Opinion ID: 1321950
Heading Depth: 1
Heading Rank: 6

Heading: Quantity of Nantahala's Peaking Capacity.

Text: The 1960 Ebasco Study computed Nantahala's plant capacity, under the most adverse water conditions, at 85,400 kw. After deducting the three small plants excluded from the NFA, that capacity is 84,300 kw. Alcoa's acceptance of these computations is reflected in a number of internal documents cited by the Commission in its order. As was true of the energy entitlements, this study formed the basis of Nantahala's capacity entitlements in the 1963 Alcoa-Nantahala Agreement. Under it, Nantahala was permitted to use capacity without a pre-set limitation. Therefore, Nantahala was able to use actual capacity to the limits assigned by the 1960 Ebasco Study in meeting its customer demands. However, when Popovich conducted his study for the 1971 Apportionment Agreement, while accepting the most adverse water ( dependable ) capacity factor of 84,300 kw, he deducted 27,500 kw for the largest unit out to reach an assured capacity of 54,300 kw. This deduction is for the Nantahala facility which forms upwards of 50 per cent of the entire Nantahala generation system of 11 dams. Thus, under the 1971 Apportionment Agreement, Nantahala was assigned a peaking capacity of 54,300 kw. The result of this limitation is that any time Nantahala has to provide a customer demand in excess of 54,300 kw, it must pay a monthly demand charge to TVA for all power over that limitation. If the limitation were set at Nantahala's capacity level determined by the loss of load probability method, the monthly demand charge would be only the amount between 81,800 kw and the excess customer demand over and above that amount. The Commission concluded that demand costs thereby imposed on Nantahala for use of capacity between its assigned capacity of 54,300 kw and its assured capacity of 81,800 kw, would represent an expense to Nantahala and thus a savings to its New Fontana Agreement sister, Tapoco, since the capacity constraints for the TVA return entitlements are jointly shared by them under the NFA. The difference in amount between the capacity assigned to Nantahala under the 1971 Apportionment Agreement and what the Commission has determined its assured capacity to be results from the different methodologies employed by the companies and the intervenors in determining Nantahala's assured capacity. The intervenors' witness Springs testified that the proper reserve margin for Nantahala should be the margin used by TVA, which is the loss of load probability method. Use of this method would recognize that Nantahala is operated as part of the coordinated Alcoa-TVA system rather than as a stand-alone utility, and would result in a reserve requirement of about 3 per cent. Using a 3 per cent reserve in place of the largest unit out reserve, which, in this case is upwards of 50 per cent, would establish a capacity under the most adverse water conditions of 81,800 kw as opposed to Popovich's calculation of 54,300 kw. The Commission concluded that significant cost is shifted to Nantahala by the unfair and unwarranted limitation of its capacity to 54,300 kw; conversely, that expense, in the form of demand charges paid to TVA, is a concealed benefit to Alcoa. The basis for the Commission's conclusion that the capacity limitation assigned to Nantahala under the 1971 Apportionment Agreement was unwarranted lies in the Commission's rejection of the largest unit out adjustment to actual capacity for reserves in computing Nantahala's assured capacity. The order states as follows: If Nantahala were a separate and independent system, a deduction of the largest unit out might be appropriate to determine assured capacity. However, Nantahala is not and never has been a separate electric systemโit was not so designed. Nantahala's two largest facilities are Thorpe (previously Glenville), ... and Nantahala,.... The Thorpe and Nantahala facilities comprise about 65% of Nantahala's entire system. At the time of their construction, Alcoa obtained a certificate of necessity from the War Department and expressly argued and avowed that they were part of the Alcoa system. ... Furthermore, for the past 40 years, both Nantahala and Tapoco have been operated as an integral part of the TVA electric system pursuant to the provisions of the Fontana and New Fontana Agreements. Moreover, when Alcoa negotiated these agreements with TVA, it did not bargain for return power from TVA as if Nantahala was an independent power system but rather the attributes of the Alcoa system were melded together, with the TVA system for evaluation purposes.... With Nantahala and Tapoco being thus integrated into and coordinated with the TVA system, it is not appropriate to determine Nantahala's assured capacity by configuring Nantahala as a single independent and isolated system and to use the largest unit out methodology. Instead, Nantahala should be treated as part of the TVA system and the reserve margin used by TVA should be applied. TVA does not use a reserve of largest unit out but rather uses the loss of load probability method. (Emphasis added).