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<br />Background <br /> <br />Section 2 <br /> <br />2.3.2 PURCHASE POWER POLICY <br /> <br />In response to the Department of Energy's Office of Inspector General's "Report on the <br />Inspection of Power Purchase Contracts at Western Area Power Administration" (May <br />1995), Western has implemented agency-wide changes in its policies for the solicitation, <br />negotiation, award and documentation of power purchase contracts. Western has improved <br />its power purchasing procedures to ensure that an open and competitive process <br />appropriate to the circumstances is used, that rate reasonableness is examined, and that the <br />acquisition process is fully documented. These policies lIIld procedures are included in a <br />Western-wide Purchase Power Policy adopted by Western on May 31, 1996. The Purchase <br />Power Policy includes provisions for power purchase of short-term (spot-market and one. <br />year or less), mid-term (I to 5 years), and long-term (greater than five years). <br /> <br />The Purchase Power Policy will serve as a general guideline for Western in purchasing <br />replacement power. However, the Policy does not supersede the provisions of the GCP <br />Act for finn power contracts. <br /> <br />2.3.3 CONTRACT AMENDMENT, REPLACEMENT POWER PURCHASES <br /> <br />Western has been working with a group of SLCNIP finn-power customer representatives <br />(the Contract Modification Team) to implement contract amendments in order to <br />accommodate replacelI\ent power decisions, and to address other impacts of changed <br />operations at GCD and. other Western resources. The Amended Contracts establish a <br />prudent long-term commitment level of sustainable hydropower (SHP) and address the <br />replacement ofGCD (and other facilities) power, either by Western (Western Replacement <br />Power, or "WRP"), or by customers on an individual basis (Customer Displacement <br />Power, or "CDP"). <br /> <br />2.3.3.1 SUSTAINABLE HYDROPOWER <br /> <br />Replacement power will be acquired as WRP, CDP, or a combination of the two, based on <br />the preferences of individual SLCAI1P customers. The acquisition costs will be passed <br />through to these individual customers and not included as part of the SLCNIP wholesale <br />finn-power rates. However, some replacement power acquired by Western could be <br />included in the rates. The amount in this latter category will be determined by sustainable <br />hydropower ("SHP"), which will be the minimum aggregate level of long-term finn <br />capacity and energy that will be provided by Western to all SLCNIP customers through the <br />contract period. The cost of purchases or exchanges by Western required to finn SHP <br />during any future period will be included as part of SLCA!I? wholesale finn-power rates. <br /> <br />SHP has been determined initially as part of developing the Amended Contracts, and can <br />be adjusted over the term of the contract. The short-term seasonal SHP levels for the <br />SLCNIP are based on a 25% risk level, using anticipated hydrological conditions for the <br /> <br />March 1998 <br /> <br />Western Area Power Administration 2-11 <br /> <br />