Western Area Power Administration’s service
territory covers many multipurpose water projects in 15 states, where
our more than 17,000-circuit-mile transmission system carries electricity from
57 hydropower plants with a combined installed capacity of 10,504 megawatts. As may be expected the
precipitation across this vast territory can vary widely. While favorable
hydrology conditions may result in increased generation for some areas, others
may be facing drought. (See the U.S. Drought
Monitor site for more detail.) This can possibly
impact customer rates.
Impact on power rates
During drought years, WAPA may see higher expenses to cover increased power purchases due to generation limitations. As the drought lowers generation, WAPA purchases more power to meet its firm power commitments to customers. As the water systems recover and refill the reservoirs, WAPA anticipates having more hydropower to market. Even through the drought, WAPA customers continue to cover all of its operating costs, including purchase power, through firm power rates, except where WAPA has contract arrangements in place to make purchases on a pass-through cost basis. Using flexible provisions in our power sales contracts, WAPA can adjust power rates through a public process to deal with changes in the environment. For instance, better-than-expected hydrology conditions can result in a reduction of rates due to modification of a "drought adder," which is sometimes added to rates in anticipation of low water years.
how does less hydropower affect current WAPA contracts?
Commitments for firm power in current contracts remain firm for the life of the contract. However, due to changes in hydrology or river operations during the contract term, contracts containing resource commitments that are extended under the Energy Planning and Management Program can be modified to change the amount of power delivered after WAPA completes a public process and provides five years' notice.
Repayment to Treasury
Although WAPA must repay all the investment and operating costs of the power facilities, short-term decreases in power sales would not necessarily negatively impact future repayment obligations to the U.S. Treasury. Each year, WAPA prepares a power repayment study for each rate-setting system. We analyze current power rates to determine if they will provide enough revenue to cover all costs, including future repayment obligations. WAPA's power repayment studies forecast cycles of above and below average water as that information becomes available to derive the power rate. Surplus sales accelerate repayment, while deficits are capitalized at a current interest rate. If the study projects that rates will under-collect the required revenue, WAPA begins a public process to adjust its rates accordingly.
PURCHASE POWER AND DROUGHT
Purchase power is power that WAPA buys from other suppliers to meet the demands of customer contracts. This may occur when poor water conditions or operational constraints result in lower-than-expected generation. In the case of drought conditions, WAPA may purchase power to ensure that customers receive the amount of power determined by their contracts.