# Presentation: 664925

## 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

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

## Agenda

- 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

## 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.”

## Pick-SloanFinal 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

## Slide 5

## Slide 6

## Fort Peck Reservoir

**Fort Peck Reservoir**

##  Garrison 

** ****Garrison**

## Garrison

**Garrison**

## 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

## Fryingpan-Arkansas ProjectFinal 2006 PRS

- Solved with a Revenue Requirement of $14.3 million (3% increase)
- Includes 2008 budget data
- No deficits
- 2034 Pinch-Point

## Pick-Sloan Western DivisionFinal 2006 PRS

- Allocated Revenue Requirement of    $51.8 million (23% increase)
- Includes proposed changes to Eastern Division’s Tiered and Peaking Power rate designs

## Slide 13

## Slide 14

## Western’s Rate Proposal

## 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

## Eliminate the Tiered Rate

- Tiered Rate Discourages Load Management
- Consistent with W-D of Pick-Sloan

## 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

## Metered Capacity vs. Peaking Capacity

**$/Metered kW-Mo/Year**

**$/Total Units**

**$/CROD’s kW-Mo/Year**

**Metered**** **

**Present Capacity Rate**
**Firm = Peaking**

**Peaking**

**Firm Capacity Rate**

**Firm Capacity Charge**

**Peaking Capacity Charge**

**Separate Capacity ****Rates**

## Pick-Sloan E-D Rate Design

## 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

## Eastern Division Revenue

**Firm Capacity**

**Peaking Capacity**

**Firm Energy**

**50/50 Capacity/Energy Split**

**1⁄2  of total Rev. Req. E-D  Energy GWH**

**Firm portion of 1⁄2 total Rev. Req. Capacity based on total firm load pattern units kW-mo/yr**

**50%**

**50%**

**Peaking portion of Capacity Rev. Req. based on total CRODs units kW-mo/yr**

## Separate Capacity Rates 

-       _**Peaking**_**	****	****	****	****	**** **_**Firm **_

**Firm Capacity**

**Peaking Capacity **

**=   $/kW**

**              ****$21.8 M**

**=   $5.10/kW**

**4,272,000 kW-mo/yr**

**   **

** ****$122.7 M**

**=   $5.10/kW**

**24,108,888 kW-mo/yr**

**19,836,888 kW-mo/yr Firm **
**  ****4,272,000 kW-mo/yr Peaking**
**24,108,888 kW-mo/yr**

**17,876,078 kW-mo/yr**

**             ****$**

**Note:  Nickel rule for capacity rounding**

## 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

## Proposed E-D Rate Design

**Firm Capacity**

**Peaking Capacity**

**Firm Energy**

**50/50 Capacity/Energy Split**

**8,742 GWH**

**=   13.99 mills/kWh**

**$245 Million**

**$100.9 M**

**17,876,078 kW-mo/yr**

**=   $5.65/kW**

**=   $5.10/kW**

**     ****$21.8 M**

**4,272,000 kW-mo/yr**

**$122.3 M**

- Note:  Nickel rule for capacity rounding

## Pick-Sloan and Fry-ArkRate Components

## Rate Components

**Base**

**Drought Adder**

**Adjusted only by Public Process**

**Adjusted Annually by Formula          or by Public Process**

## Recovers $ Associated with the Drought
Purchase Power related 
        to drought
Interest on Drought Debt
Historical Drought Debt

- Purchase Power related
-         to drought
- Interest on Drought Debt
- Historical Drought Debt

**Drought Adder**

**Base**

**Drought $**

**O&M $**
**Capital $**
**Interest $**

- Annual O&M
- Investments - Additions and Replacements
- Annual Interest on Investment
- Inflation
- Normal Purchases
- Transmission Costs

- Rate Components

## Base Component Methodology

**Base meets costs**

**  ****Base does not meet costs**

**Initiate public process**

**Base Component Methodology**

**No change to the Base**

**Implement new Base**

## Drought Adder Methodology

** ****Drought Costs**

**Higher than projected**
**Drought Costs**

**Increase Adder**

**Drought**** ****Adder Methodology**

**Keep 10 Year Repayment**
**of Drought Debt**

**Reduce Adder**

**Automatic increase**
**up to 2 mills/kWh**

**Increase greater than 2 mills/kWh Initiate Public Process **

**Annually**

**Annually**

## 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)

- 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)

- Drought Adder Annual Process

## Rate Proposal Summaries

## Eastern Division

-  $ 245 million Revenue Requirement
- Firm Metered & Peaking CROD

**E-D Composite Rate 24.49 mills/kWh**

**$88 million**

**$157 million**

**Rate Adder**

**Base Rate**

**Capacity  - $2.00/kW  Energy    - 5.06 mills/kWh**

**Capacity  - $3.65/kW  Energy    - 8.93 mills/kWh**

**Firm Capacity  - $5.65/kW****   ****Peaking $5.10**
**Firm Energy    - 13.99 mills/kWh**

**Peaking $22 million**

**Peaking - $1.85 /kW**

** ****Peaking   - $3.25/kW**

**50/50 split**

**50/50 split**

**Proposed Rates**

**$157 million**

## Pick-Sloan 2008 Rate Adjustment

|  | Composite Rate
(mills/kWh) | Percent Increase | Pick-Sloan Firm Power Rev. Req. (millions) | Western Division Firm 
Rev Req.
(millions) | Eastern
Division 
Firm 
Rev Req.
(millions) | Eastern
Division 
Firm Plus Peaking.
Rev. Req.
(millions)
 |
| --- | --- | --- | --- | --- | --- | --- |
| Current Rates
(2nd Step) January 2007 | 19.83 |  12% | $212.7 | $41.9 | $170.8 | $189.9 |
| Proposed Rates
January 2008
 | 24.78 | 25% | $265.9 | $51.8 | $214.1 | $235.9 |

## E-D Proposed Rates

| 
Firm Power Service | Current Rates Effective January 1, 2007 | Proposed Rates Effective January 1, 2008 |
| --- | --- | --- |
| E-D Firm plus Firm Peaking Rev. Req. |   $189.9 million | $235.9 million |
| E-D Composite Rate | 19.54 mills/kWh | 24.49 mills/kWh |
| Firm Capacity | $4.45kW-month | $5.65 kW-month |
| Firm Energy | 11.29 mills/kWh | 13.99 mills/kWh |
| Tiered Rate | 5.21mills/kWh | N/A |
| Firm Peaking Capacity | $4.45 kW-month
 | $5.10 kW-month
 |
| Firm Peaking Energy | 11.29 mills/kWh | 13.99 mills/kWh |

## LAP Rate Design

**$66.1 million Revenue Requirement**

**$18.3 million**

**$47.8 million**

**Rate Adder**

**Base Rate**

**Demand  - $1.18/kW  Energy    -   4.50 mills/kWh**

**Demand  - $3.07/kW  Energy    - 11.71 mills/kWh**

**Firm Demand  - $4.25/kW**
**Firm Energy    - 16.21 mills/kWh**
**Composite      - 32.42 mills/kWh**

**50/50 split**

**50/50 split**

**Total Charges**

- Fry-Ark $13.5 million
- Pick-Sloan WD $34.3 million

- Fry-Ark $.9 million
- Pick-Sloan WD $17.4 million

## LAP 2008 Rate Adjustment

|  | Composite Rate
(mills/kWh) | Percent Increase | Effective
Date | Fry-Ark
Rev Req.
(millions) | Western Division
Rev Req.
(millions) | LAP
Firm Power Rev. Req. (millions) |
| --- | --- | --- | --- | --- | --- | --- |
| Current Rates
(2nd Step) | 27.36 |   15% | January 2007 | $13.9 | $41.9 | $55.8 |
| Proposed Rates | 32.42 | 19% | January 2008 | $14.3 | $51.8 | $66.1 |

## LAP Proposed Rates

| 
Firm Power Service | Current Rates Effective
January 1, 2007 | Proposed Rates Effective
January 1, 2008 |
| --- | --- | --- |
| Fry-Ark Rev. Req. | $13.9 | $14.3 |
| Pick-Sloan W-D Rev. Req. | $41.9 | $51.8 |
| Composite Rate | 27.36 mills/kWh | 32.42 mills/kWh |
| Firm Energy | 13.68 mills/kWh | 16.21 mills/kWh |
| Firm Capacity | $3.59/kW | $4.25/kW |

## Proposed Schedulefor 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

## 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

## Pick-Sloan E-D Rate ProcessOther 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

## Discussion