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Stochastic Analysis of John Sevier Decision

Stochastic Analysis of John Sevier Decision. Faced with decision of whether or not to comply with pollution controls (scrub) or retire and replace with NGCC technology on-site.

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Stochastic Analysis of John Sevier Decision

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  1. Stochastic Analysis of John Sevier Decision • Faced with decision of whether or not to comply with pollution controls (scrub) or retire and replace with NGCC technology on-site. • Decision will impact the present value of total cost from a revenue requirement perspective, which is the relevant metric since this is what TVA’s customers will pay, either in current rate increases or deferred (i.e. increased borrowing) rate increases. • Analysis takes capital (construction costs) as provided by FPG, and covers the period 2009 through 2027. • Two basic carbon worlds were studied, where carbon prices were stochastic random variables, but allocations were either 80% or zero. • Coal prices and carbon tax rates were taken from PSP assumptions. Indicative natural gas swap rate sourced from large commodities trading desk, but is indicative in nature. • System Financial Dispatch Model (SFDM) used for analysis. Allows for economic redispatch of the system under various price and carbon tax outcomes. Simulation used 1,000 iterations.

  2. Key Observations • At the Median Value: • Given that GHG legislation is forecasted to begin in 2015 with an 80% allocation, JSF shows less total rate pressure impacts than NGCC since fuel costs are lower and allowances are mostly free. • With zero carbon allocation, JSF is slightly favored over the NGCC. However, NGCC outperforms JSF beginning in 2024. • Given the volatility surrounding carbon and coal prices, JSF alternative grows riskier over time and exceeds the risk of NGCC option. • Over Entire Study Period: • At an 80% carbon allocation, the NGCC option is only favored over JSF in 1.5% of the outcomes. In other words, JSF outperforms NGCC almost 99% of the time. • As allocation drops to zero, NGCC favored over JSF 38% of the time. In other words, JSF only outperforms NGCC less than 2/3rds of the time. • Given use of fixed-price gas, does not capture potential upsides of a low gas-price world, which; when combined with carbon, could increase the attractiveness of the NGCC option.

  3. In about 60% of outcomes, JSF outperforms NGCC from perspective of total rate pressure

  4. Median Annual Rate Pressure

  5. Median Operating Characteristics

  6. Risk Summary

  7. Appendix

  8. Carbon and CAPP Distributions, Coal Plant

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