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CT/CC Expansion Plan Constructability & Market Exposure Adjustment Case

CT/CC Expansion Plan Constructability & Market Exposure Adjustment Case. “Reshuffled” Expansion Plan Case Defined. An abbreviated sensitivity analysis was performed to evaluate the following considerations:

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CT/CC Expansion Plan Constructability & Market Exposure Adjustment Case

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  1. CT/CC Expansion Plan Constructability & Market Exposure Adjustment Case

  2. “Reshuffled” Expansion Plan CaseDefined • An abbreviated sensitivity analysis was performed to evaluate the following considerations: • Smoothing out any CT/CC construction “lumpiness” in the June 2007 adjusted PSPexpansion schedule • Reduce market exposure by reducing out-year PPA's (2013 on) to no more than 100 MW's threshold level and determine what additional CC's/CT's would be needed while still maintaining a smooth construction schedule • Employ judgment to mix of CCs to CTs to provide risk mitigation and flexibility around planning assumption uncertainties • The impacts on TFO, cash flow and rates were calculated via “back of the envelope” evaluation

  3. “Reshuffled” Expansion Plan CaseAssumptions • June 2007 adjusted PSP used as the basis • Assumes no change in existing TVA generation or loads • Assumes no change in dispatch or variable costs presuming gas costs from built units are close in price to gas costs from PPA gas units • Assumes no change in Clean Air impacts • “Back of the envelope” calculation performed utilizing changes in: • Capacity expansion capital • Purchase power costs (demand charges) • FCA impact

  4. Strategic Plan Guiding Principles Case (~ 5% base rate increase) New Analysis FCA Change Environmental Surcharge Rate FCA Base Rate Base Rate Adjustment $/MWh Shown at 7/20/07 FS&R meeting Base Rate without Environmental Surcharge

  5. “Reshuffled” Expansion Plan Case Results • New CT/CC Projects increased capital costs by $733 million • Transmission associated with new projects increased capital costs by $191 million • - PPA demand charges decreased $308 million; the bulk of the savings are 2015 and beyond • Result (Increase Debt): 2019 TFO balance increased by $1.1B assuming no additional base rate • increase from the Original 5% Casein 2019 • Result (Increase Base Rate): Base rate increase of approximately 0.5% required starting in 2008 • to match the Original 5% Case 2019 TFO balance of $27.5B * Guiding financial principles assumptions of 65% of new capacity investment funded with debt; 35% of new capacity funded with TVA internal cashflow have not been confirmed

  6. Shuffled Expansion Plan

  7. Points of Note/Consideration Regarding Future Changes in Numbers and mix of CT/CCs • Assumed energy contributions from future WBN2 and two units at BLN limit indicated CCs • Storage units may be a beneficial longer term option but incurs long lead time and high capital cost • Potential future flattening of load shape due to TOU pricing, energy efficiency and peak load reduction efforts, or additional CO2 impacts could shift mix of CT/CCs toward less CTs • Potential pull-forward of Clean Air projects due to more stringent requirements, any additional “clean coal” related projects, or larger CO2 impacts could shift dispatch from marginal coal for intermediate needs to CCs or PPAs

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