pps rate recovery plan powerpoint presentation -...
TRANSCRIPT
Rate Recovery Goals• Goals – FY2015
• Stabilize PPS finances• No increase in the PCA (Power Cost Adjustment), hold at $0.0215 (15% of Base Rate)
• Eliminate the PCA deficit
• Goal – FY2016• Reduce PCA effective July 1, 2015
• On going efforts to improve finances
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How Did We Get Here?• The decisions to participate in the Prairie State project in 2005 and build a peaking plant in 2008 were made when…• TVA power rate increases were causing concerns•Wholesale power markets were very volatile and on average 70% higher than today
• Delivered coal prices increased approximately 90% from 2004 to 2009
• The investments promised low cost, stable power rates
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What actually happened?• The country experienced a major economic downturn…
• TVA power rates stabilized• Power demand and wholesale power market prices fell• Prairie State project costs increased
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Assumptions: PCA held at $0.0215/kwh, Prairie State achieves 76.9% net capacity factor, power market sale pricing slightly lower than FY2014
Power Sales Revenue$81.635 Million
Expenses$82.360 Million
Paducah Power Projected Revenues and ExpensesFY2015 (7/1/2014 through 6/30/2015)
Base Revenues85%
PCA15%
PPS33%
KMPA67%
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Paducah Power Projected Expenses BreakdownFY 2015 (7/1/2014 through 6/30/2015)
Operating Expense & Other Revenue
7.3%
Depreciation Expense & Payments in Lieu of Taxes
13.7%
Debt Expense9.3%
PPS Generation2.1%
SEPA0.3%
KMPA67.3%
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KMPA Projected Expenses BreakdownFY 2015 (7/1/2014 through 6/30/2015)
Transmission4.4%
Other1.9%
Net Purchase Power38.5%
Debt Service55.3%
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Power Cost Adjustments
• PCA’s are added when power supply costs are above $0.072 per kwh• PCA’s have been added to base electric rates since November, 2013• PCA’s started at approximately 6.5% of base rates and reached a high of 23% between February and June, 2014• A PCA collection deficit is building because actual PCA’s charged were less than actual power costs
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PCA rate has been reduced 40% from March 2014 high
Without action the PCA deficit is projected to be $4.7 million on June 30, 2015
PCA rate has been held by the Board at $0.0215 since July, 2014
$/kwh
Additional revenues required to match power supply cost
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Why eliminate the PCA deficit?• Accumulating a PCA depletes cash balances
• Low cash reserves and the PCA deficit level triggered a negative watch by Fitch Ratings
• If the PCA deficit is not collected, this can result in not meeting debt service coverage covenants to bondholders
• If debt service covenants are not met, the bond holders can take legal action against PPS, potentially forcing a rate increase set by the court
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The PCA deficit is projected to increase to $4.7 million
At year end expenses are projected to exceed revenues
PCA will be held at $0.0215/kwh for the remainder of FY2015
Base Case –with no action
Million $/kwh
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Recommendations• Action to reduce PPS Debt Service cost from KMPA
• Kentucky Municipal Power Agency possess debt service reserve funds (DSR) to provide additional security to bond holders
• Propose to use a Surety Bond, which, in essence, would replace the DSR
• This budget “free‐up” of funds will be used to pay debt principal to reduce KMPA purchase power cost to PPS for a 3 to 4 year period
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The surety bond would allow reduction of KMPA Debt service expense by $2.7 million in FY2015
Debt service reduction would be used to reduce the PCA deficit
Base Case –with Debt Service Reduction
Million $/kwh
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KMPA Net Purchase Power Projected (FY2015)
Prairie State power is sold into MISO Day‐Ahead market at the node closest to Prairie State.
Power for PPS has been historically purchased at the MISO LGEE interface
Prairie StateNet Capacity Factor 76.9%
Prairie State Generation (MWH 10,962,370PPS Share % 6.545%
PPS Share (MWH) 717,524$/MWH
Power Sales Revenues $20,709,747 $28.86 Operating Charges $19,819,893
Prairie State Net Renenues $889,854
Paducah PowerPurchase Power (MWH) 584,193
$/MWHPurchase Power Cost $22,200,382 $38.00
KMPA Net Purchase Power Cost $21,310,528 $36.48
Prairie State power sales less operating charges provides net revenues to KMPA
Purchase Power cost for PPS is reduced by the net Prairie State revenues
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Recommendation• Reduce the PPS net purchase power cost by changing Resource Portfolio Manager in January, 2015• Manager will work to reduce KMPA net purchase power costs • Manager will look for opportunities to utilize PPS peaking plant power
• Currently estimate the new Portfolio Manager will reduce PPS net power costs by 27% (approximately $2 million) from January 1 through June 30, 2015
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Reductions are projected to completely eliminate the PCA deficit by June 30, 2015
Base Case –with Debt Service and Purchase Power Reduction
Million $/kwh
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Additional Action for PPS
•PPS Debt Service Reserves could also be replaced with a Surety Bond
• The DSR “free‐up” would be used to meet principal payments for 2015 through 2018
•PPS debt service savings will increase cash reserves and position PPS for a possible refunding of debt in FY2017
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What happens in FY2016?•With PCA deficit eliminated in FY2015, the PCA can be reduced starting July 1, 2015• Continue with KMPA savings of $3.8 million from Surety Bond• Refinancing of KMPA bonds estimated to save $1.4 million in FY2016• Full year net purchase power savings are projected to be $4 million• Sale PPS Prairie State and Peaking Plant excess capacity at an estimated savings of $0.81 million 18
Million $/kwh
Estimated average PCA ‐ $0.0052 $/kwh
Reductions would allow the average PCA to be $0.0052 per kwh in FY2016, a reduction of 76% from FY2015
FY2016 –with planned actions
KMPA Debt Servicereduced by $5.2 million in FY2016
KMPA net purchase power costs reduced by $4.8 million in FY2016
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On going efforts for long term stable and competitive rates• Improve Prairie State operating performance
• Refund PPS 2009 Bonds
•Market assets
• Hydro power contract• PPS Prairie State generation• PPS peaking plant generation
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Impact of planned actions on residential customer bills
Average Residential Bill with polar vortex
Bill reduced 5.5%
Bill reduced 20%
Average Residential Bill with normal temperatures
Bill reduced 16%
Bill reduced 29%
kwhkwh
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Impact of planned actions on residential customer bills
High Residential Bill with polar vortex
Bill reduced 6% Bill reduced
41%
High Residential Bill with normal temperatures
Bill reduced 17%
Bill reduced48%
kwh kwh
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Other Programs to help PPS Customers
•Provide free home energy checks and develop home energy audit program• Implement a “Round‐up” program to help low income customers•Update customer billing format to include daily use and temperature data•Review commercial customers with higher than needed demand service, recommend changes to reduce cost
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