Formal Information Forum on Proposed 2008 Rate Adjustments

1. Formal Information Forum on Proposed 2008 Rate Adjustments Pick-Sloan Missouri River Basin Program and Loveland Area Projects Jon Horst Linda Cady-Hoffman Sheila Cook June 2007

2. Pick-Sloan Rate Structure and Drought Impacts LAP Rate Structure and Drought Impacts Rate Proposals Eastern Division Rate Design Eastern Division Proposed Rate Adjustment LAP Proposed Rate Adjustment Schedule Contact Information Questions Introduction

3. P-SMBP Rate Structure • P-SMBP has one power repayment study • Markets 10,730 GWH • Eastern Division (UGPR-Billings, MT) • Pick-Sloan--ED 8,742 GWH • Western Division (RMR-Loveland, CO) • Pick-Sloan--WD 1,988 GWH

4. P-SMBP Rate Impacts • 8th year of drought • PRS solved at 24.78 mills/kWh • Total Deficits for this drought $573 M through FY 2007 • 10 year drought debt repayment • Proposing 3rd rate adjustment for this drought cycle (2004, 2006, and 2008)

7. Loveland Area ProjectsRate Structure • Although operationally and contractually integrated, Fry-Ark and P-SMBP-WD retain separate financial status • A Separate PRS is prepared annually for each project • Fry-Ark completed by Rocky Mountain Region • P-SMBP completed by Upper Great Plains Region with input from the Rocky Mountain Region • Revenue requirements from both projects are combined to develop the LAP revenue requirement • Rate is designed to return 50 percent of the revenue from the capacity component and 50 percent from the energy component • Capacity component is based on a monthly billing of the seasonal contract rate of delivery • Energy component is based on the annual contracted energy

8. LAP Rate Impacts • 8th year of drought • Fry-Ark Solved with a Revenue Requirement of $14.3 million (3% increase) • No deficits • 2034 pinch-point • Western Division Allocated Revenue Requirement of $51.8 million (23% increase) • As with the Eastern Division Revenue Requirement, includes impacts from proposed changes to Eastern Division’s Tiered and Peaking Power rate designs • Proposing 3rd rate adjustment for this drought cycle (2004, 2006, and 2008)

11. Rate Proposals • 1- Base and Drought Adder components rate recovery method • 2- Metered methodology for Firm capacity charge • 3- Allocated CROD methodology for Peaking capacity charge • 4- Eliminate the Tiered Rate for energy over 60% load factor (Eastern Division Only)

12. Annual Revenue Requirement = Base Drought Adder Adjusted only by Public Process Adjusted Annually by Formula or by Public Process

13. Revenue Requirement Components • Recovers $ Associated with the Drought • Purchase Power Related to Drought • Interest on Drought Debt • Historical Drought Debt Drought Adder Drought $ • Annual O&M • Normal Purchases • Transmission Costs • Investments - Additions and Replacements • Annual Interest on Investment • Inflation O&M $ Other $ Capital $ Interest $ Base

14. Base Component Methodology Compare new PRS Base to previous years Base Base meets costs Base does not meet costs No change to the Base Initiate public process Implement new Base

15. DroughtAdder Methodology Annually Annually Lower than projected Drought Costs Higher than projected Drought Costs Keep 10 Year Repayment of Drought Debt Increase Adder Automatic increase up to 2 mills/kWh Reduce Adder Increase greater than 2 mills/kWh Initiate Public Process

16. Drought Adder Annual Process • Conduct preliminary review in early summer to estimate adjustment +/- • Letter sent to customers to give advance notice of estimated adjustment • Conduct final review in September to finalize adjustment +/- (up to 2 mills/kWh) • Letter sent to customers in October giving notice of final adjustment • Adder adjusted in January billing period

17. Historically Firm and Peaking have had the same rate Treat different products with different rates Peaking = CROD billing Firm = Load pattern billing Capacity Rates for Firm and Peaking Proposed Capacity Rates Firm Metered Peaking CROD $/Metered kW-Mo/Year $/CROD kW-Mo/Year Peaking Capacity Charge Firm Capacity Charge

18. Eliminate the Tiered Rate • Tiered Rate Discourages Load Management • Consistent with WD of Pick-Sloan

19. Eastern Division Rate Design • Firm capacity based on metered capacity billing units of 17,876 MW-mo/year • 8,742 GWH Firm Energy • 356 MW of Peaking capacity recovered in the 50/50 capacity and energy split • Peaking capacity based on CROD billing units of 4,272 MW-mo/year

20. 50/50 Design Eastern Division rate is 50/50 design where 50% of the revenue requirement is recovered from the capacity rate and 50% is recovered from the energy rate: Firm Power Rev. Req. $ 214.1 Million Peaking Rev. Req. $21.8 Million 5% Discount Req. 9.1 Million Gross Revenue Req. $ 245 Million

21. Eastern Division Revenue 50/50 Capacity/Energy Split ½ of total Rev. Req. ED Energy GWH Firm Energy 50% Firm portion of ½ total Rev. Req. Capacity based on total firm load pattern units kW-mo/yr Firm Capacity 50% Peaking portion of Capacity Rev. Req. based on total CROD units kW-mo/yr Peaking Capacity

22. Separate Capacity Rates PeakingFirm Firm Capacity $ = $/kW 17,876,078 kW-mo/yr = $5.10/kW $122.7 M 24,108,888 kW-mo/yr Peaking Capacity $21.8 M = $5.10/kW 4,272,000 kW-mo/yr 19,836,888 kW-mo/yr Firm 4,272,000 kW-mo/yr Peaking 24,108,888 kW-mo/yr Note: Nickel rule for capacity rounding

23. Proposed ED Rate Design 50/50 Capacity/Energy Split $122.3 M = 13.99 mills/kWh 8,742 GWH Firm Energy $245 Million $100.9 M Firm Capacity = $5.65/kW 17,876,078 kW-mo/yr $21.8 M = $5.10/kW Peaking Capacity 4,272,000 kW-mo/yr Note: Nickel rule for capacity rounding

24. Eastern Division $ 245 million Revenue Requirement Firm Metered & Peaking CROD 50/50 split Capacity - $2.00/kW Energy - 5.06 mills/kWh Drought Adder $88 million Peaking - $1.85 /kW 50/50 split Peaking $22 million ED Composite Rate 24.49 mills/kWh Peaking - $3.25/kW $157 million $157 million Capacity - $3.65/kW Energy - 8.93 mills/kWh Base Proposed Rates Firm Capacity - $5.65/kWPeaking $5.10 Firm Energy - 13.99 mills/kWh

25. Pick-Sloan Proposed2008 Rate Adjustment

26. ED Proposed Rates

27. Eastern Division Sample Billing Format

28. LAP Proposed2008 Rate Adjustment

29. LAP Rate Design Fry-Ark $.058 million Pick-Sloan WD $17.4 million 50/50 split Capacity - $1.12/kW Energy - 4.29 mills/kWh Drought Adder $17.5 million 50/50 split Fry-Ark $14.3 million Pick-Sloan WD $34.3 million $66.1 million Revenue Requirement Capacity - $3.13/kW Energy - 11.92 mills/kWh $48.6 million Base Firm Capacity - $4.25/kW Firm Energy - 16.21 mills/kWh Composite - 32.42 mills/kWh Total Charges

30. LAP Sample Billing Format

31. Schedule for Rate Processes • Federal Register Announcement • May 31st • Public Process (90 Days) • Information Forums • June 18th Denver, CO • June 19th Sioux Falls, SD (Pick-Sloan only) • Comment Forums • July 23rd Denver, CO • July 24th Sioux Falls, SD (Pick-Sloan only) • Close of Comment Period • August 29th • Implementation of New Rates • January 1, 2008

32. Eastern Division Rate ProcessOther Information • Materials will be posted on Website: http://www.wapa.gov/ugp/rates/2008firmrateadjust • Contact: Jon R. Horst • Phone - 406-247-7444 • Email - horst@wapa.gov • Mailing Address: Western Area Power Administration Upper Great Plains Region PO Box 35800 Billings, MT 59107-5800

33. LAP Rate Process Other Information • Materials will be posted on Website: http://www.wapa.gov/rm/ratesRM/2008RatesAdjustment--FirmPower.htm • Contact: Sheila D. Cook: • Phone - 970-461-7211 • E-mail - scook@wapa.gov • Mailing Address: Western Area Power Administration Rocky Mountain Region PO Box 3700 Loveland, CO 80539

34. Questions