1. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 1 Paying for Load Growth and New Large Loads David Daer Principal Financial Analyst Corporate Pricing

2. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 2 Background SRP provides electricity to more than 900,000 retail customers in the Phoenix area. SRP operates or participates in 11 major power plants and numerous other generating stations, including thermal, nuclear, natural gas and hydroelectric sources.

3. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 3 Background SRP’s customer base is primarily residential SRP has added approximately 50,000 to 60,000 customers per year each of the past 4 years Usage per residential customer has also been increasing SRP established its current system peak (6,590 MW) on July 21, 2006

4. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 4 Historical Look at SRP’s Peak Summer 2006: Peak of 6590 set 7/21 4:00 pm Exceeded High Risk Forecast: 3 hrs Exceeded Base Forecast: 16 hrs

5. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 5 Cost Studies Performed by SRP Marginal Embedded (Historical)

6. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 6 Marginal Cost Study Forward-looking Determine the change in total cost that results from a very small change (increase or decrease) in output Helpful for developing efficient prices

7. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 7 Embedded Cost Study Backward-looking Examines capital and operating expenses for a ‘test year,’ to determine revenue responsibility among a utility’s functions, jurisdictions, and rate classes

8. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 8 Embedded Cost Study (continued) Helpful for allocating revenue requirements to functions and rate classes, and ensuring overall revenue sufficiency

9. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 9 Residential Examples New subdivisions Use Service Entrance size as possible delimiter for pricing CIAC for new subdivisions, based on the number of homes that can be put on one transformer

10. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 10 Residential Examples Load Growth Tankless water heaters (18 to 30 kW of instantaneous demand) Previously had 12 homes per transformer; now 4 or fewer Collect CIAC from new subdivisions; retrofits can be problematic

11. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 11 Residential Strategic Pricing Proposals Align prices with costs Ensure load pays for long-term capacity Move to three pricing seasons (add super peak summer season) Time of Use (two and three period) SRP has the 3 rd largest residential TOU program in the U.S.

12. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 12 Commercial Examples Problematic Large Instantaneous Loads Car cruncher, steel mill Require dedicated 69 kV lines / facilities Collect as much as possible up-front Have short enough demand interval for proper billing

13. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 13 Commercial Examples Problematic Large Instantaneous Loads (continued) Demand ratchet to recover installed costs Recover generation capacity costs Pay up-front for extra protection equipment

14. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 14 Commercial Examples Data Centers Large loads that may, or may not, materialize Large loads on systems that are at capacity Light rail Power quality issues

15. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 15 Commercial Pricing Remedies Recover non-standard costs up-front, as much as possible Rate design should recover fixed costs through fixed price components as much as possible

16. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 16 Industrial Examples Copper mine served at transmission level Directly assign costs, to the extent possible Credit for system upgrades that benefit others

17. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 17 Industrial Examples Aluminum smeltering Want the load, but don’t want to burden existing customers Build dedicated plant Buy firm power Set up a special price plan until they catch up

18. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 18 SRP Pricing Initiatives Problems with vintaging Old systems eventually require replacement and may have greater maintenance issues Frequent price changes Use projected test years Appropriate planning horizon

19. September 24, 2007Paying for Load Growth and New Large Loads APPA September 2007.ppt 19 SRP Pricing Initiatives (continued) Demand Side Management What kind of load do you want? Diversity – Economic and Load Off-peak vs. coincident High vs. low load factor Interruptible