Financial Model

Economic Analysis of CHP System for DIA - Contents Information Sources and Basic Assumptions Plant data DIA Usage data Rate data Gas Price data Model Layout Status Quo Usage and Cost Status Quo Usage Components Natural Gas Purchases in CHP Case for Electricity Natural Gas Purchases for Supplemental Firing Standby Costs in CHP Case Financial Model, Inflation, Rate of Return Analysis of Alternative Plant Configurations Analysis of Standby Rates Alternative Gas and Electricity Prices

Model Assumptions

Economic Analysis of CHP System for DIA – Basic Assumptions Information Sources and Basic Assumptions Plant data DIA Usage data Rate data Gas Price data

Economic Analysis of CHP System for DIA – Plant Assumptions Plant Information Sources is Detailed Analysis Provided by Solar Turbines Adjustments included for altitude (reduces electricity output)

Economic Analysis of CHP System for DIA – Plant Data Focus on Two Cases Simple Cycle Combined Cycle Primary Issue is Tradeoff Between Heat Rate and Surplus Steam Available Tradeoff between heat rate and steam available

Economic Analysis of CHP System for DIA – Usage Data Electricity Data – 2003 Billing Only include metered load; Only include accounts with positive revenue; peak load is 46,000 kW. Natural Gas Data – From Discussion with Don Clarke Air Conditioning Load – 11.2% of Electricity Usage

Economic Analysis of CHP System for DIA – Rate Data Electricity Rates – PSCo Rate Book including commodity adjustment factor of $.00839 per kWh. Natural Gas Rates – From Discussion with Don Clarke Natural Gas Commodity Price – From Futures Markets Analysis Transport Charge is .417 per MMBTU. Model assumes same inflation as electricity rates

Economic Analysis of CHP System for DIA – Natural Gas Prices Current Price is about $7/MMBTU; Average next twelve month price is $6.75/MMBTU Forward prices decline significantly in future years .

Economic Analysis of CHP System for DIA - Analysis Analysis of alternative plant configurations (combined cycle versus simple cycle) Analysis of standby rates versus purchasing redundant capacity Analysis of alternative electricity price inflation, given current gas and electricity prices Analysis of different gas price assumptions with alternative inflation rates

Plant Configuration Analysis

Base Case Assumptions Assumptions Simple cycle and combined cycle configuration Base case electricity and gas use Gas prices from futures markets 3.5% electricity price inflation (consistent with high natural gas cost) No Standby purchased Firm gas prices

Plant Configuration Case Results Simple Cycle Case ROI 3.0% Payback 17.1 yrs Combined Cycle Case ROI 8.3% Payback 12.3 yrs Negative Cash Flow in Early Years for Both Cases

Plant Configuration Case Results Combined Cycle improves performance Surplus steam does not add much value because of limited use at the airport Analysis includes altitude adjustments with reduces electricity output by about 20% but does not reduce capital cost or natural gas requirements Payback period is long because of gas price assumptions and forward rates

Standby Case The next cases compare the performance of the configurations assuming that standby capacity is purchased instead of purchasing redundant capacity. The standby cases assume enough standby capacity is purchased to cover the capacity of one unit. Inflation rates on standby are the same as the overall inflation rate for electricity prices (3.5% in the base case). Standby versus redundant capacity is presented for both the combined cycle configuration and for the simple cycle configuration. A 2% random outage rate is assumed for the system causing energy and daily demand purchases.

Standby Case Results – Simple Cycle Simple Cycle Case without Standby ROI 3.0% Payback 17.5 yrs Simple Cycle Case with Standby ROI 2.7% Payback 16.8 yrs

Standby Case Results – Combined Cycle Combined Cycle Case without Standby ROI 8.3% Payback 12.3 yrs Combined Cycle Case with Standby ROI 8.2% Payback 11.8 yrs

Standby Case Results The standby case slightly worsens performance. Payback is somewhat improved because of smaller investment in plant. Analysis depends on the amount of standby capacity purchased and the outage rate of plants.

Alternative Electric Inflation Case The base case assumes the electricity inflation is somewhat higher than the overall rate of inflation. This is consistent with the high energy costs implied by forward gas markets – PSCo will at some point have to increase rates with more natural gas usage or it will have to incur high capital costs for new clean coal or other capacity. The electricity inflation rate (also applied to natural gas transportation) has an important effect on the economics of the project, so we show how high or low the inflation rate becomes before the CHP becomes uneconomic. Electric Inflation rates – 4.5%, 4%, 3.5% (base), 3%, 2.5%, 2%, 1%, 0% (All cases use the combined cycle case)

Sensitivity Case – Electricity and Natural Gas Inflation Base Case – 3.5% Electricity Inflation Lower Electricity Inflation – 2%

Sensitivity Analysis – Combined Cycle Case; Electricity Inflation Combined Cycle Case 4.5% Inflation ROI 10.5% Payback 10.4 yrs Combined Cycle Case with 4% Inflation ROI 9.4% Payback 11.3 yrs

Sensitivity Analysis – Combined Cycle Case; Electricity Inflation Combined Cycle Case 3.5% Inflation ROI 8.3% Payback 12.3 yrs Combined Cycle Case with 3% Inflation ROI 7.1% Payback 13.6 yrs

Sensitivity Analysis – Combined Cycle Case; Electricity Inflation Combined Cycle Case 2.5% Inflation ROI 5.7% Payback 14.3 yrs Combined Cycle Case with 2% Inflation ROI 4.2% Payback 16.5 yrs

Sensitivity Analysis – Combined Cycle Case; Electricity Inflation Combined Cycle Case 1% Inflation ROI 0.3% Payback NA Combined Cycle Case with 0% Inflation ROI NA

Sensitivity Case – Future Natural Gas Prices Base Case – Flat Natural Gas Prices Increased Future Natural Gas Prices

Sensitivity Case Results – Higher Future Natural Gas Prices Combined Cycle Case without Standby ROI 8.3% Payback 12.3 yrs Combined Cycle Case with higher future gas prices ROI 7.4% Payback 12.9 yrs

Alternative Natural Gas Cases Currently, natural gas prices – both spot prices and forward prices – are very high relative to history. If the decision to invest is delayed until the prices come down, the economics can change significantly. In cases with alternative gas prices, the rate of inflation that is applied to gas and electricity is assumed to be the same. The most likely case is where 2.5% inflation is assumed. Alternative cases assume zero inflation and 3.5% inflation. The alternative cases are run for both the combined cycle case and the standby case. Alternative gas prices (wellhead prices) include $2.0/MMBTU; $3.0/MMBTU; $4.0/MMBTU; and $5.0/MMBTU.

Sensitivity Case Results – Alternative Natural Gas Prices Historic Natural Gas Prices Low Natural Gas Case

Alternative Natural Gas Prices; Combined Cycle – 2.5% Inflation Combined Cycle Case -- $2.00 Gas Prices ROI 13.7% Payback 8.1 yrs Combined Cycle Case with $3.00 Gas Prices prices ROI 9.7% Payback 11.2 yrs

Alternative Natural Gas Prices; Combined Cycle – 2.5% Inflation Combined Cycle Case -- $4.00 Gas Prices ROI 5% Payback 17.8 yrs Combined Cycle Case with $5.00 Gas Prices prices ROI NA Payback NA

Alternative Natural Gas Prices; Combined Cycle – 3.5% Inflation Combined Cycle Case -- $2.00 Gas Prices ROI 15.1% Payback 7.7 yrs Combined Cycle Case with $3.00 Gas Prices prices ROI 10.4% Payback 11.1 yrs

Alternative Natural Gas Prices; Combined Cycle – 3.5% Inflation Combined Cycle Case -- $4.00 Gas Prices ROI 6.5% Payback 15.9 yrs Combined Cycle Case with $5.00 Gas Prices prices ROI .2% Payback NA

Alternative Natural Gas Prices; Combined Cycle – 0% Inflation Combined Cycle Case -- $4.00 Gas Prices ROI .1% Payback NA Combined Cycle Case with $5.00 Gas Prices prices ROI NA

Alternative Natural Gas Prices; Combined Cycle – 0% Inflation Combined Cycle Case -- $2.00 Gas Prices ROI 9.9% Payback 9.5 yrs Combined Cycle Case with $3.00 Gas Prices prices ROI 5.6% Payback 14.4 yrs

Alternative Natural Gas Prices; Simple Cycle – 2.5% Inflation Simple Cycle Case -- $2.00 Gas Prices ROI 8.1% Payback 12.8 yrs Combined Cycle Case with $3.00 Gas Prices prices ROI 2.2% Payback 23.7 yrs

Alternative Natural Gas Prices; Simple Cycle – 2.5% Inflation Simple Cycle Case -- $4.00 Gas Prices ROI NA Payback NA Combined Cycle Case with $5.00 Gas Prices prices

Appendix - Inputs

Assumptions – Alternative Configurations

Assumptions – Natural Gas Prices and Rates

Assumptions – DIA Energy Use

Assumptions – PSCO Electricity Rates

Assumptions – PSCO Electricity Rates

Assumptions – Alternative Configurations

Assumptions – Alternative Configurations

Model Structure

Economic Analysis of CHP System for DIA - Contents Model Layout Status Quo Usage and Cost Status Quo Usage Components Natural Gas Purchases in CHP Case for Electricity Natural Gas Purchases for Supplemental Firing Standby Costs in CHP Case Financial Model, Inflation, Rate of Return

Model Layout – Status Quo Usage and Costs

Model Layout – Components of Energy Usage

Model Layout – Components of Energy Usage

Model Layout – Natural Gas for Electricity of CHP

Model Layout – Supplemental Natural Gas Purchases

Model Layout – Standby Costs