Fish Cost Components Workshop PBL Rate Case Risks and Risk Mitigation
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Transcript of Fish Cost Components Workshop PBL Rate Case Risks and Risk Mitigation
Pre-decisional page 1(for discussion only)
Roy Fox, BPA Enterprise Risk Manager January 28, 2005
Fish Cost Components WorkshopPBL Rate Case Risks
and Risk Mitigation
Background and discussion
Pre-decisional page 2(for discussion only)
Federal Generation by WaterYear
6,0007,0008,0009,00010,00011,00012,00013,000
1929
1931
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1977Fe
dera
l Hyd
ro G
en. +
CG
S G
en.
(am
w)
Pre-decisional page 3(for discussion only)
MID-C MONTHLY AVERAGE PRICES FOR HLHMID-C MONTHLY AVERAGE PRICES FOR HLHMAY 1996 – MAY 2004MAY 1996 – MAY 2004
$1.00
$10.00
$100.00
$1,000.00
May-96
Aug-96
Nov-96
Feb-97
May-97
Aug-97
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Feb-00
May-00
Aug-00
Nov-00
Feb-01
May-01
Aug-01
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Pric
e ($
/Mw
h)Pr
ice
($/M
wh)
Pre-decisional page 4(for discussion only)
Net Secondary Energy Sales Revenue Variability
• Hydro and market price variability combine to create huge net secondary sales revenue uncertainty:
– 2005 and 2006 PBL net sec. sales rev. ~ $500m with a std. dev. of ~$300m (August 18th Workshop)
– Average market prices used (Aug. ’04 SNCRAC assumptions):$39 - $44 per MWh 2005-6 Std. Dev. $14
– Risk level varies with market price assumptions
Pre-decisional page 5(for discussion only)
Drivers of Power Rate RisksDrivers of Power Rate Risks• Hydro supply variability (both annual volume and
seasonal shape of run-off)• Market price variability (level and volatility)• Fish and Wildlife costs from generation changes
resulting from non-power requirements for operations• CGS performance• Other resource availability (wind, conservation, hydro
plant performance and availability)• Loads• Unexpected expenses, expense overruns (“non-
operating” risks)• IOU Settlement cost variability
Pre-decisional page 6(for discussion only)
TPP: Treasury Payment Probability
• As a not-for-profit, Federal enterprise, BPA does not seek to maximize net revenue; BPA must use other financial performance measures.
• Key performance – making all scheduled payments to Treasury on time.
• High probability of making payments to Treasury has become a key financial metric.
• BPA must pay other vendors before paying Treasury; TPP measures overall financial health.
Pre-decisional page 7(for discussion only)
TPP Graph (For illustration purposes only– from June 10th workshop)
$100 M
Year End0 1 2 3 4 5
$400 M
$600 M
$800 M
$1000 M
Length of RatePeriod (4)
LiquidityReserve Level
(WorkingCapital)
StartingReserves =$350M (1)
Expected Value of EndingReserves
Max Ending Reserves
Min EndingReserves
Exp. Val. Annual Changein Reserves = $50M (2)
Variability ofAnnual Change in
Reserves = +/-$200M (3)
4 MajorInfluences on
TPP
Reserves are below liquidityreserve (working capital) level:
DEFERRAL
$1200 M
$1400 M
$1600 M
Pre-decisional page 8(for discussion only)
Factors Affecting TPP
Currently reserves are the main protection against net revenue variability. The 4 main factors affecting TPP in a rate case are:1) The starting reserve level;2) The expected value of the change in reserves from one year to the next (i.e., the E.V. of BPA’s cash flow); 3) The annual variability (risk) in BPA’s cash flow;4) The length of the rate period.
Pre-decisional page 9(for discussion only)
Tools to Mitigate Risks• Cash Reserves • Planned Net Revenues for Risk (increases cash
reserves via increase in rates)• Rate Design
– Flat rates & reserves – Shaped rates (eg. front-load revenues or back-load costs)– Rebates (send rebates to customers if certain conditions
occur)– Surcharges (raise rates if certain conditions occur)– Indexed rates (index the level of rate to a measurable variable)
• Potential to engage others to explore risk mitigation alternatives – cost and feasibility issues
• Length of rate period (generally less risk with shorter rate periods)