3 Amendment No. 3Member may elect non-EKPC supply for up to 15% of its load, subject to aggregate cap for all Members of 5% of EKPC’s loadAmendment 3 elections are no longer part of the Wholesale Power Contract.90 days’ notice for non-EKPC supply to serve load with an average coincident peak demand ≤ 5 MW; 18 months notice for non-EKPC supply ≥ 5 MWOnce a load is returned to EKPC system, may not be served by non-EKPC supply againNon-EKPC supply for a new service territory only permitted if acquisition terms require the territory to continue to be served by non-EKPC supplyEKPC supplies, and Member pays for, interconnection, transmission and ancillary services for non-EKPC supplyMember solely responsible for all additional costs.
4 Limitations of Amendment No. 3 Allows non-EKPC supply only for a specific loadNon-EKPC supply for a percentage of a Member’s total load is not permittedNon-EKPC supply must follow load shape of specified load7 x 24 energy blocks not permittedLoad-shaped supply is not generally available in small kW amountsUse of non-EKPC supply for a newly acquired service territory is very limitedPermitted only if acquisition terms require that territory continue to be served by the existing supplier
5 Limitations of Amendment No. 3 Each Member does not control whether it will be able to exercise a non-EKPC supply option when the Member has an opportunityAllocation Committee under Policy 305 may have already allocated the full 5% of EKPC’s total load to other Members by the time a Member has its first opportunity to exercise its non-EKPC supply optionDoes not expressly address responsibility for stranded costs or for load growth of non-EKPC supplied loadRequires only 90-days notice for non-EKPC supply < 5 MW, and 18-months notice for non-EKPC supply > 5 MWDoes not specify notice period for obtaining supply from EKPC for non-EKPC supplied load3
7 Mortgage and Wholesale Power Contract EKPC’s Board of Directors are required by Section 4.15 of its RUS/CFC Mortgage to implement rates so as to provide sufficient revenue (i) to pay all fixed and variable expenses when and as due; (ii) to provide and maintain reasonable working capital; and, (iii) to maintain a TIER of not less than 1.05 and a DSC of not less than 1.0. EKPC’s Members are required by Paragraph 4(b) of the Wholesale Power Contract and Section 1.06 of EKPC’s By-Laws to pay the rates as set by the EKPC Board.
9 Amendment 3 Need to Know Facts Bundled vs Un-Bundled ServiceCost impact to membersDirect AssignmentSocializationTransmission & Ancillary ServicesCommission Approvals
10 Bundled vs UnbundledThe Wholesale Power Contract provides bundled rates to Members.Bundled rates include:Capacity and EnergyReservesTransmission ServiceTransmission Ancillary ServicesTransmission to Distribution transformation servicesEKPC OverheadsUnbundled rates require that you purchase the following services independentlyInterconnection of GenerationManagement of Your Power Supply
11 Cost Impact of Amendment 3/5 EKPC’s fixed costs do not change as a result of removing load from the Wholesale Power ContractAmendment 3 did not change the obligation of the members to fund EKPC’s costsRemoving billing determinates from a rate leads to collection of inadequate revenues to fund the revenue requirementUnderfunding of the revenue requirement must be addressed (ie EKPC’s financial integrity)
12 Options to address Underfunding Direct AssignmentSocialization
13 Direct Assignment Impact The direct assignment associated with a 1 MW reduction would be approximately $546,500.The direct assignment associated with a 50 MW reduction of load would produce a direct assignment of $27.3 million.
14 Percentage Increase over Current Demand Rates Socialization ImpactPercentage Increase over Current Demand RatesE1E2Load Reduction of 600,000 kW2.003%1.827%Load Reduction of 1,200,000 kW4.255%3.821%Load Reduction of 1,800,000 kW6.508%5.9800%
16 Direct AssignmentUnder the net book value method, the original cost of Steam Generation and Other Production assets less the corresponding accumulated depreciation is calculated.The percentage of the load being removed divided by the three-year average of EKPC’s coincident peaks excluding Gallatin Steel, a “Share of Load” ratio, is applied to the current net book value to determine the stranded costs associated with the load being removed from the Wholesale Power Contract.
17 Direct AssignmentAs of February 2011, the net book value of Steam Generation and Other Production assets was $1.628 billion.The three-year average ( ) of EKPC coincident peaks excluding Gallatin Steel is 2,980 MW.A 50 MW reduction of load would produce a “Share of Load” ratio of 1.68% and a direct assignment of $27.3 million.Stated another way, the direct assignment associated with 1 MW would be approximately $546,500.
18 Direct AssignmentAs of February 2011, the net book value of Steam Generation and Other Production assets was $1.628 billion.The three-year average ( ) of EKPC coincident peaks excluding Gallatin Steel is 2,980 MW.A 50 MW reduction of load would produce a “Share of Load” ratio of 1.68% and a direct assignment of $27.3 million.Stated another way, the direct assignment associated with 1 MW would be approximately $546,500.
19 Direct AssignmentRate impact determined by using the billing analysis from EKPC’s last base rate case and assumes the load being removed is from Schedule E1 and E2.The demand revenues for E1 and E2 were adjusted to reflect an offset from potential transmission revenues.The rate impacts for removed monthly loads of 50 MW, 100 MW, and 150 MW were modeled; rate impact determined on an annual basis.Removed load allocated proportionally between E1 and E2.
20 Rate Impact of Socialization. Percentage Increase over Current Demand RatesE1E2Load Reduction of 600,000 kW2.003%1.827%Load Reduction of 1,200,000 kW4.255%3.821%Load Reduction of 1,800,000 kW6.508%5.980%Increase in demand rates would apply to all Members including those reducing load.Energy rates would also be impacted, as some fixed costs are recovered through energy rates. That impact has not been determined. Any change in revenues generated by base rates would also impact the calculation of the environmental surcharge.
22 Transmission ServiceAny entity wishing to move wholesale power across the Bulk Electric System must be offered non-discriminatory rates and services by the transmission service providerIf a member wishes to serve a portion of their load by a non-EKPC source, in accordance with the WPA, and the source for the capacity and energy is not located on the member’s distribution system with the load, EKPC will offer non-discriminatory rates and services to that memberThis offer cannot be declined unless the member demonstrates it has acquired these services from another source
23 OATT (www.oatioasis.com/ekpc) Schedule 1Scheduling, System Control, and Dispatch ServiceMust take from EKPC$ per kW per MonthSchedule 2Reactive Supply and Voltage Control$ per kW per MonthSchedule 3Regulation and Frequency Response ServiceMay choose alternative supply if available$ per kW per Month
24 OATT (www.oatioasis.com/ekpc) Schedule 4Energy Imbalance ServiceMay choose alternative supply if availableCost based on incremental or decremental cost of the supplier’s resource mix100% of cost for deviations +/- 1.5% (minimum of 2 MW)110% of cost for deviations between 1.5% and 7.5% (2 MW minimum up to 10 MW)125% of cost for deviations greater than 7.5% (10 MW)Schedule 5Operating Reserve – Spinning Reserve Service$ per kW per Month
25 OATT (www.oatioasis.com/ekpc) Schedule 6Operating Reserve – Supplemental Reserve ServiceMay choose alternative supply if available$ per kW per MonthSchedule 7Long-Term Firm Point-To-Point Transmission ServiceTo serve load on EK, purchase NITS instead (Schedule 9)May be required to purchase P2P on another system to get the power/energy to the EK border$1.94 per kW per Month (TVA)$0.94 per kW per Month (KU/LGE)Schedule 9Demand Charge for Network Integration Transmission ServiceMust purchase from EKPCMay elect P2P instead$1.62 per kW per Month
26 OATT (www.oatioasis.com/ekpc) Schedule 10Generator Imbalance ServiceMay choose alternative supply if availableCustomer pays Schedule 10 or Schedule 4, not bothSame rate structure as Schedule 4Provision for intermittent resourcesSchedule 11Loss Compensation ServiceMay choose to self-supply losses or purchase from EKPCIf EKPC suppliesEnergy Charge = 2.5% * Energy * 110% of AVCDemand Charge = $8.56 per kW of Reserved Capacity per MonthReserved Capacity is that Capacity reserved for losses4% of the maximum hourly energy
27 Transmission & Ancillary Services Must be purchased to move power from the source to the load if using the Bulk Electric SystemWould likely add $5 to $11 per MWhDepending on location of sourceDepending on load factor of the load
29 PSC Approval and Requirements KRS requires any utility subject to the jurisdiction of the PSC to get approval of the PSC to issue any evidences of indebtedness that has a term longer than two years.The PSC considers a contract for the purchase of power the same as an evidence of indebtedness and therefore requires approval for a power purchase agreement with a term longer than two (2) years.This would more than likely require a showing that the PPA was the least cost option to the utility.KRS (4) provides for a fine to be imposed upon the utility for a violation of KRS of up to $10, and KRS (1) provides for a fine of up to $2, on any officer, agent or employee of the utility for violation of KRS and up to six (6) months in jail.
30 Questions and Discussion Privileged and Confidential4