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.-, . . @~5JWI, SfP 10198; In COLORAD 'U I CO:VSERVAT?O WATER '. N BOARD Draft Letter to Tudor Engineering Re: Cache La Poudre Study, Phase II My staff and I have considered the public discussion and comments on the interim, or Phase I, report of the Cache La Poudre study. We have also discussed the evaluation of hydropower benefits with representatives of the Colorado Public Utilities Commission. As a consequence, I believe that some supplementary elaboration of the evaluation guidelines which I previously provided to you is appropriate at this time to guide you in preparing the Phase II report. The most obvious conclusion to be drawn from the interim report and the discussions of it is that projecting project costs and, especially, project benefits into the far distant future is a highly uncertain business. The final report should reflect that uncertainty, both by acknowledging its existence and by presenting the project choice decision as it is affected by information uncertainty. In the light of this overriding concern, the following procedures seem appropriate. Uncertaintv Concernin~ Peakin~ Power Demand and Benefits Tudor has chosen to use the alternative cost approach to estimating hydropower benefits. My guidelines permit the use of that approach (although it is the least reliable method permitted), but only if a test for effective demand is conducted. Tudor's informal canvass of utility load projections is helpful, but does not constitute a credible test of effective demand. It appears to me that the growth of energy demand in the region which would be served by a Cache La Poudre project is likely to be' sufficient to ensure demand for all project power. However, there is reasonable doubt whether the demand for peaking capacity will be sufficient to ensure that the project would be used solely for that purpose. This uncertainty stems from many possibilities, among them that (a) by 1989 WAPA may have contracted to market hydropower from Reclamation projects as peak power, thereby adding greatly to available regional peaking capacity, (b)