362 



In addition to our verbal testimony, Springfield Utility Board 

 submits the following for the record. 



Value of Reserves (VOR) 



SUB'S understanding the of current rate and VOR is as follows: 



The DSI Variable Industrial Rate fluctuates with the market 

 price of aluminum between a floor of 11.1 mils and a ceiling of 

 21.7 mils. The price aluminum has put the rate at the floor limit 

 for over a year. Given the situation in Russia and elsewhere, 

 there is no reason to think the situation will ameliorate in the 

 near future . 



The demand charge is fixed until August 1993 at $5.25 per 

 kilowatt month ( about 7 mils ) making the total 18.1 mils, lower 

 than the current PF rate. 



The VOR estimates the value to BPA of the reserves provided by 

 DSI interrupt ability. It is based on a proxy gas turbine: the 

 alternative source if BPA could not restrict DSI loads. 



Put another way, the VOR attempts to estimate the cost to BPA 

 of acquiring sufficient gas turbine reserves if the DSI's had firm 

 power contracts without restriction rights. 



The value of DSI reserves, as determined in 1985, was about 

 $90 million. To this sum was added the projected costs to the 

 DSI's of a BPA outage. The two items totalled about $92 million. 

 About half of this amount ($46 million) was then allocated to the 

 DSIs as a credit (discount) on their annual power bills. Escalated 

 for inflation, it is now worth about $60 million. 



The VOR is based on two importemt assumptions, both of which 

 appear to be out of date. 



The first is that the DSIs provide two quartiles (1200 MW) of 

 capacity reserves for planning purposes. We believed that to be 

 the case until January 1993, when BPA published a new Pacific NW 

 Loads and Resources Study (White Book) , which showed that BPA 

 counts only one quartile for reserves (600 MW) . For reasons 

 discussed below, this change has not triggered a revaluation of the 

 VOR to ensure it accurately reflects BPA' s actual planning 

 assumptions. 



Another change is the cost of the gas turbine generation. 

 Springfield Utility Board is evaluating 6 gas turbine based 

 proposals at this time. BPA's assumptions do not reflect the cost 

 of the plant that would have to be acquired if the DSIs did not 

 provide reserves. Currently the calculations are based upon a 14% 

 interest rate. Today's rate is closer to 7%. This should 

 significantly lower (on the order of 1/2) the cost of the plant 



SPRINGFIELD UTILITY BOARD PAGE 1 SEPT. 25, 19 93 



