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<br />:. <br /> <br />This estimate of net revenues is based on power rates projected from <br />PSCo's published tariffs for power purchases (Appendix 0). However, <br />the Colorado State Supreme Court recently upheld a ruling by the <br />Colorado Public Utilities Commission (PUC) that established <br />significantly higher avoided cost rates for PSCo than those contained <br />in the PSCo tariffs. The economic projections in this study are <br />based on a blended power purchase rate of approximately 6.7t/kWh in <br />1992. If the project were to be paid for its electric power at the <br />rates established by the PUC, it would receive approximately 9.4~/kWh <br />instead. If all else were to remain equal, this higher rate for <br />power would increase net revenues by nearly $3 million, to <br />approximately $11 million in the first year of operation. The effect <br />on revenues in subsequent years would be even more dramatic, because <br />capacity payments are assumed in this study to remain flat for the <br />life of the power purchase contract, while the PUC has ruled that <br />they should escalate. <br /> <br />. <br /> <br />An initial economic analysis indicates that the return on investment <br />(ROI) for the Webster Hill project is over 20%, assuming that the <br />long-term water portion is a separate investment constituting a cash <br />source for the project that receives water as its return. The above <br />ROI also conservatively assumes the IS-year accelerated cost recovery <br />system (ACRS) depreciation schedule for the nonequipment portion of <br />the project. As a PURPA project, these items would be elegible for <br />investment tax credits and five-year ACRS depreciation, which is an <br />advantage to some investors. <br /> <br />. <br /> <br />The initial economic analysis is based on the projected cash flows, <br />which are consistent with the project schedule described below. <br />Initiation of the Phase II activities by January 1985 will support <br />the planned commercial operation date of mid-1991. Any delays in the <br />project schedule may affect the project costs by at least the general <br />rate of inflation. However, inflated costs may be partially offset <br />by inflated future revenues and, depending on future interest rates, <br />the overall project economics may not be significantly affected. <br /> <br />3686-a/3 <br /> <br />S-3 <br />