Paducah Power Rate Recovery Plan. November 12, 2014

Transcription

1 Paducah Power Rate Recovery Plan November 12, 2014

2 Rate Recovery Goals Goals FY2015 Stabilize PPS finances No increase in the PCA (Power Cost Adjustment), hold at $ (15% of Base Rate) Eliminate the PCA deficit Goal FY2016 Reduce PCA effective July 1, 2015 On going efforts to improve finances 2

3 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 3

4 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 4

5 Paducah Power Projected Revenues and Expenses FY2015 (7/1/2014 through 6/30/2015) Power Sales Revenue $ Million Expenses $ Million PCA 15% PPS 33% Base Revenues 85% KMPA 67% Assumptions: PCA held at $0.0215/kwh, Prairie State achieves 76.9% net capacity factor, power market sale pricing slightly lower than FY2014 5

6 Paducah Power Projected Expenses Breakdown FY 2015 (7/1/2014 through 6/30/2015) Operating Expense & Other Revenue 7.3% Depreciation Expense & Payments in Lieu of Taxes 13.7% Debt Expense 9.3% KMPA 67.3% PPS Generation 2.1% SEPA 0.3% 6

7 KMPA Projected Expenses Breakdown FY 2015 (7/1/2014 through 6/30/2015) Net Purchase Power 38.5% Debt Service 55.3% Other 1.9% Transmission 4.4% 7

8 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 8

9 $/kwh Additional revenues required to match power supply cost PCA rate has been reduced 40% from March 2014 high PCA rate has been held by the Board at $ since July, 2014 Without action the PCA deficit is projected to be $4.7 million on June 30,

10 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 10

11 Million $/kwh Base Case with no action PCA will be held at $0.0215/kwh for the remainder of FY2015 At year end expenses are projected to exceed revenues The PCA deficit is projected to increase to $4.7 million 11

12 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 12

13 Million $/kwh Base Case with Debt Service Reduction 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 13

14 KMPA Net Purchase Power Projected (FY2015) Prairie State Net Capacity Factor 76.9% Prairie State Generation (MWH 10,962,370 PPS 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 Power Purchase Power (MWH) 584,193 $/MWH Purchase Power Cost $22,200,382 $38.00 KMPA Net Purchase Power Cost $21,310,528 $36.48 Prairie State power is sold into MISO Day Ahead market at the node closest to Prairie State. Prairie State power sales less operating charges provides net revenues to KMPA Power for PPS has been historically purchased at the MISO LGEE interface Purchase Power cost for PPS is reduced by the net Prairie State revenues 14

15 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,

16 Million $/kwh Base Case with Debt Service and Purchase Power Reduction Reductions are projected to completely eliminate the PCA deficit by June 30,

17 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 FY

18 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

19 Million Estimated average PCA $ $/kwh $/kwh FY2016 with planned actions KMPA Debt Service reduced by $5.2 million in FY2016 KMPA net purchase power costs reduced by $4.8 million in FY2016 Reductions would allow the average PCA to be $ per kwh in FY2016, a reduction of 76% from FY

20 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 20

21 Impact of planned actions on residential customer bills Average Residential Bill with polar vortex kwh Average Residential Bill with normal temperatures kwh Bill reduced 5.5% Bill reduced 16% Bill reduced 20% Bill reduced 29% 21

22 Impact of planned actions on residential customer bills High Residential Bill with polar vortex kwh High Residential Bill with normal temperatures kwh Bill reduced 6% Bill reduced Bill reduced 41% 17% Bill reduced 48% 22

23 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 23