Western Conference of Public Service Commissioners May 23, 2016

Size: px

Start display at page:

Download "Western Conference of Public Service Commissioners May 23, 2016"

Gwendoline Wilkins
5 years ago
Views:

1 Western Conference of Public Service Commissioners May 23, 2016

2 Authorized construction Hoover Dam/Power Plant Contingent on power contracts for repayment of Federal expenditures Power contracts for renewable 50 year term Power price set by market evaluation completed in September 1929 Western Conference of Public Service Commissioners May 23, 2016

3 Applications were received for triple the estimated power available Los Angeles, Southern California Edison applied for all; Metropolitan Water District applied for half Negotiations resulted in allocation of: 36% to MWD; 33% to LA; 22% to SCE; 9% to Burbank, Pasadena, Glendale and other CA entities 18% each could be re-allocated for Arizona and Nevada Power contracts executed April 26, 1930 Western Conference of Public Service Commissioners May 23, 2016

4 Price of $1.63/MWh (market price) too expensive Rates reset to the cost of producing the power $1.16/MWh ($19.65 in 2016 dollars) Western Conference of Public Service Commissioners May 23, 2016

Authorized renewal of contracts for Hoover power 30-year term ending September 30, 2017 Authorized uprating project to increase capacity by 500 MW Added capacity marketed to new contractors

5 Authorized renewal of contracts for Hoover power 30-year term ending September 30, 2017 Authorized uprating project to increase capacity by 500 MW Added capacity marketed to new contractors New capacity 1951 MW Authorized visitor facilities Funded by power Authorized bridge crossing downstream of dam Not funded by power Western Conference of Public Service Commissioners May 23, 2016

6 Arizona 19% Nevada 23% California 58% 20.6% Metropolitan 20.3% Los Angeles 9.9% So California Edison California 58% Arizona 19% Nevada 23% 4.9% Anaheim, Burbank, Glendale and Pasadena 1.2% Riverside 1.2% Azusa, Banning, Colton and Vernon Western Conference of Public Service Commissioners May 23, 2016

7 Authorized new contracts for Hoover power 50-year term ending Sept. 30, 2067 Existing contractors entitled to new contracts for specified power allocations Resource pool of 5% of power for new customers Pool marketed in three states (AZ, CA, NV) Included Indian Tribal entities Contractors must contribute to Lower Colorado River Multi-Species Conservation Program (MSCP) Program provides endangered species coverage for water and power operations Western Conference of Public Service Commissioners May 23, 2016

8 27 Covered Species and 4 Evaluation Species Fish: 4 species Birds: 12 species Mammals: 7 species Reptiles: 2 species Amphibians: 3 species Insects: 1 species Plants: 2 species Western Conference of Public Service Commissioners May 23, 2016

9 Creation of native riparian and aquatic habitats Cottonwood/willow 5,940 acres Honey mesquite 1,320 acres Marsh 512 acres Backwaters 360 acres Total 8,132 acres Fish augmentation 660,000 razorbacks and 620,000 bonytail Protection of existing habitat; monitoring & research Western Conference of Public Service Commissioners May 23, 2016

10 Program cost $626 million (1993 dollars) Cost share 50/50 federal & non-federal California pays one-half of the non-federal cost share; Arizona and Nevada pay one-quarter each Funding paid on annual schedule to cover costs of restoration, maintenance, monitoring, and research, over the 50-year program term Western Conference of Public Service Commissioners May 23, 2016

12 Post-2017 Hoover Power Contracting: Managing Risk and Resolving Other Challenges With a 50-Year Contract Brittany Lewis-Roberts Somach Simmons & Dunn May 23, 2016

13 Arizona Power Authority State agency that accepts Hoover power on behalf of the State of Arizona and further allocates the power to eligible entities within the State APA receives approximately: 392 MW of Schedule A, B, and D capacity 840,000 kwh of Schedule A, B, and D energy First priority to excess energy under Schedule C Customers of the APA include: Irrigation and Electrical Districts Municipalities Tribes Electric Cooperatives

14 Hoover Power Allocation Act of Act Mandated Certain Terms for Post-2017 Electric Service Contracts (ESC): Contracts must be offered for a 50-year term Contracts for non-tribal new allottees in AZ and NV must be offered through APA and CRC Contracts must permit transactions with an independent system operator Contract must contain the same material terms as former section 5.6, i.e., rights to ancillary services Also provisions with respect to MSCP, Repayable Advances, and Implementation Agreement

15 Executing a 50-Year Contract in a 16-Year Drought By Bureau of Reclamation photographer [Public domain], via Wikimedia Commons, July 27, 1983

16 Executing a 50-Year Contract in a 16-Year Drought Hoover Dam by Christopher Irwin/CC by 2.0 taken on March 9, 2016

17 Executing a 50-Year Contract in a 16-Year Drought Contractors Perspective: Through payment of power rates, Power Contractors are responsible for OM&R of Hoover Powerplant and Visitors Facilities regardless of generation output If Lower Colorado River is operating under Shortage conditions, then power output is reduced, and per-unit cost of power is more expensive

18 Executing a 50-Year Contract in a 16-Year Drought Rates for Hoover Power are set in accordance with 10 C.F.R. part 904 and Section 7 of the Contract Rates must be sufficient to recover the Annual Revenue Requirement, which includes: O&M of Project Facilities and Visitor Facilities BCP Replacements Debt Service Working Capital Payments to States Any Other Financial Obligation of the BCP

19 Executing a 50-Year Contract in a 16-Year Drought Approach in Draft Implementation Agreement: Engage in Contingency Planning once Hoover Powerplant is operating at certain levels Identify full range of cost containment opportunities Evaluate alternative funding options (e.g., appropriations)

20 Executing a 50-Year Contract in a Rapidly Changing Energy Market Distribution Principle for Federal Preference Power (GPCP 18): Rates for resale customers must be established at the lowest possible level consistent with sound business principles Resale Prohibition (GPCP 17): Contractor cannot sell Hoover power for resale by a resale customer 1987 Contract: Out-of-state prohibition

21 Executing a 50-Year Contract in a Rapidly Changing Energy Market Boulder City Projects Marketing Area: General Consolidated Power Marketing Criteria or Regulations for Boulder City Area Projects, 48 Fed. Reg. 20,886 (May 9, 1983).

22 Executing a 50-Year Contract in a Rapidly Changing Energy Market California Independent System Operator (CAISO) Source: CAISO Website 2016

23 Executing a 50-Year Contract in a Rapidly Changing Energy Market California Independent System Operator (CAISO) Manages the power grid for about 80 percent of California and a small portion of Nevada Largest balancing authority in the western interconnection; matches generation to load and maintains system frequency and voltage Operates the market for wholesale power transactions Monitors supply and demand in real time

24 Executing a 50-Year Contract in a Rapidly Changing Energy Market California Independent System Operator (CAISO) 33 of 46 Post-2017 Hoover Contractors are located in California Many currently participate in CAISO (e.g., Southern California Edison, City of Anaheim) Entities in Arizona and Nevada have announced future plans to join CAISO s Energy Imbalance Market 2011 Act expressly permits transactions with an independent system operator

25 Executing a 50-Year Contract in a Rapidly Changing Energy Market CAISO Is Expanding Source: CAISO Website 2016

26 Executing a 50-Year Contract in a Rapidly Changing Energy Market CAISO Energy Imbalance Market Five-minute dispatch that co-optimizes resources across CAISO and additional service territories Enables the sharing of reserves

27 Executing a 50-Year Contract in a Rapidly Changing Energy Market Contractors Perspective: Fundamentally, Contractors must be able to use their allocations of Hoover power in CAISO and with their designated Scheduling Entity Contracts must also be flexible enough to accommodate change in energy markets and regionalization

28 Executing a 50-Year Contract in a Rapidly Changing Energy Market Approach in Draft ESC: Out-of-state prohibition in prior contracts has been removed Transactions with ISOs and other entities do not constitute a prohibited resale Section 9.2 of Draft ESC: No Contractor shall sell for profit any of the power contracted for hereunder to any Contractor or to any resale customer of the Contractor for resale by that resale customer, Provided, that Contractor transactions utilizing capacity and/or energy under this Contract with an entity or entities that coordinate, control, monitor, or support operation of the bulk electric system, or acts as a marketplace operator in wholesale power, or procures products or service on behalf of any such entity, including but not limited to independent system operators, regional transmission organizations, Balancing Authorities, or successor organizations associated with the Contractor s load shall not be considered a sale for resale. Contractor transactions utilizing capacity and/or energy purchased under this Contract with their designated Scheduling Entity shall also be permitted subject to Western s review that such transactions result in delivery of electric service to the Contractor or the Contractor s customers consistent with subsection 9.1. Contractual commitment to accommodate changes

29 Capturing the Value of Hoover Power Hoover Powerplant is a dynamic resource 2011 Act maintained Hoover Contractors rights to ancillary services from Hoover Powerplant Section Draft ESC section 6.11: Subject to subsection , the Contractor, through use of a dynamic signal from the Contractor or a Scheduling Entity to a control center designated by Western, or through such other methods and procedures agreed upon by the Contractor and Western, shall have the right to use previously scheduled Synchronized Generation from zero (0) to full scheduled Synchronized Generation and the reverse; Provided, that...

30 Questions

31 POST-2017 HOOVER POWER AGREEMENTS (AND HOW WE GOT THERE) Western Conference of Public Service Commissioners Lake Tahoe, Nevada May 23, 2016 Ann C. Pongracz, Special Counsel Colorado River Commission of Nevada 31

32 Colorado River Commission of Nevada ( CRC ) State agency with a 7 member board (4 appointed by Governor, including chair; 3 appointed by the Southern Nevada Water Authority (SNWA)) Executive Director, Jayne Harkins, P.E. Represents State of Nevada in negotiations regarding water, power and environmental resources on the Colorado River Protects water and power resources provided to Nevada by the Colorado River Receives no state general funds; funding provided by CRC s water and power customers 32 32

MW of electrical power, which will be distributed to

In Nevada, the CRC distributes Hoover power to SNWA,

Districts, NV Energy, Valley Electric and the Basic

33 What is Hoover Power? Hoover Dam post 2017 nameplate capacity is over 2,000 MW of electrical power, which will be distributed to public agencies and utilities in CA, NV and AZ, at cost-based rates. 29 million people benefit from Hoover power today. In Nevada, the CRC distributes Hoover power to SNWA, Boulder City, Lincoln County and Overton Power Districts, NV Energy, Valley Electric and the Basic industries companies. CRC will begin service to new Schedule D Contractors in 2017 Hoover supplies less than 2% of NV Energy s load

Who are the 15 Current (pre-2017) Hoover Contractors?

the Boulder Canyon Project Act of 1928): Metropolitan Water

Edison; Arizona Power Authority (APA); CRC; and the City of

the increased Hoover generation per the 1984 Act): State of

Azusa, Banning, Colton, Riverside, Vernon), and APA and CRC

34 Who are the 15 Current (pre-2017) Hoover Contractors? Schedule A (original purchasers of Hoover power authorized in the Boulder Canyon Project Act of 1928): Metropolitan Water District; CA cities of LA, Glendale, Pasadena and Burbank; SoCal Edison; Arizona Power Authority (APA); CRC; and the City of Boulder City, Nevada Schedule B (contractors that advance-funded the increased Hoover generation per the 1984 Act): State of California (Cities of Glendale, Pasadena, Burbank, Anaheim, Azusa, Banning, Colton, Riverside, Vernon), and APA and CRC Schedule C governs allocations of excess energy, if any, to Arizona, California and Nevada 34 34

35 Major Federal Statutes re: Hoover Power Boulder Canyon Project Act of 1928 (45 Stat. 1057, 43 U.S.C. 617): Authorized construction, operation and maintenance of Hoover Dam for delivery of water and electrical energy, paid for by contractors. Hoover Power Plant Act of 1984 (98 Stat.1333, 43 U.S.C. 619): Increased Hoover Powerplant generating capacity and improve visitor facilities, and offered renewal contracts to Schedule A Contractors and new contracts to Schedule B Contractors for the increased generation, with 30-year terms ending 9/30/

36 Major Federal Statutes re: Hoover Power Hoover Power Allocation Act of 2011 (125 Stat. 777, 43 U.S.C. 619a) ( HPAA ): Authorized new 50-year Hoover power contracts beginning 10/1/17, for current federal Schedule A and B Hoover contractors, for approximately 95% of their existing capacity and firm energy allocations Created a new Schedule D resource pool providing capacity and firm energy for new allottees comprised of the remaining 5% of Hoover power allocations 36 36

37 Major Federal Statutes re: Hoover Power HPAA also created a new Schedule D resource pool providing capacity and firm energy for new allottees comprised of the remaining 5% of Hoover Power allocations. New allottees can include: Federally recognized Indian tribes in the marketing area for the Boulder City Area Projects, and Entities that are eligible to enter into contracts under section 5 of the Boulder Canyon Project Act ( States, municipal corporations, political subdivisions, and private corporations of electrical energy generated at said dam ) 37 37

38 Who Allocates Post-2017 Hoover Power Under the HPAA? Congress allocated Schedule A, B and C post-2017 Hoover power, which is provided under contracts with the Western Area Power Administration (Western). For the Schedule D Resource Pool, Congress directed: 66.7% of pool allocated by Western throughout CA, AZ and NV 33.3% of pool distributed in equal shares to CA, AZ and NV for allocation to new allottees in these states: o 11.1% AZ allocation by APA o 11.1% NV allocation by CRC o 11.1% CA allocation by Western 38 38

39 Schedule D Allocations Completed 2015 Western s Schedule D allocations: 79 FR 75544, December 18, 2014 CRC Schedule D allocations: der%20allocating%20hoover%20schedule%20d%20power.pdf APA Schedule D allocations: Approved July 17, APA-Final-Marketing-Plan1.pdf; APA-Appendix-A-Allocation-of-Schedule-A-Schedule-B-and- Schedule-D-Post-2017-Power1.pdf 39

40 How Did We Get Here? 40

41 Begin at the Beginning: Litigate or Legislate? In 2008, the 15 federal Hoover Contractors in NV/AZ/CA began discussing whether to seek federal legislation allocating post-2017 Hoover power, and decision made to seek federal legislation. The issues: How much Hoover power? Allocate all capacity or allow Western hold-back of 30 MW? Who will allocate: Congress? Western? States? Should Hoover power be allocated outside current marketing area? Should Contractors seek to make Hoover power eligible for GHG offsets? How long should the next contract term be: 30 years? 50? Other? 41 41

42 In Pursuit of Legislation Continue negotiation of principles for legislation Drafting begins at CRC, and draft is distributed to Contractors The Kickoff August 27, 2009 meeting in Las Vegas of all federal Hoover Contractors, and others Next steps: Recruit the teams (attorneys, lobbyists, technical) Brief DC lobbyists and meet with CA/AZ/NV delegations Multiple rounds of meetings, briefings, fact-sheets, redrafting of legislation Meetings with Reclamation, Western, tribes and others Hoover Power Allocation Act of 2009 introduced December 16, 2009 enacted and signed by President Obama December 20,

43 Let the Contracting Games Begin!!! 43 43

44 What Contracts are Needed for Post-2017 Hoover Power? FEDERAL CONTRACTS: Electric Service Contract Restated Implementation Agreement CRC CONTRACTS: Electric Service Contract Amended MSCP Agreement 44 44

45 Negotiating Around Some Very Big Tables: Pre-2017 Federal: 15 Contractors Nevada: 12 Contractors Arizona: 29 Contractors Feds: Western Post-2017 Federal: 46 Contractors Nevada: 24 Contractors Arizona: 71 Contractors Feds: Western PLUS Reclamation 45 45

46 Negotiations Among Different Types of Contractors -- The Old, the New and the Curious Lots more Contractors AND lots more different types of Contractors: very large and very small, utilities, cities, tribes gave rise to very different types of questions: Current Contractors very technically knowledgeable about hydropower, seeking to improve upon technical, operational and billing details of current contracts New Contractors accustomed to obtaining power from utilities regulated by PUCs, not to negotiating contracts or having operational responsibilities of hydropower Contractors 46 46

different dispute resolution paradigms: Administrative

47 How would YOU resolve contract issues? Contractors, and federal agencies, have at least three different dispute resolution paradigms: Administrative rule-making process Multi-party negotiations Tribal government to government 47 47

48 Step 1: Contractor Outreach and Organization 2014, 2015 Early 2014: Begin building the Contractor teams comprised of Schedule A and B Contractors July 2014: Conduct series of team meetings to identify points of disagreement with pre-2017 ESC and agree upon principles for post-2017 ESC November 2014: A&B Contractor legal team issues to Western redline showing changes needed in post-2017 ESC 48 48

Step 2: Western Takes A Turn March 2015: Western issued letter

individual customer meetings Western issued draft contract

finalizing contracts through notice and comment cycles (Note:

49 Step 2: Western Takes A Turn March 2015: Western issued letter announcing plan to issue post2017 ESC for comments, and conduct individual customer meetings Western issued draft contract March 15, 2015, requesting comments and outlining plan for finalizing contracts through notice and comment cycles (Note: Contractor 2014 draft generally NOT addressed in Western 3/15 draft) 49 49

Step 3: Selling the Negotiation Paradigm Convincing Western and new allottees to negotiate instead of

contractors and federal new allottees to gain support for concept of contract negotiations (May, June,

for negotiations, and critiquing Western s draft Invite Western (and U.S.

50 Step 3: Selling the Negotiation Paradigm Convincing Western and new allottees to negotiate instead of relying on traditional notice and comment administrative proceedings: Organize meetings of current contractors and federal new allottees to gain support for concept of contract negotiations (May, June, 2015) File consensus comments for approximately 2/3 of current contractors and new allottees advocating for negotiations, and critiquing Western s draft Invite Western (and U.S. Bureau of Reclamation) to meeting with contractors and federal new allottees at which Contractors sized the problem explaining the big issues 50 50

51 The First Joint Effort of the Expanded Contractor Group June 2016: 25 of the post-2017 Federal Contractors File Joint Comments Advocating Discussions instead of administrative proceedings, due to: The scope and extend of changes needed in the contracts The rapidly changing power business The operational environment in the region The relatively short time available for completion of new contracts (Target: April 2016) The fact that post-2017 contracts will be in place for 50 years 51 51

52 Making Modules Contractors Joint Comments grouped an expanded list of issues into negotiation modules: Optimizing use of Hoover in regionalizing energy markets Creating hydrology trigger Giving Contractors right of first refusal to fund, and utilize future increased Hoover production Improving ratemaking Differentiating Hoover products Improving the Implementation Agreement 52 52

Inviting the Feds to the Party Contractors invited Western and Reclamation to meetings in June 2015, for presentations on all of the issues, and to receive feedback from Western

53 Inviting the Feds to the Party Contractors invited Western and Reclamation to meetings in June 2015, for presentations on all of the issues, and to receive feedback from Western and Reclamation on issue and process. In July 2015, Western hosted meeting and webinar with all federal contractors resulted in issue modules and scheduling initial negotiations

54 Step 4: Begin the Negotiations with Disagreements Start with identifying the points on which parties disagree. Elicit clarifications of the points of disagreement. Get consensus identification of the points of disagreement. Document the points of disagreement and ID who is responsible for addressing each. Share with all participants this documentation of the points of disagreement, ask for input to clarify these points, and share them again. Develop a matrix of the agreed-upon points of disagreement, and identify how each point would be

participants and ask for input Update the matrix of the agreed-upon points of

55 Steps 5, 6, 7, 8 Identify points for negotiation Elicit clarifications Get consensus on options and path towards resolution Document Share documentation with all participants and ask for input Update the matrix of the agreed-upon points of disagreement, show when issues close, and clearly identify individuals to address remaining points 55 55

56 The Hoover Negotiations Process June 19 & July 14, 2015 Meetings to organize negotiations held in Las Vegas with Western, Reclamation and other federal Contractors August 17-18, Negotiations began in Ontario, CA and Boulder City, NV September 17 & 23-24, 2015 Negotiations on technical and non-technical issues and contractor right of first refusal for new generation at Hoover, Boulder City, NV September 28, 2015 Negotiations, Boulder City, NV October 26, 2015 Negotiations, Phoenix, AZ 56 56

57 The Hoover Negotiations Process December 8-9, 2015 All-Contractor Discussions, Las Vegas, NV December 31, Federal Contractors submitted joint comments and individual comments, and detailed redlines regarding remaining issues January 26, 2017 Negotiations, Ontario, CA February 23, 24, 2016 Negotiations, Boulder City, NV March 3, 4, 2016 Negotiations, Phoenix, AZ March 28, 29, 2016 Negotiations, Boulder City, NV 57 57

58 The Hoover Negotiations Process We re almost there May 19 Western issued final redlined Electric Service Contract and Restated Implementation Agreement Western still negotiating reallocation issues with CRC and Arizona Power Authority Working towards contract execution in June/July

59 Questions and Discussion 59

60 Hoover Agreements If you would like to discuss Hoover contracting issues, or this presentation, please contact: Ann C. Pongracz, Special Counsel Colorado River Commission of Nevada

December 20, 2011 Page 1 HOOVER POWER ALLOCATION ACT OF 2011

December 20, 2011 Page 1 HOOVER POWER ALLOCATION ACT OF 2011 December 20, 2011 Page 1 Sec. 105. (a)(1) ALLOCATION OF CONTRACTS FOR POWER - The Secretary of Energy shall offer (43 U.S.C. 619a.): (a) (1) (A) To each contractor for power generated at Hoover Dam a contract