HomeMy WebLinkAboutAgenda Packet 10/30/2008
I.
~ORTANGELES
WAS H I N G TON, U. S. A.
CITY COUNCIL SPECIAL MEETING
October 30. 2008
CALL TO ORDER - SPECIAL MEETING:
~.
II. ROLL CALL:
Members Present:
Mayor Braun
Deputy Mayor Wharton
Councilmember Di Guilio
Councilmember Kidd
Councilmember Perry"
Councilmember Rogers
Councilmember Williams
Staff Present:
Interim Manager Osterman
Attorney Bloor
Clerk Upton
G. Cutler
T. Gallagher
D. McKeen
N. West
Y. Ziomkowski
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/ / Other Staff Present:
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III. PLEDGE OF ALLEGIANCE:
Ledby &UN~OIWrrfi,o..L -A).A,~
FORTANGELES
CITY COUNCIL SPECIAL MEETING
Attendance Roster
WAS H I N G TON, U. S. A.
DATE OF MEETING:
LOCATION:
October 30. 2008
City Council Chambers
" ..,
,'Address
Name
no" 'R T'~ A IN'G'' E'LE'S"
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WAS H I N G TON, U. S. A.
CITY COUNCIL MEMO
DATE:
October 30, 2008
To:
CITY COUNCIL
FROM:
Glenn A. Cutler, Director of Public Works & Utilities
SUBJECT:
Bonneville Power Administration Power Sales Agreement
Summary: Ms. Shannon Greene, BPA Account Executive, and City staff will present an
overview of the new Power Sales Agreement and Tiered Rates Methodology to the City Council.
Recommendation: For information only, no action requested.
Background/Analysis: The City's Electric Utility currently has a Power Sales Agreement and a
Transmission Service Agreement with the Bonneville Power Administration (BP A). The Power
Sales Agreement is in effect through September 2011. The Transmission Service Agreement is in
effect through September 30, 2036.
A new Power Sales Agreement has been offered to the City by the BP A, which must be accepted
by the City no later than December 1,2008. The new Power Sales Agreement would commence
on October 1,2011 and conclude on September 30,2028. The primary change in the new Power
Sales Agreement is a shift from average embedded rates to a Tiered Rates Methodology (TRM).
Power purchases under the new tier 1 rate are anticipated to be similar to current costs. The new
tier 2 rate will reflect the marginal cost of new power resources and is anticipated to be
significantly higher than the tier 1 rate. The preliminary tier 2 annual cost estimate ranges from
$530,000 to $680,000 beginning October 1, 2011, and would continue to climb in future years
based on the City's load growth. The City's future decisions on tier 2 power resources are
anticipated to be the largest issue the Electric Utility will face over the next twenty years.
On October 14, 2008, Ms. Shannon Greene, BP A Account Executive, and City staff presented an
overview of the new Power Sales Agreement and TRM to the Utility Advisory Committee. Based
on the recommendation of the Utility Advisory Committee, a similar presentation will be made to
the City Council this evening. Staff will request a recommendation from the Utility Advisory
Committee on the new Power Sales Agreement at its November 10, 2008 meeting, which would be
considered by City Council at its November 18,2008 meeting. BPA produced the attached
factsheet and background information that councilmembers are encouraged to read before tonight's
meeting.
Attachment: Factsheet, A Roadmap To The Provisions Of Regional Dialogue Contracts And
Tiered Rates
N:\CCOUNCIL\DEPDIR\BP A Power Sales Agreement.doc
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August 2008
A roadmap to the provisions of
Regional Dialogue contracts and
tiered rates
BPA's current power sales contracts expire Sept. 30,
20 II. After years of collaborative discussions with
customers and other parties and much hard work on
all sides, BPA is offering new contracts to its
customers. These contracts will work in tandem with
a new Tiered Rate Methodology BPA has proposed
for the Priority Firm Power (PF) rate. These Regional
Dialogue contracts and the tiered PF rate form the
foundation of the business relationship BPA is
offering for the next 20 years.
This fact sheet summarizes the provisions of the new
Regional Dialogue power contracts and Tiered Rate
Methodology. As a summary, it provides a guide for
basic understanding of the new contracts and Tiered
Rate Methodology and should not be relied on as an
authoritative interpretation of those documents.
New long-term contracts
The new power sales contracts will cover fiscal years
2012-2028. Customers will have until Dec. 1,2008,
to consider and sign their new contracts. BPA is
offering contracts ahead of when the current contracts
expire so that BPA and its customers will know well
in advance who has the responsibility to develop new
resources to meet load growth starting in FY 2012.
Having this certainty in advance will help ensure that
new resources are in place when they are needed.
Also, by signing these contracts, customers will
secure the benefits of a defined amount of low cost-
based power from the federal system for another
20 years.
Another reason to sign the new contracts this year
is that BPA has spent considerable time helping the
current administration in Washington, D.C.,
understand the need for new long-term contracts.
If the contracts are not signed by the Dec. 1
deadline, the region faces the risk of delay as a
new administration is brought up to speed. There
also is the possibility of significant and unpredictable
changes to the contracts or rates.
In many important respects, the new power sales
contracts will be similar to the current Subscription
Key dates
Contracts:
Aug. 18, 2008 - Final Regional Dialogue
Load Following and. Block contract
templates provided to customers
Aug. 29,2008 - Final Regional Dialogue
Slice contract template provided to
customers
Dec. 1, 2008 - Deadline for signing
Regional Dialogue Contracts
Tiered Rate Methodology:
Oct. 6, 2008 - Final TRM Record of
Decision and Final TRM filed with FERC
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contracts. For example, customers will have a choice
of power products much like in the current contracts
- Load Following, Block and Slice/Block.
In general, the new Load Following product is similar
to the Load Following products sold under the current
Subscription contracts where BPA is responsible for
serving the customer's entire load, minus what is
served by the customer's own resources. However,
the new Regional Dialogue Load Following product
gives customers more opportunities for applying new
non- federal resources to serve their own load over
time than was allowed under the Subscription
contracts.
The new Block products also are similar to those
provided under the Subscription contracts. Each
customer is responsible for serving its own load
except that which is served by its defined BPA Block
purchase amounts. The Flat Block product (which
provides equal amounts in all hours of the year) is the
same as the product under the Subscription contracts.
Under the Shaped Block product, the allowable shape
for the Tier I portion (see the next section for an
explanation of Tier I and Tier 2) is based on the shape
of the customer's monthly net requirement. The
portion of Block served at Tier 2 rates is flat across
Renewable Energy Credits
Renewable Energy Credits (REGs) come with
the power purchased under the High Water
Mark contracts, and there is no extra charge
for. them. Each utility's power purchases at
Tier 1 rates will include REGs in an amount
proportional to the amount of power
purchased Compared with the total amount of
Tier 1 system resources... Power purchased at
Tier 2 rates may include. REGs, depending oh
the resource(s) Whose costs are the basis for
the Tier 2rate(s).lf customers wish to have
REGs included with their Tier 2 purchases,
BPA will seek to acquire Tier 2 resources that
provide RECs.
the year. As is the case with the Subscription
contracts, Shaping Capacity can be added to the
Block product.
The Slice portion of the SliceIBlock product is
generally similar to the Slice product under the
Subscription contracts. However, the new Slice
product is required to come initially with an amount
of Block product. The Block portion of the Slice/
Block product can be flat or shaped.
"High Water Marks" and tiered rates
By far the biggest change the new contracts will bring
is that each customer will have a contract-defined
right to purchase an amount of power at "Tier I"
rates, which represents the cost of BPA's existing
system. That amount of power is called the High
Water Mark, or HWM. Utilities will still have the
right to have BPA meet their net requirement load
(the utility's load minus its own resources), but BPA
will meet net requirement load above the HWM at
"Tier 2" rates. Tier 2 rates will be set to cover the full
cost of the additional power BPA buys to meet those
additional loads.
Giving each customer an HWM and tiering the
Priority Firm Power rate has significant benefits to
customers and to the region as a whole:
i9l HWMs define the portion of load that will be
served at Tier 1 rates; this will be the bulk of
most customers' load for the foreseeable future.
Limiting the resources to the existing federal
system and a minimum amount of augmentation
purchases whose costs will be recovered through
Tier 1 rates keeps those rates lower and more
stable.
i9l Many utilities want a choice between buying from
BPA or developing their own resources to meet
load growth. BPA's current practice of meeting
all net requirements at one melded rate makes
choosing to develop non-BPA resources
uneconomical because the melded rate blends the
costs of existing federal resources with market
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purchases, resulting in lower rates than new
resource costs. HWMs and tiered rates give
utilities a real choice about how to meet their
load growth.
It The tiered rate design will give customers the full
economic value of their decisions to conserve,
manage their load shapes and add new resources
in beneficial shapes without imposing costs on
other customers.
II BPA's continued funding for fish recovery and
other public purposes will clearly be a Tier I
obligation and will provide stable funding for
these purposes.
There are several types of High Water Marks that
BPA will calculate at different times and for different
purposes.
Most important is the Contract HWM or CHWM.
BPA will calculate Contract HWMs in FY 2011 based
on each customer's FY 2010 measured load, adjusted
for unusual occurrences in that year, such as abnormal
weather, minus customers' existing resource amounts
in FY 20 10 as those resource amounts were defined
on Sept. 30,2006 (with some limited exceptions).
BPA also will adjust each utility's HWM to provide
credit for conservation savings achieved by that
utility. (The conservation adjustment redistributes the
Contract HWM amounts among customers but does
not change the total Contract HWM amount for all
utilities as a group.)
The total HWMs will be limited to the expected
FY 2012-2013 firm output of the federal generation
system, plus up to 300 al\1W of "augmentation"
purchases. Current forecasts suggest that most
customers' HWMs will be slightly higher than needed
to cover the difference between their FY 2010 loads
and their FY 2010 resources. But this is not certain,
since there is uncertainty about both load growth and
the output of the federal system.
BPA will calculate the Rate Period High Water Mark
(or RHWM) for each customer prior to each rate case.
The RHWM is the same as the CHWM except for
some adjustments for changes in the output of the
existing BPA generation system. Because the output
of BPA resources does not stay constant from year to
year, BPA will calculate the RHWM before each rate
case to reflect the latest forecast of firm resource
output. To calculate RHWM, BPA will divide each
utility's Contract HWM by the sum of all customers'
Contract HWMs, and then multiply by the forecast
output of BPA's resources averaged for that rate
period. The Rate Period HWM defines the maximum
planned amount of power a customer is eligible to
purchase at Tier I rates for a particular rate period.
In FY 2009, BPA will calculate the Transition Period
High Water Mark. It has a limited purpose, which is
to define how much power (if any) each customer will
need to either buy from BPA at the Tier 2 rate or
acquire from other sources for at least FY 2012-2013.
. History leading up to
contract offers .
.. The RegionalDialogue process~eganjn
..April 2002 when a group of BPA's customers
. ~ubmitted a "joint customer proposal;'toBPA
>that addressed n~ar- arid long~ term contract
and rate issues:Since then, BPA and ..
. customers and other interested parties have
worked to resolve the numerous issues .
necessary to put new 20-year contracts into
.. place.BPA laid oLltits poliCy guidance on
these issues in its Long-Term Regional.. .
. Dialogue Final Policy in July20Q7 . Intensive
collaborative regional effort Continued ,andin
.October200i BPA released the draft of the
mastercor'itracttemplate for the firpt time. .
After more months of dialogue, on April 7,
2008, BPA again released the contraCt
. '.'
..ternplates to the region for review and
. Gomment. More drafts and detailed
negotiations ensued, leading to the final
templates in August 2008.
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The RHWM, not the Transition Period HWM, will
define actual rights to buy power at the Tier 1 rate for
those transitional years. But since the RHWM will
not be detennined until 2011, the Transition Period
HWM is needed so that responsibilities for meeting
above-HWM load can be defined far enough in
advance to allow BPA and utilities to line up the
necessary power sources.
That's a lot of High Water Marks. Customers will
have a chance to review and comment on BPA's
calculations of CHWMs and RHWMs before they
become final.
It bears repeating: the CHWM and the RHWM do not
limit the amount of power customers can buy from
BPA. The HWMs set maximum planned amounts of
power customers can purchase at Tier 1 rates. Under
the new contracts, as now, customers will continue to
have the right to buy enough power to meet their full
net requirements from BPA. The change is that some
of the net requirement purchase will be at Tier 1 rates,
and some will be at Tier 2 rates.
The 20-year Tiered Rate Methodology
Rates under these new contracts will be very different
from current and previous rates. Our customers said,
and BPA agreed, that BPA should establish a long-
term rate method that will provide certainty about
how those rates will be constructed during the term of
the contracts. The Tiered Rate Methodology (TR..t\1)
provides this certainty. After much collaborative work
with customers, BPA has proposed a long-term tiered
PF rate methodology in a rate case that is scheduled
to conclude in the fall of 2008, in time to be useful
for the decision to sign the new contracts.
Although the Tiered Rate Methodology will not be
final for at least a few months and sales under the
new contracts will not commence until FY 2012,
the following summary is written as though this new
business relationship is a reality, simply for ease of
presentation.
Under the tiered PF rate, rates will be structured
differently but will remain cost-based.
In simple terms, the Tier I rate will be based on the
cost of the existing system, although Tier 1 costs will
include the cost of a relatively small amount of power
purchased by BP A as "augmentation" of the existing
federal system. The Tier 1 cost pools cover all of
BPA's power costs except costs of resources added
to meet load beyond what existing resources plus
the limited allowable augmentation can meet. As
described below, portions of the rate are based on
forecast market prices, but in total the rate will
recover only the costs of the existing system and
the small amount of augmentation.
Currently, most of each non-Slice customer's bill is
made up of heavy load hour and light load hour
energy charges per kilowatt-hour. After FY 2011,
there will be many fewer per-kilowatt-hour charges.
Instead, most of the bill will be based on percentages
of "pools" of Tier I costs - not per-kilowatt-hour
charges.
The percentage a customer pays of each pool is called
the TOCA ("Tier 1 Cost Allocator"). Using a TOCA
makes the calculation of charges for all customers -
Slice and Non-Slice - similar and reduces the
potential for any appearance of inequity between
Slice and non-Slice customers.
By far the biggest pool of Tier I costs, which covers
the bulk of BPA's power costs, is called the
"composite" pool. There are some smaller cost pools
- the Slice pool for costs that apply only to the Slice
product and the non-Slicepool for costs that apply
only to the Block or Load Following products.
The demand charge under the Tiered Rate
Methodology is very different from the current
demand charge. The current demand charge is a
relatively low charge that applies to all demand
purchased. Under tiered rates, the demand charge will
be much higher, because it is based on the cost of new
capacity. But it will apply to only a small percentage
of total demand purchased, at least in the initial years
of the new contracts, depending on peak load growth.
Another change in the demand charge is that it will be
based on the utility's own peak load instead of being
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measured at the time of BPA's peak load. This change
gives utilities more ability to predict and control their
peak loads. These changes will allow utilities that find
ways to manage their peaks to reap the reward of
doing so, while keeping the overall rate cost-based
and avoiding cost shifts to other customers.
There is also a Load Shaping charge. This charge
covers the cost of reshaping the output of the federal
system to match the shape of each utility's actual
load. The Load Shaping charge applies to Block and
Load Following purchases. For some customers this
"charge" can actually be a credit, because their load
shape is relatively easy to meet.
Even though it will not be large for most customers,
the Load Shaping charge plays a key role. It lets
customers that invest in load management,
conservation or new resources in beneficial shapes
realize the full benefit of their investment through
reductions in their BPA power bill. It does this
without departing from the fundamental principle
of cost-based rates.
The new long-term contracts and the new Tiered Rate
Methodology work in tandem. Neither works without
the other. The Tiered Rate Methodology defines a
method for setting the tiered PF rate but not the levels
. . .- .'.. '- ..
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.A r1E3vvpu9Iidy owned Utilitythat forms after>
theneli\l contractsaWSi~nedwill be given a
Contr?ct Hig~VV~terMark if itsigns ar1 HWM
.. cohtract.The HrTlitsf9r~i~h V:/ate[ Marks of
flewpuplic utilitiesa.re.25Q average
.... ....'. . . '-,... . .
megawatts overthE) term bfthe contracts and
.. . . . :. . - ..' . .... :.. '
.50~verage megawattsiJlanyrate period,
.. with limited exceptions:. If new publics'
requestsfor HWMs are higherthan the rate
periocilimit but below the overall limit,
amounts will be phased in:Amounts above
the ()ven:llllimit must be purchased atTiet 2
rates or supplied from non-BPA resources.
'. . . , . "
of the Tier 1 and Tier 2 rates. The rate levels will be
set in future rate cases that will occur every two
years. The first rate case that will set rates under the
Tiered Rate Methodology will set the rates for the
first two years of the new contracts, FY 2012-2013.
Choices for meeting load growth
Customers have several choices for meeting load
above their High Water Marks, which generally will
be load resulting from load growth but may also be
due to reductions in output from the existing federal
system. They have until November 2009 to make this
choice for at least the Transition Period (FY 2012-
2014).
Customers can meet all or part of their load growth
with purchases from another supplier or develop a
new power resource, either on their own or in
partnership with other utilities. BPA can provide the
services needed to shape the output of such resources
to load, or the customer can purchase those services
from other suppliers. For Load Following customers,
these non-BPA resources can be added in a variety
of shapes. As necessary, BPA will reshape its
deliveries at the Tier 1 rate to meet the customer's
remaining load.
Or the customer can ask BPA to meet all or part of its
load growth. If a customer wants BPA to do this, there
will be periodic deadlines to notify BPA so it can
acquire the necessary power by the time it is needed.
BPA will avoid passing to Tier 1 rates the costs and
risks of meeting above-HWM load by keeping those
costs and risks within Tier 2 to the maximum extent
possible.
Power will be priced as a flat block in all Tier 2 rate
alternatives. All load fluctuations and peak demands
above this flat block will be covered in the Tier 1
service with the load shaping charge accounting for
the differences in the cost to serve different shapes of
load growth.
Customers will have several choices to make by
November 2009:
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Ii The customer may want BPA to serve its load
growth during just FY 2012-2014 (the transition
period). If a customer makes this choice, the
customer will be charged the Tier 2 Short-Term
rate, and it will have 4nother chance in FY 2011
to either continue buyiing from BPA or buy from
another supplier from'FY 2015 to 2019.
IIl:ll For Load Following customers, the customer may
want BPA to meet its load beyond what is
available at Tier I rates for the duration of the new
contracts. If a customer chooses BPA, it will buy
such power at the Tier 2 Load Growth rate. BPA
will provide power at Tier 2 rates for all customers
who sign up to purchase at the Load Growth rate.
Iill BPA expects to offer a "vintaged" Tier 2 rate or
rates in 2009. If a customer chooses a vintage
Tier 2 rate, it will sign up to pay the actual costs
of a particular resource or group of resources.
f!lil If a utility is a Load Following customer and
commits to meet load beyond that served at the
Tier 1 rates at the Tier 2 load growth rate, it can
join the Shared Rate Plan. The Shared Rate Plan
adds all the participants' Tier 2 charges and Tier I
customer charges and spreads the total over all the
participants so that all participants pay the same
cost per kilowatt-hour. Participants will pay their
own individual demand charges. Initial sales for
the pool of purchasers in the Shared Rate Plan are
limited to 700 aMW because selling too much at
these melded rates would undermine the regional
benefits of tiering rates. Other customers will see
no cost shift due to BPA's offer of the Shared
Rate Plan.
Low Density Discount
Irrigation Rate Mitigation
Loads eligible for irrigation rate mitigation (IRM)
will be shown in each customer's new power sales
contract and will not increase during the term of the
contract. IR.t\1 will be a percentage discount on the
Tier 1 rates that is determined in each rate case. A
true-up process at the end of the irrigation season
will ensure that each utility had the full amount of
irrigation load stated in its contract.
Stability and durability of contracts
BPA intends the new business relationship it is
offering to be predictable and durable. Both BPA and
its customers are seeking long-term certainty and
stability. Some customers will be making long-term
financial commitments to new resources and need
to know that the underlying deal with BPA cannot
change except under specific extraordinary
circumstances and through specific processes.
Similarly, BPA must meet its customers' net
requirements in a reliable and cost-effective way.
The Tiered Rate Methodology lays out the rules for
making changes in the TRlvl. The protections laid out
in the Tiered Rate Methodology will be secured by
the contract, ensuring that changes can be made only
under the narrowest of circumstances.
Consequences of not
signing contracts by Dec. 1
As noted earlier, BPA will be offering contracts soon
and would like all customers to sign the new contracts
by the Dec. I deadline because that would be best for
each customer and for the region generally. BPA has
worked with customers to resolve concerns in hopes
that each customer will be comfortable signing.
The low density discount (LDD) will be available, but Customers are not reguired to sign a contract that
. --- ... _._.~~------~--~.._- ---"-- --~--_.
not for above-High Water Mark purchases. The LDD includes a High Water Mark in order for BPA to meet
will be based on total retail load (minus resources) so, their net requirement load. BPA expects that
if a utility has load growth, it will receive an LDD customers will sign the contracts by Dec. 1. In the
equivalent to what it would have received under the unlikely event a customer doesn't, BPA will offer a
current melded rates. The LDD will be applied to all different contract before the current Subscription
Tier 1 charges - the customer charges, the load power sales contract expires. BPA has not yet defined
shaping charge and the demand charge.
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what that alternative contract would look like and will
not be able to focus on developing that alternative
contract this year. I
cases. SPA does not currently intend to tier the IP
rate, but the TRM does not rule it out.
.
Public residential exchange
and billing credits i
Most customers have said that Tier I rates should not
include any costs or risks of any resources that SPA
acquires to meet load growth. That is SPA's intent,
and the Tiered Rate Methodology includes rules to
ensure that the costs of such new resources will be
included in the Tier 2 cost pools. Likewise, there is
broad agreement that the costs of new non-SPA
resources acquired by customers should not appear in
the Tier 1 rate. Thus, the new contracts and TRM
include provisions to ensure that costs of resources
acquired by SPA or customers to meet load growth do
not find their way into the Tier 1 ~ate through public
utilities' taking part in the residential exchange or
through billing credits. An exception is for resources
customers already had in place in 2006, because these
resources were in place before the Tiered Rate
Methodology was created and because they reduce
customers' High Water Marks.
DSI service
SPA has not yet decided about service to the direct-
service industrial customers (DSls). SPA has been
exploring various means of providing service benefits
to the DSls, including a financial mechanism similar
to their current contract, which provides the region
with known, capped costs. SPA also is considering
actual power deliveries, which would be priced at the
Industrial Firm Power (IP) rate, as developed in rate
BONNEVILLE POWER ADMINISTRATION
DOE/BP-3911 . AUGUST 2008
7
Regional Dialogue - Benefits
....i Secure the low cost power of the Federal
based system for the ratepayers and
consumers of the Pacific Northwest.
~ Twenty-year contracts with a 17- year
implementation period.
~ Utilities have a choice of how to meet
their future load growth.
Slid~
1
Regional Dialogue
~ What is the Regional Dialogue?
>- Process to define BPA's long-term power supply role
after current contracts expire in October 2011.
>- Development of a methodology to tier rates to be
implemented in October 2011.
>- Collaborative process between public utilities and BP A
st1.fted in September 2005.
~ WhyNow?
>- Customers and BP A need certainty for resource
planning for FY 2012 and beyond.
Slid~
Current Contractual Relationship
between
Port Angeles and BP A
~ Full SeIVice Power Sale Agreement
>- BP A follows Port Angeles' load.
.... Utility Resources
:> Port Angeles cannot add new resources to
offset purchases from BP A to meet
existing or new load.
Slid~
2
Current Contractual Relationship
between
Port Angeles and BP A
~ Contractual right to lowest priority finn
rate
> Melded rate of the Federal based system
and market purchases.
> Rates periods have varied during current
contract.
Slid~
Regional Dialogue Contractual
Relationship
~ Load Following Power Sales Agreement
>- BP A continues to follow Port Angeles'
load.
~ Take or Pay arrangement for first tier of
power and conunitted second tier power.
>- Port Angeles can add resources to meet
second tier power needs.
Slid~
3
Regional Dialogue Contractual
Relationship
".. Contractual right to lowest priority frrm
rate
>- Port Angeles' total access to Tier 1 power
is based on amount of its total load in
FY 2010.
>- Power rate cases will occur every two
years and coincide with BP A's
Transmission rate cases.
Slid~
Port Angeles has choices on how to
meet and serve above Tier 1 load
..) Develop resources.
~ Purchase resources.
~ Conservation.
~ Tier 2 products from BP A.
Slid:~'
4
Regional Dialogue Contracts
Signature Deadline:
December 1, 2008
Slid~
RD Power Product Options
~ Load-Following
>- Provides load-following service from BP A for metered
load less non-Federal resources applied to load.
~ Block
>- Provides an amount of power to meet a customer's
planned annual net requirement; can be flat or shaped;
can be paired with shaping capacity.
~ Slice/Block
>- Provides for the combined sale of two distinct power
services for service to a preference customer's planned
net requirement: the Slice Service and the Block
Service.
Slide'1~~'
5
Load Foll?wing Product
~ How does it work?
>- The Load-Following product supplies dIe customer
widl firm power to meet dIe customer's Tot--u Ret-1i1
Load, less dIe firm power from dIe customer's
dedicated non-Federal resource generation amounts
and net of any declared metered "behind dIe meter"
non-Federal resource amounts.
>- The Load-Following product is not available to a
customer operating its own balancing authority.
Slide'1~'
Block Product
,,:y How does it work?
>- Block provides fiml power each mondl on a planned basis
to meet a customer's planned annual net requirement load.
~ Flat Block
>- Delivers an equal anIount of power in all hours of dIe year.
~ Shaped Block
>- Shaped to dIe customer's forecast mondlly net requirement.
~ Block with Shaping Capacity
>- BP A will offer customers dIat purchase dIe stand-alone
Block product a right to add Shaping Capacity to dIeir block
purchase.
Siide~~'
6
Slice/Block Product
~ How does it work?
, >- The Slice service provides power in the shape of BP A's
generation from the Federal system resources over the
year.
>- Provides firm power on a planned monthly basis (the
Block portion) in addition to an amount of energy based
on Federal system energy which can include over-
generation, such that this product also includes an
advanced sale of surplus energy.
>- A customer purchasing Slice will be responsible for
following their own hourly load.
Slide'1~'
Tiered Rate Methodology
,). What is the Tiered Rate
Methodology?
>- The TRM preserves the value of the
Federal based system for the consumers
of the Northwest.
>- The TRM establishes a predictable and
durable means by which to tier BP A's
priority firm power rate starting in
October 2011.
Slide :v
7
Tiered Rate Methodology
~ How does the TRM work?
>- BP A will establish a dividing line between the lowest
cost Tier 1 rates and above Tier 1 rates. This dividing
line is called a "high water mark."
>- Utilities have a choice of how to serve its load above the
high water mark.
../ Develop or purchase resources
../ Conservation
../ BP A Tier 2 Product
:> The Tiered Rates construct is designed to position BP A
as a neutral provider of power needed to meet utility
load above Tier 1.
Slide'1~~1
BP A Tier 2 Products
..) Load Growth Rate
>- A rate pool for Load Following customers who want to commi~ to
have BPA serve their above-Tier 1 load for the duration of the
contract.
..) Short-Term Rate
>- The shortest commitment Tier 2 rate altemative for customers.
..) Vintage Rate
>- Periodically ofTered Tier 2 rate vintages based on specific
resource costs for customers that need power to be based on
specific resource types (e.g. renewable) or that want to know more
about resource costs before they make a long-term commitment
BP A pricing of above Tier 1 rates will be based on
the marginal cost of new BP A purchases and
resource acquisitions. . '1~. ~I
Slide 16 ~,
Il..
...,
8
.
Contracts
" Standardized contract template for each product
offering.
. Released fIrst draft for comment in early April 2008.
. September - November 2008 contracts are issued
for signing.
G December 1, 2008 is the deadline to sign contracts.
o There is no alternative contract developed at this
time for utilities who do not sign this contract
Slide~
.. May 2008 - Forecast above Tier 1 Determination
.. October 2008 - Tiered Rate Methodology rate case concludes
.. December 1, 2008: Contract signing deadline
.. Prior to Nov. 2009 - Initial commitment for serving above Tier
1 loads for FY 2012 - 2014
.. Early FY 2011 - Initial Rate Case starts
.. Mid FY 2011 - Contract above Tier 1 calculated
.. Mid FY 2011 - Rate Period above Tier 1 calculated
.. Late FY 2011 - Initial Rate Case ends
.. FY 2012 - Power delivery begins
.. Prior to Oct 2011 - Subsequent commitment for serving above
Tier 1 for FY 2015 - 2019
Slide'1~'
9
Regional Dialogue...where we've been
iii September 2005: Regional Dialogue Concept Paper ;eleased.
111 September 2005 - February 2006: Series of workshops designed to
reach alignment on Concept Paper issues.
. July 2006: Long-Term Regional Dialogue Policy Proposal released
for comment.
lEI August 2006 - January 2008: Workshops held on Regional Dialogue
Policy Implemenl:c1.tion.
iii July 2007: Long-Term Regional Dialogue Final Policy and Record of
Decision Issued.
E May 2008: Tiered Rate Methodology rate case begins (ex parte).
BI July 2008: Tiered Rate Methodology Supplemenl:c1.l Proposal issued.
El October 2008: Tier Rate Methodology rate case ends (ex parte ends).
E Contracts Signed: December 1, 2008.
Slide~
10
Power Sales Agreement
Tiered Rate Methodology
-.....r: ' .'
~
October 30, 2008
Larry Dunbar, Deputy Director of Power Systems
Power Sales Agreement
~ Selection of load following service
~ Waiving certain rights
... Billing credits
... Residential exchange
... Average embedded rates
,.;. Elwha River Ecosystem and Fisheries
Restoration Act
,.;. Continued Morse Creek operation
~ WP AG & PPC representation
~ State greenhouse gas emission standard
Tier 1
~ TRM & rates not finalized
... Cost anticipated similar to today
~ 90% of cost "take/don't take" but pay
~ City subject to wholesale market risk
.. Operating reserve needs increase
.. Conservation & energy management
.. SCADA & AMI gain importance
~ Retail rate design overhaul
Tier 2
~ TRM & rates not fmalized
.. BP A rates higher than Tier 1
.. Anticipated "take/don't take" but pay
.. Notices & commitments
.. BP A & other tier 2 service options
.. Operating reserve needs increase
.. New capital & operating risks likely
.. Conservation rate signal?
.. Economic development
2
Current Rates & Cost
Example Monthly Bill
Current Wholesale Rate Example .
HLH Energy $0.02495 per kWh
LLH Energy $0.01793 per kWh
Peak Demand $1.64 per kW coincident
with SPA system peak
Load Variance $0.00047 per kWh for all
energy
Current Cost
Load Variance
2%
LLH
26%
Proposed Tiered Rates & Cost
Ex I M thl Bill
ampJ e on LY
Proposed Wholesale Rate Example
Composite $1,450,486 per month base
Charge Tier 1 charge
HLH Load $0.04716 per kWh above
Shaping Tier 1 28,195,560 kWh take or pay
LLH Load $0.04056 per kWh above
Shaping Tier 1 18,555,088 kWh take or pay
Demand $7.41 per kW City peak above
Tier 1 110,514 kW take or pay
Flat Block $0.05048 per kWh take or pay
Tier 2
Proposed Cost
Demand
4%
LLH
4%
Base
81%
3
Proposed Tiered Rates & Cost
Annual Example
October 2011 - September 2012 (FY 2012)
Net Load Requirement 90.6 aMW
Tier 1 Allocation 87.6 aMW or 96.7%
Tier 2 Amount 3.0 aMW or 3.3%
Cost. Current Rates $20,672,049 or $26.0/MWh
Cost. Tiered Rates $21,254,238 or $26.7/MWh
Projected Increase 2.8%
100
Tiered Rates Illustration
Tier 2 $50+/MWh . Overall Avera e $26.7/MWhl
90
70
80
III
CIl
III 60
III
J::.
t.l
:; 50
c..
3: 40
:!!:
III
30
20
10
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
_ Historical Purchases 2009-2011 Status Quo Forecast'" Projected Tier 1 Allocation _ Projected Tier 2 Forecast
4
Tier 2 - Continued
~ Planning & UAC workshop needed
..Conservation potential assessment
.. Local power resource options
.Energy Northwest & other power resource options
. Renewable resource portfolio options
..BPA short term, load growth, vintage product options
.. Risk mitigation
.2009 COSA & retail rate design options
. Retail power sales contract needs
What's Next?
~ Power Sales Agreement
.. November 10,2008 UAC recommendation
. November 18, 2008 City Council decision
. December 1, 2008 acceptance deadline
~ Tier 2 Planning & 2009 UAC Workshop
~ November 1, 2009 Tier 2 Decisions
~ October 1, 2011 Tiered Rates Effective
~ Agreement & TRM changes likely
5
Glossary & Acronyms
1. Kilowatt or k W is a unit of power which is also referred to as
demand, 1 kilowatt is 1,000 watts or the equavalent of 10-100
watt light bulbs
2. Kilowatt-hour or kWh is a unit of energy, 1 kWh is
equivalent to what 10-100 watt light bulbs would consume if
left on for an hour
3. Megawatt or MW is a unit of power which is also referred to
as demand, 1 MW is equivalent to 1,000 k W
4. aMW means average megawatt, 1 aMW is equal to what
1,000 kilowatts would consume during a specific time period
S. MWh means megawatt hours of energy, 1 MWh is equal to
1,000 kilowatt hours
6. Heavy load hours or HLH are from 7 AM to lOPM Monday
through Saturday
Glossary & Acronyms - Continued
7.
Light load hours or U1-I are all other hours, and all day
Sunday and several holidays
Supervisory Control and Data Acquisition System or
SCADA
8.
9. Automatic Metering Infrastructure or AMI which is also
commonly referred to automatic meter reading or AMR
10. Melded Rates are average rates which are also commonly
referred to as uniform or postage stamp rates
11. Tiered Rates Methodology or TRM
12. Bonneville Power Administration or BPA
13. Cost of Service Analysis or COSA
14. Fiscal Year or FY is used in context of the federal budget
year which begins on October 1 and ends on September 30
6