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<br />part, or none of the replacement power be
<br />acquired for the long tenn.
<br />
<br />Customer needs for replacement
<br />power will vary both throughout the year
<br />and from year to year due to variations in
<br />electric load and market conditions, The
<br />seasonal need for replacement power will
<br />also vary with water conditions, During
<br />high water conditions, replacement power
<br />purchases would not be needed. During
<br />drought conditions, additional replacement
<br />power will be needed during summer and
<br />winter onpeak hours.
<br />
<br />
<br />Evaluating the amount and tenn of
<br />the desired amount of replacement power
<br />will depend on estimates of future hydro-
<br />electric generation from Reclamation. It
<br />will also require estimates of the amount
<br />and price of power available on the spot
<br />market from either Western or other
<br />sources, Replacement power tenn
<br />lengths could vary from purchases for a
<br />single month up to a loug-tenn arrange-
<br />ment for purchases throughout a
<br />customer's power sales agreement.
<br />
<br />Due to the large variability in
<br />replacement power needs from month to
<br />month and year to year, some customers
<br />may adopt a "portfolio approach" to
<br />requests for replacement power. For
<br />example, based on Western's estimates of
<br />power availability, the amount of replace-
<br />ment power likely to be needed most of
<br />the time might be purchased by customers
<br />through long-tenu conunitments to assure
<br />that power is delivered at a known price.
<br />A second tier of replacement power might
<br />be acquired through a mid-tenu purchase
<br />for the amount having a 50-percent
<br />probability of occurring. A final tier of
<br />replacement power requirements having a
<br />low probability of occurrence might be
<br />met through short-tenu (seasonal) pur-
<br />chases. Some customers may decide to
<br />take on more risk (hoping to achieving
<br />
<br />lower costs) and allow Western to con-
<br />tinue its current practice of purchasing
<br />hourly or monthly on the spot market, with
<br />no guarantee of power availability for any
<br />given hour.
<br />
<br />Customers will have the opportunity
<br />to commit to an initial purchase of replace-
<br />ment power from Western on a short-tenu
<br />or seasonal basis. Once the replacement
<br />resource acquisition process is fully
<br />implemented, customers may be able to
<br />select from short-tenu (seasonal), or long-
<br />tenu (one to more than five years) re-
<br />placement power. To reduce the burden
<br />of administering resources requirements,
<br />customers will likely be limited to standard
<br />commitment tenus, for example, one
<br />season, three years, five years, or the
<br />remaining term of a power sales agree-
<br />ment.
<br />
<br />Strategies will be developed by
<br />Western's customers to meet their specific
<br />needs. Western will aggregate customer
<br />requests and attempt to secure the re-
<br />quested tenus and levels of purchases. In
<br />the future, it may also become more
<br />conunon for utilities and power consumers,
<br />including Western and its customers, to use
<br />electricity options or futures as part of a
<br />resource portfolio to hedge price risk.
<br />
<br />Western will recover the cost of
<br />purchasing each replacement power
<br />resource, including a component of
<br />Western's administrative expenses, by
<br />passing the cost through to the customers
<br />who requested the particular resource.
<br />Costs associated with each separate
<br />resource purchase will be accounted for in
<br />a specific cost pool, aggregated, and then
<br />recovered only from those customers
<br />purchasing this power. Because the costs
<br />for replacement power resources will be
<br />passed through to the customers in propor-
<br />tion to their share of replacement power,
<br />
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