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HomeMy WebLinkAboutHouse Bill 9 Cost of Power Analysis 1983.. Alaska Power Authority LIBRARY COPY Energy Program for Alaska House Bill 9 Cost of Power Analysis Alaska Power Authority 334 West 5th Avenue Anchorage, Alaska 99501 Revised August 1983 Alaska Power Authority_ Hydro! Wood !Coal I Solar/ Wind !Oeothermal !Conservation Contents ... Development Program ......................................... 1 State Investment in Power Projects .............................. 2 Financial, Economic Outlook ................................... 3 Redirection of Development Program ............................ 4 Four Dam Pool ............................................. 5,6 Total Project Cost ............................................ 7 DebUEquity ................................................. 8 Power Sales Illustration ........................................ 9 Cost Per Installed Capacity ................................... 1 o Power Rates ............................................... 11 Wholesale Power Rates ...................................... 12 CAP Provision .............................................. 13 Without CAP Rates .......................................... 14 System Shortfall .......................................... 15,16 Long Term Financing Process ................................. 17 Long Term Financing ........................................ 18 Power Sales Contracts (PSC) .................................. 19 Bond Ratings ............................................ 20,21 Rating of Power Authority Debt ................................ 22 Impact of Project Financing ................................. 23,24 Impact of Project Economics ................................ 25,26 Shortfall Reallocation Process ................................. 27 Project Rate Calculations, FY86 Swan Lake ............................................... 28 Tyee Lake ..........•.................................... 29 Solomon Gulch ........................................... 30 Terror Lake .............................................. 31 Alaska's Power Project Development Program ... An Agresslve Response To: • Desire for Alaskan and National energy independence • Desire for insulation of investments from risks associated with inflation and fossil fuel price increases. • Preference for renewable sources of energy • Preference for investment in tangible assets with the ability to generate sufficient revenues to cover their own operation and maintenance costs. • Implementation of the program based on substantial state investment. 1 State Investment in Power Projects The Project Evaluation Process was Based on Long Term Benefits. The Implementation was Based on Substantial State Investment. • Solomon Gulch $ 53. M • Swan Lake 72. • Tyee Lake 82." • Terror Lake 85. • Anchorage-Fairbanks lntertie 122. • Rural Waste Heat 5. TOTAL $ 419. M 2 Current Financial and Economic Outlook The States' Economic Activity Outlook and Revenue Status has Changed. • Decreasing state revenue • Reduced population and employment growth • Lower energy demands than forecast • Need for state stimulus of economic activity Other Factors Continue in Importance for Alaska's Energy Program. • Long term outlook for economic growth for full utilization of projects • Depletable nature of fossil fuels • Preference for renewable energy sources 3 Redirection of State's Project Development Program ... The New Program Should ... • Continue to emphasize conservation of depletable resources • Stimulate the Alaskan economy through jobs and development • Reduce level of state participation in financing new projects by increased use of debt financing • Complete. successful long term financing of four dam pool • Emphasize orderly completion of projects under construction 4 House Bill No. 9 Pools the Costs and Benefits of Four ~yd.rC)el~ctric Dams ... 5 Swan Lake Tyee Lake Solomon Gulch Terror Lake The Purpose of the Pool is to Provide the Lowest Cost of Power to all Citizens of Alaska. Other Projects may be Added to this Basic System if Their Contribution Would Further this Aim. Advantages .•. Size •.• Provides economies of scale in the costs of power generation Decreasing Regionalism •.• Provides a mechanism of cooperation with a single common goal. Geographic and Market Diversity Provides the ability to draw upon varied resources. Equitable Sharing Ensures equitable sharing of state contributions. H.B. No. 9 Advantages Continued Completion Risks State assumes project completion risks. Economic and Geotechnical Risks All projects share economic, financial and geotechnical risks. Disadvantages ... Defaults If one utility defaults the entire system will be affected. Any default on the bond repayments will adversely influence future capital market financing by the state. Impact of New Projects All project power rates will be affected as new projects enter the system. Uncertainty will be created since future power rates depend on which projects are constructed and their economic and financial characteristics. Considerations ... All project power rates will be affected as the characteristics of existing projects change. The sharing mechanism of HB-9 will require larger state grants in order to achieve the desired effect of a direct grant on a given project. 6 Total Project Cost SWAN LAKE TYEE LAKE SOl...OMJN GULCH TERROR LAKE TOTAL g 95.50 Mill I 24.60 Mill 53.00 Mill 189.40 Mill S 462.50 Mi II 7 Debt/Equity SYSTEM DEBT/EQUITY EOU IT Y 100% DEBT 1179.67 EQUITY 282.83 TOTAL 1462.50 EQUITY 71.09 SOLOMON GULCH CE:BT S 0 EQUITY 53.00 8 EQUITY 61% TYEE LAKE DEBT 8 45.12 EQUITY 79. 48 TERROR LAKE DEBT 1110.14 EQUITY 79.26 Power Sales Illustration 9 FY 1986 BASE CASE SWAN LAKE-33.60GWH 17% TYEE LAKE-34.46 17 °/o SOLOMON GULCH -41. 00 21 °/0 TERROR LAKE-88.20 45 °/0 T 0 T A L 19 7. 2 6 GWH I 00 °/0 Cost Per Installed Capacity en z 0 j 2 ...... en ~ 100 ..J ..J 0 0 2UMW PROJECT SWAN LAKE TYEE LAKE SOLOMON GULCH TERROR LAKE CONSTRUCTION COSTS 21% 27 Ofo II Ofo 41 Ofo 100% MEGAWATT 30 Ofo 27 % 16 Ofo 27 Ofo 100 Ofo 10 Power Rates For a Project Are Based On ••• • Project share of total system debt service • Reallocation of CAP shortfall ($) as necessary • Project operation and maintenance costs • Project inspection fees Variables Affecting Project Power Rates General 1. Interest Rates 2. Bond Coverage 3. Inflation Specific 1. Project Economics Ratio of Project Cost to Project Sales 2. Project Financing Ratio of Project Debt Service To Project Cost 11 HB 9 Annual Wholesale Power Rate Determination PROJECT WHOLESALE POWER RATE 0/M RATE w PROJECT OPERATING AND MAINTENANCE COSTS, INSPECTION FEES AND OTHER COS'TS PROJECT SALES 12 + DEBT SERVICE RATE , PROJECT SHARE Of TOTAL SYSTEM · DEBT SERVICE AFTER NCN' N ADJUSTMENT PROJECT SALES The CAP Provision in House Bill No. 9 What Does It Mean? ... CAP is the term used to indicate the limit or ceiling of charges. What Does it Do? ... Places a ceiling on each project's debt service charges which affects the project power rates. How Is It Determined? ... 13 . The CAP is the 1983 average system rate increasing at 401o per annum. (This is exclusive of 0 & M and inspection fees) How is the Average System Rate Determined? Total System Debt Service Total System Sales X 100 = $/KWH Applicable to Basic System (Swan Lake, Tyee Lake, Terror Lake, Solomon Gulch) Determination of "Without CAP" Power Rates ... 14 It Is Necessary to Examine Debt Service Rates at Their Natural Levels Without Adjustments. CAP Rate Adjustments Can Then be Made on a More Equitable Basis To Determine "Without CAP" Power Rates 1. Total Annual 2. 3. Project 0 & M Costs = '/KWH Project Sales Project Cost Total System Project Cost Percent Share Total Project Cost Project Proporationate = Share of Total System Costs Total Project Dollar X System = Share of Debt Svc Total System Costs 4. Project Debt Svc ($) X 1 00 = Project Sales (GWH) Debt Service '/KWH Different levels of project sales provide for unique debt Service Rates ('/KWH) 5. If debt service rate ('/KWH) is greater than or equal to the system CAP rate, then the debt service rate is equal to the CAP rate. Debt Svc Rate •IKWH + O&M ('/KWH) Total Rate ('/KWH). If the debt service rate ('/KWH) is less than the system CAP rate -the next step is shortfall reallocation. System Shortfall ... 15 • Projects Whose ''Without CAP'' Debt Service Rate is Greater than "System CAP Rate" Create a Shortfall. • Shortfall is Reallocated to Projects Whose Debt Service is Under the "System CAP Rate" To Establish System Shortfall ••. Shortfall Debt Service Rate X Project Sales = To Reallocate System Shortfall •.• Project Annual Dollar Shortfall 1... Determine those projects whose debt service rate, without CAP rate, is less than the system CAP rate. (continued) ... System Shortfall (Continued) To Reallocate System Shortfall ... 2. Take each project from step one and determine what % percent the project cost is of the total project costs for all projects considered in step one. 3. Multiply the percent established in step 2 times the total 16 X system shortfall (which is in dollars) and this equals the dollar amount of system shortfall which will be allocated to that project. 4. Divide the project system shortfall reallocation (in dollars) from + step 3, by that projects' sales to determine the cents per kilowatt hour -•!KWH. This rate will be added to the "without debt service CAP rate." Add 0 & M and inspection fees (in •!KWH) and this equals the total wholesale rate for a project whose debt service rate falls below the system CAP rate (in •!KWH). = Wholesale otKWH Long Term Financing Process ... 17 The Long Term Financing Process Is Comprised of a Series of Steps Each One of Which Must be Completed Before Advancing to the Next. • Power sales contracts signed by the participant utilities. If there is no guarantee of income from the power generated there is no security behind the bonds. • Draft bond indenture A contract stating the terms of the bond for the protection of the investor • Draft report of engineer of record Engineering report on technical viability of the project • Investor meetings/Rating Service meetings • Technical correctoins to all documentation • Final official statement • Receive ratings by rating services (Standard & Poor, Moody's) • Information meetings with investors • Bond pricing/sale Long Term Financing ••• · 18 long Term Financing is the Culmination of the System Financing Activity. All Short and Medium Term Notes are Rolled Over and Capital Provisions for Construc- tion Completion are Finalized. The Sharing Mechanism of HB 9 Enhances the long Term Financing Goals. • Greater security for bonds. State assumption of project completion risk. • Equalized sharing of state equity. All projects assured of a percentage of any contribution • Focus of the credit analysis is on the statewide power needs • Reduced debt coverage from 1:40 to 1:10 • Reduced reserve requirements Power Sales Contracts (P.S.C.) 19 Power Sales Contracts are the First Step in Preparing a Bond Issue. Without Agreements, that Sufficient Sales with Resultant Revenues are Available to Cover Bond Repayment, there Is No Security for the Investor. PSC Follow a Given Content Format. • Set guidelines for the marketing of power. Defines price structures with corresponding sales. • Spirit of contracts are uniform • Define methodology of rate setting in accordance with HB-9 • Set rates sufficient to generate revenues equal to: 1) Project share of system debt service and bond coverage 2) Reallocation of CAP shortfall ($) 3) Individual project operation, maintenance and inspection costs • Allocate project, marketing and castastrophic loss risks • Allocate rights to project capability • Define arrangements for project operation and maintenance Bond Ratings 20 Bond Ratings Express the Quality of a Bond and it's Credit Risk. Four Principal Factors are Evaluated to Rate a Bond. Analyzed are: 1. Debt Factors The debt burden, debt history and trends; debt policy, debt structure and prospective borrowing. 2. Financial Analysis Fiscal performance including budgetary control, adequacy of revenues, financial administration and historical trends. 3. Economic Conditions Natural resources; population wealth and labor, economic structure and amount of capital; and economic performance and prospectus. 4. Administration Organization, services and administrative performance. Bond Ratings Continued General Factors which Influence the Bonds Include: • Uncertainty concerning issues relative to the security of bonds. • Affected by the capital market-prevailing atmosphere of the tax-exempt bond market • Affected by the general monetary policy of the Federal Reserve Banking system. • Bond variables influenced by rating services include: • Interest rate • Issuance and compensation costs • Demand/marketing for bonds • Insurance costs on bonds • Financial and legal staff support 21 Rating of Alaska Power Authority Debt (Moody Rating Service) ... 22 Given the Present State of the HB-9 System, a Likely Rating will be Either of the Following with the Resultant Effect: "A" Rating High medium grade, many favorable Investment a tributes. Bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obliga- tions. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibili- ty to impairment sometime in the future. Medium grade "Baa" Rating Lower medium grade, neither highly protected nor poorly secured. Bonds which are rated "Baa" are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payment and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics as well and in fact have speculative characteristics Impact of Project Financing ... Example: Four Projects Entering the System One a Year 1985-1988 23 • Projects one and two have the same project economic and financing characteristics, therefore project two has no impact on project one when it comes one line in 1986. Note: debt service allocated based on project cost -because both projects have the same project cost/sales ratio they have the same 0/S rate.· Project size does not effect power rates. • Project three lowers average financing mix from 50% debt/50% equi- ty to 25% debtf75% equity. All project DIS rate drops • Project four increases average system financing mix to 55% debt/45% equity. All projects DIS rate increase (Continued) Economics of Project Financing Continued 24 15 ::r ~10 0 Project 2 with the same ratio of financing costs to Project 1 project costs is added to stand alone the system -no change t-•••••••••i:.n power rates. Projects with a lower ratio of financing costs to pro- ject cost is added to the system. All projects see their rates decline. Project with a higher ratio of financing costs added to the system . All pro- jects see their rates increase. ~~~5---------------,g~~----------------,-~~7----------------,~~8 Fiscal Years Summary • Project financing by itself affects power rates only in that it changes the average financing characteristics of the system and thus the debt service costs assigned to each project. • Project financing by itself does not affect the CAP application. Impact of Project Economics 25 Example: Two Projects Entering the System in 1985-1986 ... Project two, when it comes on-line in 1986, is less economic than project one. The CAP comes into affect in this example and reduces the debt service allocation for project two so that its debt service rate equals the CAP rate. Project one is required to pick up the reallocated debt service and thus shows an increase in its rates. Project two in 1987 now has the same project economic characteristics as project one, therefore the CAP does not come into effect and both projects have the same rates. Project one rates return to 1985 levels. Project two in 1988 is now more economic than project one. This results in project one being CAPPED and the more economic project (two) picking up the reallocated debt service. Thus project one also benefits by the increased sales for project two through the CAP mech!'nism as it rates decline in 1988. (Continued) Impact of Project Economics Continued 26 Project 2 which is less economic (higher project cost to sales ratio) than project 1 enters the system. Project 1 shows a- rate increase as it picks up some of the debt services of project 2. Project 2 sales increase in 1967 so that it is as economic as project 1. The "CAP" does not come into effect and project 1 rates return to 1985 levels. ......... ..... ..._. Project 1 ..... 4llt Project 2 Project 2 sale8 increase so that it is more economic than project 1. Project 1 Is "CAPPED" and project 2 picks up the reallocated debt service. Both projects 0 ._ _______ ..,.. ________ ...., _______ __, share the benefits of pro- 1985 1986 1987 1988 ject 2 Increased sales and see their rates decline. Fiscal Years Summary • By itself project economics affects the CAP rate and thus the allocation of debt service. • Changes in project economics are shared by all projects partially, through the application of the CAP (i.e., the benefits of increased sales tor one project are partially shared with other projects.) • The extent of this sharing will decline over time as the CAP has less importance. Shortfall Reallocation Process 27 .. PROJECTS UNDER THE SYSTEM CAP AVAILABLE FOR SHORTFALL DEBT SERVICE REALLOCATION -SoLOMON GuLCH -SWAN LAKE SOLOMON GuLCH PROPORTIONATE DEBT SERVICE SHORTFALL REALLOCATION: STEP 1: DETERMINE TOTAL PROJECTS COST AVAILABLE FOR SHORTFALL REALLOCATION: I -SoLOMON GuLcH PROJECT CosT: 53.00 MILL. -SwAN LAKE PROJECT CosT: 95.50 MILL. -ToTAL PROJECTs CosT: $148.50 MILL. STEP 2: DETERMINE PROPORTIONATE DEBT SERVICE SHORTFALL SHARE: STEP 3: $53.00 MILL. (PROJECT COST FOR) SoLOMON GuLCH $148.50 MILL. <ToTAL PROJECTS CosT) ... 35.71 DETERMINE ACTUAL SHORTFALL DOLLAR AMOUNT TO BE REALLOCATED TO SOL~ON GULCH: 35.7% (PROPORTIONATE DEBT SERVICE} $2,319 MILL, (TOTAL F,Y, 1986) $820 200 SHORTFALL SHARE X SHORTFALL = v., STEP 4: (SHORTFALL TO BE ALLO-CATED TO SOLOMON GULCH) DETERMINE ¢/KWH SHORTFALL TO ALLOCATED TO SOLOMON GULCH PO\'IER RATE STRUCTURE: $828,200 (SHORTFALL TO BE ALLOCATED) , TO SOLOMON GULCH 41.0a GWH (PROJECT SALES) = 2.02¢/KWH (ALLOCATED TO SOLOMON GULCH EXISTING POWEJ; RATE) Project Rate Calculations F.Y. 1986 PROJECT COST: $ 95 . 50 MILL. PROJECT SALES: 79.20 GWH 0 & M/INSPECTION FEES: $.317MILL. SWAN LAKE STEP 1: PROJECT 0 & M/INSPECTION FEES COST PER KWH $317~000 (TOTAL 0 & M/INSPECTION FEES) 79.20 GWH (TOTAL PROJECT SALES) "" , 4()1)¢/ KWH STEP 2: DETERMINE SHARE OF TOTAL SYSTEM -WWITHOUT CAP" $95.50 (PROJECT COST) = $462.50 (TOTAL SYSTEM PROJECT) COSTS 20.6% 28 STEP 3: SWAN LAKE DEBT SERVICE -PROPORTIONATE SHARE 20.6% (SHARE OF TOTAL) X $20.49 MILL. (TOTAL SYSTEM DEBT) PROJECT COST SERVICE = $4,232 MILL. (SWAN LAKE DEBT) STEP 4; SWAN LAKE DEBT SERVICE RATE ¢/KwH -"w/o CAP" SERVICE STEP 5; $4,232 MILL. (SWAN LAKE DEBT SERVICE) = 5.34¢/KWH 79.20 · (SWAN LAKE SALES) SWAN LAKE POWER RATE "w/o CAP" 5.34¢/KWH (sWAN LAKE DEBT) SERVICE COST + .40¢/KWH (o & M!JNSP.ECTION FEES) == 5.74¢/KWH OR $4,549 MILL. (SWAN LAKE DEBT SERVICE PLUS) 0 & MIINSPECTION FEES = 5.74¢/KWH 79.20 GWH {sWAN LAKE SALES) STEP 6: TOTAL SWAN LAKE RATE INCLUSIVE OF 11 CAP" REALLOCATION 1.88¢/KWH {CAP REALLOCATION) r 5.79¢/KWH (DEBT SERVICE + 0 & M) INSPECTION FEES = 7.62¢/KWH TOTAL SWAN LAKE RATE Project Rate Calculations -F.Y. 1986 Continued 29 SOLOMON GULCH PROJECT COST : $53.00 MILL. PROJECT SALES : 41.00 GWH 0 & M & INSPECTION FEES : $1.359 MILL. SJEP 1: PROJECT 0 & M/INSPECTION FEES COST PER/KWH 1.359 MILL. (TOTAL 0 & M INSPECTION FEES) 41.00 GWH (TOTAL PROJECT SALES) SJEP 2: DETERMINE SHARE OF TOTAL SYST81 -•wiTHOUT CAP" $53.00 MILL. (PROJECT COST) $462.50 MILL. (TOTAL SYSTEM PROJECT COSTS) SJEP 3: SOLOMON GULCH DEBT SERVICE -PROPORTION ATE SHARE = 3, 32 ¢/KWH = 11.45% 11.45% (SHARE OF TOTAL PROJECT COST) X $20.49 MILL.(TOTAL SYSTEM DEBT SERVICE) = . ...,., ..,.,,8 SOLOMON STEP 4: SOLOMON GULCH DEBT SERVICE RATE ¢!KwH -"w/o CAP" $2.348 MILL. (SOLOMON GULCH DEBT SERVICE) 41.00 GWH (SOLOMON GULCH SALES) SJEP 5: SOLOMON GULCH PO\iER Rl\TE "w/o CAP" ~L.)~ MILL·GULCH (DEBT SE!iVICE) = 5.73¢/KWH 5.73 ¢/KWH (SOLOMON GULCH DEBT SERVICE COST) + 3.32 ¢/KWH (o & M INSPECTION FEES) = 9.05 ¢/KWH OR $3,707 MILL. (SOLOMON GULCH DEBT SERVICE + 0 & M INSPECTION FEES) = 9.!)5 ¢/KWH 41.00 GWH (SOLOMON GULCH SALES) SJEP 6: TOTAL SOLOMON GULCH RATE INCLUSIVE OF CAP REALLOCATION 2.02 ¢/KWH (CAP REALLOCATION) + 9.05 ¢/KWH (DEBT SERVICE PLUS 0 & M) INSPECTION FEES = 11.07 (TOTAL SOLOM0)N GULCH RATE Project Rate Calculations F.Y. 1986 Continued 30 PROJECT COST:' $189. 40 MILL. TERROR LAKE PROJECT SALES: 88.20 GWH 0 & M/INSPECTION FEES: $1.08J MILL. STEP 1: PROJECT 0 & M/INSPECTION FEES COST PER/KWH $1,080 MILL, (TOTAL 0 & MIINSPECTION FEES) = 1.22¢/KWH 88.20 GWH (TOTAL PROJECT SALES) STEP 2 i DETERMINE SHARE OF TOTAL SYSTE:·t -"WITHOUT CAP" $189.40 MILL. (PROJECT COST) $462.50 MILL. (TOTAL SYSTEM) PROJECT COSTS = 40.95% STEP 3: TERROR LAKE DEBT SERVICE -PROPORTIONATE SHARE 40.95% (SHARE OF TOTAL) $20.49 MILL, (TOTAL SYSTEM DEBT) = $8.39Q MILL. PROJECT COST X SERVICE (TERROR LAKE DEBT: STEP 4; TERROR LAKE DEBT SERVICE RATE ¢/KwH -"w/o CAP" t8.39Q MILL. (TERROR LAKE DEBT SERVICE) 88.20 GWH (TERROR LAKE SALES) STEP 5: TERROR LAKE Pm/ER RATE "w/o CAP" = 9.512¢/KWH SERVICE 9.512¢/KWH (TERROR LAKE DEBT) SERVICE + 1.22¢/KWH (o & M/INSPECTION FEES) = iOj3 ¢/KWH $9.470 MILL OR (TERROR LAKE DEBT SERVICE +) 0 & MfiNSPECTION·FEES 88.20 GWH (TERROR LAKE SALES) = 10,73 ¢/KWH STEP 6: TOTAL TERROR LAKE RATE INCLUSIVE OF CAP REALLOCATION* *9,449¢/KWH (CAP RATE) + 1.22 (o & M/INSPECTION FEES) =1Q.66¢/KWH (TOTAL TERROR LAKE) RATE 'SINCE TERROR lAKE DEBT SERVICE RATE lS GREATER THAN Tiff. *SYSTEM CAP RAT£" THE "SYSTEH CAP RATE" REAllOCATED BECOHES THE DEBT SERVICE RATE. i!QIL;_ (OHPUTATION OF SHORTFAlL SINCE SYSTEM CAP RATE WAS UTILIZED. (TERROR lAKE DEBT SERVICE} • (SYSTEH CAP RATE) X (TOTAL PROJECT SALES) • SHORTFAll 9.5I2etKwH -9.l!lt9¢/KwH x 88.21J GwH • <s55,566l Project Rate Calculations F.Y. 1986 Continued 31 PROJECT COST: $124.60 MILL. TYEE LAKE PROJECT SALES: 34.46 GWH 0 & M/INSPECTION FEES: $1.412 MILL. STEP 1: PROJECT 0 & M/INSPECTION FEES COST PER KWH $1,412 MILL. (TOTAL 0 & MIINSPECTION FEES) • 4.10~/KWH 34.46 GWH (TOTAL PROJECT SALES) STEP 2 : DETERMINE SHARE OF TOTAL SYSTEM "WITHOUT CAJ'If $124.60 MILL (PROJECT COS.l\")• $462.50 MILL, (TOTAL SYSTEM PROJECT) COSTS STEP 3: TYEE L~KE DEBT SERVICE -PRO~ORTIOftl\TE SHARE 26.9% (SHARE OF TOTAL) X $20.49 MILL. (TOTAL SYSTEM) • $5.520 MILL. PROJECT COSTS DEBT SERVICE (1'\'EE LAKE DEBT} SERVICE STEP 4: TYEE L~KE DEDT SERVICE ~~TE ¢/KWH -•w/o cA~~ $5,520 MILL. {TYEE LAKE DEBT SERVICE) = 16.02¢/KWH 34.46 GWH (TYEE LAKE SALES} STEP 5: TYEE LAKE POWER RATE "w/o CAP., 16.02¢/KWH (TYEE LAKE DEBT} + SERVICE COST 4.10~/KWH (o & M/INSPEvTION FEES) = 20.12¢/KWH OR $6~932 MILL. (TYEE ~KE DEBT SERVICE +) 0 & M/INSPECTION FEES = 20.12¢/KWH 34.46 GWH (TYEE LAKE SALES) STEP 6: TOTAL TYEE LAKE RATE INCLUSIVE OF CAP REALLOCATION *9.449¢/KWH(CAP RATE) + 4.10¢/KWH {o & H/INSPECTION FEES) = 13.55¢/KWH (TOTAL TYE~ LAKE RATE} *SINCE TYEE LAKE DEBT SERVICE RATE IS GREATER THAN THE "SYSTEM CAP RATE", THE "sYSTEM CAP RATE" BECOMES THE REALLOCATED DEBT SERVICE RATE, ~ (aMPUTATION OF SHO~TFALL, SINCE SYSTEM CAP RATE WAS UTILIZED: (TTEE LA~E DEBT) _ (SYSTEII CAP RATE) X (TOTAL PROJECT SAlES) • SHORTFALL SERVICE 16.02¢/KIIK -9.449¢/KWH X 34.q6GIIK • (S2,2611.37Q)