower than those of neighboring PG&E. If
the Board of Directors adopts the proposed rate increase, a residential household using 750
kilowatt hours in a month would see its bill increase by about $8 to a total of $86.22 (See
chart.) and by about $3 in January 2011. Customers participating in the SMUD Energy
Assistance Program will see their bills increase by an average of less than $5 and by less than
$2 in January 2011.

Public presentations, workshops and hearing:

This spring, SMUD staff will undertake an extensive public process to meet with,
inform and gather input from as many customers as possible about the proposed rate
increase. SMUD will conduct presentations throughout the service territory. The SMUD
Board of Directors will also hold two public workshops and a public hearing at SMUD
Headquarters located at 6201 S Street:

Board workshop:
May 13, 2009 at 9 a.m. in the SMUD Headquarters Conference Center

Public Hearing:
June 4, 2009 at 6 p.m. in the SMUD Headquarters Auditorium

More information on the proposed rate increase and the schedule for meetings can
be found on smud.org. Customers who have questions may call Rob Landon, SMUD
Rates Administrator at (916) 732-6222. Written comments may be sent to him at
rates@smud.org or MS A451, SMUD, P.O. Box 15830 Sacramento, CA 95852-1830.