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Home My WebLink Aboutresolution.council.015-85A JOINT RESOLUTION OF THE CITY OF ASPEN AND PITKIN COUNTY ESTABLISHING POLICIES AND PROCEDURES FOR DETERMINING THE PRODUC~fION COST AND PURCHASE PRICE OF POWER PRODUCED BY THE RUEDI HYDROELECTRIC PROJECT AND FOR THE DISTRIBUTION OF REVENUES FROM THE SALE OF RUEDI POWER SERIES OF ]985 WHEREAS, the City of Aspen (hereinafter the "City") and Pitkin County, Colorado, (hereinafter the "County") are construc- ting a hydroelectric facility at the base of Ruedi Dam which is scheduled to begin power production on or before July 2, 1985; and WHEREAS, that facility will produce an average of 21,000,000 kilowatt-hours per year of electrical energy; and WHEREAS, the production costs of that energy will allow it to be sold for a price competitive with the wholesale price of power supplied from other sources; and WHEREAS. agreements allowing for the transmission of power produced at the Ruedi Hydropower Project (hereinafter the "Project") to the City of Aspen are currently being negotiated; and WHEREAS, the City has adopted Ordinance %42, Series of 1984. which establishes policies and procedures to guide the electric rates based on the costs of produced by the ~ity, including that determination of retail power both purchased and produced by the Project; NOW, THEREFORE, BE IT HEREBY RESOLVED, that the City of Aspen affirms its intention and commitment to purchase the entire electric output of the Project for a period no less than the longest term of the bonds issued to fund Project development. BE IT FURTHER RESOLVED, that the following policies, procedures and formulas will be applied to future determinations of the cost and purchase price of Project power and to determine how revenue derived from the sale of that power is to be distri- . buted. 1 DETERMINATION OF PROJECT COSTS A. Fixed Costs Fixed Project Costs are which can be determined unlikely to vary significantly of the Project. These include: 1) Debt repayment costs; 2) Insurance costs; those annual costs in advance and are over the life Be 3) Contributions to new facility costs includ- ing the Project's share of the cost of a new transformer at the Aspen Substation and the cost of maintaining the Holy Cross circuit from the Aspen Substation to the Aspen Switching Station. Variable Costs Variable Project Costs are those which may vary significantly from the next depending 9n various factors. costs include: l) annual costs one year to These Operations and maintenance cost~. ~his cost consists of a fixed base fee plus a 'variable bonus fee determined by a formula applied to power production above a pre- determined threshold level initially set at 18,000,000 kilowatt-hours per year. 2) Transmission costs. Transmission. or wheeling, rates are determined by the utilities over whose facilities Project power is transmitted, according to their own formulas. ~hese rates are charged on a per-kilowatt-hour basis and are thus directly proportional to power output. 3) Federal costs. The Federal Energy Regula- tory Commission imposes a use charge on hydroelectric projects based on total 2 4) power production. This charge is also directly proportional to power output. Miscellaneous administrative costs. These costs include a to-be-determined annual amount charged by the Bureau of Reclamation for operational coordination and other yearly bookkeeping, administrative and legal costs which may be incurred by the City of Aspen pursuant to permanent Project operations. These costs cannot be quanti- fied at this time and may be included under Fixed Project Costs in the future. Ail variable costs formulas and sample calculations except those associated with ~4, above, can be found in Appendix A, attached hereto and incorporated herein. C. Cost Calculations Total production costs for 1985 will be esti- mated immediately prior to the date of'initial power production. ~roduction costs for subse- quent years will be estimated on a date to be established by the City of Aspen Finance Department. Estimates will be based on formu- las applicable at the time and best available information regarding estimated or historic reservoir release schedules. Dower production, transmission losses, inflation rates and adjustments, contract terms, and other relevant data. D. Determination of Costs Per Kilowatt-Hour Wholesale costs paid by the City for purchased power and retail rates charged by the City for delivered power are determined and documented on a per-kilowatt-hour basis. In order to II. determine Project wholesale costs on the same basis, total annual costs as described above will be divided by estimated total annual power delivered to the City's Switching Station (total production less transmission losses)- Estimates will be based on estimated and historic reservoir management, hydrology. generator performance and transmission losses. DETERMINATION OF ASPEN POWER PURCHASE RATE The City's purchase price will exceed production costs as determined above, in order to accomplish the A. B. following: Pay all average annual production costs. Create and maintain a reserve account suffi- cient to meet any revenue shortfalls occurring as a result of extremely dry conditions and below-average hydropower production. Potential revenue shortfalls will be determined at the start of power production and all revenues in excess of costs will be dedicated to a reserve account until the amount reserved equals the estimated shortfall. The reserve account target balance will be set initially at $200,000 based on projected minimum revenues and maximum expenses during the poorest hydro year of record, that figure to be revised at five-year intervals as necessary to account for inflation and other variables. Provide excess revenues for distribution to other Project participants as per the provi- sions of Intergovernmental Agreement ~CA 68 (83) (October 11, 19~3) and as further ad- dressed in Section III, below. An analysis of historic Ruedi outflows and estimated power output based on manufacturer's data indicates that average annual output, and annual revenue, will vary by approximately 20% over an average ten-year period. Wherefore, the purchase price should be determined so as to meet all costs in a year in which approxi- mately 80% of average annual energy is pro- duced. ~ purchase price which is 20% in excess of estimated production costs will accomplish this goal as well as the other objectives noted above. Therefore, a mark-up of 20% will be applied to production costs as determined according to Section I, above, in the determination of the City's power purchase rate. The exception to the formula and procedure noted above will be the 1985 purchase price of Ruedi power. Debt service for 1985 is included in the total development bond revenues, so production costs for power produced during that year will be artificially depressed. The 1985 power purchase rate will be set at $.035 per kilowatt-hour as pe~ Ordinance 42, Series of 1984, a level comparable to wholesale power purchase rates from other sources in that year and the resultant revenues in excess of costs will be dedicated to funding of the reserve account described in Section II B, above, thus allowing that account to be fully funded within approximately 18 months of initial power production. 5 III. with the exception of 1985, the total of power production costs as determined according to Section I, above, plus a 20% mark-up, shall constitute City's power purchase price for Ruedi power and shall be applied to the follow- lng sections of Series of 1984: Section 2. Section 2, City of Aspen Ordinance %42, Paragraph C.4.b Paragraph D.4. Section 2, Paragraph D.6. DISTRIBUTION OF REVENUES Intergovernmental Agreement #CA 68 (83), between the City and County and Dated October 11, 1983, provides for the distribution of Project revenues in excess of costs among the City, County, the Ruedi Water and Power Authority, and the City- County Water Trust Fund.. This distribution has 2) been approved by the City and County in considera- tion of the beneficial role played by the parties noted in the development of the Project, and the policy of the City and County to distribute Project revenues so as to encourage cooperative water planning, to encourage further beneficial water and hydropower developments, and to balance any future revenue losses tha~ might result from changes in the management of Ruedi Dam and Reser- voir by the U.S. Bureau of Reclamation. Therefore, distribution of Project revenues will be made as follows: 1) Payment of all Project costs as determined according to Section I, above. Funding of a reserve account as determined according to Section II B, above. 3) Distribution of q0% of revenues in excess of . %1) and %2), above, to the City. 6 4) nistribution of 30% #1) and #2), above, 5) Distribution of 20% %1) and #2), above, Power Authority. 6) Distribution of 20% %1) and %2), Trust. Determination of above, of revenues in excess of to the County. of revenues in excess of to the Ruedi Water and of revenues in excess of to the City-County Water revenues in excess of production costs, and distribution of funds according to the above will be made on or about November 1 of each year or on such other date as may be determined by the City Finance Department. Distribution of revenues according to Numbers 3), 4), 5), and 6), above, are estimated to begin in November of 1986 in consideration of the dedication of 1985 revenues to Project costs and the funding of a reserve account as described in Section II. above. Bock- keeping and accounting associated with the collec- tion and distribution of Project revenues will be carried out by the City of Aspen Finance Department according to methods and procedures to be deter- mined by that Department. That Department will also compile and distribute accounting records which will include, but not'be limited to, annual Ruedi gross revenues, production costs, and net revenues, said records to be provided to Project participants at t~e time of revenue distribution. CITY OF ASPEN, COLORADO William Stifling, Mayor for the City Council , 1955. ATTEST: Cl~der, City of Aspen APPROVED AS TO FORM: Paul J. Taddhne City Attorney PITKIN COUNTY, COLORADO By: Tom Blake, Chairman Board of County Commissioners ATTEST: Clerk and Recorder, Pitkin County APPROVED AS TO FORM: Thomas Fenton Smith County Attorney APPENDIX A TO CITY OF ASPEN AND PITKIN COUNTY JOINT RESOLUTION ~ /~" (R5% FORMULAS FOR DETERMINING VARIABLE COSTS OF RUEDI POWER AND SAMPLE CALCULATIONS 1. Operations and Maintenance a) An annual Base Payment of $78,000 will be due and payable within ten working days of the receipt of an invoice from the Contractor, which invoice shall be submitted at the Contractor's convenience on or after the Start Date of the Contract. murther Base Payments will be due and payable within ten working days of the receipt of annual invoices from the Contractor, which invoices shall be submitted at the Contractor's convenience on or after the annual Start Date anniversary, ending on the nineteenth such anniversary. b) An annual Energy Payment will be due and payable within ten working days of the receipt of an invoice from the Contractor, which invoice shall be submitted at the Contractor's convenience on or after the annual anniver- sary of the Start Date, beginning with the first such anniversary, in an amount to be calculated as follows: $.006 (6 mills) her kilowatt-hour (KWH) for every KwH over a minimum threshold, set initially at 18,000,000 (eighteen million) KwH produced during the pre~icus contract year an~ measure~ at the ~lrst meter Deyon~ the generator. c) The above payments will be adjusted according to the adjustment provisions of the Agreement between General Electric, the City of Aspen and Pitkin County dated December 15, 1984. 2. Transmission Costs Transmission costs will be charged on a monthly basis accord- ing to a rate of 8 mills ($.008) per kilowatt-hour delivered to the City of Aspen or such other rate as may be determined by the City of Aspen, Pitkin County, Colorado-Ute Electric Association- and Holy Cross'Electric Association. 3. Federal Use Charges From the Federal Energy Regulatory Commission Order ~379, issued May 24, 1984: "Annual charges for the use of Government Dams or other structures owned by the United States are 1 mill per kilowatt-hour for the first 40 gigawatt-hours of energy a project produces, 1-1/2 mills per kilowatt-hour for over 40 up to and inc]udin~ 80 gi~!awatt- hours, and 2 mills ~er kilowatt-hour for any energy the project produces over 80 gigawatt- hours." 1 Sample Calculation I. DETERMINATION OF POWER PRODUCTION COST (All figures in thousands of dollars) DEDI- DEBT NEW CATED YEAR SRVCE INS F~ ~ O & M TRNSMSN 1986 405 $8 $8 $2 $101 162 $20 FERC TOTAL USE CHGE MISC. rOST N/A $706,303 TOTAL PRODUC£ION COST (estimated) / ~QTAL KwH DELIVERED = cost per KWH (estimated) $706,303 / 18,726.353 = 0377 II. DETERMINATION OF ASPEN PURCHASE PRICE AND REVENUE COST PER KwH + 20% MARKUP $.0377 + .0075 PURCHASE PRICE/KwH x KwH Delivered = TOTAL REVENUE $.0453 x 18,726,353 = $847,562 TOTAL REVENUE - TOTAL COSTS = $818,303 - $706,303 = Total Net Revenues $142,000 III. (Assume all of S200,000 Revenues) TOTAL NET REVENUES TO CITY ($103,350 x 30%) TO COUNTY ($103,350 x 30%) TO ~PA ($103,350 x 20%) TO CITY-COUNTY WATER TRUST FUND ($103,350 x 20%) BALANCE DISTRIBUTION OF SURPLUS REVENUE Reserve Account funded from 1985 $142,000 $ 42 600 $ 42-600 $ 28.400 0 surplus 2