Introduction to Priest Rapids Project Power Sales Contracts

Transcription

1 Introduction to Priest Rapids Project Power Sales Contracts

2 Background PRP was initially intended to be a Federal High Dam for Flood Control Pres. Eisenhower s Public/Private Partnership allowed non Fed ownership Competition for PRP between WWP, State Power Agency & Grant (We Won) If PRP was a Fed Project power would be shared through BPA, so Congress passed PL (P 544) To assure that there shall be no discrimination between States such licensee shall offer a reasonable portion of the power and capacity and power output of the project for sale within the economic market area in neighboring states. In the original project license, PL 544 required that a reasonable portion of the project output be offered to neighboring states The original Purchasers participation in the PRP financing satisfied that requirement While negotiating new PRP Contracts, FERC interpreted PL 544 to require Grant to make a 30% Reasonable Portion available to preference parties (12 original purchasers + 10 Idaho Coops) A Marketing Plan was submitted with License to sell 30% of the output (firm and non firm) The Marketing Plan outlines the annual Power Auction A Slice entitles the buyer to a percentage of the PRP energy, capacity, pondage, ancillary services & outages, spill, fish obligations The energy associated with a Slice is subject to annual flows, the capacity is a function of head

3 2016 PRP Physical Shares* 0% ESS 30% 13% 7% 43% 70% Shell Slice Iberdrola Slice (GSL1) Meaningful Priority 17% Open Market Sale (COMS) 10% 10% Exchange/Conversion * Reasonable Portion Power Sales Contract is financially settled with no physical power delivery. NOTE: Canadian Entitlement (~59 Mwa, repayment for benefits derived from Canadian dams) and Encroachment (~70 Mwa; make whole payment for impact on Rock Island) are physical deliveries that are subtracted from total project capacity before any party receives its share 3

4 Contracts Reasonable Portion Contracts: Distribute Revenues and pay PRP costs Maintains historic Purchasers ownership like, financial rights to the project These contracts run the length of the project license Mitigated risk associated with the Reasonable Portion by giving Purchasers access to revenues from a sale of the Reasonable Portion in exchange for payment of the project costs Marketing Plan: Get PRP output and Fund Reasonable Portion Revenues Meaningful Priority. Allows Purchasers to buy a slice of PRP at a price determined in the annual auction Contract for Open Market Sale (COMS). Allows market participants to bid on a slice, minimum PRP slice is 3% of the project Amendments: Conversion. converted Purchasers rights to a share of Grant s non firm power (Additional Product) to a slice of Grant s retained share. Exchange. Certain Purchasers exchanged their rights to three products (Surplus, Reasonable Portion and Displacement) for a slice of Grants retained share. Product Sales: Make available to Purchasers the unused portion of Grant s retained share of PRP (Surplus = 70% Grant Load) GSL1 GSL1 is a slice sale, similar to COMS, but is made from Grants retained share (3 yr Contracts, Iberdrola and Shell) 30% Reasonable Portion (Financial Shares) 4 Grant Exh Surp PGE Avista PAC PSE Muni Grant

5 Annual Auction Implements the FERC required Marketing Plan by offering for sale the physical rights to the Reasonable Portion. That plan is required to : be fair, equitable and non discriminatory follow market based principles give a meaningful priority to Idaho Coops and Purchasers Purchasers have the opportunity to make an election to take physical delivery through a Meaningful Priority Contract. The price of this physical slice is set by the auction. Auctioned volume = Reasonable Portion Meaningful Priority + Exchange Slices. Must be a minimum of 3% of the project. Some of the small Exchange Agreement Purchasers place their share into auction Auction: Auction is open to any utility or power marketer. Bid is for a slice (capacity, energy, pondage, outage, spill) Clearing price is paid by auction winners and Meaningful Priority Purchasers. Proceeds flow to Reasonable Portion purchasers. 5

6 Estimated Unmet District Load (EUDL) When Grant s forecasted load requirement is greater than its 70% PRP share. Financial benefit No Power EUDL creates a financial right that allows Grant to access revenues from the sale of the Reasonable Portion EUDL valued as if purchased in the market Purchasers have option to offer the market power, Grant uses lowest cost in valuation Difference between the price that Grant would pay in the market and PRP costs This Valuation is subtracted from Reasonable Portion proceeds prior to disbursement Grant is responsible for a proportionate share of PFP cost Load Forecast Provisions Forecast of Grant County retail load Ratchet provides that the Grant s load forecast does not decrease due to actual load reduction If served by a non Grant source, still counts in load Power Sales Contract load is higher that actual Grant load 30% 70% EUDL Purchasers Grants Share 6

7 Reasonable Portion Rights and Obligations Power Ex COMS Morgan Stanley Physical Slice (mwh s) AUCTION REVENUES ($$$) EUDL $$$ AUCTION REVENUES ($$$) GCPUD Physical Slice (mwh s) AUCTION REVENUES ($$$) PGE Avista Pacificorp Puget Sound E. Seattle Tacoma Cowlitz EWEB Muni (4) Idaho Coop (4) Snake (6) PAC > Morgan Stanley PGE Avista PROJECT COSTS ($$$) Reasonable Portion Purchasers * Exchange Purchasers Meaningful Priority 7

8 Yakama Settlement During relicensing, the Yakama Nation and PAC began working on a competing license Eventually PAC dropped its plans and signed PRP Power Sales Contracts To ensure the Yakama Nation support Grant in relicensing, entered in a Settlement Settlement Provides long term relationship, and Settle litigation pending in 9 th Circuit Court Resolution of issues related to relicensing Cooperation to provide public power to consumer on Yakama Reservation Cooperation in development of Renewable or other energy sources

9 Actions of the Yakama Settlement Grant work with BPA to get an allocation, through the Regional Dialogue Process, of 25 amw of Tier 1 power for Yakama Power Available to Yakama Power as their load grows If BPA doesn t reserve power, Grant would retain its contractual rights to Tier 1 power and make 25 amw of PRP power available to Yakama Power Grant makes available PRP power to Yakama Power From , 20 amw of benefit (i.e., [Mkt Price PRP cost] * [20*8760]) From , 15 amw of benefit After 2015, 10 awm of benefit, with right to buy power IF YP give 1 yr notice, and delivers 10 amw from a new resource and amend PRP PSC These things have not happened

10 Actions of the Yakama Settlement, New Resources Yakama Nation agrees to give Grant right of first refusal to participate in development of New Generation Resources and cooperatively develop new resources for mutual benefit Studies development of a Biomass Project at Yakama Forest Products Helped refurbish two canal hydro projects on the Wapato Irrigation Canals Grant buys output at a price reflecting a sharing of cost and market Help place anemometers at reservation sites to study wind power potential Yakama Nation agrees to provide Grant 75% of all Renewable Energy Credits associated with renewable generation developed by Yakama Power up to 75 amw If greater than 75 amw, 50% of excess credits

11 Actions of the Yakama Settlement, Fish & Wildlife Grant and Yakama Nation signatories to PRP Salmon and Steelhead Settlement Agreement Grant and Yakama Nation signatories to Hanford Reach Fall Chinook Protection Program Agree to cooperatively develop Pacific Lamprey Management Plan Agree to cooperatively develop White Sturgeon Management Plan Grant agrees, if equally qualified, give preference to Yakama Nation for fish & wildlife projects

12 QUESTIONS?

13 DELIVERING CUSTOMER VALUE 2016 Proposed Budget Budget Hearings, October

14 Key Takeaways Dedicated to increasing value for Grant PUD customers Positioned to enjoy affordable energy into the future Preserving and improving financial health increases value for current and future customers Investment in assets to maintain low cost, reliable power Cost reduction and efficiency measures to keep prices low Improvement of financial position to maintain financial health 2

15 Grant PUD Today 3

16 GRANT PUD TODAY 47,000 customers 2,777 sq. mi. area 52 substations 460 mi. transmission 3,800 mi. distribution 54,400 distribution poles 4,050 transmission poles 4

17 Comparative Rates Average Rate Comparison Based on Latest Available EIA Data 1 Residential Commercial Industrial Total Retail /kwh / kwh / kwh /kwh / kwh / kwh /kwh / kwh / kwh / kwh 4.20 / kwh / kwh - Grant PUD WA National - Grant PUD WA National - Grant PUD WA National - Grant PUD WA National (1) Source: EIA. Utility Bundled Retail Sales Data. 5

18 Focus on Customer Value 6

19 Financing Long Term Assets $1.8 billion net book value of assets Assets are maintained and replaced to produce reliable, low cost energy The amount of debt is $1.3 billion, which is a high (debt / plant) ratio of 72% Focused on decreasing debt to be no more than 60% of plant steady state Equity financing reduces future rates by decreasing debt interest costs Restructured long term debt in 2013 reduced annual price increases from 8% down to 2% Maintaining a strong credit rating allows the District to borrow at low interest rates that helps keep rates low 7

20 Turbine and generator improvements Long term investment to replace 50+ year-old, end-of-life assets (halfway through 20-year replacement effort: Wanapum near completion; Priest Rapids to start in 2016) Assures access to low cost hydro power into the future New turbine / generators are ~3.5% more efficient, resulting in an estimated ~$9 million per year benefit to power purchasers once complete Columbia to Rocky Ford 230kV Completed in 2013 Reduced need for BPA transmission to bring PRP power to county load Resulted in first year gross wheeling savings of $4.4 million, estimated 40-year Net Present Value wheeling benefit of $92 million. 8

21 Wholesale Slice Risk Reduction Stable financial outcomes are key to sustaining low-cost, stable rates Current wholesale strategy reduces net revenue sensitivity to poor water years, helping stabilize finances and rates Unhedged District has a 15% chance per year of ~$25 - $60 million adverse impact from low water, ~12.9%+ rate increase per year (under current market conditions) Program has been in place since 2008 Full implementation increases expected net revenues by approximately $4.5 million per year (2018) or 5.2% of non-retail revenue per year (2018) 9

22 Long Term License License thru 2052 Majority of work is complete; 2018 projected as final year of capital (Crescent Bar largest of remainder) Enables Grant PUD and customers to enjoy low-cost energy into the future Priest Rapids Recreation Area; Desert Aire 10

23 2016 Budget 11

24 Budget Mirrors Customer Priorities Providing reliable electric power with few outages Keeping electric prices* as low as possible 76% 82% 72% Providing energy saving programs for customers Providing real-time info on energy use, outages Developing programs to promote economic growth Providing access to highspeed internet 67% 62% 54% 52% 60% 49% n/a 35% n/a 12 Source: Contracted Customer Survey June 2015

25 Customers Affirm Current Path Customers prefer that price increases be phased in over a period of time, rather than raised abruptly. 73% If a future price increase is necessary, would you prefer that it be 18% 9% Phased in Over a Number of Years Increased in One Increment Not Sure 13 Source: Contracted Customer Survey June 2015

26 2016 Proposed budget (in thousands $000) Exhibit A SUMMARY OF BUDGET ITEMS Actual Forecasted TOTAL O&M 129, , , , , , ,301 TAXES 13,779 14,778 15,714 16,455 17,034 17,623 18,184 ELECTRIC CAPITAL 43,455 48,109 57,552 62,741 28,347 30,495 29,790 PRP CAPITAL 117, , , ,040 85,679 61,870 58,733 DEBT SERVICE (net of rebates) 86,920 95, , , , , ,136 TOTAL EXPENDITURES 391, , , , , , ,145 Expenditure offsets for deduction Contributions in Aid of Construction (22,767) (11,670) (19,798) (13,808) (3,818) (2,829) (2,839) Sales to Power Purchasers at Cost (61,099) (52,954) (47,694) (44,831) (41,581) (40,566) (39,686) Net Power (+ Expense, Revenue) (28,417) (49,178) (57,476) (51,898) (53,449) (54,867) (56,312) Conservation Loans (183) (125) (125) (125) (125) (125) (125) TOTAL EXPENDITURE OFFSETS (112,466) (113,928) (125,093) (110,662) (98,973) (98,387) (98,962) TOTAL BUDGETED EXPENDITURES 278, , , , , , ,183 Capital is largest % of expenditures- $159.5 million total (42%) Debt Service on assets is next largest expenditure- $101 million total (26%) 14

27 5 Year Capital Plan($MM) PRP Capital Expenditures Electric System Capital Expenditures Miscellaneous (3%) Powerhouse/Spillway (22%) License Implementation (14%) Turbine/Generator (61%) General Plant (13%) Fiber/Broadband (10%) Transmission (27%) Distribution (50%) PRP Capital Expenditures ($MM) Uses of Funds Turbine/Generator $316 License Implementation 72 Powerhouse/Spillway Improvements 116 Miscellaneous 17 Total $521 Electric System Capital Expenditures ($MM) Uses of Funds Distribution $127 Transmission 69 Fiber/Broadband 25 General Plant 35 Total $257 15

28 400,000 Budgetary Funding 400, ,000 Capital Need (Bonds & Equity) Fiber & Misc Revenue 350, ,000 CIAC 300, ,000 Net Power 250,000 Thousands 200,000 Long Term PSC 200,000 Thousands 150, , ,000 Retail Revenue 100,000 50,000 50, Taxes O&M Net Debt Service Capital 16

29 Key Financial Metrics Liquid Cash Debt Service Debt/Net Plant Rate of Return Retail Operating Ratio > $155 million > 1.8x <60% >4% <100% 17

30 Financial Projections / Key Metrics (in thousands $000) Exhibit B CONSOLIDATED OPERATIONAL Actual Forecasted PERFORMANCE Sales to Power Purchasers at Cost 61,099 52,954 47,694 44,831 41,581 40,566 39,686 Retail Energy Sales 159, , , , , , ,183 Net Power (Net Wholesale+Other Power Revenue) 28,417 49,178 57,476 51,898 53,449 54,867 56,312 Fiber Optic Network Sales 5,101 5,152 5,203 5,255 5,308 5,361 5,415 Other Revenues 1,713 1,376 1,396 1,417 1,439 1,460 1,482 Operating Expenses (129,579) (119,714) (106,478) (106,068) (110,147) (111,241) (112,301) Taxes (13,779) (14,778) (15,714) (16,455) (17,034) (17,623) (18,184) Net Operating Income(Loss) Before Depreciation 112, , , , , , ,593 Depreciation and amortization (53,896) (60,056) (64,241) (69,020) (73,663) (76,375) (78,714) Net Operating Income (Loss) 58,750 83, , , , , ,879 Other Revenues (Expenses) Interest, debt and other income (29,660) (41,114) (39,244) (36,947) (37,480) (35,526) (33,337) CIAC 22,767 11,670 19,798 13,808 3,818 2,829 2,839 Change in Net Position 51,856 53,580 87,862 81,157 70,316 74,792 81,381 Actual Forecasted Target NET INCOME 51,856 53,580 87,862 81,157 70,316 74,792 81,381 LIQUIDITY (measured at year end) Elect System Liquidity (Rev + R&C) $155 MM 156, , , , , , ,940 Finance Plan Reserve 18,572 18,521 Days Cash On Hand > LEVERAGE Consolidated DSC >1.8x Consolidated Debt/Plant Ratio 60% 69% 72% 69% 64% 61% 58% 55% PROFITABILITY Rate of Return (chg in net assets / net plant) >4% 2.9% 2.8% 4.4% 3.8% 3.3% 3.4% 3.7% Retail Op Ratio (assumes baseline capital) 100% 118% 118% 110% 108% 114% 114% 113% 18

31 Grant PUD Projected to Maintain Low Cost Value to Customers $70 Projected Production Cost Comparison $60 $50 $40 $30 $20 $10 $ Grant Priest Rapids Hydro BPA PF Current Forward Market Advanced Combined Cycle 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% BPA Benton PUD Franklin Grant PUD Maintaining hydro power resources will provide generations of low cost resources for Grant PUD rate payers Rate increases required to maintain financial health; planned not to exceed 2% annually US average annual inflation : 2.3% US average annual electricity rate inflation : 3.4% Grant average annual electricity rate inflation : 2.4% 19

32 Conclusion Dedicated to increasing customer value Positioned to enjoy affordable energy into the future Increased value comes from preserving and improving financial health for future customers Investment in assets to maintain low cost, reliable power Cost reduction and efficiency measures to keep prices low Improvement of financial position to maintain financial health 20