Comment Sheet

CVP Cost Allocation Meeting of January 18, 2013

Name: Jerry Toenyes

Organization and Address: Northern California Power Agency, 651 Commerce 

Drive, Roseville, CA 95678

Phone: (916) 781-4297

Email: Jerry.Toenyes@ncpa.com

Comments:

NCPA provides the following comments on the material presented at the January 18, 

2013 meeting:

Power Benefits:

NCPA appreciated the open dialogue at the beginning of the meeting regarding 

power benefits as it initiated a good discussion on the benefit value currently 

provided by CVP generation. Our basic issue is that the California Independent 

System Operator (CAISO) market has a price for all power products throughout

California and when CVP power is delivered into the CAISO the exact values (power 

benefits) for CVP generation are established. The CAISO pays the customers for the 

imported CVP power at a specific “Locational Marginal Price” (“LMP”) at the point of 

transfer, currently at Captain Jack near the Oregon border. If Reclamation did not 

have legal requirements for the delivery of CVP generation, it would sell the power 

to the CAISO market and receive the same value (benefits) as CVP customers are 

experiencing. The CAISO market valuation is the method that needs to be used to 

determine power benefits in the cost allocation process. Power customers want 

CVP costs allocated on the benefits that are actually provided, not based on 

theoretical calculations developed by hundreds of inputs into a model.

There are several publications available that make future CAISO market projections. 

At the meeting Kent Palmerton listed three entities that produce these projections: 

Ventyx, Black and Veatch, and Cambridge Energy Research Associates. Reclamation 

should subscribe to one of these publications and use those valuations as the basis 

for making future power benefit projections. The power customers would 

appreciate Reclamation not spending our money on further PLEXOS modeling when 

existing publications already make projections for future power values.

Western has calculated the value of CVP generation based on market prices for the 

last several years. The evaluation reflects actual CVP operations and values the 

generation on an on-peak and off-peak basis. The historical data in these studies 

can be used as a base for making future on-peak and off peak monthly projections of 
CVP generation. The future on-peak and off-peak generation pattern will need to be 

adjusted, however, to reflect operational changes caused by Delta Flow Criteria,

river temperature and water quality regulations, and other projected environmental 

events that will impact future CVP power operations.

Hydrology:

Reclamation needs to address how it plans to estimate future water deliveries and 

dam water releases at the next meeting. The projection of water deliveries and 

subsequent releases from dams for power generation is a critical component of both 

water and power benefits for the cost allocation.

Final Cost Allocation Option:

As the expense of this cost allocation mounts and we begin to uncover the thorny 

issues associated with trying to develop an accurate cost allocation, we should 

reconsider using the last major allocation update made in 1970 as the final cost 

allocation for the CVP. A minor cost allocation update was made in 1975 to reflect 

changes mainly in the power benefit evaluation, but those changes reflected a 

temporary uptick in power values which have since proved to be incorrect. The

1975 power benefits projections started at almost $50 per megawatt hour and then 

escalated over the 100 year period. Almost 40 years later the average market value 

is less than $35 per megawatt hour, 30 percent lower than the value used for the 

first year of the benefit evaluation for the 1975 cost allocation. Obviously the 1975 

minor update for power benefits, based on the energy shortage in 1973 and 1974,

was incorrect and the values used in the 1970 major cost allocation have proven to 

be far more accurate. As we have seen thus far from the cost allocation process the

valuation for water, power, and flood control, on a proportional basis, appears to be

close to the allocation percentages developed in the last major 1970 allocation. 

Completing an expensive cost allocation study only to come up with similar 

allocation percentages used in the 1970 cost allocation does not make economic 

sense.