ML20093D644

Forwards Part 1 of Draft Study Rept Re Future Const Schedule.Rept Recommends No Funds Be Included in FY86 & 87 Budgets But Preservation Costs Should Be Included.Related Correspondence

ML20093D644
Person / Time
Site:	Satsop
Issue date:	10/09/1984
From:	Reynolds N BISHOP, COOK, PURCELL & REYNOLDS, WASHINGTON PUBLIC POWER SUPPLY SYSTEM
To:	Foster R, Margulies M, Shon F Atomic Safety and Licensing Board Panel
References
CON-#484-401 OL, NUDOCS 8410110327
Download: ML20093D644 (20)

Text

RELATED CCRREsponggygg V .~~

m-law OFFICES OF ,

BIS H OP, lib ER M AN. COO K, PU RC ELL & R EYNOLDS '

620 0 S EVE N T E E N T H STR E ET, N.W.

'M

. g h ed A vond WAS H I NGTON, D.C.2OO 3 6 g 'P. 6 C AM AN & COCM (202)857-9800 EN Q F THE AMEnscas DC dE W vQRM 10036 TELEX 440574 INTLAW IJi f. 2. 704 Ot00

? .ex 2 aver

/

lh R' ten *s oiREcr o:At (202)

October 9, 1984 Morton Margulies, Esq. Adm. Judge Frederick J. Shon Chairman, Atomic Safety and Atomic Safety and Licensing Licensing Board Board U. S. Nuclear Regulatory U. S. Nuclear Regulatory Commission Commission Washington, D. C. 20555 Washington, D. C. 20555 Adm. Judge Richard F. Foster Atomic Safety and Licensing Board U. S. Nuclear Regulatory Commission Washington, D. C. 20555 Re: Washington Public Power Supply System (WPPSS Nuclear Project No. 3)

Docket No. 50-508-OL Gentlemen:

Enclosed is Part 1 of a draft study report prepared by the Staff of the Bonneville Power Administration regarding the future construction schedule of WNP-3. The draft study report tentatively recommends that no funds for the construction of WNP-3 be included in BPA's budgets for fiscal years 1986 and 1987 or in its rate case for the period extending from' July 1, 1985 to September 30, 1987. The draft study report also recommends that preservation costs for WNP-3 be included in FY-1986 and 1987 budgets and in BPA rates to preserve these assets as viable options. It explicitly rejects terminating the project.

Part 2 of the draft study report includes an explanation of the raw data used in its preparation. If it is of interest to the Board, we will supply a copy of it.

8410110327 841009 PDR ADOCK 0500050r G PDt 3503

-o.

!f ,

The draft study report will be subject to additional public meetings and comments and a final report.is expected to be issued in'early November.

We are providing copies of this material to the Board mindful. of our obligation to apprise' the Boar of matters which

' bear on issues'before it.

/

I Sincer lyg Nichol S$ Reynolds

,* Counse. Applicant Enclosure v'.fok) L cc: Service List '

4

Bornmus Power Adrmrustrabon

.U.S.Depersmentof Energy M DME -

SEP 2 41984 UNITED STATES GOVERNMENT in roosv

- - = Memorandur1 TO Administrator - A N

• James CLartis, Deputy Financial Manager - D Gary Fuqua, Director, Division of Power Resp a ng I

$mCT. WNP 1 and 3 Drif t Study Report in May of this year, you asked us to develop a study and a public inolvement process which would assist you in determining which cost and schedule assumptions for WNP 1 and 3 to include .in BPA's Fiscal Year 1986 and 1937 budgets and in our 1985 rate case. Please find attached the Draft Study Report which is the result of the study and public isolvement effort to date.

'Ihe Draft Study Report will be the subject of additional public meetings and consents from this date to October 19, 1984. We will then assess the public coassents received, assess any changes in circumstances which have arisen, refine our analysis, and deliver a final report in early November.

Attachment Joartis:1Jc: 9-21-84 (WP-D-0219J) ce:

Official File - D l

l l

l

- -- -. -. ..-._. m : m m m mm nu

Bonneville Fowse Administention Department of Energy

.s .

s RFA REVIEW OF WASHINGTON PUBLIC 70WER SUFFLY SYSTERI PROJECTS 1 Allo 3 (WWF 1 AllD 3)

CONSTRUCTION SCHEDULE AND FINANCING ASSUllFTIONS DEAFT STUDY REP 0ff FART 1 i

l-

'.__ .C.*d 6 P ?I PG/?2/60 CN011d0d UdE Od3 Woit:!

L _ ._ ~. . _ . ,

.. l l

DRAFT STUDT REPORT PART 1 table of Contents 884%IO9  !!11

1. Introductica 1 2

11. Pubbic Involvement Procaes Study Environment 2 III.

A. New Lead Forecast 3 1

5.- Surplus Nacketing 3 Bow tasoneee Supply and Uncertainty 3 C.

Overview of SPA's Analysis Process 4 IV.

Rationale foe- *Selecting Scenarios e A. -. - .,. . . . . .

Study Questions 4 B.

Deelsionmaking Peocega $

V.

~ .

VI. Testative Conclusions Resosece Analysis Conclusions e A.

Rates Analysis conclusions 9 5.

Fintacial Analysis Conclusions 9 C.

10 D. Eisk Manasement conclusions

5. Consistency with Previous BPA Reports 11 12 VII, Tentative Recommendations 13

. V111. Future Efforts Tables Net senefits of completing WWF 1 and 3 S Table VI-1 i

~ .

PREFACE This Draft Study Esport is divided into two parts. Part 1 contains a susulary of the study background, tentative conclusions and recommandations, and & discussion of future assessment of inrF 1 and 3. Part 2 contains as caplanation of the reseurca., rates, and financial analyses performed, related material, and a bibliography of sonecas used in the study. SPA will also have IL ited copies of an Appendiz containing information from other sources that SPA drew upon and detailed study information that would have made the sala Draft study Report unduly loss. All parts of the study are available from the BFA headquarters' Public Involvement office.

. . . . - . . -c . . . , . . . .

..: . . . ,. . . . . . , . .s. .

i

v. i. <. 2 , r .. w . .. . r .. . ,..,.s.,.3.._...e,...v.....,.,

s*

it

. . a. . . : . .. t: .

l l

t f

• * . * , A ..

. . . . , , s. . . ..s,. - . .. . s* . ,o

• m..e... .. ,;p 4 _ ,. --. # .,.9.. . -

i 3

l SECT 10N 1. INTRODUCTION In 1982 and.1943, the Sonneville Power Administration (ByA) peeformed i analyses rosardins construction scheduisa, costs, and financias availability ior Washington public power Supply System (Supply System) Projects 1 and 3 (Wp 1 and 3) ., These analyses led to spa's recommendation to the supply 1

System that completion of the two' pro'jects be dslayed for periods of up to five years and three years, respectively. These sations reconstsed then '

autreat straunstances ressedias the meed for power, the ability to finance continuation, and the legal and lastituttossi environment surrounding these resources. Deferral allowed EFA to reduce the site of its 1932 and 1983 rate inarsases compared to what would have been required had Wp 1 and 3 act been deferred.

sarlier this year, SPA began a review of WP 1 and 3. Current assumptions include restart of WP 3 in July 1985 and restart of Wp 1 in July 1984, and the raisin f con cuc i a funds t $sNMni ipa 3"MYsdelNSL[.iifiTadE' I factors in deterstnins what" assnaptions are now appropriate include current Supply system financing opportunit.ies, new estimates for WP 1 and 3 .

l

' completion ecsts and schedules,. spa's 1984 load forecast, and. estimates of the. ,

cost sad evallability of alternative resources.

The primary purpose of spa's study is to evaluate the constraints and '

riska of various assumptions la ceder to determine what assumptions should be l

used in the final rate proposal for the rate period extending f rou l

l July 1, 1985 throusu septembee 30, 1987, study results will also be used in 986 ar.1 1987. The results of this v..--

• r pr_eger..i..n.s.,SFA b,udgets for fi.,, scal

,,, 4 years 1 ,,

study will be useful in plannias N e meet in,,g thoa&thoskti'f.he~'a'equisition*"

.s.. u3 ,..,,..g,,, ~

of conservation and other resources in fiscal years 1986 sad 1987.

Because of its narrow scope--near-ters rates and budsets--spa's study will not serve as a 4efinitive cost-effectiveness analysis of Wp 1 and 3. The current stody will, however, provide insight into appropriate near-term assumptions resseding those projects.

.- y a;, . . . . . ,, ,.. . . .. , , . ,...,,.,,,,,,,

. e

e. u, c. .. . . r . .. ,. . . . , , . , _ ,. , g, ,. d4 ** @ W M M M a*N O W h W M p W Q q

_-..._----...--.-.-...--..--.-n.__.,._-

v SECTION II. PUBLIC INVOLVENENT pBOCESS To help la the review of % Alp 1 and 3, EPA developed a public involvensat prostem:

- to provide RFA with outside technical review of its study plan;

- to receive suggestions about the study's methodology and results;  ;

- to answer *guestloss and respond to concerns about the study as well I as suelear eseesy issues la general; and

- to begin weeking toward sossensus la the region on the best Wp 1 and 3 assumptions.  !

Is the first step of the program, completed in June, townhall meetings and teshaical workshops were held in sis Nort' avest cities to receive comuments on the Draft Study Plan issued June 6. Those cosusents, togethee with written and t:1ephoned responses, weee evaluated and resulted in changes that appeared la the Revised Study Flam issued August 3.

Taking into cocaideration further comment on this revised plan, received

w..e q.a.,t s s.a.~Am...gus., .. t. 8,u ..nc te..c.hnic.

. . . ...al.,.me. .pA

, ,, S.e.,

.modif

,, ti.n..g

, ,. 9,,.s led. ....a..g..

, f :,

or added to .,i.ts an.,alyses

. ; ,m . . . .. ,, , where feasible. La early september, spa held a second technical meeting to'brief those interested in preliminary results of the analyses and to listen to comments. ,. . ,

The public is now invited 'and requested' to comment otr this Deaf k Study -

~

Report, public. comment will be used la developing the final study report and in determining what assumptions are the most appropriate for near-term budgets cad the final 1985 rate proposal.

SECTION III. 37UUY* ENVIRONMENT

' erse +n.m. .c p v. .:.y.w>;. ..j) sg. ,;a s. .g u. ...m .,s ,.. m .y. u .. ,,,., ,.r_ ...

9 ,.p.,..w:e.v,.,.,,.:. ev . ,:a .a.y;.. e .. .

~

A number of important changes have occurred since the original decisions to delay constraction of w p 1 and 3. To a large extent, this study is a i response to those changes. Briefly, the major changes are as follows:

n,.:...- ..

.s... r . . , .. , . . ~ .u . : . . . .

..e........,

..2..,...... .

2

Y ?Y-  ? $ h5$h'h$il$Yb$$$$$$'

A. New Lead Forecast Ia .Tuly, 5FA issued the sonneville Powee Administration Foreemats of 31eetricity Cons---.lon In the Pacifie northwest (long-term load forecast).

Compared to RFA's 1983 Long-term (20-yese) load forecast, the new medium forecast is 1,03s average W (aogawatts) lower by year 2002, the high forecast

' is 63 aveenge W hishee, and the low forecast is 2,194 average W lower. More on the load forecasts can be found la sections 1 and 11 of this report.

! L secolus unekstian RFA has act assumed complottom of either WNF 1 or 3 solely for the purpose of espoet sales of fies surplus powee. Nonetheless, the market for this powse l

outside the region affects the need for and value of the output of the projects. nach effort has recently gone into selling surplus power on a firm As yet, so agreensats for basis at estes more favorable to the Northwest.

large firm surplus sales have been reached, but efforts continue and success

.o st:N. r . .,eesid agko,3..easA.}er. .ec.e.ple. - . . . : etion c. - of .W.... P..1.,,.and 3 o.r other

,........g..,,.,. .

eisources

.. ;s,;, , , , , , , , more attraetive.

Resent changes in the surplus sacketing' environment include EPA's new

- Near-Term Intertis Access policy and the incireased likt .thcod of asjor ,

expansions in the intertie espacity between.the Pacific Northwest.and California. Both those developments tend to tapeeve revenues from expoet sales. For instance, RFA's Near-Term Intertie Access policy will brias New greater certainty to latertie availability for SPA and other parties.

i these abanges in the surplus marketing situation were addressed in the study

, is described in Section 1.

p.r .A, pyG.a ry m ,,,,,, 97,, ,.9 g.,.,g.;,y,p, j,,,,.,g ,g. ,,,,g,, ,,,(,6'nTe,NWat,t . ,.

c. New tesource sucolv an If conservation and other resources can respond to load growth more aheaply than' completing WP 1 and 3, then further delay or even termination l

- t 4 .

' say be the best assumption to' make.' The schedules for WNP 1 and 3 j

consequently are affected by the considerable uncertainty that exists'about the quantity and cost of alternative resources. SPA and others have continued f..,..>,.,

r- ... ., ,.. . . . . .,,,,,..,.,,;,,,.,

3 1

'

• g

! ga  %, *D 9)

• Ip

--___'4

~

k* q

e kheir cfforts to impe:va cetimatcs cf olternativa rest:rao srpply. Teettigres for addreccits the u cetainty la resource orpply h:va also improved somewhat. This study incorpoentes new supply estimates and new techniques for cvaluatins resourse uncertainty. noce on these subjects can be found in Section 1.

\

i SECTION IV. OVEETIEW OF SPA's ANALYSIS PROCESS A. Rationale for Selectina Sasaarios Due to the complosity and time constralats of this analysis, BPA limited detailed resonece, cate, and financial analyses to three WEP 1 and 3 scenarios: (1) current assumptions for each project; (2) an additional 2-year delay for each project; and (3) termination of each project. SPA selected these scenarios to best encompass the esage of possible alternatives for Wut 1 and 3 schedules sod costs as they reist.e to EPA's next rate period and fiscal years 1986 and 1987 budsets. similarly, EPA chose three assumptions that it n,. e .belipv.es g. lect .t.he,r. a.n. ge. ,o(, po, s..a,in. i.e -, al..t.e..#. r..nati..v,.e,.s fun ding proj ect,.. .

,3 . y .f.or.,y ,4,.,m,,,.,

.7, , . , ,,, , '% , "

c sks. Ihanicipal bond financing, short- term bank financing, and SPA revenue financing were used to perform rates and' financial analyses on appropriate scenarios. . .. .. .

'. Td peovide further information for evaluating WP 1 and 3, SPA analyzed .

l cther assumptions in less detail, including: (1) sa additional $~ year delay ice both peojects; (2) termination of WP 1 and completion of WP 3 on its crerent schedules (3) termination of WP 3 and completion of WP 1; and l (4) completion of WP 3 on its current schedule and subsequent completion of WP 1 on an additional 5-year delay schedule- (tandes construction). Agala,

.,,,,,A. . phys..ed. s . a.l.~ternative...,f.in..a.nc.;.ing y. a.ss.umpt.,io,ns

. ,% , . g , (,, .f,;o,r, ,purposes of.,,cates,,j.and financial.

I e .

. w.wr , .. w.g ,; .

cualyses of certain of these alternative construction scheidsle,s,.,,

B. Study Questions

.The next step la the study was to answer'five basic sets of questionst

l. '

i

1. Are WP 1 and 3 needed on the schedule defined in each scenselot l

Could other resources be substituted at lower cost? What combinacion of i . .. > .. co . . . . . . .... . ...

. . . . m t,.. ,.., . . . . ..: , , g . .. , . , ..,.,

i 4

l l '

l l

. M dv N 4.. % ,. v .w h . q w a 4 /. e . w r.6,y ,4 4 ,,,,3,,$,j, g g ,( g ,f,,Q ,,,,,,3, g g g ,;,.p y y ,, g ,,y, ,,,;,,

i

4 Wup 1 cad 3 ctd o.h r race:esce as ts tha ernso cf fztres sitections ct least cost? How do uncertainties about loads, project costs, alternative ,

resources, and other factors affect the desirability of each scenariot This set of questions was addressed in the resource analysis segment of the study which can be found in Part 2 of this document. The results of the resource analysis are pee,sented in sections I and II. ,

2, what changes would each scenario imply foe EPA's 1986/87 badget levels foe acquisition and development of other resources, as expressed in SPA's April- 26, 1984, draft Resource strateart This question is addressed in section II of v.he report. The analyses performed in this study are being incorporated in SPA's update of the Resource steatear.

3. How would each scenario affect rates, and how would changes in rates 1 affect loadst Theae questions are addressed in sections XII and XIII of I this report. 1

4. Is the finanelng for Wup 1 and 3 likely to be available as assened in each scenariot What is the financial tapact of the scenario on EPA, and on the four investoe-owned utility co-owners of WWF 3t These questions

~

. e< r i, <. o.4 A.E ator addressed.v1.n .ac.tLon .XIV,;.of. the. ggpg.t ,ta. , ,.,.9.,,,, ,

5.. rinally, wha are the effects of each scenario on local communities .

and on the regnot's economyt on oil and natural gas depletion? .On nutlear hisard's te healthf What'saior cost events could SPA be facing?

These'questici$s'are addi*essed in section TV of tihe report.

In Section VI of the repoet, the cor.clusions of all analyses are drawn together into a susunary of results for the study. In Section VII, BPA tentatively recommends what appear to it to be the best assumptions regarding WNP 1 and WMP 3 for SP!. budgets and July 1985-september 1987 rates

, assumptions, based oa the study results and on public comment received to W W.We date.9sseA$en,.K13.,j.,aMr.s.,,%,.f,qturg,,,g(fy.. .

-:e .

.tsmwhich

- + + wmay ac.c.be.

. g ..necessary

. w o w . , wto

.. g,. 9 m..g, p .

furthee elaeify the

• ole of WNP 1 and 3 in meeting regional energy needs.

. 3ECTION V. DECI.SIONNAKING PROCESS BPA espects to announes its WNP 1 and 3 assumptions in November 1984.

c. l.c .....;Those assuey tt ..ons will be,9. sed.in the, budget process and incorpoested into the

. .. .. .<,..,,,c,..,..,.,~..,,..

. , , . ,,,..;,,,,.,,,y,,,,,,-

rate case. ,

+ . .

5

~

i hMM Wii%3!*Nec .. sc. ..$ .,.; r ,.;,r . D.l? d.P '-99.:@! ., PS/*2/ 6'0 . c . . GNW.1.f.30d-ME .' O,d 3. M.0p

37A's dottratantica of acsumptions will Ices 0ly d: pend on th3 followits:

the draft study resulta, which are intended to embody the best quantitative and qualitative information available; ecaments and reconeendations of BPA's customara, tha'50pply System, the Iou ao-owners of WNP 3, the Northwest Power Planning Council  !

(Besional Council), and other interested parties as received in l response to the draft studys and l

- any additional analysis performed in response to comments received in l

October, l

3FA's final determination must altiastely be en informed and open judgment, based upon the facts and advice received, as to which set of assumptions best asets SPA's responsibility to assure an adequate, economical, l reliable, effielent, and environmentally acceptable electric power supply in l the Pacifte Northwest.' \

The final study may show a need to propose some new action with regard to WWF 1 and 3. If that need arises, SPA is committed and required by law to comply with the National Environmental Policy Act (NEPA). The compliance process ma

• a,.m e. n vsm ,;y. .result . in an e.~..'...

Environmental w.'..e~ Impactm:N?w.s statement

+ ->v -W.(EIs) ~ H. .

or other w": i.'. :'&  ? :~

• M' environmental'4 uuo The public will be kept informed of any proposal, document. of subsequent' actions, and any public involvement' program. '

SECTION VI. TENTATIVE CONCLUSIONS In this study, the choice of WNP 1 and 3 assumptions and resource strategy was evaluated from a numbee of standpoints: financial, economic and others.

The results of the study are prasented in detail in Part 2 of the report, and in the supporting appendices. In this section, the baste draft conclusions of.

1seg.f u., w .wf.6 % .*.a

'cach sessent of. v.wthe4 study 4 M wsee ..WA<?.cou summarlse'd. w + e e 45 ~ % .:+ h ..* C :We :P oc.+ 4 W

• W t M *:-

, The following section of the report presents EPA's tentative,recossendations. . -

• 1

. A. Besource Analysis conclusions ,

l' . Current Schedule veesus Delev The resource analysis indicated that a need to complete WNP 1 and 3 on

i

~

theit;centrent wepedaled:/.L's"veirf anilket' ty td'est'epia,litie. 'l tve'n ' kith Ikish 'id'a'd ' - -

6

, . , . l3 . y ,,1 . ,. ...n..,.. .:.

. . / ; g. ! d '- l- #

.. -_ - -.-_ - - . .- - -- .' -_ '9 EW t ". P 8/F B7 6 0 . - ..-..-.- _- -UN@lJ.EOcP UT:lE" Od - - - - .

__ ~ - - - _ _. . - - . _ _ _ . ---

growth, th co is a high degree cf ac2fidosso that 1ccds een be est if the projects are delayed. Delay is also highly likely to prove the least-cost alternative on a not present value basis, when all the factors inflaeacias costs of meetins load are considered. The benefit of a 2-year delay compared to current schedule has a not present value of roughly $200- to $400-million.

Delay also offers the opportunity to learn more about future loads and othee key variables before nating a large terevocable cosmitment. This advantage of delay is only partially reflected in the not present value estimates because 1

it was not praettaal to model the process of saining more. knowledge of variables other than loads.

2. 2-Year versus 5-Year Delav It is likely that a delay of 5 years could be handled without creating difficulty in meeting loads on a regionsi basis. Uncertainty about the shelf life of the project and the impact of estended delay on the cost of completion aske the economic choice between 2- and 5-year delay difficult. If the supply I! System's estimates of costs to complete with 5-year delay are used directly,

Me.v. -4...v .thed ...Seyeae . delay.,,has i ne $400 .ta..$690,,st11)pa, neQe, seat yalue . advastag , ovee 2-year delay. If 1. arse additional cost incesases due to delay are assened,

/

[ this' advantase,is olistaated. settee information on the impact of'5-year

~

~ - cJIay oe project eosts.'is .needed -before- a clear. cons.lusion aan be drawn,.

)

3. Delav Versus Termination It is not possible to predict the not benefit of completing W p 1 and 3 precisely, because of uncertainties about load growth; the supply of alternative resources; and W p 1 and 3 costs, capacity factors, and project lives. Table VI-1 shows a not benefit for completing the projects of .

a In other JA. ,G.-y .,..- ..l.82..7,.41)4&op,.j,m,s).ag,,3y*..s,bestq.estina.tes

. - , . s- . . . . ..w .. w , ; . :. , 3.,;s,, of .,y,ll g ,gthe.;. .var.iables

. . .g g,, .; g ..,,,; . , ,,. ,, , , '

e-eye escoed'their

words, the benefits of completing the projects won costs by'82.7 billion. But this' estimate do.es not account for uncertainty.'.

Met benefits were siso estimated for a very wide range of combinations of the key uncertain vari'bles.a Table.VI-1 shows the resulting estimates of.the

- hish, low, and averase (espected) not benefits of completion, within an 80 percent confidence interval. The cange of possible not benefits is very '

. .....,j.,... wide..,The.ev.erage,of.the

,..o... .

~

estimates Ls positive, but well below

,...s,,....r..., *- . : 4 . . . G . ; ;.. . * . /. . ..

. ,, , . . the

, , . , ". .base case" . estimate. .

,y , .

~

4 . . .g.

l . 3 :e..t.4. . .;,'. .- ,g .,,,. ,7.. ,.. , ;2 I ,*,d., ..dp P. I., P.9(P.2,/S$, , . ,ghtn1Mo d yd#, . 0d,3 ,WO M4 , ,

Tcb13 VI.1 Net Benefit of Completlas Wut 1 and 3 4-year delay asase case" not honefits, no allowance for uncertainty + $2.7 Blllion sange of not benefit estimates, l a:ndee uncertainty Study Group High Averate Qw test, assumptions + $5.500 million + $ 57 million - 46,000 Million Alternative assumptions e $5.500 Million + $1,162 Million - $5,000 Million seessee of the hink degree of uncertainty, restart on current schedule is czeessively risky, because the region could sustain large (up to $5 46 biliton) losses if the projects later proved non. cost-effective. Termination now would also be excessively risky, because it could force the regiot. to pay for much more expensive replacement resources ($5.5 billion to as must as $10 billica

. *** % %inWWPi And '3 teostaG* De14y svoidstheseY1erge.'elaltir, and has..themic,: . .g. ,n ,

- .. . highest expected. net benefits.. Howevee, the substantial r chance that it may peove economic not 'to complete the projects af ter the delay period sussests th'at careful ^ attention- tie paid to Ithe wasnitude 'of the preservation costs . . .- - -

during the delay period.

4. Resource stratear Alternatives one possibility tested La this study was whether an assressive senservation and alternative genecating resourcs strategy, combined with WWF 1 cad 3 tareination, would be most economic. This was not found to be true.

• P. Su;*< The'researie amelyd(a",eeentta';.iuesseskE(;"4be't.1f,.. Wpf ,1,. asdy ,%,wggs,'te,suftated,9y,,, .,,,; ,,.;,,,n .

then an aggressive. resource strategy could be the most.econcele resource mix.

'But the results s' iso indicate thist an ag'gre'esive resource strat'ogy c'ombined with termination is not as economically attractive as delay of WNP 1 and 3 combined with more modest. resource strategies. The resource'andlysis also.,

lent little support to the low resource strategy. . Overall, the resource .

analysis indicated that the development of moderate amounts of conservation l....,.. . , . 6 . . . ,,., : . 7.. ,

.' g . , ,.. ., .

..e. +. a.n,.~..

,..,

. ,,.u. p.u.. .. u.+.;,eeys0.,. . amag4ya yap .

=

F Additicaal analysis is and other eccourats was cype:peisko in tha soce-teca.

belas performed in conjunction with revisions to SPA's Rescuece Stratomy which easht to yield information sa which of several program levels may prove most

- appropeiste.

3. Estes Ansiveis conclusions From strictly a este impact perspective and based on the sceneetos esamtaed, a delay in both plants of two years or more would provide the most Financing the favorable este impacts for the region's electricity consuases.

sonstemation of WWF 1 and '3 on thale enerent schedules fece BPA revenues, while producing lower lens-keem wholesale and retail rates, would result la seas-term estes that see as.auch as 25 percent hisher for BPA's Priority Fien este and almost 15 percent highee for residential rates.

Termination of both plants results in significant rate benefits in the near-tors, but can result in significant1y highee less-term estes due t.o The uncertalaty ineressed levels of conservation and resource acquisitions.

l t m cate lapsets

6.'ta M - 't. ? 4aherentuis,-load forec.ast.a.,,and.)(he .,gogen4,)al, f.or .,se,verg ,

. . . ,ong-

,. . .e err ...., m...,. .,,,u.,,.. ,.,

if,high regional load scowth is esperienced aesues against an irrevocable deelsios such as termination.

~

tho'.2-year delay se:enario produces.aoderate este be.nefits la the near-teen -

and essentia'l.ly'the same l'ong teen tiatsbispasts as completing a9nstguetion on.

the current schedule with conventional financing, 1

C. Financial Analysis Conclusions The conclusions of BPA's flaanetal saalysis are consistent with and rs l This analysis i.s,..in M. .g,/..:4. 'j.effestd

.l.a. is.em.ed,b.y , t..he.e, esso.u.g ,,e e. c,o..n. ,om.i..c a.n,d.,es.te. ,.ana yses .. .

cy, . , ,

, , ,; . ,. p , , , , , , , .

.a RFA financial poespective of the same fundamental" data'whidith,e

, . 3 q ,,. , g,, , g ,

U, ,' ' , "

'an'alysed'La the resource analysis and estes.secti~ns o of.this report.

8FA does not believe that conventional bond financing can eensonably be erpacted to be available'to' fund.constructica of WNF 3 la July 1985.. What any ^

be possible in July 1986 La uncertain. The eate analysis'shows.that t .

t I Feeference customer rates could be 25 percent higher in the late 1980s if SPA

, .. ., o a :. . .s .: . . : .. s. .. .n > .m.r.,,. . . . . . .; :

.*.s:.;

. ,... ...n.....i. :y.,. ... . ;.

9

c. .. ,

~

. </.. .N ..; .T .

. p . i .y, f . . .r ,.. ,..,

. .f,. , , ... . g,t' *t ^ SG.iF1/.P.8 /F2/ 6 0 ' -

. ;GNtf"1.1.dC.d ' tid S . O d 3...W0M rL .

4 wee 3 to citempt to fund c C truction from r;v0cccs. 30th Ccv;ro c:ta shoeks

, do not appear necesscry ce prud:ct, ccpecially in light cf th3 enlikoly need for the projects on current schedules.

The review of BPA financial flexibility and debt structure under current cceseptions, delay sad termination scenarios demonstrates that delay of the projects increases our flexibility to respond to financial demands while not t

toduly incurring risk of high future expenditures to acquire replacement  ;

resources. In contrast, current schedules for WNP 1 and 3 construction, whether financed from revenues or bonde, results in large inflexible capital commitments that may prove unnecessary. Termination, on the opposite estreme, i

reduces near-tera expenditures for resources but does expose EPA to expensive resource prostans if high load growth occurs. Therefore, a prudent middle course appears to be a delay of WNP 1 and 3 related capital comattaants while offsets to reduce current uncertainties proceed.

The sesoral review of the financial posture of the WP 3 lavestor-owned tillity ownera concluded that, while some of the utilities might prefer to make immediate and major capital decisions, some any find either course financially difficult. Therefore, a delay in construction expenditures and

• W "vaiidanek C 'ot :e ta'ese5. write-ett 'eenld give .these.4 tilities. edditionalutAus..to .. . gj .y . . .. . .

strengthen.their.tinsacisi posture. , , , , ,

~ -

D. Rist Manaminent conclustons .

.The choice of WNP assumptions and resource strategy must be guided not caly by most-likely estimates and expected values, but also by consideration

( cf-the whole range of possible outcomes of each scenario, including the cztreams. From this risk management perspective, delay of WNP 1 and 3 appears most advantageous. Delay reduces the risk of starting construction and later

:'.r.fladingPtheth/prejock.a . ares;aaeseeca(e.sj.Jtudy,,.r,4s.ul$,s. Ausgeshl hka$;dalaf..,,h,,, .g. ;,.;,...g, reduces the' chance of' incurring a negative not pres.ent value.of.3.5 billion or.

morefromabout30percenttoabdut10' percent. Delay also preserves the i,

Cption of esalizins very large not benefits from completion, ranging to over

l. 85.5'. billion.. Termination .would eliminste the apporttinity to reall'as these ' -

benefits.

l I

. . O..,. . ...i ,...,.;,.. .... ..,..., . . . . *. ,

, . ; . ,, . .l , .. . .. r . , .. . . .; . f .c, , , , ,, , , , , ....

0 .

l -

. ,10 . . . .

QNWlid0d edE Od3 WOdd

.. . . .:. . . ,;. w. a,. .. .. ..p i .*. d. ,,. 10  : 51

. . . P.79 / ,.F ..2./;. 6 0, ,...a,..,.,.,,..,..,,.,,,

'*;j.i.:.i:.n...t.p....:.h 3 .. .

5. . . . ,

Tha de21sion to dolay can be compnecd to a dooisica to pay es insucceso promina. In tho er.ro cf WP 1 cad 3, ths issuer.nSe premium is the I

preservation costs, which could range from $24 t.o $80 million per year foe two projects. The potential payoff is over a $5.5 billica not benefit if the

• Paying the insurance projects turn out to'be needed and are completed, promina likewise reduces the elsk of taking a isese economic loss on a decision to stay with the current schedule.

The insurance analogy is not perfect. The insursace premium coald be higher of lower, depending upon actual preservation costs and the positive ce negative effects of furthee delay on completion costs. The payoff is also uncertain, dependis.4 on SPA's ability to corre'tly interpeek the signs in the future that dictate project completion, and the ability to being the project

~

on line within budget.

Howevee, if even a moderate ability to learn from future esperiences and set accordingly is granted, then delayins and malataining the option to complete the projecta appears to be the best assumption. Delay minimizes the large eist of resuming construction now and 1stit finding that the decision

- was wrong. 1.ikewise, delay reduces the equal'y-severe risk of large cost a

y.,terai- tted project. In today'.s.

s

i. st.ed...< 4%cpa,ses,to, ,py, f.ce.,.cey.l,a, cement..r.

.n  ;.. u .y f,or, ~'W','

3 ., . ,,, ..,

as, 3., ,.g,, ,,,,,

as gpossi

,y ,,b$ .fd a , ,oc n ~

situation, neither " setting the projects bull soon "settias them behind us" appeat to be as pendant as' delay.

i. . . .. . ..... .

• - te ' Consistency with.Peevie s SPA Reports .

1. Channes in Osts and Asseastions-EPA's last analysis of Wp 1 and 3 appeared in the WP-3 Resource Changes Economics and construct. ion Schedule Update. datad cetober 26, 1983.

in basic data and assumptions since that report was issued include!

-:Af.w':bpeor. my:w A new . . , . . l.yong-tera loa.d forecast, in =1Leh the high forecast is highee.

model cor.servation bunding .standart t are now assumed to,be in.off oct..

- Increases in supply Systes O&M and otner costs estimates, and a one

• percent increase in the assumed cost.of financing, lesding to an increase of approximatelf 4 mills /kWh in the levelized cost of the J

= . .

J projects.

J

'. . ;, e'i .. , ,; j , ;.. ,. . , . : . . , .

11-

. ..,e., . .

GI'd .CO Gi :'8 / t. 2/ 60 QNO"1J.h0d ode Od3 WOdd L. .

• 4 ,

-M,s .x .

,.;.:. . % .g. .

• 9 . . . . . . ..:.. ;. . .. u . ..w . ,_,.x,,,.,, ,.,. ,

. ~ ~ - - - ~. ?1

'*.~#

. " .*.% . . 1~.:o

, . ' . _d .. .+, :, .., _- ei , .i . . n

- =~ ~ ~ m-_- .-mn _._, n , n... .,..,,[__ _ J _3, -

, /

- A 40-ycce lifo is tow casamed ice both projects, consistent eith tho design life and the Wucleae Regulatory Commission (Nac) operating license for WNP 2. A 35-year life had been assumed previously.

- Essource supply estimates and computer models have changed somewhat, but these changes had minor effects on the base case estimates of benefits of completing the projects.

2. Channes in conclusions

. Under base case conditions, the october 1983 repoet showed a $2684 militen not benefit in 1983 dollars for completion of both projects on thete current schedules. This report shows a not benefit of $2023 million in 1984 dollars, 01so for current schedule undee base case conditions. Hence, both reports show the projects ta be cost-effective under base case conditions. However, the current report also shows a $200-$400 million additional not benefit for a fcether delay of the peojects.

This report also addresses the not benefit of completion over the whole range of possible combinations of future load growth, alternative resource supply, project cost, ar,d project performance. The averate, or expected

1. .Js1.w.s'..m.m.W.'it= emt.U.*n.:..Ps=9P.'=.*n.=, a= dimer **.=.. s m.s 4....

on probability assumptions, but is less c.han the base case not benefit. This type.of analysis was not ineluded in...the october 3.983 repoet.

6 .. . . . , . . . . , r. .

.- . . . , , g . , . ,. .

SECTIoM V11. TENTATIVE REC 0tetRNDATIONS Based on the Draft Study Report conclusions, SPA askes the following tentative recommendations to be tested in the public review process.

1. BPA should include no funds for construction for WNP 1 sad 3 in its M*$.'i.**tissal.

years ci.*1986.

• N i and.1987 budgets og in its*<cea..-

  rate ease for. the. period .

Cf.4.w v.)w.'rW y.Wr *. .,wn.o.< .~-

extending from July 1,, 1985' to September 30, 198 7.. ysew e.93p cr..r,t,;.Mg.,,. .g.v .fy... s

~

'J 2. ' preservation costs.for both 'peojects'as currently estimated by.the *

- t

• supply system should be included in fiscal years 1986 and 1987 budsets and in'BPA rates to preserve these a', s sets as viabisk options..~&n adjustment

. . . .. . .e . . . .

clause should be included in SPA's rate design in order to adjust to new s.,: .... ~ ......

. . . . , . , . . , . . . . . , , .. . w . . . . , . . ..

. . . . , . ,. . . . . c . , ,. g.

12 w

- m_

. e u m _. n. n . ._m_.m. m . . ,.. a O C

_...g

m . y e;.ta g ,...

a g;u g .9 a;. y 5.4o w

.m..,..

_.. .2

. n. m .~ 7

e:timat0s c.c pecservatico cgsts cro c viewed, eci end dad cyproved i through the supply system budgeting process. This would allow rates to be adjusted as the most efficient preservation plan is perfected.

3. SPA should work with the Supply System, the othee WP 3 owners, the - ,

worthwest Power Plannias Council, and other appropriate parties in definingaskperfectingpreservationFlaasandrestartassumptions.

-4. OPA should perfora periodic eeviews of WP 1 and 3 peospects on a schedule consistent with BPA resource planning and budget,ing in order to l assure schedalias of these resources consistent with regional resource l requirements. ,

\

SBCTION VIII. PUTURE EFFORTS The BPA. Etaf t Study Report demonstrates that, while WP 1 and 3 can be espected to provide future regional power benefits, those benefits are . subject to uncerbalaties. These include questions regarding: future loads; which

. . ,,r'o.:g. .... u..t.ilitt.as .wil.l. .be..a.r..th,og,.

alterm

.. ~ . , . loa..d.s, , . . L.the

, .g 3u.an..t.,L,.t.y..a.nd

, . . , .,. . g . , g ,,c,ost . o,f ,,gw.ati.ve ., ..,,g,,j.,,,....,.,.

resources; and the efficiency with which nuclear plants and othee pon e

. resources can provide cost. effective insarance against load and renewece 3

. ' uncertainties.

Offee. the part yeae,".5PAi the Northwest Power Planning Ct.uncil,its' i region's utilities, and interested scoups will be perfecting resource plans-and load assessments which may provide additional insight regarding these unceri;ainties. The courts may be active, as well, in resolving the legal uncertal'ai.las surrounding the supply system on such matters as the liabilities b

associated with the termination of wuP & and 5; the detmult on the WP 4 and 5 h.

b b W .;, , w.;,q.u.,.p . , p,.. o % g . ,..y 3

f t.*&.5,%ondy4.~th.e de,l.e.y .o,,f,.,w .P 3;;,c.and the validity.,q.f

.m , ion o.,f M,.,j,g.,.,.4 the n

. , s. ..

.9 ..... ,. . , " " -

a appropeia'te eestart oc hltilante disposition -of WP 1 and .3s .,

BPA believes that some uneartainties need to be addressed in the tenediate

'." ' fut'ure through'.setivities' designed to assus prudent.aanagement of WP 1 i ' - 1 sad 3'. These activities include: ,

- continued discussions with the contractors'and labor unions regarding the cost et which WP 1 and 3 any be completed if construckton is n .: ~ .m. .O:.: ,,..i..-

~s - .- .- ,. , .. , ,, , , , ,

'i-  ; -

- .- ' . . u.. .- -

'* - ** h1 '***6..,**' * *. r:) ., * * , . .

. .Q y ! ,.

-. z . . - . . :. ~

. h

..e-

- - - ~ .

"'n c.

mm

. , _ _ ; , n,,

~

- contirred icvx tigation with tha Nac ccd oth:rs restedics the i feasibility of continued delay and subsequent construction resumption af 1 Asp 1 and 3

- additional assessment of the supply of alternative resources in this magios, sed of the snount and price of power purchases from camada or the pacifle southwest which could displace Northwest resource development in the post-1990 period; and

- additional investigation of the surrent impediments to supply system fissating and continuation of efforts to remove those impediments in the- time now available, so that prudent ttanneins is available eikea needed to fund construction of tair 1 and 3 or to refund outstanding de.t at rates to.s edesso.e to rate,a,.es. .

l Za any case, spa, the ' apply system, and the other % Alp 3 ownees must immediately begin to define the optimum preservation modo for those projects. '

C?& heMoves that a preservation arde which ministses the financial burdes of preservation on ratepayers while assuring the probability of economic and timely seastruation completion can and east be developed.

' Finally, the costs and benefits.gf continued peeservation, while of

-2M.T. tg'.jg,p gf-gs.gg.g.; .g. gig. ggg. egg. gg.pg .

7 .,.y y,,, , , , 9. ., , .,.,

.'cktlities. " A major problem.in assessing the distribution of benefits and tmedens resulting from preservat. ion is RFA*a current uncertainty about which

~ '

'reOonal loads will, be .placed,upon ..

hPA and 'which w"ill be borne 'iiy individual . .

ctilities. Furthee resolution of these issues would enhance the ability of talF 1 and 3 to serve as successful and economic regional resource options.

1 i

I c ~ l 4 .

i q % # 0 6 - r h t.*d. M , 4 i. W . W h / 4 s y i ,4 .:3.M .4 A. ,.ge'r.e,Wap.,p.y. ,mq.a .w wp...,c.;., .,, . ,.

r

.- : c . ... w. . . .; . . ., g . .. . .. , , . . . . . .. . . . , . ,

. , ,, , . c .,.r..,.,,y.,...,.,, . ,.,,.g.,,,..;,,,.,,, ,...,.,,..,.,

, 14 W.b'a% ,< ..c.,'p:.:r .. . ., .<S,.,,3 ..... p '

s ...

. weg4 ,..a o s t . P.e 4 4 E 0 .' , s.G N W..N .W o.d ; W d E 0 d Il 1;30 8 f,. . .