Photo: Monochrome photo of the construction of New Melones power house. Group of six people are in the lower right foreground rigging a conduit pipe with a jib crane extended overhead. The old powerhouse, made of concrete with a glass windows can be seen in the mid-ground on the right. The earth dam can be seen in the background on the lefthand side.

Sierra Nevada reduces CVP power bills

By Lisa Meiman

Sierra Nevada is reducing customer bills by $8-10 million annually starting in 2023, thanks to a large reduction in interest expense.

“This helps us keep costs down for the Power Revenue Requirement. Costs keep rising on everything, but by making this happen, we’ve been able to extend the estimates of the PRR without a rate increase for customers,” said former Senior Vice President and Sierra Nevada Regional Manager Sonja Anderson.

The interest reduction allowed for the Central Valley Project’s original capital investment to be repaid eight years ahead of schedule. With the CVP facilities fully repaid, customers will see lower rates almost immediately.

“This is great news for customers. We’re beginning a rate case, and we’re in a great place with the PRR at only $68 million, which is the lowest it has been since 2007,” said SN’s Rates Manager Autumn Wolfe. “With a lower PRR, our customers owe less. They are only paying for annual aid to irrigation until 2030.”

The reduced power bills are a result of the Bureau of Reclamation completing the CVP Final Cost Allocation study, which identified that power customers had been overallocated their share of CVP repayment obligation by about $32 million since 1944.

Power customers and some other project beneficiaries are responsible for repaying the original capital investment to construct the dams and hydroelectric facilities to the U.S. Treasury, plus interest, by a certain timeframe. WAPA’s at-cost rates reflect those cost obligations for power customers.

For CVP, power and water supply users are responsible for reimbursing Treasury by 2030 for the original capital investment costs while power and a subset of water users are responsible for paying the accompanying interest. Power’s repayment responsibilities are captured in the PRR.

Because customers had overpaid on their allocation of capital costs, SN needed to adjust the interest owed by power customers as they had been paying interest on amounts they did not owe over the life of the project. The adjustment reduced the interest expense by $158.8 million. Both the $32 million overpayment and reduced interest expense were used to pay off the original investment in the project early.

“From my perspective, it was a matter of doing what was right. Those were costs the customers shouldn’t be paying,” Anderson said. “There were almost three years of partnering and working with Reclamation and educating Reclamation and WAPA staff, confirming our authorities and working with General Counsel and Headquarters Finance to ensure we were doing what was in the best interest of our customers.”

The reduced PRR improves the value, affordability and competitiveness of CVP’s hydropower product, which has struggled through three exceptionally dry years and is forecasted to endure a fourth next year.

According to unaudited figures in WAPA’s monthly Hydropower Conditions report, CVP generated 774,446 megawatt-hours from Oct. 1, 2021, through Aug. 30 this year, or about 25.5% of average.

SN markets hydropower to customers using a Base Resource that gives each customer a percentage of total hydropower output from the project. Customers are on the hook for costs regardless of how much their CVP percentage amounts to in megawatt-hours each year.

In wet water years, customers can receive a lot of hydropower under their Base Resource. In dry water years, hydropower deliveries are reduced or may not occur at all.

“We had very little Base Resource this year. Customers pay whether they get hydropower or not, and then they must pay for supplemental power in the market,” Wolfe said. “When we have a lower PRR, we are doing the best we can to keep our costs low. There is not much we can do about hydrology and generation. We do recognize that we are all in this drought situation together.”

Anderson added, “Our customers can leave SN and our contracts and take the option to purchase power in the open market so it’s critical for us to keep our costs down so that WAPA is the provider of choice, especially in this drought.”

Note: The author is a public affairs specialist.

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Last modified on March 18th, 2024