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Informal Discussions Proposed 2008 Rate Adjustments Loveland Area Projects and

Informal Discussions Proposed 2008 Rate Adjustments Loveland Area Projects and Pick-Sloan Missouri River Basin Program Jon R. Horst Linda Cady-Hoffman Sheila Cook April 2007. Criteria for Repayment Final FY 2006 Pick-Sloan PRS E-D Drought Impacts Final FY 2006 Fry-Ark PRS

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Informal Discussions Proposed 2008 Rate Adjustments Loveland Area Projects and

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  1. Informal Discussions Proposed 2008 Rate Adjustments Loveland Area Projects and Pick-Sloan Missouri River Basin Program Jon R. Horst Linda Cady-Hoffman Sheila Cook April 2007

  2. Criteria for Repayment Final FY 2006 Pick-Sloan PRS E-D Drought Impacts Final FY 2006 Fry-Ark PRS W-D Revenue Requirement LAP Drought Impacts Rate Adjustment Proposals Proposed Rates Proposed Schedule Agenda

  3. Criteria for Repayment Flood Control Act of 1944 Power is to be sold at the “lowest possible rates to consumers consistent with sound business principles.”

  4. Pick-SloanFinal 2006 PRS • Solved at 24.78 mills/kWh • Total drought debt thru 2006 is $438 M • Projecting Deficit of $135 M in 2007 • Total Deficits for this Drought $573 M • 10 Year deficit repayment • Final 2006 PRS includes 2008 work plans

  5. Fort Peck Reservoir

  6. Garrison

  7. Garrison

  8. Loveland Area Projects • 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

  9. Fryingpan-Arkansas ProjectFinal 2006 PRS • Solved with a Revenue Requirement of $14.3 million (3% increase) • Includes 2008 budget data • No deficits • 2034 Pinch-Point

  10. Pick-Sloan Western DivisionFinal 2006 PRS • Allocated Revenue Requirement of $51.8 million (23% increase) • Includes proposed changes to Eastern Division’s Tiered and Peaking Power rate designs

  11. Western’s Rate Proposal

  12. Proposed Rate Adjustment • Eliminate the Tiered Rate for energy over 60% load factor • Metered methodology for Firm capacity charge • Allocated CROD methodology for Peaking capacity charge • Base and Drought Adder components

  13. Eliminate the Tiered Rate • Tiered Rate Discourages Load Management • Consistent with W-D of Pick-Sloan

  14. Firm Peaking Power • Capacity product • Customer pays capacity rate on total peaking CROD each month rather than monthly usage • Contractual commitment through the year 2020 • Develop a Peaking Power capacity rate representative of the Peaking product

  15. Metered Capacity vs. Peaking Capacity Present Capacity Rate Firm = Peaking $/Total Units Firm Capacity Rate Separate Capacity Rates Metered Peaking $/Metered kW-Mo/Year $/CROD’s kW-Mo/Year Peaking Capacity Charge Firm Capacity Charge

  16. Pick-Sloan E-D Rate Design

  17. Eastern Division Rate Design • Firm capacity based on Metered Capacity Billing Units of 17,876 MW-mo/year • 8,742 GWH of 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

  18. Eastern Division Revenue 50/50 Capacity/Energy Split ½ of total Rev. Req. E-D 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 CRODs units kW-mo/yr Peaking Capacity

  19. 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

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

  21. Proposed E-D 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

  22. Pick-Sloan and Fry-ArkRate Components

  23. Rate Components Base Drought Adder Adjusted only by Public Process Adjusted Annually by Formula or by Public Process

  24. Rate Components • Recovers $ Associated with the Drought • Purchase Power related to drought • Interest on Drought Debt • Historical Drought Debt Drought Adder Drought $ • Annual O&M • Investments - Additions and Replacements • Annual Interest on Investment • Inflation • Normal Purchases • Transmission Costs O&M $ Capital $ Interest $ Base

  25. 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

  26. 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

  27. Drought Adder Annual Process • Preliminary PRS (Final PPW late Summer) • Adder adjusted up to 2 mills/kWh • Send customers notice of increase (October) • Rate adjusted in January billing period • Any decrease will be based on final audited financial data in the annual final PRS (February/March billing period)

  28. Rate Proposal Summaries

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

  30. Pick-Sloan 2008 Rate Adjustment

  31. E-D Proposed Rates

  32. LAP Rate Design Fry-Ark $.9 million Pick-Sloan WD $17.4 million 50/50 split Demand - $1.18/kW Energy - 4.50 mills/kWh Rate Adder $18.3 million 50/50 split Fry-Ark $13.5 million Pick-Sloan WD $34.3 million $66.1 million Revenue Requirement Demand - $3.07/kW Energy - 11.71 mills/kWh $47.8 million Base Rate Firm Demand - $4.25/kW Firm Energy - 16.21 mills/kWh Composite - 32.42 mills/kWh Total Charges

  33. LAP 2008 Rate Adjustment

  34. LAP Proposed Rates

  35. Proposed Schedulefor Rate Processes • Informal Meetings • April 9th Denver, CO • April 10th Sioux Falls, SD (Pick-Sloan only) • Public Process (90 Days) • Federal Register Announcement • May 25th • 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 22nd • Implementation of New Rates • January 1, 2008

  36. 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

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

  38. Discussion

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