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HomeMy WebLinkAboutMahoney Lake Hydro Econ Evaluation of Energy Alternatives 2000Economic Evaluation of Energy Alternatives And Pricing Options Ketchikan Electric Company May 1, 2000 Enclosed is an evaluation of the various pricing alternatives offered by Ketchikan Electric Company (KEC) to Ketchikan Public Utilities (KPU) for the provision of wholesale energy from KEC’s proposed Mahoney Lake Hydroelectric Project. In addition, KEC has estimated the costs associated with the continued use of diesel generation for the same 30-year period as proposed in wholesale pricing alternatives. KPU has asked that an eight-year contract be offered that could be renewed for two additional 8-year terms unilaterally by KPU. Thus, this alternative has been evaluated as well as a continuation of the current PSA between the AEA and KPU in the event the Swan/Tyee intertie was constructed. Part 1. Description of the Alternatives: All of the alternatives evaluated used the same prediction of future load levels. The following graph shows the predicted energy requirements by year and the amount of this requirement fulfilled by KPU-owned hydroelectric resources and Swan Lake on an average basis. The estimated growth in energy requirements averages 1.1% over the study period. This average annual growth is consistent with the annual growth rates contained in the Electrical Load Growth Study’ prepared by the Institute of Social Economic Research (ISER) for KPU in 1998. KEC assumed the load would be 170 gigawatt-hours in the year 2000 and increasing at the average rate of growth through year 2031. On the graph we have shown the existing hydroelectric resources owned by KPU and the energy available from Swan Lake superimposed over the load requirements. This presentation clearly shows the un-met energy requirement. This portion of the energy requirement will be met using the diesel capacity at the Bailey Powerhouse unless one of the alternatives evaluated in this study is adopted or some other alternative, not studied herein, such as the Metlakatla/Whitman Lake alternative. ' Ketchikan Public Utilities Electric Load Growth, Institute of Social and Economic Research, University of Alaska , by Scott Goldsmith, June, 1998. Economic Evaluation 05/02/00 Page 2 of 13 Energy Requirements for Ketchikan Area and un-met requirements by year FIP EEE ESE LI ISLS SPP PF Goo PoP PPP FPF PP PF Year OUn-met by existing hydro resources EIKPU owned Hydro and Swan Lake | We have presented an evaluation of six alternatives over a period of 30-years beginning in 2001 and ending in 2031. The alternatives are listed below followed with a short description: Diesel Base Case Mahoney 30-year Fixed Price (no inflator) Mahoney 30-year Indexed to Diesel Mahoney 8-year Renewable Mahoney 30-year Two-Tiered Swan/Tyee Intertie ooododoa Diesel Base Case: In this case the annual energy requirement unable to be fulfilled by KPU-owned hydro resources or Swan Lake energy purchased from AEA is satisfied by generating energy using the Bailey Diesel Power Plant. This analysis does not consider costs associated with adding additional diesel capacity’, additional costs associated with Air Quality Permitting’, or any replacement * The current KPU budget shows a large investment requirement of about $15 million for a diesel capacity addition in year 2001. > The current Air Quality Permit for the diesel plant limit annual maximum capacity to about 67 gwh. The new permit now open for public comments would limit capacity of the plant to 21.45 MW for 14/hrs/day and 25.95 MW Economic Evaluation 05/02/00 Page 3 of 13 reserve associated with the normal wear and tear (depreciation)*. The other assumptions used in this case are listed below: Beginning Fuel Cost $ .735° per gallon of fuel Delivery cost $ .115 per gallon of fuel O&M $.0164 per kilowatt-hour Efficiency 153 kwh/gallon of fuel To calculate future costs, inflation equal to 3% per year was assumed. The other assumptions are the same as those used by D. Hittle & Associates (under contract with KPU) in their evaluation. To calculate present value a discount rate of 8% was used. Generally in economic studies future economic benefits are discounted by the rate offered by comparable investment alternatives. 30-year Fixed Price (no inflator): Under this pricing option presented by KEC the rate per kilowatt-hour is fixed at $.067. The rate would not change during the 30-year term of the power sales agreement. A minimum charge would be required that would track with the FERC required instream flows. This will result in the purchase of about 20 gWH per year at $.067 or $1,340,000. Until the Mahoney Lake Project is fully utilized, KPU would be restricted in their use of diesel generation. Under the proposed PSA, diesel would be limited to testing and backup purposes plus another 1 gWH. Dispatch records would need to be available to verify compliance with these terms. During the early years of the contract term there may be occasions that occur that lower cost KPU-owned hydroelectric resources may be displaced because of the instream flow requirements and resulting minimum take of the proposed PSA. In these situations KEC has included a spill credit of up to $150,000 per year to reimburse KPU for the additional costs incurred. for the other 10 hours. The maximum annual energy that could be generated would be limited to 72 gWH. It is important to note that 33 gWH was generated in 1999. This leaves a only permitted reserve of only 39 gWH available to meet future short-term industrial loads. 4 Generally, mechanical units have a given life expectancy usually measured in hours of operation. If the units are not operated this useful life is preserved. If the units are operated the useful life is reduced. Generally, these costs are recovered by setting up reserves for replacement. This method allows for the recovery of these costs through current rates rather than by periodic large investments being required when the units need to be replaced or become obsolete. > The 85 cents per gallon used by D. Hittle & Associates has been broken down into a delivery cost and an OPIS reference price. We assumed a 11.5 delivery cost and thus have subtracted this from the 85 cent price to calculate an equivalent OPIS spot price of $.735. Economic Evaluation 05/02/00 Page 4 of 13 30-year Indexed to Diesel: Under this pricing option presented by KEC the rate per kilowatt-hour would be set by an index. KEC would price all KWH in accordance with a monthly index where price equals .90 X ((fuel price + delivery) divided by an efficiency of 15.3 kwh/gal + O&M equal to $ .0164 per kwh). In future years the O&M and delivery would be adjusted annually for inflation using only 50% of the increase in the Anchorage CPI. Since this evaluation assumes 3% inflation they would be increased by only 1.5%. The minimum under this pricing option would be about 13 gWH or about $962,000 at 7.4 cents per kwh. The minimum would be associated with the 13 CFS steady flow with no extra requirement for August and September. In the event that the total KPU energy requirement drops below 150 GWH, the minimum purchase requirement would also be reduced 50% to 6.5 gWH or $481,000 at 7.4 cents per kwh. As far as contractual restrictions on the use of diesel generation, no specific contract requirement would be imposed. However, we would want assurance that Mahoney would not be displaced, thus we have included a contract provision similar to the contract provision that KPU has agreed to in the PSA with Swan Lake®. No verification of dispatch records’ would be required as the factors in the index are either fixed or verifiable from third party sources (i.e. OPIS, Anchorage CPI). 8-year Renewable: KPU asked that an eight-year contract that could be renewed for two additional 8-year terms unilaterally by KPU be considered. This alternative would have three eight-year terms (24-years) offering KPU the option of terminating the agreement periodically. The price would start at $.065 and be adjusted at years 8 and 16 using 50% of the change in the Anchorage CPI. Using 3% inflation as assumed by D. Hittle & Associates, this results in rates for the second and third renewal period of $.072 and $.081 respectively. Since the evaluation was performed over a 30-year period, the last six years is assumed to be equal to the diesel base case. The minimums and restrictions are the same as in the 30-year fixed alternative. This will result in the purchase of about 20 gWH per year at $.065 or $1,300,000. Until the Mahoney Lake Project is fully utilized, KPU would be restricted in their use of diesel generation. Under the proposed PSA diesel would be limited to testing and backup purposes plus another 1 gWH. Dispatch records would need to be available to verify compliance with these terms. During the early years of the contract term there my be occasions when lower cost KPU-owned hydroelectric resources may be displaced because of the instream ® KPU would agree to the extent energy and capacity is available to KPU from KEC are sufficient to meet that portion of KPU’s load requirements that exceed the capability of the KPU now existing hydroelectric. KPU shall not meet that portion of its electric load requirements or any part thereof with power generated by other electric power resources. 7 Since this index will insure that Mahoney Energy is always priced below diesel generated at the Bailey Plant it would only make economic sense for KPU to limit diesel generation to back-up and testing. Economic Evaluation 05/02/00 Page 5 of 13 flow requirements and resulting minimum take of the proposed PSA. In these situations KEC has included a spill credit of up to $150,000 per year to reimburse KPU for the additional costs incurred. 30-year Two-Tiered: The two-tiered rate approach separates the rate into an energy and demand charge. The demand rate would be $7.25 per KW per month, take-or-pay, provided the project is available for dispatch. The energy rate would be 4.9 cents/K Wh, dropping to 2.5 cents/K Wh for all energy purchased in any given contract year in excess of 35 GWh. The minimum purchase requirement is only the energy associated with an annual minimum flow of 13 CFS, about 13 gWH per year at 4.9 cents/KWH. Thus, the annual minimum would be $835,200 (12 months of demand charges for 9,600 KW), plus $637,000 of minimum-flow energy (assuming it is sold at $0.049/K Wh). Total annual minimum would be about $1,475,200. The use of diesel generation would be left to KPU’s discretion’. No specific contract requirement would be imposed. However, we would want assurance that Mahoney would not be displaced, thus we have included a contract provision similar to the contract provision that KPU has agreed to in the PSA with Swan Lake’. Swan/Tyee Intertie: This alternative assumes that additional energy will be available from Tyee. The price will be the same as is currently being paid under the existing PSA. The 4 cents per kwh debt portion would be fixed and the O&M portion, currently 2.8 cents per kwh, would be subject to inflation. KEC has chosen to use the above assumptions, because of political and financial uncertainty of the proposed divestiture of the four dam pool projects, the creation of a joint agency to own and operate the projects, and funding uncertainty of the $80 million needed to construct the intertie. Part 2. The Evaluation: Each of the alternatives uses the same forecast for energy requirements. This forecast is shown in the left-hand column of the worksheet next to each year of the study period. The next column subtracts the amount of energy of those 5 The incremental cost of energy would be 4.9 cents per kwh with an incentive for KPU to purchase over 35 gWH annually to lower the rate to 2.5 cents per kwh. Since these rates are significantly below diesel costs, it is assumed that KPU would purchase from Mahoney when possible. ° KPU would agree to the extent energy and capacity is available to KPU from KEC are sufficient to meet that portion of KPU’s load requirements that exceed the capability of the KPU now existing hydroelectric, KPU shall not meet that portion of its electric load requirements or any part thereof with power generated by other electric power resources. Economic Evaluation 05/02/00 Page 6 of 13 requirements to be met by KPU-owned Hydro and by purchases from Swan Lake. The remainder is the amount of energy that will need to be produced by diesel or purchased from among the alternatives studied. The estimate used is similar to the load forecast prepared by ISER and updated by AIDEA in its report on the Swan/Tyee Intertie. This is the load data used when evaluating all of the alternatives. At this point a worksheet is prepared for each of the alternatives that estimates the cost of using that alternative using the rates and conditions from the pricing alternatives submitted by KEC; the estimated costs of producing diesel are based upon diesel costs provided by D. Hittle & Associates. These six worksheets are attached to this report as Appendix A. Part 3. Summarization of the Results: 30-year Diesel 30-year 30-year 8-year 30-year Swan/Tyee 2001 to 31 fixed indexed renewable two-tiered Total Cost $151,870 $80,882 $125,711 $ 118,733 $81,394 $106,492 /Rev. in thousands of $ Average $.124 $.066 $.102 $.097 $.066 $.087 $/kwh Nominal $0 $70,988 $26,159 $33,137 $70,476 $45,378 Savings to KPU in thousands of $ As you can see, the alternative that yields the lowest cost over the entire study period of 2001 to 2031 is the 30-year fixed at $80.8 million. This is followed by the 30-year two-tiered at $81.3 million, Swan/Tyee at $106 million, 8-year renewable at $118.7 million, 30-year indexed at $125.7 million, and the diesel base case at $151.8 million. Economic Evaluation 05/02/00 Page 7 of 13 The following graph shows this relationship: Mahoney Lake Pricing Alternatives Total Cost Year 2001 to 2031 160,000,000 + 140,000,000 | 120,000,000 1 100,000,000 | 80,000,000 Dollars 60,000,000 ~ 40,000,000 + 20,000,000 + 2003 2005 2007 2009 2011 4 2013 2015 2017 2019 2021 2023 - 2025 4 2027 2029 2031 —®— swan/Tyee —™-30-Year indexed | 30-Year Fixed | 8-year Renewable | —*— 30-year Two-tier In many cases the results can be sensitive to the length of the study period. Thus, it is wise to review the results of the study at various intervals. This method will identify the extent results are sensitive. It can also be useful in the evaluation process to rank the alternatives for different planning periods or other considerations. The least cost alternative over thirty-years may be different than the least cost alternative over 5, 10, or 20 years. This evaluation can be performed by accumulating the savings for each of the alternatives by year. The following table shows accumulated savings for each of the alternatives at the end of 5, 10, 20, and 30-year periods as measured against the diesel base case. Savings in 30-year fixed 30-year indexed | 8-year 30-year Swan/Tyee millions renewable two-tiered 5-year 2.3 1.2 1.8 -.3 1 10-year 7.0 33 6.0 3.3 42 20-year 28.0 11.4 22.8 25.6 17.8 30-year 70.9 26.1 B35 70.4 45.4 The next graph shows the accumulated nominal saving by year for each of the alternatives: Economic Evaluation 05/02/00 Page 8 of 13 _ TT) | Mahoney Lake Pricing Alternatives | Total Saving Years 2001 to 2031 | 80,000,000 + = 70,000,000 4 | 60,000,000 | —e— Diesel | 50,000,000 | l e —m— 30-Year Indexed {| & 40,000,000 + _ 30-Year Fixed | 8 30,000,000 4 _s<_Byear Renewable | 20,000,000 + —*— 30-year Two-tier 40,000,000 | siaiiaedicieg 0 -10,000,000 +—— 1 tot t - oO wo nd Q - oO wo ~ Q pe - wo ye co2] = So So So So So = xc _ e = N Nn N N N 2 So So So So So Oo o o Oo Oo So oO Oo So o So N N N N N N N N N N N N N N N N | Year | | Part 4. Present Value Analysis of the Results: 8% Diesel 30-year 30-year 8-year 30-year Swan/Tyee discount fixed indexed renewable two-tiered rate Present $42,203 $25,923 $35,728 $31,709 $28,831 $31,958 Value of Cost/Rev. in thousands of $ Present $0 $16,279,700 | $6,474,902 $10,494,325 | $13,372,085 | $10,245,546 Economic Benefit over Diesel Case Annual $0 $1,446,084 $575,149 $932,184 $1,187,808 $910,086 Economic Benefit to KPU” 1° This is calculated by taking the net present value of the savings produced by each of the alternatives when compared to the continued use of diesel. The annual economic benefit is equal to an annual payment sufficient to amortize the net present value of the savings over the term of the contract at an interest rate equal to the discount rate used to determine present value. Economic Evaluation 05/02/00 Page 9 of 13 The graph shown below reflects the annual economic benefit of each of the alternatives. As you can see, the 30-year fixed yields the highest annual benefit, followed by the 30-year two-tiered, then the 8-year renewable, then the Swan/Tyee Intertie followed by the 30-year indexed. Since diesel is the base case or benchmark to measure economic benefit or cost against, it is shown at zero. Annual Economic Benefit of Power Supply Options $1,800,000 $1,446,084 $1,400,000 $1,200,000 $1,000,000 + $800,000 $600,000 $400,000 +- $200,000 + $0 4 (Bdiese: 30-Year Fixed 930-Year indexed 8-year Renewable 30-year Two-tier ISwan/Tyee Part 5. Other Non-Economic Factors: In any evaluation many non-economic factors may enter into the decision process. These items are not limited to financial risk, operating ease, and other tangible and intangible items that should be given consideration. Diesel Base Case: This alternative has the most operating flexibility and has very little risk, if limited to the Bailey Plant. If diesel additions are necessary, which will be the case if demand grows, the risk increases. The existing plant is subject to regulatory limitations that restrict its output to about 77 gWH. Since KPU generated 33 gWH in 1999, the reserve available is presently only 44 gWH and will be reduced further as the load increases. This will actually reduce operating flexibility and reduce KPU’s ability to respond to unexpected industrial loads that may occur. The use of fossil fuel generation will become more regulated; currently the Air Quality Permit has many restrictions and national policy is likely to increase this burden. Finally, this alternative has the highest cost of all of the alternatives under the assumptions used in the evaluation. Economic Evaluation 05/02/00 Page 10 of 13 30-year Fixed Price (no inflator): This is the most economic alternative; it yields considerable economic benefit to the area. The annual economic benefit of this alternative is $1,446,084 per year. However, because of the instream flows and annual minimums, it has a higher degree of risk and requires restrictions be placed upon KPU. For example, if the load were to decrease significantly, KPU would be required to purchase the minimum level of energy even if the energy was not needed. There is the possibility in the early years of the contract that the minimum purchases, especially those required in August and September, will displace lower- cost generation available from KPU-owned hydro. KEC has allowed for this and has offered a spill credit not to exceed $150,000 per year. However, it is still possible that the value of the spill could exceed this amount. Finally, concerns about the possibility of KEC directly competing with KPU are precluded. Under any of the 30-years alternatives, KEC is pledging the entire output of the Mahoney Lake Project to KPU. 30-year Indexed to Diesel: This alternative is the most expensive for KPU. However, it also has the least amount of risk. The annual economic benefit when compared to the diesel base case is $575,149. The price will always be lower than operating the diesel plant. Also, the proposed power sales agreement specifically addresses the risk associated with the loss of load by lowering the minimum purchase requirement in the event the total KPU annual load drops below 150gWh. The required minimum purchase under this option would be about 13 gWH per year or about $962,000. As mentioned above, in the event the total system annual load drops below 150 gWH, the minimum is reduced to 6.6 gWH or $481,000 at 7.4 cents per kwh. This option, while more expensive than other alternatives, has the lowest risk. Finally, concerns about the possibility of KEC directly competing with KPU are precluded. Under any of the 30-years alternatives KEC is pledging the entire output of the Mahoney Lake Project to KPU. 8-year renewable: This alternative is slightly less expensive than the 30-year indexed alternative. The annual economic benefit is $932,184. This alternative provides term flexibility to KPU. Under this option, during the 24-year term KPU would have the opportunity to cancel the PSA at the end of year 8 and at year 16. This provides increased term flexibility over any of the other alternatives. The risk of being locked into a longer term is greatly reduced. It is also attractive if substantial benefits are available from the Swan/Tyee Intertie. This option would allow KPU to use Mahoney power for 8 or 16 years, then cancel the PSA and switch to power from Swan/Tyee. However, if the power sales agreement were canceled by KPU, KEC would be free to market its power elsewhere. However, because of the instream flows and annual minimums, it has a higher degree of risk Economic Evaluation 05/02/00 Page 11 of 13 and requires restrictions be placed upon KPU. For example, if the load were to decrease significantly, KPU would be required to purchase the minimum level of energy even if the energy was not needed. There is the possibility in the early years of the contract that the minimum purchases, especially those required in August and September, will displace lower-cost generation available from KPU- owned hydro. KEC has allowed for this and has offered a spill credit not to exceed $150,000 per year. However, it is still possible that the value of the spill could exceed this amount. Finally, during the term of the PSA, KEC is pledging the entire output of the Mahoney Lake Project to KPU. 30-year two-tiered: This alternative produces $1,187,808 in annual economic benefit. This alternative ranks second behind the 30-year fixed in annual benefit to KPU. This option reduced the contractual operational constraints contained in the PSA by using a two-tiered rate structure. By setting up a demand charge, the energy charge is lowered to only 4.9 cents per kwh. This creates an economic incentive to purchase as much power as possible. In fact, once purchased energy exceeds 35 gWH in any year, the price is reduced to 2.5 cents per kwh. Because of this incentive, no specific operating constraints are needed in regards to the use of diesel. Further, the troublesome instream flows for August and September have been reduced to 13 CFS. This greatly reduces the possibility that lower cost hydro would be spilled. Finally, concerns about the possibility of KEC directly competing with KPU are precluded. Under any of the 30-years alternatives KEC is pledging the entire output of the Mahoney Lake Project to KPU. Swan/Tyee Intertie: This alternative produces $910,086 in annual economic benefit to KPU. This option, based upon the assumptions used, ranks ahead of only the 30-year indexed, but the difference between this alternative and the 8-year renewable is very small. The study assumed that KPU would need to commit to purchase all energy from this power source for a 30-year period. Further, because the amount of surplus energy to be purchased is declining as the loads increase in Wrangell and Petersburg, there is no assurance that energy will always be available from Tyee. It is very possible that additional resources will need to be developed locally and additions made to increase diesel capacity, even with the development of the Swan/Tyee Intertie. For many years extensive efforts have been made to secure grant funds to allow it to be constructed. We believe for this project to be successfully constructed, either significant grant money will be needed, non- traditional construction methods (HVDC & submarine cables) resulting in a lower cost for the project, or KPU will need to make a commitment to purchase surplus power when and if available. Economic Evaluation 05/02/00 Page 12 of 13 KPU is faced with a decision to wait until this project is actually constructed or to purchase or develop other energy locally. In many ways, this pits local energy sources against a very large infrastructure project that also may produce economic benefits for other parts of the state (Kodiak, Glennallen, & Valdez). This alternative is also thought to be essential to the successful divestiture of the four dam pool projects from the AEA to the local purchasing utilities, of which KPU is one. This makes the decision to purchase energy from local (Metlakatla/Whitman) or projects developed by the private sector (Mahoney Lake) intertwined with statewide politics and economics. The intertie was the subject of an earlier study commissioned by AIDEA''. The study concluded that the intertie was not the most economic solution for Ketchikan. However, KEC believes that an intertie connecting the population centers of southeast Alaska has tremendous potential as an infrastructure project. Further, the energy resources available in the Ketchikan area may one day be travelling north over the intertie providing energy to Prince of Wales Island, Wrangell, Petersburg, Kake, Sitka, etc. This is the intent of the legislation’? recently proposed by Senators Stevens and Murkowski at the request of Southeast Conference. The proposed legislation will authorize a federal program to insure that the population centers of Alaska enjoy the same advantages as those currently being enjoyed by similar sized communities in the lower 48. The question becomes locally: Shall KPU make its energy resource decisions based upon what is best for Ketchikan and its residents, or should KPU base its energy resource decisions upon statewide politics and assist the development of larger regional projects? KEC believes that whenever possible KPU should assist in regional and statewide efforts but do so only in a way that maximizes the economic benefits to its customers, the residents of the greater Ketchikan area. Further, the intertie, while closer than it was, is still several years away. Conclusion: The alternative that yields the lowest cost over the entire study period of 2001 to 2031 is the 30-year fixed at $80.8 million. This is followed by the 30-year two- tiered at $81.3 million, Swan/Tyee at $106 million, 8-year renewable at $118.7 million, 30-year indexed at $125.7 million, and the diesel base case at $151.8 "| Southeast Intertie Review, April 12, 1999 by AIDEA and CH2M Hill '2 Alaska Congressional Press Release dated April 14, 2000. Economic Evaluation 05/02/00 Page 13 of 13 million. Other non-economic factors need to be considered and evaluated by KPU prior to making a selection. Also, one alternative not considered in this evaluation that is being considered is the option of Whitman Lake combined with an intertie to Metlakatla. Also, KPU staff may have more recent pricing as to the impact of divestiture on the assumptions used herein for the Swan/Tyee intertie. KEC offers this evaluation as a means to initiate meaningful discussion in regards to the growing energy requirements of the area. Nothing contained herein should displace the independent planning effort of KPU staff and its consultants. It is hoped that the information will be useful to KPU, elected officials, and the public in making informed decisions affecting future supply of energy for the residents of the Ketchikan area. If questions arise, please feel free to contact Ketchikan Electric Company. Attached is the following additional information: Appendix A: Worksheets for each of the alternatives that estimate the cost of using that alternative using the rates and conditions from the pricing alternatives submitted by KEC. The estimated costs of producing diesel are based upon diesel costs provided by D. Hittle & Associates. Appendix B: Copy of the graphs used in the report in full size format. Also enclosed are other graphs not used in the report but included as additional information. Appendix C: Copy of memorandum to Francis Frances and Karl Amylon transmitting KEC alternative pricing options dated April 12, 2000. Sincerely, Ketchikan Electric Company Robert S. Grimm, General Manager Appendix A Summary Comparison Various Pricing Scenarios for Mahoney Lake Hydroelectric Project Mahoney Lake Hydropower Thirty-years from Ful Diesel Cost comparable 30-year 30-year ‘S-year 16/24 ‘30-year ‘Swan/Tyee 2000 to 2030 Diesel to Mahoney Eneray Fixed Index to Diese! Renewable ‘Two-Tiered Rate Total Revenue/cost $217,534,265 $151,870,355 $80,882,340 $125,710,959 $118,732,977 $81,393,571 $106,492,219 ‘Average Cost per KWH $0.153 $0.124 $0.066 $0.102 $0.097 $0.066 0.087 Nominal Savings realized by KPU over 30-Years $0 $0 $70,988,016 $26,159,396 $33,137,378 $70,476,784 $45,378,137 Net Present Value @ 8.00% Discount Rate $51,836,785 $42,203,237 $25,923,537 $35,728,335 $31,708,913 $28,831,152 $34,966,864 Economic Benefit $0 $0 $16,279,700 $6,474,902 $10,494,325 $13,372,085 $7,236,373 Annual Economic Benefit $0 $0 $1,446,084 $575,149 $932,184 $1,187,808 $642,788 To KPU Customers Total Cost for 2001 to 2030 Total Savings as Comparied to Diesel YEAR Diesel 30-Year 30-Year 8-year 30-year Diesel 30-Year 30-Year 8-year Swar/Tyee 200 indexed Fred Renewable Twotter Indexed Freed Renewable DoT 1.820878 1.451.729 1,315,290 1,421,550 1,908,830, Zor ° $169,149 $305,588 $199,328 133,718 2002 -3.434,704 3,068,484 2.757.248 2,986,987 3,908,208 202 ° $368,220 $877,458 $468,717 311,868 203 -5.453,231 4,859,161 4;327,268 4,634,063 5,999,423 2003 o $594,071 $1,125,983, $816,568 540,928 2004 7,688,812 6,833,070 6,028,758 6,428,044 8,187,235 204 ° $855,742 $1,062,054 1,250,868 877,742 2005 10,184,427 8,900,958 7,857,142 8,360,213 10,470,778 2005 ° $1,154,468 $2,297,284 $31,804,214 4,179,540 2008 12,863,711 11,370,027 9,804,861 10,300,065 12,851,008 2008 ° 31,499,684 $2,968,850 $2,463,848 1,603,945 oT 15,890,988 13,953,049 12,068,369 12,579,313 15,329,267 ‘007 o $1,877,038 $3,764,819 $9,251,675, $501,721 2,109,000 2008 19,071,303 16,762,804 14373,138 14,880,906 17,809,187 708 ° $2.308,408 $4,998,163, $4,101,317 $1,178,115 2,703,167 208 72,800451 19,808,551 16,659 17,601,714 20:508,133 700 ° $2,791,900 $5,783,792 $4,998,738 $2,092,317 3,305,448, 210 28,495,017 23,103,145 19,398,432 20,482,302 23,174,667 ° $3,331,872 $7,038,585 $3,280,350 4,195,198 211 30592411 26,650,467 22,119,980 23,473,388 25,003,355 ° $3,992,044 $8,472,432 $4,699,057 5.112.368 212 36,090,907 30,490,808 25,020;340 28,636,628 28,004,771, ° $4,600,009 $10,070,567 $6,426,196 6,187,407 2013 30,740,950 34,433,907 27,930,840 20,810,789 31,439,971 ° $5,308,443 $11,800,510 138,300,379 7,200,313, ‘2014 44,520,278 38,477,968 30,841,340 34,215,171 ° $6,051,310 $13,687,937 $10,314,105 2015 49,461,870 42,625,840 33,751,840 36,159, ° $6,836,072 $15,710,031 $12,471,400 Do1e 54.542.442 46,880,408 36.962:340 30,333,252 ° $7,982,098 $17,880,103 11,220,245 DONT 0.775431 51,244,573 39,610,340 42,908,916 42540,771 o 38590858 $20,165,082 12.716.236 2018 65,105,410 55,721,367 42,558,340 46,404,579 45315971 ° 30,444,043, $22,607,070 14,309,006 2019 70,717,088 60,313,803 45,508,340 50,060,243 48,091,171 ° $10,403,195 $25,210,749 16,004,187 2020 76,435,317 65,025,343 48,454,340 53,635,907 ° $11,409,974 $27,980,977 17,802,008 2021 82,325,092 69,850,002 61,402:340 57,211,571 ° $12,468,090 $20,922,752 19,708,742 28,301,500 74,818,251 154,350,340 60,787,234 202 ° 313573310 $34,041,221 21,721,328 2023 94,640,023 79,908,505 ‘57,298,340 64,362,808 03 ° $14,733,458 $97,341,683 73,840,151 2024 101,075,940 85,127,520 0,246,340 67,938,562 987, 2004 ° $15,048,419 $40,829,600 28,093,600 2025 107,704,933 90,484,796 63,194,340 74,567,558 64742371 2025 ° $17,220,137 $44,510,504 28,458,201 2028 114,532,797 95,982,178 65,142.40 81,305,419 67517571 28 0 $18,550,619 $48,300,458 30,946,590 ‘2OzT 121,585,497 101,623,560 169,000,340 70,202,771, mar 0 $19,941,937 $52,475,157 33,582,309 2028 128,800,178 107,412,947 72,038,340 73,067,971 92,490,816 2028 0 $21,396,230 36,309,362 28 138; 113,354,462 74,986,340 75,843,171 97,078,543, 2029 ° $22,915,707 39,191,628, 2000 143,954,000 119,452,345 77,934,340 101,741,231 2030 ° $24,502,645 42.213,188 2031 151,870,355 125,710,959 20,882,340 108,492,219 2031 ° $28,159,398 45,378,137 $0,124 0.102 30.088 0.087 ° Comparison of Pricing Options For Mahoney Lake Page 1 Diesel Case: Does not include Capital and other Costs associated with additional Diesel Capacity or Air Quality Permitting Assumptions: Source: Assumptions: Source: Fe ES a Se RE PE ee TY KPU Resources 150,000 D. Hittle Inflation 3% D. Hittle Mahoney Gen. 44,000 KEC Fuel $ 0.85 /gallon D. Hittle Diesel Gen. - O&M $ 0.0134 /kKWh D. Hittle Discount Rate: 8.0% KEC Lubricants $ 0.0030 /kWh D. Hittle Spill Credit $150,000 KEC Efficiency 15.3 kWigalion D. Hittle "D" Opis @ 0.735 D. Hittle/KEC Mahoney Cap. 9600 MWh FERC "M" Margin @ 0.115 D. HittlenKEC Capacity Charge $ 7.25 $/KWiMonth KEC "Vv" O&M 0.0164 D. Hittle Load growth 1.0114 "Energy Requirements Estimated Full Diesel Cost Un-met Mahoney Diesel Diesel Equated to Total YEAR Total By KPU hydro or Swan Sales Rate $/Kwh — Costs to Mahoney accumulated 2000 170,000 20,000 20,000 $0.072 1,439,111 1,439,111 Costs 1 2001 171,870 21,870 21,870 $ 0.074 $ 1,620,878 $ 1,620,878 $ 1,620,878 2 2002 173,761 23,761 23,761 $ 0.076 $ 1,813,826 $ 1,813,826 $ 3,434,704 3 2003 175,672 25,672 25,672 $ 0.079 $ 2,018,527 $ 2,018,527 $ 5,453,231 4 2004 177,604 27,604 27,604 $ 0.081 $ 2,235,581 $ 2,235,581 $ 7,688,812 5 2005 179,558 29,558 29,558 $ 0.083 $ 2,465,614 $ 2,465,614 $ 10,154,427 6 2006 181,533 31,533 31,533 $ 0.086 $ 2,709,284 $ 2,709,284 $ 12,863,711 if 2007 183,530 33,530 33,530 $ 0.088 $ 2,967,277 $ 2,967,277 $ 15,830,988 8 2008 185,549 35,549 35,549 $ 0.091 $ 3,240,314 $ 3,240,314 $ 19,071,303 9 2009 187,590 37,590 37,590 $ 0.084 $ 3,529,148 $ 3,529,148 $ 22,600,451 10 2010 189,653 39,653 39,653 $ 0.097 $ 3,834,566 $ 3,834,566 $ 26,435,017 "1 2011 191,740 41,740 41,740 $ 0.100 $ 4,157,395 $ 4,157,395 $ 30,592,411 12 2012 193,849 43,849 43,849 $ 0.103 $ 4,498,495 $ 4,498,495 $ 35,090,907 13 2013 195,981 45,981 44,000 $ 0.106 $ 4,858,772 $ 4,649,443 $ 39,740,350 14 2014 198,137 48,137 44,000 $ 0.109 $ 5,239,170 $ 4,788,926 $ 44,529,276 15 2015 200,316 50,316 44,000 $ 0.112 $ 5,640,677 $ 4,932,594 $ 49,461,870 16 2016 202,520 52,520 44,000 $ 0.115 $ 6,064,328 $ 5,080,572 $ 54,542,442 17 2017 204,747 54,747 44,000 $ 0.119 $ 6,511,204 $ 5,232,989 $ 59,775,431 18 2018 207,000 57,000 44,000 $ 0.122 $ 6,982,436 $ 5,389,979 $ 65,165,410 19 2019 209,277 59,277 44,000 $ 0.126 $ 7,479,208 $ 5,551,678 $ 70,717,088 20 2020 211,579 61,579 44,000 $ 0.130 $ 8,002,757 $ 5,718,228 $ 76,435,317 21 2021 213,906 63,906 44,000 $ 0.134 $ 8,554,378 $ 5,889,775 $ 82,325,092 22 2022 216,259 66,259 44,000 $ 0.138 $ 9,135,423 $ 6,066,469 $ 88,391,560 23 2023 218,638 68,638 44,000 $ 0.142 $ 9,747,307 $ 6,248,463 $ 94,640,023 24 2024 221,043 71,043 44,000 $ 0.146 $ 10,391,510 $ 6,435,916 $ 101,075,940 25 2025 223,474 73,474 44,000 $ 0.151 $ 11,069,579 $ 6,628,994 $ 107,704,933 26 2026 225,933 75,933 44,000 $ 0.155 $ 11,783,129 $ 6,827,864 $ 114,532,797 27 2027 228,418 78,418 44,000 $ 0.160 $ 12,533,852 $ 7,032,700 $ 121,565,497 28 2028 230,930 80,930 44,000 $ 0.165 $ 13,323,514 $ 7,243,681 $ 128,809,178 29 2029 233,471 83,471 44,000 $ 0.170 $ 14,153,962 $ 7,460,991 $ 136,270,169 30 2030 236,039 86,039 44,000 $ 0.175 $ 15,027,126 $ 7,684,821 $ 143,954,990 a] 2031 238,635 88,635 44,000 $ 0.180 $ 15,945,024 $ 7,915,365 $ 151,870,355 30-Year NPV= $51,836,785 $42,203,237 Total 1,420,066 MWH 1,227,908 MWh $217,534,265 $151,870,355 $0.153 $0.124 Comparison of Pricing Options For Mahoney Lake Page 2 Unitary Rate Tied to Diesel Cost Index Does not include Capital and other Costs associated with additional Diesel Capacity or Air Quality Permitting Assumptions: Source: Assumptions: Source: 5 RE ER Ea EO clap ES tS RP SED ED SEO KPU Resources 150,000 D. Hittle Inflation 3% D. Hittle Mahoney Rate calculated per Mahoney Gen. 44,000 KEC Fuel $ 0.85. /gallon D. Hittle KEC proposal at 90% of indexed Diesel Gen. - O&M $ 0.0134 /kWh D. Hittle diesel rate less 50% of change Discount Rate: 8.0% KEC Lubricants $ 0.0030 /kWh D. Hittle in Anchorage CPI. Spill Credit $150,000 KEC Efficiency 15.3 kWigalion D. Hittle "D" Opis @ 0.735 D. Hittle/KEC Mahoney Cap. 9600 MWh FERC "M" Margin @ 0.115 D. Hittle/KEC Capacity Charge $ 7.25 $/KWiMonth KEC “v"_O&M @ 0.0164 D. Hittle Load Growth 1.011 “Energy Requirements @ = Accumulated Un-met Mahoney Fuel Margin O&M. Total 90.00% Cost Savings per year Accumulated YEAR Total By KPU hydro or Swan Sales Revenue/Cost by Year comparied to Diesel Savings 1999 170,000 20,000 20,000 0.048 0.008 0.016 0.072 Year 2000 171,870 21,870 21,870 0.049 0.008 0.017 0.074 $ 1,451,729 § 1,451,729 $ 769,149 § 169,149 2001 173,761 23,761 23,761 0.051 0,008 0.017 0.076 $ 1,616,755 $ 3,068,484 $ 197,071 $ 366,220 2002 175,672 25,672 25,672 0.052 0.008 0.017 0.078 $ 1,790,676 $ 4,859,161 $ 227,851 $ 594,071 2003 177,604 27,604 27,604 0.054 0.008 0.017 0.079 $ 1,973,909 $ 6,833,070 $ 261,672 $ 855,742 2004 179,558 29,558 29,558 0.056 0,008 0.018 0.081 $ 2,166,889 $ 8,999,958 $ 298,726 $ 1,154,468 2005 181,533 31,533 31,533 0.057 0.008 0.018 0.084 $ 2,370,068 $ 11,370,027 $ 339,216 $ 1,493,684 2006 183,530 33,530 33,530 0.059 0.008 0.018 0.086 $ 2,583,922 $ 13,953,949 $ 383,355 $ 1,877,039 2007 185,549 35,549 35,549 0.061 0.008 0.018 0.088 $ 2,808,946 $ 16,762,894 $ 431,369 $ 2,308,408 2008 187,590 37,590 37,590 0.063 0.009 0.019 0.090 $ 3,045,656 $ 19,808,551 $ 483,492 $ 2,791,900 2009 189,653 39,653 39,653 0.065 0.009 0.019 0.092 $ 3,294,594 $ 23,103,145 $ 539,973 $ 3,331,872 2010 191,740 41,740 41,740 0.066 0.009 0.019 0.095 $ 3,556,322 $ 26,659,467 $ 601,072 $ 3,932,944 2011 193,849 43,849 43,849 0.068 0.009 0.020 0.097 $ 3,831,430 $ 30,490,898 $ 667,065 $ 4,600,009 2012 195,981 45,981 44,000 0.071 0.009 0.020 0.100 $ 3,943,009 $ 34,433,907 $ 706,434 $ 5,306,443 2013 198,137 48,137 44,000 0.073 0.009 0.020 0.102 $ 4,044,059 $ 38,477,966 $ 744,867 $ 6,051,310 2014 200,316 50,316 44,000 0.075 0.009 0.021 0.105 $ 4,147,883 $ 42,625,849 $ 784,712 $ 6,836,022 2015 202,520 52,520 44,000 0.077 0.010 0.021 0.107 $ 4,254,558 $ 46,880,406 $ 826,014 $ 7,662,036 2016 204,747 54,747 44,000 0.079 0.010 0.021 0.110 $ 4,364,167 $ 51,244,573 $ 868,822 $ 8,530,858 2017 207,000 57,000 44,000 0.082 0.010 0.021 0.113 $ 4,476,794 $ 55,721,367 $ 913,185 $ 9,444,043 2018 209,277 59,277 44,000 0.084 0.010 0.022 0.116 $ 4,592,525 $ 60,313,893 $ 959,153 $ 10,403,195 2019 211,579 61,579 44,000 0.087 0.010 0.022 0.119 $ 4,711,450 $ 65,025,343 $ 1,006,778 $ 11,409,974 2020 213,906 63,906 44,000 0.089 0.010 0.022 0.122 $ 4,833,660 $ 69,859,002 $ 1,056,116 $ 12,466,090 2021 216,259 66,259 44,000 0.092 0.010 0.023 0.125 $ 4,959,249 $ 74,818,251 $ 1,107,220 $ 13,573,310 2022 © 218,638 68,638 44,000 0.095 0.011 0.023 0.128 $ 5,088,314 $ 79,906,565 $ 1,160,149 $ 14,733,458 2023 221,043 71,043 44,000 0.098 0.011 0.023 0.132 $ 5,220,955 $ 85,127,520 $ 1,214,961 $ 15,948,419 2024 223,474 73,474 44,000 0.101 0.011 0.024 0.135 $ 5,357,276 $ 90,484,796 $ 1,271,718 $ 17,220,137 2025 225,933 75,933 44,000 0.104 0.011 0.024 0.139 $ 5,497,382 $ 95,982,178 $ 1,330,482 $ 18,550,619 2026 228,418 78,418 44,000 0.107 0.011 0.025 0.142 $ 5,641,382 $ 101,623,560 $ 1,391,318 $ 19,941,937 2027 230,930 80,930 44,000 0.110 0.011 0.025 0.146 $ 5,789,387 $ 107,412,947 $ 1,454,293 $ 21,396,230 2028 233,471 83,471 44,000 0.113 0.012 0.025 0.150 $ 5,941,515 $ 113,354,462 $ 1,519,476 $ 22,915,707 2029 236,039 86,039 44,000 0.117 0.012 0.026 0.154 $ 6,097,883 $ 119,452,345 $ 1,586,938 $ 24,502,645 2030 238,635 88,635 44,000 0.120 0.012 0.026 0.158 $ 6,258,614 $ 125,710,959 $ 1,656,752 $ 26,159,396 30-Year NPV= $35,728,335 5,770,066 1,420,066 Mwh 1,227,908 Mwh Total Rev/Cost $125,710,959 $26,159,396 Ave. $/KWH $0.102 Comparison of Pricing Options For Mahoney Lake Page 3 Unitary Fixed Rate no inflator Rate Fixed at 0.067 Thirty-Year Term Assumy Assumptions: Source: KPU Resources 150,000 D. Hittle Inflation D. Hittle Assumes Full Spill Credit in first five Years Mahoney Gen. 44,000 KEC Fuel $ 0.85 /gallon D. Hittle 50% of spill credit next five years 25% Diesel Gen. - O&M $ 0.0134 /kWh D. Hittle of spill credit next five years, Discount Rate: 8.0% KEC Lubricants $ 0.0030 /kWh D. Hittle Spill Credit $150,000 KEC Efficiency 15.3 kWigallon D. Hittle "D" Opis @ 0.735 D. Hittle/KEC Mahoney Cap. 9600 MWh FERC "M" Margin @ 0.115 D. Hittle/KEC CapacityCharge $ 7.25 $/KW/Month KEC "Vv" O&M 0.0164 D. Hittle Load growth ‘Energy Requirements Fixed Rate Un-met Mahoney Diesel Expressed inYear Accumulated Savings peryear___ Accumulated YEAR Total By KPU hydro or Swa Sales Rate 2000 Rate Spill Credit Revenue/Cost Costs by comparied to Diesel Savings 2000 170,000 20,000 20,000 0.072 Dollars Assumed Year by Year 2001 171,870 21,870 21,870 $ 0.074 $0.0667 $ 0.0670 $150,000 $ 1,315,290 $ 1,315,290 $ 305,588 $ 305,588 2002 173,761 23,761 23,761 $ 0.076 $0.0648 $ 0.0670 $150,000 $ 1,441,958 $ 2,757,248 $ 371,868 $ 677,456 2003 175,672 25,672 25,672 $ 0.079 $0.0629 $ 0.0670 $150,000 $ 1,570,020 $ 4,327,268 $ 448,508 $ 1,125,963 2004 177,604 27,604 27,604 $ 0.081 $0.0610 $ 0.0670 $150,000 $ 1,699,490 $ 6,026,758 $ 536,091 $ 1,662,054 2005 179,558 29,558 29,558 $ 0.083 $0.0593 $ 0.0670 $150,000 $ 1,830,384 $ 7,857,142 $ 635,230 $ 2,297,284 2006 181,533 31,533 31,533 $ 0.086 $0.0575 $ 0.0670 $75,000 $ 2,037,719 $ 9,894,861 $ 671,565 $ 2,968,850 2007 183,530 33,530 33,530 $ 0.088 $0.0559 $ 0.0670 $75,000 $ 2,171,508 $ 12,066,369 $ 795,769 $ 3,764,619 2008 185,549 35,549 35,549 $ 0.091 $0.0542 $ 0.0670 $75,000 $ 2,306,770 $ 14,373,139 $ 933,544 $ 4,698,163 2009 187,590 37,590 37,590 $ 0.094 $0.0527 $ 0.0670 $75,000 $ 2,443,520 $ 16,816,659 $ 1,085,628 $ 5,783,792 2010 189,653 39,653 39,653 $ 0.097 $0.0511 $ 0.0670 $75,000 $ 2,581,773 $ 19,398,432 $ 1,252,793 $ 7,036,585 2011 191,740 41,740 41,740 $ 0.100 $0.0496 $ 0.0670 $75,000 $ 2,721,548 $ 22,119,980 $ 1,435,847 $ 8,472,432 2012 193,849 43,849 43,849 $ 0.103 $0.0482 $ 0.0670 $37,500 $ 2,900,360 $ 25,020,340 $ 1,598,136 $ 10,070,567 2013 195,981 45,981 44,000 $ 0.106 $0.0468 $ 0.0670 $37,500 $ 2,910,500 $ 27,930,840 $ 1,738,943 $ 11,809,510 2014 198,137 48,137 44,000 $ 0.109 $0.0454 $ 0.0670 $37,500 $ 2,910,500 $ 30,841,340 $ 1,878,426 $ 13,687,937 2015 200,316 50,316 44,000 $ 0.112 $0.0441 $ 0.0670 $37,500 $ 2,910,500 $ 33,751,840 $ 2,022,094 $ 15,710,031 2016 202,520 52,520 44,000 $ 0.115 $0.0428 $ 0.0670 $37,500 $ 2,910,500 $ 36,662,340 $ 2,170,072 $ 17,880,103 2017 204,747 54,747 44,000 $ 0.119 $0.0416 $ 0.0670 $ 2,948,000 $ 39,610,340 $ 2,284,989 $ 20,165,092 2018 207,000 57,000 44,000 $ 0.122 $0.0404 $ 0.0670 $ 2,948,000 $ 42,558,340 $ 2,441,979 $ 22,607,070 2019 209,277 59,277 44,000 $ 0.126 $0.0392 $ 0.0670 $ 2,948,000 $ 45,506,340 $ 2,603,678 $ 25,210,749 2020 211,579 61,579 44,000 $s 0.130 $0.0380 $ 0.0670 $ 2,948,000 $ 48,454,340 $ 2,770,228 $ 27,980,977 2021 213,906 63,906 44,000 $s 0.134 $0.0369 $ 0.0670 $ 2,948,000 $ 51,402,340 $ 2,941,775 $ 30,922,752 2022 216,259 66,259 44,000 $ 0.138 $0.0359 $ 0.0670 $ 2,948,000 $ 54,350,340 $ 3,118,469 $ 34,041,221 2023 218,638 68,638 44,000 $ 0.142 $0,0348 $ 0.0670 $ 2,948,000 $ 57,298,340 $ 3,300,463 $ 37,341,683 2024 221,043 71,043 44,000 $ 0.146 $0.0338 $ 0.0670 $ 2,948,000 $ 60,246,340 $ 3,487,916 $ 40,829,600 2025 223,474 73,474 44,000 $ 0.151 $0,0328 $ 0.0670 $ 2,948,000 $ 63,194,340 $ 3,680,994 $ 44,510,594 2026 225,933 75,933 44,000 $ 0.155 $0.0319 $ 0.0670 $ 2,948,000 $ 66,142,340 $ 3,879,864 $ 48,390,458 2027 228,418 78,418 44,000 $ 0.160 $0,0309 $ 0.0670 $ 2,948,000 $ 69,090,340 $ 4,084,700 $ 52,475,157 2028 230,930 80,930 44,000 $ 0.165 $0.0300 $ 0.0670 $ 2,948,000 $ 72,038,340 $ 4,295,681 $ 56,770,838 2029 233,471 83,471 44,000 $ 0.170 $0,0292 $ 0.0670 $ 2,948,000 $ 74,986,340 $ 4,512,991 $ 61,283,829 2030 236,039 86,039 44,000 $ 0.175 $0.0283 $ 0.0670 $ 2,948,000 $ 77,934,340 $ 4,736,821 $ 66,020,650 2031 238,635 88,635 44,000 $ 0.180 $0.0275 $ 0.0670 $ 2,948,000 $ 80,882,340 $ 4,967,365 $ 70,988,016 30-Year NPV= $25,923,537 Tota/MWH 1,420,066 Mwh 1,227,908 Mwh Total Rev/Cost $80,882,340 $70,988,016 $0.153 Average $/KWH $0,066 Comparison of Pricing Options For Mahoney Lake Page 4 Unitary Rate with Term of 8 years unilaterally extended by KPU for two additional eight year terms First term rate fixed @ 0.065 Eight-Year periods Inflated thereafter @ 50% of Increase in Anchorage CPI Assumptions: ‘Source: Assumptions: Source: EL 2 DE NO LEE Se a Rate: KPU Resources 150,000 D. Hittle Inflation 3% D.Hittle 1st Byears $0,065 Mahoney Gen 44,000 KEC Fuel $ 0.85 /gallon D. Hittle Diesel Gen. - O&M $ 0.0134 /KWh D.Hittle Next 8 yrs $0.072 Discount Rate: 8.0% KEC Lubricants $ 0.0030 /kWh D. Hittle Spill Credit $150,000 KEC Efficiency 15.3 kWigallon D.Hittle Last 8 yrs $0,081 "D" Opis@ 0.735 D. Hittle/KEC Mahoney Cap. 9600 MWh FERC "M" Margin @ 0.115 D. Hittle/KEC Capacity Charge $ 7.25 $/KWiMonth KEC "v"_0&M_@ 0.0164 D. Hittle Load Growth 1.011 “Energy Requirements Un-met Mahoney Diese! Accumulated Savings peryear__ Accumulated YEAR Total By KPU hydro or Swan“ Sales Rate Rate Revenue/Cost Costs by comparied to Diesel Savings 2000 ___ 170,000 20,000 20,000 $0.072 Year Year 2001 «(171,870 21,870 21,870 $ 0.074 $ 0.0650 $1,421,550 $1,421,550 $ 199,328 $ 199,328 2002 = 173,761 23,761 23,761 $ 0.076 $ 0.0650 $1,544,437 $2,965,987 $ 269,389 $ 468,717 2003 175,672 25,672 25,672 $ 0.079 $ 0.0650 $1,668,676 $4,634,663 $ 349,851 $ 818,568 2004 177,604 27,604 27,604 $ 0.081 $ 0.0650 $1,794,281 $6,428,944 $ 441,300 $ 1,259,868 2005 = 179,558 29,558 29,558 $ 0.083 $ 0.0650 $1,921,268 $8,350,213 $ 544,346 $ 1,804,214 2006 = 181,533 31,533 31,533 $ 0.086 $ 0.0650 $2,049,652 $10,399,865 $ 659,632 $ 2,463,846 2007 183,530 33,530 33,530 $ 0.088 $ 0.0650 $2,179,449 $12,579,313 $ 787,829 $ 3,251,675 2008 = 185,549 35,549 35,549 $ 0.091 $ 0.0650 $2,310,672 $14,889,986 $ 929,642 $ 4,181,317 2009 = 187,590 37,590 37,590 $ 0.094 $ 0.0721 $2,711,728 $17,601,714 $ 817,420 $ 4,998,736 2010 189,653 39,653 39,653 $ 0.097 $ 0.0721 $2,860,588 $20,462,302 $ 973,978 $ 5,972,715 2011 = 191,740 41,740 41,740 $ 0.100 $ 0.0721 $3,011,086 $23,473,388 $ 1,146,309 $ = 7,119,024 2012 = 193,849 43,849 43,849 $ 0.103 $ 0.0721 $3,163,238 $26,636,626 $ 1,335,257 $ 8,454,281 2013 195,981 45,981 44,000 $ 0.106 $ 0.0721 $3,174,156 $29,810,783 $ 1,475,287 $ 9,929,567 2014 = 198,137 48,137 44,000 $ 0.109 $ 0.0721 $3,174,156 $32,984,939 $ 1,614,770 $ 11,544,337 2015 200,316 50,316 44,000 $ 0.112 $ 0.0721 $3,174,156 $36,159,096 $ 1,758,438 $ — 13,302,775 2016 202,520 52,520 44,000 $ 0.115 $ 0.0721 $3,174,156 $39,333,252 $ 1,906,415 $ — 15,209,190 2017 204,747 54,747 44,000 $ 0.119 $ 0.0813 $3,575,664 $42,908,916 $ 1,657,325 $ 16,866,516 2018 207,000 57,000 44,000 $ 0.122 $ 0.0813 $3,575,664 $46,484,579 $ 1,814,315 $ 18,680,831 2019 209,277 59,277 44,000 $ 0.126 $ 0.0813 $3,575,664 $50,060,243 $ 1,976,014 $ 20,656,845 2020 211,579 61,579 44,000 $ 0.130 $ 0.0813 $3,575,664 $53,635,907 $ 2,142,565 $ 22,799,410 2021 213,906 63,906 44,000 $s 0.134 $ 0.0813 $3,575,664 $57,211,571 $ 2,314,112 $ — 25,113,521 2022 © 216,259 66,259 44,000 $ 0.138 $ 0.0813 $3,575,664 $60,787,234 $ 2,490,805 $ 27,604,326 2023 «218,638 68,638 44,000 $ 0.142 $s 0.0813 $3,575,664 $64,362,898 $ 2,672,799 $ 30,277,125 2024 = 221,043 71,043 44,000 $ 0.146 $ 0.0813 $3,575,664 $67,938,562 $ 2,860,253 $ 33,137,378 2025 = -223,474 73,474 44,000 $ 0.151 $s 0.1507 $6,628,994 $74,567,556 $ - $ 33,137,378 2026 = -225,933 75,933 44,000 $ 0.155 $ 0.1552 $6,827,864 $81,395,419 $ - $ 33,137,378 2027 ~=—«-228,418 78,418 44,000 $ 0.160 $ 0.1598 $7,032,700 $88,428,119 $ - $ 33,137,378 2028 230,930 80,930 44,000 $ 0.165 $ 0.1646 $7,243,681 $95,671,800 $ - $ 33,137,378 2029 233,471 83,471 44,000 $ 0.170 $ 0.1696 $7,460,991 $103,132,791 $ - $ 33,137,378 2030 236,039 86,039 44,000 $ 0.175 $ 0.1747 $7,684,821 $10,817,612 $ - $ 33,137,378 2031 238,635 88,635 44,000 $ 0.180 $ 0.1799 $7,915,365 $18,732,977 $ - $ 33,137,378 30-Year NPV= $31,708,913 5,770,066 1,420,066 Mwh 1,227,908 Mwh Total Rev/Cost $118,732,977 $33,137,378 $0.153 Average $/KWH $0.097 Comparison of Pricing Options For Mahoney Lake Page 5 Two-Part Rate Thirty-Year Term Assumptions: Source: Assumptions: Source: KPU Resources 150,000 D. Hittle Inflation 3% D. Hittle Mahoney Gen. 44,000 KEC Fuel $ 0.85 /gallon D. Hittle Demand Charge $ 7.25 $/kw/Month Diesel Gen. - O&M $ 0.0134 /kWh D. Hittle Discount Rate: 8.0% KEC Lubricants $ 0.0030 /kWh D. Hittle Energy First 35 GW 0.049 $/kwh Spill Credit $150,000 KEC Efficiency 15.3 kWigallon OD. Hittle Thereafter 0.025 $/kwh "D" Opis @ 0.735 D. Hittle/KEC Mahoney Cap. 9600 kwh FERC "M" Margin @ 0.115 D. Hittle/KEC CapacityCharge $ 7.25 $/KW/Month KEC "Vv" O&M 0.0164 D. Hittle Load Growth 1.011 Tiered Sales ‘Energy Requirements - 25,001 35,001 Un-met Mahoney Diesel 25,000 35,000 44,000 Effective | Accumulated Savings per year Accumulated YEAR Total By KPU hydro or Sales Rate Capacity $ 0.049 $ 0.049 $ 0.025 Energy Revenue/Cost Rate Costs by comparied to Diesel Savings 2000 170,000 20,000 20,000 $0.072 Charge Charge Year Year 2001 171,870 21,870 21,870 $ 0.074 $ 835,200 21,870 - - $1,071,630 $1,906,830 $ 0.087 1,906,830 $ (285,952) $ (285,952) 2002 173,761 23,761 23,761 $ 0.076 $ 835,200 23,761 - - $1,164,268 $1,999,468 $ 0.084 3,906,298 $ (185,642) $ (471,594) 2003 175,672 25,672 25,672 $ 0.079 $ 835,200 25,000 672 : $1,257,925 $2,093,125 $ 0.082 5,999,423 $ (74,598) $ (546,191) 2004 177,604 27,604 27,604 $ 0.081 $ 835,200 25,000 2,604 - $1,352,612 $2,187,812 $ 0.079 8,187,235 $ 47,769 $ (498,422) 2005 179,558 29,558 29,558 $ 0.083 $ 835,200 25,000 4,558 - $1,448,341 $2,283,541 $ 0.077 10,470,776 $ 182,073 $ (316,349) 2006 181,533 31,533 31,533 $ 0.086 $ 835,200 25,000 6,533 - $1,545,123 $2,380,323 $ 0.075 12,851,098 $ 328,961 $ 12,612 2007 183,530 33,530 33,530 $ 0.088 $ 835,200 25,000 8,530 - $1,642,969 $2,478,169 $ 0.074 15,329,267 $ 489,109 $ 501,721 2008 185,549 35,549 35,549 $ 0.091 $ 835,200 25,000 10,000 549 $1,728,720 $2,563,920 $ 0.072 17,893,187 $ 676,394 $ 1,178,115 2009 187,590 37,590 37,590 $ 0.094 $ 835,200 25,000 10,000 2,590 $1,779,746 $2,614,946 $ 0.070 20,508,133 $ 914,202 $ 2,092,317 2010 189,653 39,653 39,653 $ 0.097 $ 835,200 25,000 10,000 4,653 $1,831,333 $2,666,533 $ 0.067 23,174,667 $ 1,168,033 $ 3,260,350 2011 191,740 41,740 41,740 $ 0100 $ 835,200 25,000 10,000 6,740 $1,883,488 $2,718,688 $ 0.065 25,893,355 $ 1,438,707 $ 4,699,057 2012 193,849 43,849 43,849 $ 0103 $ 835,200 25,000 10,000 8,849 $1,936,216 $2,771,416 $ 0.063 28,664,771 $ 1,727,079 $ 6,426,136 2013 195,981 45,981 44,000 $ 0106 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 31,439,971 $ 1,874,243 $ 8,300,379 2014 198,137 48,137 44,000 $ 0109 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 34,215,171 $ 2,013,726 $ 10,314,105 2015 200,316 50,316 44,000 $ 0112 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 36,990,371 $ 2,157,394 $ 12,471,499 2016 202,520 52,520 44,000 $ 0115 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 39,765,571 $ 2,305,372 $ 14,776,871 2017 204,747 54,747 44,000 $ 0119 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 42,540,771 $ 2,457,789 $ 17,234,660 2018 207,000 57,000 44,000 $ 0122 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 45,315,971 $ 2,614,779 $ 19,849,439 2019 209,277 59,277 44,000 $ 0126 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 48,091,171 $ 2,776,478 $ 22,625,917 2020 211,579 61,579 44,000 $ 0130 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 50,866,371 $ 2,943,028 $ 25,568,946 2021 213,906 63,906 44,000 $ 0.134 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 53,641,571 $ 3,114,575 $ 28,683,521 2022 216,259 66,259 44,000 $ 0138 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 56,416,771 $ 3,291,269 $ 31,974,789 2023 218,638 68,638 44,000 $ 0142 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 59,191,971 $ 3,473,263 $ 35,448,052 2024 221,043 71,043 44,000 $ 0146 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 61,967,171 $ 3,660,716 $ 39,108,769 2025 223,474 73,474 44,000 $ 0151 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 64,742,371 $ 3,853,794 $ 42,962,563 2026 225,933 75,933 44,000 $ 0155 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 67,517,571 $ 4,052,664 $ 47,015,226 2027 228,418 78,418 44,000 $ 0160 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 70,292,771 $ 4,257,500 $ 51,272,726 2028 230,930 80,930 44,000 $ 0165 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 73,067,971 $ 4,468,481 $ 55,741,207 2029 233,471 83,471 44,000 $ 0170 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 75,843,171 $ 4,685,791 $ 60,426,998 2030 236,039 86,039 44,000 $ 0175 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 78,618,371 $ 4,909,621 $ 65,336,619 2031 238,635 88,635 44,000 $ 0180 $ 835,200 25,000 10,000 9,000 $1,940,000 $2,775,200 $ 0.063 81,393,571 $ 5,140,165 $ 70,476,784 30-Year NPV= $28,831,152 5,770,066 1,420,066 Mw 1,227,908 Mwh Total Rev/Cost $81,393,571 $70,476,784 $0.153 Average $/KWH $0.066 Comparison of Pricing Options For Mahoney Lake Assumes same rates as now contained in PSA for years 2001 to 2031 Page 6 Swan/Tyee Intertie Assumptions: Source: KPU Reso 150,000 D. Hittle Inflation Mahoney G 44,000 KEC Fuel Diesel Gen - O&M Discount R 8.00% KEC Lubricants Spill Credit $150,000 KEC Efficiency D Opis@ 0.735 D. Hittle/KEC Mahoney C M Margin 0.115 D. Hittle/KEC Capacity C V O&M 0.0164 D. Hittle Load Grow ‘Energy Requirements Un-met YEAR Total By KPU hydro or Swan 2000 170,000 20,000 1 2001 = 171,870 21,870 2 2002 = «(173,761 23,761 3 2003 175,672 25,672 4 2004 177,604 27,604 5 2005 179,558 29,558 6 2006 «181,533 31,533 7 2007 183,530 33,530 8 2008 «185,549 35,549 9 2009 187,590 37,590 10 2010 189,653 39,653 1 2011 = 191,740 41,740 12 2012 193,849 43,849 13 2013 + =195,981 45,981 14 2014 =198,137 48,137 15 2015 200,316 50,316 16 2016 202,520 52,520 17 2017 =204,747 54,747 18 2018 207,000 57,000 19 2019 209,277 59,277 20 2020 211,579 61,579 21 2021 213,906 63,906 22 2022 «216,259 66,259 23 2023 «218,638 68,638 24 2024 = 221,043 71,043 25 2025 = «223,474 73,474 26 2026 225,933 75,933 27 2027 228,418 78,418 28 2028 230,930 80,930 29 2029 = 233,471 83,471 30 2030 236,039 86,039 I 2031 = 238,635 88,635 Total 5,770,066 1,420,066 MWH Source: 3% D. Hittle $0.85 /gallon _D. Hittle $0.01 /kWh D. Hittle $0.00 /kWh D. Hittle 15.3 kWigalion D. Hittle 9600 MWh FERC $7.25 $/KWiMon KEC 1.011 Estimated Full Mahone Diesel Diesel Sales Rate $/Kw Costs 20,000 __$0.072 1,439,111 21,870 $ 0.074 $ 1,620,878 23,761 $ 0.076 $ 1,813,826 25,672 $ 0.079 $ 2,018,527 27,604 $ 0.081 $ 2,235,581 29,558 $ 0.083 $ 2,465,614 31,533 $ 0.086 $ 2,709,284 33,530 $ 0.088 $ 2,967,277 35,549 $ 0.091 $ 3,240,314 37,590 $ 0.094 $ 3,529,148 39,653 $ 0.097 $ 3,834,566 41,740 $ 0.100 $ 4,157,395 43,849 $ 0.103 $ 4,498,495 44,000 $ 0.106 $ 4,858,772 44,000 $ 0.109 $ 5,239,170 44,000 $ 0.112 $ 5,640,677 44,000 $ 0.115 $ 6,064,328 44,000 $ 0.119 $ 6,511,204 44,000 $ 0.122 $ 6,982,436 44,000 $ 0.126 $ 7,479,208 44,000 $ 0.130 $ 8,002,757 44,000 $ 0.134 $ 8,554,378 44,000 $ 0.138 $ 9,135,423 44,000 $ 0.142 $ 9,747,307 44,000 $ 0.146 $ 10,391,510 44,000 $ 0.151 $ 11,069,579 44,000 $ 0.155 $ 11,783,129 44,000 $ 0.160 $ 12,533,852 44,000 $ 0.165 $ 13,323,514 44,000 $ 0.170 $ 14,153,962 44,000 $ 0.175 $ 15,027,126 44,000 $ 0.180 $ 15,945,024 30-YearNP $51,836,785 1,227,908 MWh $217,534,265 $0.153 Assumes: That existing PSA terms stay in place through 2031. Debt Service O&M Diesel Cost Equated to to Mahoney OP PODBGOPOBOOBBOBOOOBBOBOOOBOBABOS! 1,439,111 7,620,878 1,813,826 2,018,527 2,235,581 2,465,614 2,709,284 2,967,277 3,240,314 3,529,148 3,834,566 4,187,395 4,498,495 4,649,443 4,788,926 4,932,594 5,080,572 5,232,989 5,389,979 5,551,678 5,718,228 5,889,775 6,066,469 6,248,463 6,435,916 6,628,994 6,827,864 7,032,700 7,243,681 7,460,991 7,684,821 7,915,365 $42,203,237 $151,870,355 $0.124 $0.040 $0.028 $0.028 $0.029 $0.030 $0.031 $0.032 $0.032 $0.033 $0.034 $0.035 $0.037 $0.038 $0.039 $0.040 $0.041 $0.042 $0.044 $0.045 $0.046 $0.048 $0.049 $0.051 $0.052 $0,054 $0.055 $0.057 $0.059 ‘$0.060 $0.062 $0.064 ‘$0.066 $0.068 Service ogm $874,800 $612,360 $950,423 $685,255 $1,026,877 $762,590 $1,104,173 $844,592 $1,182,319 $931,497 $1,261,325 $1,023,555 $1,341,199 $1,121,023 $1,421,952 $1,224,175 $1,503,594 $1,333,295 $1,586,133 $1,448,681 $1,669,581 $1,570,644 $1,753,946 ‘$1,699,510 $1,760,000 $1,756,537 $1,760,000 $1,809,234 $1,760,000 $1,863,511 $1,760,000 $1,919,416 $1,760,000 $1,976,998 $1,760,000 $2,036,308 $1,760,000 $2,097,398 $1,760,000 $2,160,319 $1,760,000 $2,225,129 $1,760,000 ‘$2,291,883 $1,760,000 ‘$2,360,639 $1,760,000 $2,431,459 $1,760,000 $2,504,402 $1,760,000 $2,579,534 $1,760,000 $2,656,920 $1,760,000 $2,736,628 $1,760,000 $2,818,727 $1,760,000 ‘$2,903,289 $1,760,000 $2,990,387 49,116,322 57,375,897 $0.04 $0.05 Total Cost $1,487,160 $1,635,678 $1,789,467 $1,948,765 $2,113,816 $2,284,879 $2,462,222 $2,646,128 $2,836,889 $3,034,814 $3,240,225 $3,453,456 $3,516,537 $3,569,234 $3,623,511 $3,679,416 $3,736,998 $3,796,308 $3,857,398 $3,920,319 $3,985,129 $4,051,883 $4,120,639 $4,191,459 $4,264,402 $4,339,534 $4,416,920 $4,496,628 $4,578,727 $4,663,289 $4,750,387 $34,966,864 106,492,219 $0.087 Accumulated Costs by Year $1,487,160 3,122,838 4,912,305 6,861,070 8,974,886 11,259,765 13,721,988 16,368,115 19,205,005 22,239,819 25,480,043 28,933,500 32,450,037 36,019,271 39,642,781 43,322,197 47,059,195 50,855,504 $4,712,901 58,633,221 62,618,350 66,670,232 70,790,872 74,982,330 79,246,733 83,586,267 88,003,188 92,499,816 97,078,543 101,741,831 106,492,219 133,718 178,148 229,060 286,816 351,798 424,405 505,055 594,187 692,259 799,752 917,170 1,045,039 1,132,906 1,219,693 1,309,084 1,401,156 1,495,991 1,593,670 1,694,281 1,797,909 1,904,646 2,014,586 2,127,823 2,244,458 2,364,592 2,488,329 2,615,779 2,747,053 2,882,264 3,021,532 3,164,978 45,378,137 Savings per year Accumulated comparied to Diese Savings by Year 133,718 311,866 540,926 827,742 1,179,540 1,603,945 2,109,000 2,703,187 3,395,446 4,195,198 5,112,368 6,157,407 7,290,313 8,510,006 9,819,089 11,220,245 12,716,236 14,309,906 16,004, 187 17,802,096 19,706,742 21,721,328 23,849,151 26,093,609 28,458,201 30,946,530 33,562,309 36,309,362 39,191,626 42,213,158 45,378,137 Appendix B megawatt-hours 300,000 5 250,000 Energy Requirements for Ketchikan Area and un-met requirements by year 200,000 150,000 100,000 50,000 Un-met by existing hydro resources I KPU owned Hydro and Swan Lake _ Present Value of Rate per KWH at Year 30 in Year 2001$ $0.080 $0.074 $0.074 | Diesel @ 30-year Indexed 01 30-year Fixed 01 30-year Renewable @ 30-year Two Tier Oo 30-year Swan Tyee | Dollars Mahoney Lake Pricing Alternatives Total Saving Years 2001 to 2031 80,000,000 1 70,000,000 + 60,000,000 + 50,000,000 on —?— Diese! 40,000,000 —f—30-Year Indexed | - 30-Year Fixed 30,000,000 | — 9 8-year Renewable | —*— 30-year Two-tier | ~~ swan/Tyee 20,000,000 + es | 10,000,000 { | 0 -10,000,000 +——$—.$ $+ aaa aa aaa ae - a sgesgsep ep pqpgegeeragaereexereegnngeKeae eR Basa ooogo 8 soot HEE TET ECU Tc TCU HU ANT AAANANAAAAA BD OE eaogceesép ooo oOo ooo oO OOOO OU OU OUOUCOUOUCOUOUCOUOUCUOUCUCUCUCUUCUCUOUCUCONUCUCS NANAK KNNNANNKNAKNKNAAKNAAKAANANANANNNNNNNNAKNAN ANN Year Dollars Mahoney Lake Pricing Alternatives Total Cost Year 2001 to 2031 160,000,000 140,000,000 + 120,000,000 5 100,000,000 + —e— Diesel | —@- 30-Year Indexed | 80,000,000 | 30-Year Fixed | 8-year Renewable | —*-30-year Twortier | 60,000,000 + —@®— Swan/Tyee | ft ee 40,000,000 4 20,000,000 0 + — — - - + — — Ssk$esgsgRe ss sgerarezsreeorereaoggggseeRRBAaBa S18) Sia SoOOoOFr See eee ere er aannenannannnn eg w Seeaogaoeoeee ete eoeoeoosoeoe oo oo oOo OOOO BOBO 8 GS NWAWNANANANNNNNNNNNKNKNANAKAKNNNNKNNKNNNKNNN NAN AN Year Annual Economic Benefit of Power Supply Options $1,600,000 4 ————— $1,446,084 $1,400,000 + $1,187,808 $1,200,000 + $1,000,000 + $800,000 + $600,000 | $575,149 $400,000 + $200,000 + $0 4 - oe 1 _ a Diesel B 30-Year Fixed Qo 30-Year Indexed 08-year Renewable a 30-year Two-tier G Swan/Tyee $0.140 +- $0.120 $0.100 $0.080 $0.060 $0.040 $0.020 $0.000 Energy Alternatives Average Cost per Kilowatt-hour $0.124 $0.102 _$0.097 0.087 $0,066 Diesel Indexed Fixed Renewable Two-tier Swan/Tyee 30-Year 30-Year 8-year 30-year Cost per Kilowatt-hour S09 1210, 8 Jeak-o¢g Jeak-g aah |/UEMS JO1}-OM | ajqemousy Jb98A-0€ pexi4 JB9A-0€ paxepu| jaseiq o$ 000‘000'0z$ 000'000'or$ 000‘000'09$ 000'‘000'o8$ LLg‘e6e' Les 612'26r'901$ 000'000'001$ ove'ze2'0s$ | LLE'ZEL'BLLS 6S6'0LL'SZ1$ 000'000'0z1$ SAANEULA}Y JO SOD [E}OL SSE'OL8'LSLS _ 000'000'0r1$ ~ 000'000'091$ Total Savings as Compared to Diesel Mahoney Lake Pricing Alternatives $80,000,000 $70,000,000 $60,000,000 $50,000,000 ~~ 45,378,137 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 Diesel Indexed Fixed Renewable Two-tier Swan/Tyee 30-Year 30-Year 8-year 30-year Total Savings as Comparied to Diesel Appendix C P.O. Box 222 191 Otto Street Alaska Power & Port Townsend, WA. 98368 Telephone Company 1-800-982-0136 ext. 120 fax 360-385-7538 Cell 360-531-0320 ; bobapt@olympus.net Employee-owned and Community Minded. NinvoFax To: Frances Francis From: Bob Grimm Spiegel & McDiarmid Fax: 202- Pages: 4 Phone: Date: au Eyteoe ofrz/20 Re: Mahoney Lake Pricing Options © CC: John Cameron XO Urgent O ForReview ( Please Comment (Please Reply ( Please Recycle @ Comments: Dear Fran: We have heard your concerns about contract constraints on KPU’s dispatch prerogatives, particularly concerning use of diesel generation. We have also heard your concern about KEC taking the risk for any reduction in KPU load levels. As Mr. Cameron explained to the Council during the workshop of March 14, 2000, a two-part demand/energy rate could remove these issues from contention. Also, since the workshop, Paul Berkshire has suggested that a rate tied to KPU’s diesel- dispatch cost would also be well received. KEC believes that each of these two pricing alternatives will resolve the issues that have kept the parties from reaching closure on a power sale contract. In doing so, we have decided to focus on pricing alternatives for a 30-year contract. This memorandum and the attached spreadsheet highlight the salient distinctions among the existing 30-year pricing proposal and the two alternatives. Before we send along yet another contract draft, however, we ask that you respond first with a statement of KPU’s pricing preference. We understand that this may require some economic evaluation. If you need any additional information to perform the analysis, please contact me so that it can be provided to you May 1, 2000 immediately. KEC is prepared to meet at KPU’s earliest convenience to resolve any remaining contract issues in time to comply with the Ketchikan City Council’s 50-day deadline. le Two-Part Rate A two-part rate would be based on the following combination of fixed and variable components: Demand: Energy: Minimum Take: Annual Payment: Use Of Diesel: Dispatch Records: Contract Term: Other Terms: $7.25 per KW per month, take-or-pay provided the project is available for dispatch. 4.9 cents/KWh, dropping to 2.5 cents/KWh for all energy purchased in any given contract year in excess of 35 GWh. Only the energy associated with an annual minimum flow of 13 CFS, about 1,348,000 KWh per month at 4.9 cents/KWH. We could drop the more demanding minimum-take above and beyond 13 CFS for August and September. An annual payment of $835,200 (12 months of demand charges for 9,600 KW), plus $637,000 of minimum-flow energy (assuming it is sold at $0.049/K Wh). Total minimum would be about $1,475,200. Left to KPU’s discretion. No specific contract requirement would be imposed. We would drop the contract provision requiring that KPU tender certified copies of its dispatch records after the end of each month. 30 years. Subject to negotiation. By lowering Mahoney’s dispatch cost from 6.7 cents/K Wh to 4.9 cents, and ultimately down to 2.5 cents, we automatically give KPU a price signal to @ Page 2 May 1, 2000 schedule Mahoney ahead of diesels. We don’t have to quibble about diesel price forecasts because Mahoney is, and will continue to be, cheaper than diesel under any realistic forecast. Thus, we no longer need to impose the constraints on dispatch criteria or on KPU’s use of its diesel generation. Unless reliability or other non-cost criteria come into play during an hour, KPU should take Mahoney ahead of diesel generation. The energy price drops to 2.5 cents/K Wh for consumption beyond 35 GWH per year. This discount means that the more Mahoney energy that KPU purchases, the lower the unit cost becomes. The fixed charge, or “Demand Charge,” is expressed in dollars per KW per month. You might wish to characterize it as a reservation fee for the right to buy energy at 4.5 cents/kWh, dropping down to 2.5 cents/K Wh with increasing usage. So long as Mahoney is available for Dispatch, we receive this demand charge to cover our fixed costs. I Contract Rate Tied To Short-Term Cost Of Diesel Generation This second alternative was proposed by Paul Berkshire, KEC staff. Each month, all Mahoney energy would be priced at 90 percent of the short-term cost of diesel generation: fuel cost, plus variable O&M. We would use a monthly index price of diesel, OPIS-Seattle Spot FO#2, grossed-up for shipping and handling from Seattle to Ketchikan. There would be no demand charge. The formula, determined each month, is as follows: KEC would be required to price all KWh according to the following monthly index: Price = 0.90 * ((D + M)/E + V) Where: “D” equals the OPIS-Seattle spot FO#2 diesel price quote of the last Thursday of each month, “M” equals the cost of shipping and handling from Seattle to Ketchikan fixed at 11.5 cents per gallon. “E” equals the average efficiency in K Wh/gal., fixed at 15.3 KWh/gal., and “V” equals KPU’s variable diesel O&M and lubricants expressed in $/K Wh fixed at 1.64 cents per KWh. “Vv” & “M” adjusted annually for inflation using only 50% of the increase in the Anchorage CPI. @ Page 3 May 1, 2000 KEC would expect the same minimum-take as specified above for the two-part rate, i.e., the energy associated with a minimum hourly flow of 13 CFS (13,480,000 KWH). However, in the event that the total energy requirement of KPU drops below 150 GWH, the minimum purchase requirement is reduced to 6.5 GWH. Assuming an indexed diesel rate of 7.4 cents/KWH, the minimum annual purchase would be $962,000 and $481,000 respectively. There would be no express restriction on the use of diesel (the implicit restriction relates to the fact that Mahoney energy would be cheaper). We would drop the requirement about monthly dispatch records. 3. Contract Thirty-Year Fixed Rate at 6.7 cents/KWH This alternative offers a fixed-price of 6.7 cents/K Wh with no inflator during the 30-year term of the agreement. Minimum purchase would be about 20 GWh per year with varying monthly amounts that correspond to project required instream flows. The annual amount is about $1,340,000. KPU would be restricted in its use of diesel. Diesel use, when Mahoney power is available would be limited to monthly testing, for resource back-up during outages, plus another | GWh of unrestricted diesel use. KPU shall be required to make dispatch records available to verify compliance with diesel use restrictions. Because the minimum flows required under the contract may require KPU to waste energy available at KPU owned energy resources, KEC will provide a spill credit of up to $150,000 per year in the event this does occur. Sincerely, Robert S. Grimm General Manager Ketchikan Electric Company Mahoney Lake Pricing Options Contract Feature Unitary Fixed Rate Unitary Rate Tied To Diesel Price Two-Part Rate Rate structure: Constant price of 6.7 cents/KWh for all energy purchased. KEC would be to price all KWh according to the following monthly index: Price = 0.90 * ((D + M)/E + V) Where: “D” equals the OPIS-Seattle spot FO#2 diesel price quote of the last Thursday of each month, “M” equals the cost of shipping and handling from Seattle to Ketchikan fixed at 11.5 cents per gallon. “E” equals the average efficiency in KWh/gal., fixed at 15.3 KWhvgal., and “V” equals KPU’s variable diesel O&M and lubricants expressed in $/KWh fixed at 1.64 cents per KWh. “Vv” & “M” adjusted annually for inflation using only 50% of the increase in the Anchorage CPI. A demand charge of $7.25/KW month. An energy charge of 4.9 cents/KWh, dropping to 2.5 cents/KWh for all KWh in excess of 35GWh in any contract year. Term: 30 years 30 years 30 years Minimum purchase commitment: Approximately $1,300,000/year, tied to energy purchase associated with minimum flows of 13 CFS Oct-July and higher for Aug-Sep. A monthly amount tied to the monthly index price times the energy purchase associated with a minimum flow of 13 CFS we estimate 13 GWH at about 7.4 cents per KWh or $962,000. No extra purchase requirement for Aug-Sep. In addition, if the total KPU load drops below 150 GWH the minimum purchase requirement is reduced to 6.5 GWh per year $ 481,000 at 7.4 cents per KWH. $1,475,2007 year, tied to demand charge of $838,200 plus 13 GWh @ 4.9 cents associated with minimum flow of 13 CFS. No extra purchase requirement for Aug-Sep. Diesel Generation: KPU may use diesel for monthly testing and for resource back-up to the extent Mahoney is unavailable or inadequate, plus another 1 GWh/year. To the extent energy and capacity is available to KPU from KEC are sufficient to meet that portion of KPU’s load requirements that exceed the capability of the KPU now existing hydroelectric, KPU shall not meet that portion of its electric load requirements or any part thereof with power generated by other electric power resources. From Swan Lake Contract. To the extent energy and capacity is available to KPU from KEC are sufficient to meet that portion of KPU’s load requirements that exceed the capability of the KPU now existing hydroelectric, KPU shall not meet that portion of its electric load requirements or any part thereof with power generated by other electric power resources. KPU Dispatch Records: Records required to check compliance with the diesel-usage restrictions. Verification of rate from Third party sources: Opis Price reports and Anchorage CPI. Not applicable C:\TEMP\Pricing option comparison table (4).doc Portland