EXHIBIT D STATEMENT OF COSTS AND FINANCING

Transcription

1 EXHIBIT D STATEMENT OF COSTS AND FINANCING HOLT HYDROELECTRIC PROJECT FERC NO DRAFT LICENSE APPLICATION Alabama Power Company Birmingham, Alabama Prepared by: July 2012

2 EXHIBIT D STATEMENT OF COSTS AND FINANCING HOLT HYDROELECTRIC PROJECT FERC NO DRAFT LICENSE APPLICATION Alabama Power Company Birmingham, Alabama Prepared by: July 2012

3 EXHIBIT D STATEMENT OF COSTS AND FINANCING HOLT HYDROELECTRIC PROJECT FERC NO ALABAMA POWER COMPANY BIRMINGHAM, ALABAMA DRAFT LICENSE APPLICATION TABLE OF CONTENTS 1.0 ORIGINAL COST OF PROJECT AMOUNT PAYABLE IN EVENT OF PROJECT TAKEOVER FAIR VALUE, NET INVESTMENT, AND SEVERANCE DAMAGES FAIR VALUE NET INVESTMENT SEVERANCE DAMAGES ESTIMATED COST OF NEW DEVELOPMENT ESTIMATED AVERAGE ANNUAL COST OF THE PROJECT ESTIMATED ANNUAL VALUE OF THE PROJECT POWER SOURCES OF FINANCING AND ANNUAL REVENUES COST TO DEVELOP THE LICENSE APPLICATION VALUE OF PROJECT POWER CHANGES IN PROJECT GENERATION AND VALUE OF POWER DUE TO CHANGES IN PROJECT OPERATIONS ESTIMATED COST OF PROTECTION MITIGATION AND ENHANCMENT (PME) MEASURES...6 LIST OF TABLES TABLE D-1 PROJECT COSTS...2 TABLE D-2 SUMMARY OF ANNUAL BENEFITS AND COSTS...5 TABLE D-3 ESTIMATED COST OF PROTECTION MITIGATION AND ENHANCEMENT MEASURES...7 J:\535\016\Docs\Exhibits\Exhibit D docx - i -

4 EXHIBIT D STATEMENT OF COSTS AND FINANCING HOLT HYDROELECTRIC PROJECT FERC NO ALABAMA POWER COMPANY BIRMINGHAM, ALABAMA DRAFT LICENSE APPLICATION 1.0 ORIGINAL COST OF PROJECT This section is not applicable to the Holt Hydroelectric Project (Project) (FERC No. 2203) as Alabama Power Company (Alabama Power) is requesting a new license, not an initial license. Hereinafter in this exhibit, Project will apply to the Holt Hydroelectric Project. 2.0 AMOUNT PAYABLE IN EVENT OF PROJECT TAKEOVER FAIR VALUE, NET INVESTMENT, AND SEVERANCE DAMAGES To date, no agency or interested party has recommended a federal takeover of the Project pursuant to Section 14 of the Federal Power Act. If such a takeover were to occur, Alabama Power would have to be reimbursed for the net investment, not to exceed the fair value, of the property taken, plus severance damages (Section 14, Federal Power Act). 2.1 FAIR VALUE The fair value of this Project is dependent on prevailing power values and license conditions, both of which are currently subject to change. The best approximation of fair value would likely be the cost to construct and operate a comparable power generating facility. Because of the high capital costs involved with constructing new facilities and the increase in fuel costs (assuming a fossil fueled replacement), the fair value would be considerably higher than the net investment (see Section 2.2). If a takeover were to be proposed, Alabama Power would calculate fair value based on current conditions

5 2.2 NET INVESTMENT In 2015, the net investment for the Project is forecasted to be approximately $4,342,691. This amount includes the original costs, accumulated depreciation, capitalized capital work in progress, expenses prior to 2012, and net investment, according to the Commission s Uniform System of Accounts. Table D-1 provides the Project costs. TABLE D-1 PROJECT COSTS UNIFORM SYSTEM OF ACCOUNTS NO. TITLE ORIGINAL COST ($) ACCUMULATED DEPRECIATION ($) NET INVESTMENT ($) 302 Relicensing Cost 1,189, ,453 1,174, Land and Land Rights Structures & Improvements 3,951, ,937, , Reservoirs, Dams, and Waterways 3,408, ,408, Waterwheels, Turbines and 5,988, ,424, ,563, Generators 334 Accessory Electrical 1,040, , , Equipment 335 Misc. Power Plant Equipment 395, , , Roads, Railroads, and Bridges 337 ARO Structures & Improvements 353 Station Equipment 334, , , Totals $16,310,056 $11,967,365 $4,342,691 Note: These are values projected as of December 31,

6 2.3 SEVERANCE DAMAGES The Project provides power to the Alabama Power transmission and distribution system for ultimate consumption by Alabama Power s customers. Severance damages are determined either by the cost of replacing (retiring) equipment that is dependent for its usefulness upon the continuance of the License (Section 14, Federal Power Act), or the cost of obtaining an amount of power equivalent to that generated by the Project from the least expensive alternative source, plus the capital cost of constructing any facilities that would be needed to transmit the power to Alabama Power s customers, minus the cost savings that would be realized from not operating the Project. Again, these values would need to be calculated based on power values and license conditions at the time of project takeover. 3.0 ESTIMATED COST OF NEW DEVELOPMENT No new development has been proposed at the Project. The primary costs will be those costs associated with Alabama Power s proposed Protection, Mitigation, and Enhancement (PME) measures. PME costs related to Alabama Power s Proposal will increase operation and maintenance costs by approximately $18,600 annually. The annual increase in cost for capital and for operation and maintenance associated with Alabama Power s proposal for the Project is approximately $20, ESTIMATED AVERAGE ANNUAL COST OF THE PROJECT The estimated average cost of the Project before the proposed PME measures (No-Action alternative) will be approximately $2,729,141 per year, levelized on 2015 dollars, based on a 30- year period of analysis. This estimate includes annualized values for the cost of capital, taxes depreciation, and operation and maintenance expenses, as described in the following paragraph. The cost of capital is $382,165 with relicensing and $278, without relicensing. The cost of capital rate in percentage is 8.8%. In addition, the local tax rate for Tuscaloosa County is (tax amount $34,242.99) and the local tax rate for Tuscaloosa County for School District 1 is (tax amount $20,142.94). The total local taxes are $54, The federal - 3 -

7 tax rate is 3.42%, the state tax rate is 0.44%, and the total tax rate is 3.87%. Also, the average amount of depreciation is $174, 000 per year. Alabama Power uses Composite Straight-Line Rates which means that straight-line rates are established for similar assets. In addition, specific rates are established for each generating facility, including the Holt Project, taking into account the planned retirement date of the facility. With Alabama Power s proposal, total Project costs will be approximately $2,748,183 per year, levelized on 2015 dollars, based on a 30-year period of analysis. This estimate includes annualized values for the cost of capital, taxes, depreciation, and operation and maintenance expenses. The annual cost estimates associated with Alabama Power s proposal may not include all final costs. Should cost estimates change, Alabama Power will include final changes in the Final License Application. 5.0 ESTIMATED ANNUAL VALUE OF THE PROJECT POWER Alabama Power estimates total annual energy production of the Project under the No-Action alternative to be approximately 171,791 megawatt hours (MWh), while total annual energy production of the Project under Alabama Power s proposal will be approximately 171,791 MWh; Alabama Power s proposal will not affect energy production. Energy produced at the Project is sold at prevailing regulated rates as approved by the Alabama Public Service Commission. The estimated average annual Project cost under Alabama Power s proposal will be approximately $16.0 per MWh. Hydro projects typically complement gas-fueled generating units to serve the peak period customer loads served by Alabama Power. Were the Project not to be retained, additional generating capacity would be required to replace lost hydro capacity. Using typical capital cost for Alabama Power and projected gas, combined cycle capacity, and O&M cost as published by the Department of Energy s (DOE) Energy Information Administration (EIA), alternative capacity and energy equivalent to Project capacity and energy is expected to cost approximately $107 per MWh of average levelized annual cost over the same 30 year period of life expected for the Project. The EIA Annual Energy Outlook for 2012 accounts for recent market trends that - 4 -

8 exert downward pressure on natural gas prices, but the historical volatility in natural gas pricing is noteworthy and opportunity exists for upward price pressure over the additional life of the Project. Accordingly, the estimated annual value of the Project (defined as the difference between the cost to operate the Project and the cost to replace the generation associated with said Project (i.e., avoided cost) is approximately $91 per MWh ($107 per MWh minus $16 per MWh) or a total of $15.6 million per year over the 30 year period for Alabama Power s proposal. See Table D-2 for a summary of annual benefits and costs. TABLE D-2 SUMMARY OF ANNUAL BENEFITS AND COSTS NO ACTION ALABAMA ALTERNATIVE POWER S (BASELINE) PROPOSAL Annual Generation (MWh) 171, ,791 Average Annual Project Cost ($)* $ 2,729,141 $ 2,748,183 Average Annual Project Cost ($/MWh) Annual Replacement Cost ($) $ 18,303,449 $ 18,303,449 Annual Replacement Cost ($/MWh) $107 $107 Estimated Annual Project Value (Avoided Cost in $) Estimated Annual Project Value (Avoided Cost in $/MWh) *Costs levelized over 30 years in 2015 dollars $ 15,574,308 $ 15,555,266 $ 90.7 $ SOURCES OF FINANCING AND ANNUAL REVENUES Alabama Power obtains its annual revenues generally from the sale of electricity under retail rates established by the Alabama Public Service Commission and under wholesale rate contracts approved by the Federal Energy Regulatory Commission (FERC). Alabama Power has sufficient resources to finance the operational changes and PME measures in Alabama Power s proposal described in this application. If additional financing is necessary, - 5 -

9 Alabama Power will use its traditional sources of debt and equity financing. The interest rate for this financing is 8.8%. A more detailed description of Alabama Power s financial information is provided in its most recent FERC Form COST TO DEVELOP THE LICENSE APPLICATION Alabama Power developed its application to relicense the Project which will be filed no later than August 31, Alabama Power estimates that the Project relicensing process costs are approximately $1,189,909. The cost of the PME measures is presented in Section VALUE OF PROJECT POWER For Alabama Power, hydropower is sold under retail rates set by the Alabama Public Service Commission. 9.0 CHANGES IN PROJECT GENERATION AND VALUE OF POWER DUE TO CHANGES IN PROJECT OPERATIONS There are no anticipated license related changes in Project generation or operations that would lead to a change in value of power ESTIMATED COST OF PROTECTION MITIGATION AND ENHANCMENT (PME) MEASURES The estimated cost associated with the PME measures are provided in Table D-3. The costs were based on estimates made in 2012 dollars and escalated to the year in which they are expected to be spent

10 TABLE D-3 ESTIMATED COST OF PROTECTION MITIGATION AND ENHANCEMENT MEASURES PME MEASURE Continue Operating Project as occurs now with USACE operating restrictions Conduct water quality monitoring to comply with the requirements of the 401 Water Quality Certification Note: If ADEM requires profile data and monthly water chemistry for 5 months each year, we would add about $25,000 annually Map revision of existing Project Boundary- Exhibit G Continue light maintenance of the Overlook Park Maintenance of the transmission line CAPITAL SCHEDULED ($) 1 YEAR $1,400 (plus $1,400 annually for equipment) 2015 and annually TOTAL CAPITAL ($) (OVER 30 YEAR LICENSE) $43,400 $10,800 per year labor and travel ANNUAL YEARS O&M ($) 1 SPENT Annually $324,000 $400/month Annually $144,000 $2954 per year Every 5 Years TOTAL O&M ($) (OVER 30 YEAR LICENSE) Dangerous Tree $29,760 Side Trim $26,784 Mow $21,375 Herbicide $10,687 Total $88,606 1 Cost in 2015 dollars - 7 -