Navajo Generating Station

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Navajo Generating Station
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• Proposed Amended Navajo Power Marketing Plan
• Public Information Forum

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Purpose

• Background on Western
• Navajo Generating Station
• History of Navajo Power Marketing Plan
• Proposed Amended Plan
• Comparison To Original Plan
• Annual Plan Process
• Competitive Process
• Next Steps
• Contacts

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What is Western?

• Western Area Power Administration (Western) An
  agency of U.S. Dept. of Energy responsible for
  marketing power from Federal generation including
  Navajo Generating Station (NGS).
• Westerns service area includes 15 Western
  states.
• About 700 customers.
• Generation from NGS is marketed by Westerns
  Desert Southwest Region (DSW).

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Desert Southwest Region (DSW)

• DSW office is located in Phoenix, Arizona
• Marketing Area includes most of Arizona, southern
  Nevada, southern California, and a small portion
  of western New Mexico.

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Navajo Generating Station (NGS)

• NGS is a 2250 MW coal-fired power plant
  constructed in the 1970s in northern Arizona
  outside of Page on the Navajo Indian Reservation.
• NGS added scrubbers in the 1990s and the plant
  exceeds all current environmental standards
• NGS has multiple owners and is operated by Salt
  River Project (SRP).

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Navajo Generating Station (NGS)(Cont.)

• The U.S. Bureau of Reclamation has 24.3
  entitlement in NGS for the Central Arizona
  Project (CAP). This equates to 547 MW of
  capacity and an average of approximately 4,300
  GWh (average of the last 5 years).
• The NGS project includes transmission facilities
  terminating in McCullough Substation near Boulder
  City, Nevada and Westwing Substation outside of
  Phoenix, Arizona.

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• History
• of
• Navajo Marketing Plan

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Entities Involved In Navajo Marketing

• Western Area Power Administration (Western) An
  agency of U.S. Dept. of Energy responsible for
  marketing power from Federal generation including
  NGS.
• Bureau of Reclamation (Reclamation) An agency
  of the U.S. Dept. of Interior responsible for
  water and power projects in the Western U.S.
  Reclamation has a 24.3 entitlement in NGS for
  the Central Arizona Project (CAP).
• Central Arizona Water Conservation District
  (CAWCD) A multi-county water district that
  operates and maintains the CAP.

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Hoover Power Plant Act of 1984

• Directed Secretary of Energy (Western) to market
  NGS power surplus to CAP pumping and
  desalinization facility requirements
• Required marketing of Navajo Surplus in
  accordance with Plan adopted by the Secretary of
  Interior (Reclamation) after consultation with
  Western, the Governor of Arizona, and CAWCD
• Marketing in accordance with preference
  requirements under Reclamation Law and Westerns
  Marketing Criteria

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Hoover Power Plant Act of 1984(Cont.)

• Plan required to optimize Navajo Surplus and
  provide assistance in the repayment of CAP.
• Allows for additional rate components (rates
  components in addition to cost based rates).
• Rates shall not exceed levels that allow for an
  appropriate saving to the contractor

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Original Navajo Marketing Plan

• Original Plan was adopted on December 1, 1987 by
  Reclamation on behalf of the Secretary of
  Interior.
• Provided for marketing of Navajo Surplus under
  long-term contracts through September 30, 2011.
• Provided for up to 400 MW of fixed capacity and
  energy sales with 760 MWh of energy per MW of
  capacity.
• The Plan also provided for exchanges of 150 MW of
  the 400 MW (and associated energy) with a return
  of the energy in the same operating year.

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Original Navajo Marketing Plan(Cont.)

• The amounts available to market were based on a
  study of CAP water delivery and load projections.
• The rate for this capacity and energy included a
  market based capacity charge (rate component) of
  72 per KW-year plus the actual cost of the
  energy and administrative costs. The rate
  component is used to repay bonds issued by CAWCD
  for construction of certain CAP facilities.
• Also allowed for other arrangements for any NGS
  capacity and energy not marketed under the sale
  of up to 400 MW capacity and associated energy or
  exchanged.

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Original Navajo Marketing Plan(Cont.)

• Provides for first opportunity for new contracts
  to Long-Term contractors. If such contracts are
  executed they must be entered into by October 1,
  2007.
• Provides that CAWCDs allocation of Hoover power
  from Arizona Power Authority is used to serve CAP
  pumping load to increase the Navajo Surplus
  available.

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Original Navajo Marketing Plan(Cont.)

• Uses the exact order of priority from Conformed
  Criteria Hoover Act of 1984
• 1. Preference entities within Arizona.
• 2. Preference entities within the Boulder City
  Marketing Area.
• 3. Preference entities in adjacent Federal
  marketing areas.
• 4. Non-preference entities in the Boulder City
  Marketing Area.

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Navajo Marketing Area
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Contracts Executed Under Original Navajo
Marketing Plan

• All Navajo Surplus is currently sold under three
  Long-Term sales contracts through September 30,
  2011.
• All three contracts are with SRP. Other entities
  received allocations but did not execute
  contracts.
• Contracts provide for first opportunity for new
  contracts after September 30, 2011. If new
  contracts are agreed to they must be executed by
  October 1, 2007.

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• Proposed Amended
• Navajo Marketing Plan

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Why Is Amended PlanRequired?

• Current contracts expire Sept 30, 2011.
• Amendment of the Plan by December 31, 2007 is a
  requirement for key elements of the Arizona Water
  Settlements Act to be effective.
• Arizona Water Settlements Act amends the uses of
  Navajo Surplus revenues.

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Proposed Amended PlanKey Elements

• Proposed Amended Plan was developed by
  Reclamation in consultation with Western, CAWCD,
  and Governor of AZ
• Provides for marketing of Navajo Surplus after
  September 30, 2011.
• Developed to optimize the availability and use of
  revenues.
• Annual process used to determine the Surplus to
  market based on water forecast and pumping
  requirements.

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Proposed Amended PlanKey Elements (Cont.)

• Utilizes CAWCDs power scheduled from Hoover for
  CAP pumping to increase Navajo Surplus.
• Standard market products are used. Products may
  be sold as plant contingent.
• Rates developed annually based on competitive
  process w/appropriate saving.
• Provides for marketing of the small amounts of
  Navajo Surplus not captured in the annual process
  under other appropriate arrangements.

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Proposed Amended PlanKey Elements (Cont.)

• AZ preference entities provided first
  opportunity.
• Use of revenues as set forth in the Colorado
  River Basin Project Act as amended by the Arizona
  Water Settlements Act.
• Allows for new contracts entered into under first
  opportunity provisions of Original Plan. Power
  sold under such new contracts would not be
  included in the annual marketing process.

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Marketing Plan RequirementsComparison of
Proposed Plan to Original Plan
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Navajo Marketing Plan Required Elements

• Reclamation adopts Plan after consultation with
  Western, Governor of Arizona CAWCD
• Preference (Order of Priority)
• Appropriate savings
• Optimize surplus (around pumping operational
  requirements of Central Arizona Project (CAP)
  water system)
• Financial assistance to CAP

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Plan Consultation Adoption
Original Plan
Proposed Plan

• Proposed Plan was developed by Reclamation in
  consultation with Western, Governor of AZ, and
  CAWCD
• Final Plan was adopted by the Secretary of
  Interior (or Reclamation) after completion of
  public process by Western

• No Change
• No Change

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Preference
Original Plan
Proposed Plan

• Uses the exact order of priority from Conformed
  Criteria Hoover Act of 1984
• Highest priority entities provided first
  opportunity to purchase

• No Change
• No Change

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Appropriate Saving
Original Plan
Proposed Plan

• Rate was market based
• Appropriate saving was assumed to be met by
  contractors willingness to purchase
• No defined appropriate saving

• No Change
• No Change
• No Change

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Optimize Surplus
Original Plan
Proposed Plan

• Surplus availability determined through a single
  long-term projection of water deliveries
• Little flexibility for annual changes in OM of
  the system
• There were no changes in water deliveries caused
  by water shortages anticipated during this period

• Surplus sales are structured around current water
  operations on an annual basis
• Allows flexibility in OM of the system needed to
  ensure reliable operation
• Allows flexibility to respond to shortages or
  other changes in the water available to CAWCD
  from the Colorado River

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Optimize Surplus(Cont.)
Original Plan
Proposed Plan

• Contractual commitments cause significant power
  purchases by CAWCD to meet pumping requirements
• Frequent start/stops of pumps have resulted from
  contractual commitments under the Plan which
  causes wear on the units

• Anticipate that no net power purchases required
  on annual basis (some daily balancing required)
• Sales structured to limit impact on unit
  starts/stops

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Financial Assistance to CAP
Original Plan
Proposed Plan

• Rates were developed based on study of the market
  cost of alternative generation resources
• Products sold in long-term contracts of
  approximately 20 years
• No mechanism for rate changes. Revenue remained
  unchanged as market prices increased

• Rates developed annually based on current market
  conditions
• Product sold under shorter terms limited by
  foreseeable water power market conditions
• Annual rate determination (for products not sold
  on multi-year basis)

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• Annual Plan Process

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Annual Plan Process

• Reclamation, in consultation with CAWCD determine
  Navajo Surplus available to market
• Considerations are existing contractual
  commitments, CAP pumping requirements, Navajo
  generation and other resources, and salinity
  facilities requirements

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2005 CFS Baseline Adjustment Example Using 2004
Historical Data Only
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2005 Projected Navajo Surplus in MW (Simplified
Example)
Projected CFS Load Baseline
Surplus Available based on Projected Water
Deliveries and Navajo Generation
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Navajo Surplus Divided Into Blocks Sold
Forward (Simplified Example)
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Navajo Surplus Available

• Typically 1600 GWh to 2000 GWh for normal
  delivery year on CAP. More than 50 of energy
  June through September.
• Available energy could be much greater in water
  shortage years.
• Usually gt400 MW of capacity energy available
  during summer on-peak hours

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• Competitive Process

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Types of Competitive Processes

• Auction
• Request for Proposal (RFP)
• Other Processes

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Auction

• Ascending clock auction (one possible auction
  type)
• Discrete bid increments
• Price is set by second highest bid (bid level of
  sufficient demand)
• Highest priority entities have first opportunity
• Reserve price
• Other types of auctions have different processes

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Request for Proposal (RFP)

• Sealed bids
• Allows for refresh (update) of bids
• Highest priority entities have first opportunity
• Reserve price

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Other Processes

• No other process being contemplated at this time.
• Need to retain flexibility to implement other
  processes in response to regulatory or market
  changes.

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• Next Steps
• And
• Contacts

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Public Comment Forums

• Forum Dates Location
• Phoenix, AZ ---October 10, 2006
• at Westerns Desert Southwest Office
• Ontario, CA ---October 11, 2006
• at Doubletree Hotel Ontario Airport

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Next Steps

• Public Comment Forums
• Submit Written Comments to Western Through
  November 13, 2006
• Evaluation of Comments
• Reclamation Adopts Plan Publishes FRN
  Approximately March 2007

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Navajo Marketing Plan

• Submit written comments to
• Mr. J. Tyler Carlson
• Western Area Power Administration
• P.O. Box 6457
• Phoenix, AZ 85005-6457
• or Fax [phone]
• or Email Navajomarketing_at_wapa.gov

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Additional Information

• Visit our website at
• http//www.wapa.gov/dsw/pwrmkt
• Desert Southwest Region Marketing Area Map
• Original Marketing Plan
• Federal Register Notices
• Comments
• Contact Brian Young at 602-605-2594