WSP05409

• File Number: 8220.101.17
• Description: Glen Canyon Dam/Lake Powell
• State: AZ
• Basin: Colorado Mainstem
• Date: 3/1/1998
• Author: Loftin/et al.
• Title: Replacement Resources Process - Final Methods Report - Executive Summary
• Water Supply Pro - Doc Type: Report/Study

pan, or none of the replacement power be
acquired for the long term

Customer needs for replacement
power \\ill vary both throughout the year
and from year to year due to variations in
electric load and market conditions. The
seasonal need for replacement power \\ill
also vary \\ith water conditions. Dunng
high water conditions, replacement pmver
purchases would not be needed. Dunng
drought conditions, additional replacement
power \\ill be needed during summer and
\\inter onpeak hours.

Evaluatmg the amount and term of
the desired amount of replacement power
will depend on estimates of future hydro-
electric generation from Reclamation. It
wiII also require estimates of the anlOunt
and pnce of power available on the spot
market from either Western or other
sources. Replacement power term
lengths could vary from purchases for a
single month up to a long-term arrange-
ment for purchases throughout a
customer's power sales agreement,

Due to the large variability in
replacement power needs from month to
month and year to year, some customers
may adopt a "portfolio approach" to
requests for replacement power. For
example, based on \Vestem's estimates of
power availabihty. the amount of n:place-
ment power likely to be needed most of
the time nught be purchased by customers
through long-tenn commitments to assure
that power IS delivered at a kno\\n price.
A second tier of replacement power might
be acquired through a mId-term purchase
for the amount having a 50-percent
probability of occurnng A fmal tier of
replacement power requlTements banng a
low probability of occurrence might be
met through short-term (seasonal) pur-
chases. Some customers may decide to
take on more risk (hoping to achie\ing

lower costs) and allO\\' Western to con-
tmue ItS current practice of purchasmg
hourly or monthly on the spot market, \\ith
no guarantee of power availability for any
given hour.

Customers will have the opportunity
to commit to an imtial purchase of replace.
ment power from \Vestcrn on a shan-term
or seasonal basis. Once the replacement
resource acquisition process is fully
implemented, customers may be able to
select from short-term {seasonal}. or long-
term (one to more than five years) re-
placement power. To reduce the burden
of administering resources requirements,
customers \..illlikely be limited to standard
commitment terms, for exanlple, one
season. three years, five years, or the
remaming term of a power sales agree.
ment.

Strategies will be developed by
\Vestern's customers to meet their speCific
needs_ Western will aggregate customer
requests and attempt to secure the re.
quested terms and levels of purchases. In
the future, it may also become more
common for utilities and power consumers,
mcluding Western and its customers, to use
electricity options or futures as part of a
resource portfolio to hedge pnce risk.

Western \\ill recover the cost of
purchasing each replacement power
resource, including a component of
Western's administrative expenses, by
passmg the cost through to the customers
who requested the panicular resource.
Costs associated \\ith each separate
resource purchase \'.111 be accounted for in
a specific cost pool. aggregated, and then
recovered only from those customers
purchasing this power. Because the costs
for replacement power resources \\ill be
passed through to the customers in propor-
tion to their share of replacement power.

~ Once the re~acement
resource acquisition
process is fully
irn~ernenled, customers
may be able to select from
short.termorlong-lenn
re~acementpomr.

~ Western will recover the
cost of purchasing each
repacement power
resource, including a
C<rnlXlnentofWestem's
adrninisb'ative expenses,
by passing the cost
throughlDthecustOO1€l's
whorequesledthe
particular resource.

Ii