# Presentation: 740541

## Navajo Generating Station

## Proposed Amended Navajo Power Marketing Plan
Public Information Forum

***Public Information Forum***

## Purpose

- Background on Western
- Navajo Generating Station
- History of Navajo Power Marketing Plan
- Proposed Amended Plan
- Comparison To Original Plan
- Annual Plan Process
- Competitive Process
- Next Steps
- Contacts

## Western Area Power Administration (Western) – An agency of U.S. Dept. of Energy responsible for marketing power from Federal generation including Navajo Generating Station (NGS).
Western’s service area includes 15 Western states.
About 700 customers.
Generation from NGS is marketed by Western’s Desert Southwest Region (DSW).

- Western’s service area includes 15 Western states.
- About 700 customers.
- Generation from NGS is marketed by Western’s Desert Southwest Region (DSW).

**What is Western?**

## DSW office is located in Phoenix, Arizona
Marketing Area includes most of Arizona, southern Nevada, southern California, and a small portion of western New Mexico.

- Marketing Area includes most of Arizona, southern Nevada, southern California, and a small portion of western New Mexico.

**Desert Southwest Region (DSW)**

## Navajo Generating Station (NGS)

- NGS is a 2250 MW coal-fired power plant constructed in the 1970’s in northern Arizona outside of Page on the Navajo Indian Reservation.
- NGS added scrubbers in the 1990’s and the plant exceeds all current environmental standards
- NGS has multiple owners and is operated by Salt River Project (SRP).

## Navajo Generating Station (NGS)(Cont.)

- The U.S. Bureau of Reclamation has 24.3% entitlement in NGS for the Central Arizona Project (CAP).  This equates to 547 MW of capacity and an average of approximately 4,300 GWh (average of the last 5 years).
- The NGS project includes transmission facilities terminating in McCullough Substation near Boulder City, Nevada and Westwing Substation outside of Phoenix, Arizona.

## History 
of
Navajo Marketing Plan

***of***
***Navajo Marketing Plan***

## Entities Involved In Navajo Marketing

*Western Area Power Administration (Western)* – An agency of U.S. Dept. of Energy responsible for marketing power from Federal generation including NGS.
*Bureau of Reclamation (Reclamation)* – An agency of the U.S.  Dept. of Interior responsible for water and power projects in the Western U.S.  Reclamation has a 24.3% entitlement in NGS for the Central Arizona Project (CAP).
*Central Arizona Water Conservation District (CAWCD)* – A multi-county water district that operates and maintains the CAP.

## Hoover Power Plant Act of 1984

- Directed Secretary of Energy (Western) to market NGS power surplus to CAP pumping and desalinization facility requirements
- Required marketing of Navajo Surplus in accordance with Plan adopted by the Secretary of Interior (Reclamation) after consultation with Western, the Governor of Arizona, and CAWCD
- Marketing in accordance with preference requirements under Reclamation Law and Western’s Marketing Criteria

## Hoover Power Plant Act of 1984(Cont.)

- Plan required to optimize Navajo Surplus and provide assistance in the repayment of CAP.
- Allows for additional rate components (rates components in addition to cost based rates).
- Rates shall not exceed levels that allow for an appropriate saving to the contractor

## Original Navajo Marketing Plan

- Original Plan was adopted on December 1, 1987 by Reclamation on behalf of the Secretary of Interior.
- Provided for marketing of Navajo Surplus under long-term contracts through September 30, 2011.
- Provided for up to 400 MW of fixed capacity and energy sales with 760 MWh of energy per MW of capacity.
- The Plan also provided for exchanges of 150 MW of the 400 MW (and associated energy) with a return of the energy in the same operating year.

## Original Navajo Marketing Plan(Cont.)

- The amounts available to market were based on a study of CAP water delivery and load projections.
- The rate for this capacity and energy included a market based capacity charge (rate component) of $72 per KW-year plus the actual cost of the energy and administrative costs.  The rate component is used to repay bonds issued by CAWCD for construction of certain CAP facilities.
- Also allowed for other arrangements for any NGS capacity and energy not marketed under the sale of up to 400 MW capacity and associated energy or exchanged.

## Original Navajo Marketing Plan(Cont.)

- Provides for first opportunity for new contracts to Long-Term contractors. If such contracts are executed they must be entered into by October 1, 2007.
- Provides that CAWCD’s allocation of Hoover power from Arizona Power Authority is used to serve CAP pumping load to increase the Navajo Surplus available.

## Original Navajo Marketing Plan(Cont.)

- 	Uses the exact order of priority from Conformed Criteria & Hoover Act of 1984:
- 		1.  Preference entities within Arizona.
- 		2.  Preference entities within the Boulder City 	Marketing Area.
- 		3.  Preference entities in adjacent Federal marketing 	areas.
- 		4.  Non-preference entities in the Boulder City  	Marketing Area.

## Navajo Marketing Area

## Contracts Executed Under Original Navajo Marketing Plan

- All Navajo Surplus is currently sold under three Long-Term sales contracts through September 30, 2011.
- All three contracts are with SRP.  Other entities received allocations but did not execute contracts.
- Contracts provide for first opportunity for new contracts after September 30, 2011.  If new contracts are agreed to they must be executed by October 1, 2007.

## Proposed Amended
Navajo Marketing Plan

***Navajo Marketing Plan***

## Why Is Amended PlanRequired?

- Current contracts expire Sept 30, 2011.
- Amendment of the Plan by December 31, 2007 is a requirement for key elements of the Arizona Water Settlements Act to be effective.
- Arizona Water Settlements Act amends the uses of Navajo Surplus revenues.

## Proposed Amended PlanKey Elements

- Proposed Amended Plan was developed by Reclamation in consultation with Western, CAWCD, and Governor of AZ
- Provides for marketing of Navajo Surplus after September 30, 2011.
- Developed to optimize the availability and use of revenues.
- Annual process used to determine the Surplus to market based on water forecast and pumping requirements.

## Proposed Amended PlanKey Elements (Cont.)

- Utilizes CAWCD’s power scheduled from Hoover for CAP pumping to increase Navajo Surplus.
- Standard market products are used.  Products may be sold as plant contingent.
- Rates developed annually based on competitive process w/appropriate saving.
- Provides for marketing of the small amounts of Navajo Surplus not captured in the annual process under other appropriate arrangements.

## Proposed Amended PlanKey Elements (Cont.)

- AZ preference entities provided first opportunity.
- Use of revenues as set forth in the Colorado River Basin Project Act as amended by the Arizona Water Settlements Act.
- Allows for new contracts entered into under first opportunity provisions of Original Plan.  Power sold under such new contracts would not be included in the annual marketing process.

## Marketing Plan RequirementsComparison of Proposed Plan to Original Plan

## Navajo Marketing Plan Required Elements

- Reclamation adopts Plan after consultation with Western, Governor of Arizona & CAWCD
- Preference (Order of Priority)
- Appropriate savings
- Optimize surplus (around pumping & operational requirements of Central Arizona Project (CAP) water system)
- Financial assistance to CAP

## Plan Consultation & Adoption

- Proposed Plan was developed by Reclamation in consultation with Western, Governor of AZ, and CAWCD
- Final Plan was adopted by the Secretary of Interior (or Reclamation) after completion of public process by Western

- No Change
- No Change

_**Original Plan**_

_**Proposed Plan**_

## Preference

- Uses the exact order of priority from Conformed Criteria & Hoover Act of 1984
- Highest priority entities provided first opportunity to purchase

- No Change
- No Change

_**Original Plan**_

_**Proposed Plan**_

## Appropriate Saving

- Rate was market based
- Appropriate saving was assumed to be met by contractors willingness to purchase
- No defined appropriate saving

- No Change
- No Change
- No Change

_**Original Plan**_

_**Proposed Plan**_

## Optimize Surplus

- Surplus availability determined through a single long-term projection of water deliveries
- Little flexibility for annual changes in O&M of the system
- There were no changes in water deliveries caused by water shortages anticipated during this period

- Surplus sales are structured around current water operations on an annual basis
- Allows flexibility in O&M of the system needed to ensure reliable operation
- Allows flexibility to respond to shortages or other changes in the water available to CAWCD from the Colorado River

_**Original Plan**_

_**Proposed Plan**_

## Optimize Surplus(Cont.)

- Contractual commitments cause significant power purchases by CAWCD to meet pumping requirements
- Frequent start/stops of pumps have resulted from contractual commitments under the Plan which causes wear on the units

- Anticipate that no net power purchases required on annual basis (some daily balancing required)
- Sales structured to limit impact on unit starts/stops

_**Original Plan**_

_**Proposed Plan**_

## Financial Assistance to CAP

- Rates were developed based on study of the market cost of alternative generation resources
- Products sold in long-term contracts of approximately 20 years
- No mechanism for rate changes.  Revenue remained unchanged as market prices increased

- Rates developed annually based on current market conditions
- Product sold under shorter terms limited by foreseeable water & power market conditions
- Annual rate determination (for products not sold on multi-year basis)

_**Original Plan**_

_**Proposed Plan**_

## Annual Plan Process

## Annual Plan Process

- Reclamation, in consultation with CAWCD determine Navajo Surplus available to market
- Considerations are: existing contractual commitments, CAP pumping requirements, Navajo generation and other resources, and salinity facilities requirements

## 2005 CFS Baseline Adjustment Example Using 2004 Historical Data Only

## 2005 Projected Navajo Surplus in MW

- (Simplified Example)

- Projected CFS Load Baseline

- Surplus Available based on Projected Water Deliveries and Navajo Generation

## Navajo Surplus Divided Into Blocks & Sold Forward

- (Simplified Example)

## Navajo Surplus Available

- Typically 1600 GWh to 2000 GWh for normal delivery year on CAP.  More than 50 % of energy June through September.
- Available energy could be much greater in water shortage years.
- Usually >400 MW of capacity & energy available during summer on-peak hours

## Competitive Process

## Types of Competitive Processes

- Auction
- Request for Proposal (RFP)
- Other Processes

## Auction

- Ascending clock auction (one possible auction type)
- Discrete bid increments
- Price is set by second highest bid (bid level of sufficient demand)
- Highest priority entities have first opportunity
- Reserve price
- Other types of auctions have different processes

## Request for Proposal (RFP)

- Sealed bids
- Allows for refresh (update) of bids
- Highest priority entities have first opportunity
- Reserve price

## Other Processes

- No other process being contemplated at this time.
- Need to retain flexibility to implement other processes in response to regulatory or market changes.

## Next Steps
And
Contacts

**And**
**Contacts**

- Forum Dates & Location:
- Phoenix, AZ ---October 10, 2006
- 	at Western’s Desert Southwest Office
- Ontario, CA  ---October 11, 2006
- 	at Doubletree Hotel Ontario Airport

***Public Comment Forums***

- Public Comment Forums
- Submit Written Comments to Western Through November 13, 2006
- Evaluation of Comments
- Reclamation Adopts Plan & Publishes FRN Approximately March 2007

**Next Steps**

- Submit written comments to:
*        **Mr. J. Tyler Carlson*
*        **Western Area Power Administration*
*        **P.O. Box 6457*
*        **Phoenix, AZ 85005-6457*
*       **or Fax: (602) 605-2490*
*       **or Email: Navajomarketing@wapa.gov*
*   *

***Navajo Marketing Plan***

- Visit our website at:
*   *http://www.wapa.gov/dsw/pwrmkt
*Desert Southwest Region Marketing Area Map*
*Original Marketing Plan*
*Federal Register Notices*
*Comments*
- Contact* *Brian Young at 602-605-2594

***Additional Information***