SECOND RESTATED AND AMENDED POWER SALES AGREEMENT
BETWEEN
PACIFICORP
AND
BLACK HILLS CORPORATION
TABLE OF CONTENTS
Page
RECITALS.. ........................................................1
Section 1: Definitions.............................................1
Section 2: Term....................................................4
Section 3: Sale and Delivery of Capacity and Energy................4
Section 4: Scheduling..............................................6
Section 5: Prices and Payments.....................................7
Section 6: Governmental Regulation................................10
Section 7: FERC Reporting; Past Audit Issues......................10
Section 8: Arbitration............................................11
Section 9: Uncontrollable Forces..................................12
Section 10: Notices...............................................13
Section 11: Waiver............................................. ..13
Section 12: Several Obligations...................................14
Section 13: Amendments............................................14
Section 14: Assignment............................................14
Section 15: Choice of Law.........................................14
Section 16: Replacement of Original Agreement.....................14
Appendix A - Annual Fixed Cost
Appendix B - Variable Costs
SECOND RESTATED AND AMENDED POWER SALES AGREEMENT
BETWEEN
PACIFICORP
AND
BLACK HILLS CORPORATION
This Second Restated and Amended Power Sales Agreement,
dated as of the 29th day of September, 1997 ("Agreement"), is entered into
by and between PacifiCorp ("PacifiCorp"), an Oregon corporation, and Black
Hills Power and Light Company, predecessor to Black Hills
Corporation ("Black Hills"), a South Dakota corporation. PacifiCorp and
Black Hills are referredto herein individually as "Party" and collectively
as "Parties".
RECITALS
WHEREAS, on December 31, 1983, Black Hills and Pacific Power & Light
Company (a predecessor to PacifiCorp) entered into a Power Sales Agreement
which was modified by a letter agreement between the Parties dated August
31, 1995 ("Original Agreement"); and
WHEREAS, the Parties desire to further restate and amend the Original
Agreement as modified as of the Effective Date of this Agreement; and
WHEREAS, this Agreement will supersede and replace the Restated and
Amended Power Sales Agreement dated February 27, 1997 which had never
become effective;
NOW, therefore, the Parties agree as follows:
Section 1: Definitions
As used in this Agreement, the following terms shall have the
following meanings:
1.1"Adjusted Variable Cost Rate" is the cost for energy as defined
and adjusted in Appendix B, Section 1.
1.2 "Agreement" is this Second Restated and Amended Power Sales
Agreement,together with the Appendices A through C, attached hereto.
1.3 "Annual Fixed Costs" are the costs for capacity as determined
pursuant to Appendix A to this Agreement.
1.4 "Black Hills' System" is Black Hills' entire electric power
generating and transmission system as it exists from time to time.
1.5"Colstrip Project" is PacifiCorp's share in Unit Nos. 3 and 4 of
the coal-fired electric generating plant near Colstrip, Montana.
1.6 "Effective Date" is 0000 hours Mountain prevailing time August 1,
1997.
1.7 "FERC" is the Federal Energy Regulatory Commission of the United
States.
1.8 "Net Colstrip Generation" is PacifiCorp's combined share of the
output of the Colstrip Project Unit Nos. 3 and 4 generation. Net Colstrip
Generation, when expressed as capacity, shall, for purposes of this
Agreement, be deemed to be 150 megawatts ("MW"). When
expressed as energy, Net Colstrip Generation is the actual energy
production less station service requirements and less generator step-up
transformer losses expressed in megawatt-hours ("MWh") as reported in
PacifiCorp's FERC Form No. 1.
1.9 "Original Agreement" is the Power Sale Agreement between Black
Hills and PacifiCorp dated December 31, 1983 as amended by the letter
agreement dated August 31, 1995.
1.10 "Original Investment" shall be that dollar amount specified in
Subsection A.2.1 of Appendix A to this Agreement.
1.11 "PacifiCorp's System" is PacifiCorp's entire electric power
generating and transmission system as it exists from time to time.
1.12 "Prudent Utility Practice" is, at any particular time, either
any of the practices, methods, and acts engaged in or approved by a
significant portion of the electrical utility industry
prior thereto or any of the practices, methods, or acts which, in the
exercise of reasonable judgment the light of the facts known at the time
the decision was made, could have been expected to accomplish the desired
result at the lowest reasonable cost consistent with reliability,safety,
and expedition. Prudent Utility Practice is not intended to be limited to
the optimum practice, method, or act to the exclusion of all others but,
rather, to be a spectrum of possible practices, methods, or acts. Prudent
Utility Practice shall also include those practices, methods, and acts that
are required by applicable laws and final orders or regulations of
regulatory agencies having jurisdiction; provided, that the definition of
Prudent Utility Practice shall not be construed to allow regulatory bodies
to amend the fixed formulae used to determine prices under this Agreement,
nor any other provision of this Agreement. Prudent Utility Practice shall
not be interpreted as justification for discriminating among customers,
including Black Hills.
1.13 "Transmission Losses" are the product of the system energy
scheduled by Black Hills multiplied by the applicable real time
transmission loss factor pursuant to the Transmission Tariff.
1.14 "Transmission Tariff" is PacifiCorp's FERC pro forma open access
tariff on file with FERC as PacifiCorp's FERC Electric Tariff, Original
Volume No. 11, as such may be amended or replaced from time to time.
1.15 "Variable Cost Rate" is the variable cost rate as calculated
from the FERC Form No. 1 as demonstrated in Appendix B Sections B2 and B3.
1.16 "Western Energy" is the coal company or its successor company
through which the Colstrip Project purchases its coal supply and coal
transportation.
Section 2: Term
2.1 Term. This Agreement shall become effective on the Effective
Date pursuant to Subsection 1.6. Subject to the provisions of Section 2.2,
it shall terminate on December 31, 2023.
2.2 Regulatory Approval. PacifiCorp, at its expense, shall file this
Agreement with the Federal Energy Regulatory Commission (FERC) as provided
for in Subsection 6.1. PacifiCorp shall provide Black Hills with a copy of
the filing prior to its submittal to the FERC. Black Hills shall file with
the FERC an intervention in support of PacifiCorp's filing of this
Agreement. Upon FERC's acceptance of this Agreement, the Original
Agreement shall terminate as of the Effective Date. If the FERC does not
accept or approve this Agreement and the transmission service agreement s
under the Transmission Tariff for filing in toto, the Parties shall
exercise best efforts to amend these agreements to comply with the FERC
action in a manner consistent with the Parties' original intent. Failure
of the FERC to accept or approve these agreements after the Parties have
exercised best efforts shall terminate these agreements,
and the Original Agreement shall remain in full force and effect.
Section 3: Sale and Delivery of Capacity and Energy
3.1 Sale of Capacity. For the term of this Agreement, PacifiCorp
shall sell, and Black Hills shall purchase, system capacity as shown below:
Capacity
Amount
Commencing MW
Effective Date 75
January 1, 2000 70
January 1, 2001 65
January 1, 2002 60
January 1, 2003 55
January 1, 2004 50
3.2 Minimum Energy Purchases. Each month Black Hills shall purchase a
minimum of 22,500 MWh of system energy multiplied by the applicable
capacity pursuant to subsection 3.1 and divided by 75 MW.
3.3 Points of Delivery. PacifiCorp shall provide system power and
energy purchased under this Agreement to Black Hills under the terms and
conditions of separate service agreements under the Transmission Tariff.
Black Hills shall cause such service agreements to be executed with
PacifiCorp to reserve the amount of transmission capacity and the type of
service which in Black Hills' determination is required for the amount of
capacity purchased pursuant to Subsection 3.1 and Black Hills shall pay
separately for such transmission wheeling charges and shall be responsible
for either the return of energy or the payment for applicable energy charges
for transmission losses under the Transmission Tariff. However, the
merchant function of PacifiCorp shall purchase any capacity requirements
for losses, Spinning Reserve Service, Supplemental Reserve Service and any
other required ancillary service on behalf of Black Hills at the expense of
the merchant function of PacifiCorp. In addition, the merchant function of
PacifiCorp shall provide Black Hills with non-firm transmission service on
PacifiCorp's transmission system for deliveries to the Wyodak Substation
from PacifiCorp's multiple generation units as defined in such service
agreements for transfers not to exceed 5 megawatt-hours per hour for all
hours from the Effective Date through the earlier of the termination of
Black Hills' Power Integration Agreement with Montana-Dakota Utilities
Company dated September 9, 1994 or December 31, 2006. Black Hills shall
use its best efforts in scheduling transmission services under such service
agreements so as to minimize its use of the nonfirm transmission
service to be made available by the merchant function of PacifiCorp.
Black Hills shall be responsible for any amounts of additional firm
transmission service or nonfirm service in excess of the amount made
available to Black Hills by the merchant function of PacifiCorp pursuant
to the terms of the Transmission Tariff. On a monthly basis Black Hills
may purchase energy in addition to that energy associated with the
capacity purchases under Subsection 3.1, at the Adjusted Variable Rate
applicable for such month, under the terms of this Agreement to replace
the Transmission Losses required under the Transmission Tariff pursuant
to Subsections 4.1 and 4.2.
3.4 Deliveries. PacifiCorp does now and will continue to maintain
available transmission facilities sufficient to meet its delivery
obligations under this Agreement for the Term hereof.
Section 4: Scheduling
4.1 Amounts of Capacity and Energy. Commencing on the Effective Date
of this Agreement, and continuing during the Term hereof, PacifiCorp shall
make available from PacifiCorp's System, and Black Hills shall schedule,
energy associated with purchased capacity;provided, that PacifiCorp shall
not be obligated under this Agreement to schedule and deliver energy to
Black Hills in excess of the following amounts plus Transmission Losses if
elected by Black Hills pursuant to Subsection 4.2:
Hourly -- 75 MWh multiplied by the applicable purchased
capacity ofSubsection 3.1 and divided by 75 MW.
Weekly -- 10,050 MWh multiplied by the applicable purchased
capacity of Subsection 3.1 and divided by 75 MW.
Monthly -- One hundred ten percent (110%) of the estimated
monthly energy under Section 4.2.
4.2 Estimated Monthly Energy. At least five (5) days prior to the
commencement of each month, Black Hills shall deliver to PacifiCorp by
facsimile a written estimate of expected energy purchases for the following
month. Such estimate of expected energy purchases shall not be less than
the minimum monthly requirement pursuant to Subsection 3.2. Included in
the written estimate Black Hills shall notify PacifiCorp if Black Hills
elects to purchase or not purchase the Transmission Losses under this
Agreement for such month.
4.3 Schedules. Black Hills shall preschedule all deliveries of power
and energy purchased under this Agreement no later than 1000 hours Pacific
prevailing time on each workday prior to the day of such schedule and in
accordance with normal scheduling practices. Such schedules of power
and energy shall be deemed to be delivered during the hours and in the
amounts scheduled; provied, that if scheduled deliveries are interrupted
due to forces beyond either Party's control, including but not limited to
loss of facilities, such scheduled deliveries shall be adjusted to reflect
such interruptions.
4.4 Limitations on Variations. Black Hills shall use its best
efforts, consistent with Prudent Utility Practice, to minimize rapid
changes in deliveries hereunder; provided, that, unless otherwise agreed,
the hour-to-hour variation in such scheduled deliveries shall be limited to
25 MWh per hour.
Section 5: Prices and Payments.
5.1 Annual Fixed Cost Payments. Beginning on the Effective Date and
continuing until December 31, 1999, by the fifteenth (15th) of each month
Black Hills shall pay PacifiCorp one-twelfth of the Annual Fixed Cost of
$164.59 per kW-yr. multiplied by the capacity purchased pursuant to
Subsection 3.1.Commencing on January 14, 2000, and by the fifteenth
(15) of each month thereafter, Black Hills shall pay PacifiCorp
one-twelfth (1/12) of the Annual Fixed Cost as determined pursuant
to Appendix A, multiplied by the capacity purchased pursuant to
Subsection 3.1. Black Hills' last and final Annual Fixed Cost payment
for the Original Investment shall be December 15, 2018 pursuant to
Appendix A. The last and final Annual Fixed Cost payment for each of the
associated subsequent annual levelized fixed charge for capital additions,
replacements and betterments shall be after the completion of the 35th
year of Annual Fixed Cost payments for the associated subsequent capital
addition. For example, the final Annual Fixed Cost Payment for
1986 subsequent capital additions, replacements and betterments shall be
December 15, 2021.
5.2 Annual Fixed Cost Payment Reduction. For the invoices for each
month of the calendar years 2000 through 2009, the amount calculated
pursuant to Subsection 5.1 shall be reduced by $95,564, irrespective of the
reduced sale of capacity pursuant to Subsection 3.1.
5.3 Adjusted Variable Cost Payments.
5.3 Adjusted Variable Cost Payments for Estimated Energy. By the
fifteenth (15th) of each month after the Effective Date, Black Hills shall
pay PacifiCorp an amount determined by multiplying the Adjusted Variable
Cost Rate, as expressed in dollars per MWh ($/MWh), by the estimated
monthly MWh of energy including any elected Transmission Losses as provided
under Subsection 4.2.
5.3.1 Monthly Adjustments. PacifiCorp shall use the following
formula to calculate an adjustment to each prior month's invoice to adjust
for actual versus estimated monthly usage:
z = [(a - b) x (c)] (1 +i)
Where z = the amount of charge to Black Hills (if positive)
or credit to Black Hills (if negative);
a = the minimum energy pursuant to Subsection 3.2 or
the actual energy scheduled for the prior month
in MWh (whichever is greater) including any
energy scheduled for elected Transmission Losses;
b = the energy which was billed for such prior month,
in MWh, including any Transmission Losses
pursuant to Subsection 4.2;
c = the applicable Adjusted Variable Cost Rate in
dollars per MWh ($/Mwh) for such prior month;
i = the prime interest rate, expressed in decimal
form on an annual basis, as established by the
▇▇▇▇▇▇ Guaranty Trust Company of New York as of
the first day of the prior month, divided by
twelve (12).
5.4 Payment Schedules. PacifiCorp shall send by facsimile to Black
Hills an invoice for all services hereunder, by the third (3rd) working day
of each month. Black Hills shall pay such invoices by the fifteenth (15th)
of such month. Each monthly payment shall be made in immediately available
funds by the due date. Such payments to PacifiCorp shall be electronically
wire transferred to:
The First National Bank of Chicago
A.B.A. No. ▇▇▇▇▇▇▇▇▇
PacifiCorp-Wholesale & Trans.
Account No. 55-44688
Simple interest shall accrue on any amount not paid when due at a rate of
one hundred twenty-five percent (125%) of the prime rate as established by
the ▇▇▇▇▇▇ Guaranty Trust Company of New York during the period of
delinquency.
5.5 Operation of the Colstrip Project. It is the intent of the
Parties that the pricing provisions of this Section 5 shall account for all
operational variables of the Colstrip Project. Subject to exceptions as
specified in this Agreement, the pricing for the delivery of PacifiCorp
system power to Black Hills is based upon PacifiCorp's cost of ownership
and operation of the Colstrip as provided in this Section 5. Nothing in
this Agreement shall be construed as an obligation for PacifiCorp to
dispatch or control the Colstrip Project in any particular fashion.
Section 6: Governmental Regulation
6.1 Filing. The Parties shall submit this Agreement for filing to
the FERC no later than October 15, 1997. PacifiCorp shall seek a waiver of
any FERC rules that require an earlier filing date.
6.2 Fixed-Formulae Contract. The terms, conditions, and formulae for
prices for service specified herein shall remain in effect for the term
hereof, and shall not be subject to change through application to the FERC
pursuant to the provisions of Section 205 of the Federal Power Act absent
the agreement of the Parties hereto. The Parties covenant that neither
shall request relief from any of the provisions of this Agreement pursuant
to the provisions of Section 206 of the Federal Power Act absent the
agreement of the Parties hereto. The foregoing statutory references are
intended to include any subsequent similar enactments.
Section 7: FERC Reporting: Past Audit Issues.
7.1 Reporting. For purposes of administering this Agreement, data
reported in PacifiCorp's FERC Form No. 1 shall be deemed to be accurate for
purposes of calculating the Variable Cost Rate and the Adjusted Variable
Cost Rate; provided, however, should the FERC as a result of an audit,
require changes to PacifiCorp's FERC Form No. 1 that are relevant to the
calculation of the Variable Cost Rate or the Adjusted Variable Cost
Rate, the ▇▇▇▇▇▇▇▇ to Black Hills shall be retroactively adjusted to
reflect such changes. PacifiCorp shall fully comply with the Uniform
System of Accounts as promulgated by the FERC from time to time in the
preparation of the Form No. 1 during the Term of this Agreement.
7.2 Past Audit Issues. It is agreed by the Parties that any and all
outstanding audit issues are resolved by this Agreement. Any outstanding
audit questions or requests for information from Black Hills to PacifiCorp
are deemed to be withdrawn and satisfied.
7.3 Past Billings. All prior invoices under the Original Agreement
are deemed to be correct and not subject to further audit or adjustment
unless mutually agreed by the Parties.
Section 8: Arbitration
If any dispute arises under this Agreement as to any factual matter,
the Parties shall submit the factual dispute to a board of three arbiters,
one to be selected by each Party and the Parties to agree on the
selection of a third arbiter. If the Parties are unable to agree on the
third arbiter, the Parties shall request the senior district judge of
the United States District Court of the District of Wyoming to submit a
list of five (5) persons. Each Party shall alternately strike one name
from the list, the first exercise to be determined by lot. The
last person remaining on the list shall serve as the third (3rd) arbiter.
Except as otherwise set forth herein, the arbitration shall be held
under the rules of the American Arbitration Association. The arbiters
shall render their decision in writing not later than thirty (30) days
after the matter has been submitted to them, and the decision of a
majority of the board of arbiters of the factual dispute shall be
binding on the Parties. The arbiters may, in their discretion, award
arbitration costs and attorneys' fees to either Party.
Section 9: Uncontrollable Forces.
Neither Party to this Agreement shall be considered to be in default
in performance of any obligation hereunder if failure of performance shall
be due to uncontrollable forces. The term "uncontrollable forces" means
any cause beyond the control of the Party affected, including, but
not limited to, failure of facilities, flood, earthquake, storm, fire,
lightning, epidemic, war, riot, civil disturbance, labor disturbance
sabotage, and restraint by court order or public authority, which by
exercise of due foresight such Party could not reasonably have been
expected to avoid, and which by exercise of due diligence it shall be
unable to overcome. A Party shall not, however, be relieved of liability
for failure of performance if such failure be due to causes arising
out of its own negligence or to removable or remediable causes which it
fails to remove or remedy with reasonable dispatch. Any Party rendered
unable to fulfill any obligation by reason of uncontrollable forces shall
exercise due diligence to remove such inability with all reasonable
dispatch. Nothing contained herein, however, shall be construed to require
a Party to prevent or settle a strike against its will. It is specifically
understood and agreed that PacifiCorp's delivery of capacity and energy to
Black Hills under this Agreement comes from PacifiCorp's System and shall
not depend upon the existence, operation, or efficiency of the Colstrip
Project alone. In determining any uncontrollable force justifying any
nonperformance by PacifiCorp herein, the entire PacifiCorp System shall be
taken into consideration.
Section 10: Notices.
Any notice, demand, or request provided for in this Agreement shall be
deemed properly served, given, or made if delivered in person or sent by
facsimile and registered or certified mail, postage paid and return
receipt requested, to the person so designated as its authorized
representative. The titles and addresses of the authorized
representatives hereunder are as follows:
For Black Hills: Vice President, Finance
Black Hills Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
For PacifiCorp: Vice President, Global Energy
Trading & Wholesale Sales
PacifiCorp, Suite 1600
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: Manager, Contract Administration
PacifiCorp, Suite 625
825 NE Multnomah
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax No. (▇▇▇) ▇▇▇-▇▇▇▇
Either Party may change its authorized representative by providing
notice to the other Party pursuant to this Section 10.
Section 11: Waiver
Any waiver by a Party of its rights with respect to default under this
Agreement, or with respect to any other matter arising in connection with
this Agreement, shall not be deemed to be a waiver with respect to any
subsequent default or matter. No delay in asserting or enforcing any right
hereunder shall be deemed a waiver of such fight.
Section 12: Several Obligations.
Except where specifically stated in this Agreement to be otherwise,
the duties, obligations, and liabilities of the Parties are intended to be
several and not joint or collective. Nothing contained in this Agreement
shall ever be construed to create an association, trust, partnership,
or joint venture or to impose a trust or partnership duty, obligation,
or liability on or with regard to either Party. Each Party shall
be individually and severally liable for its own obligations under this
Agreement.
Section 13: Amendments.
No amendment of this Agreement shall be effective without written
approval of each Party.
Section 14: Assignment.
This Agreement shall not be assigned by any Party to any third party
without the written consent of the other Party, and such consent shall not
be withheld unreasonably. No assignment of this Agreement shall operate
to discharge the assignor of any duty or obligation hereunder without
the written consent of the other Party.
Section 15: Choice of Law
This Agreement shall be subject to and be construed under the laws of
the State of Wyoming.
Section 16: Replacement of Original Agreement.
This Agreement represents the entire agreement of the Parties and
replaces the Original Agreement in its entirety, except as provided in
Subsection 2.2.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to
be executed in their respective names by their respective officers
thereunder duly authorized.
PACIFICORP
By:___________________________________
Vice President
Date: September 29, 1997
BLACK HILLS CORPORATION
By:____________________________________
Vice President
Date:___________________________________
Appendix A
APPENDIX A: ANNUAL FIXED COSTS
Introduction
This Appendix A sets forth the elements and techniques to
calculate the Annual Fixed Cost under Subsection 5.1 for the term
of the Agreement.
The Annual Fixed Cost is the dollars per megawatt sum of:
(a) initial levelized annual fixed cost, (b) subsequent levelized
annual fixed costs for Colstrip Plant investments made through
December 31, 1996, and (c) other fixed annual charges, including
but not limited to property taxes, insurance, and taxes other
than income tax.
Prior to January 1, 2000 the Annual Fixed Cost shall be
those as set forth in Subsection 5.1. Commencing on January 1,
2000 the Annual Fixed Cost shall be calculated as set forth in
this Appendix A. Capital additions, replacements, and
betterments made after December 31, 1996 shall not be included
for calculating the Annual Fixed Cost. During the balance of the
Term, PacifiCorp shall continue to comply with generally accepted
accounting principles in identifying capital additions,
replacements and betterments to the Colstrip Project and
capitalizing such for book purposes as opposed to expensing them
and including them in the Variable Cost Rate calculation.
Section A1. Discussion of Methodology
A1.1 Levelized fixed charges are the basis of annual fixed
costs hereunder. While actual capital-related charges associated
with an investment may vary considerably from year to year, the
levelized fixed charge translates these charges into a level
annual amount which remains constant over time. The present
values of the two streams (varying versus constant) are equal.
A1.2 The levelized fixed charge includes three basic
components: (a) return on investment, given a specific capital
structure and cost of capital; (b) recovery of investment, given
the appropriate depreciation period related to the investment;
and (c) income tax requirements, given tax law considerations.
These components are commonly expressed as: (a) interest expense
on debt and return required by shareholders; (b) book
depreciation; and, (c) income taxes incorporating the effects of
investment tax credits and tax depreciation.
A1.3 An initial levelized annual charge rate shall be
applied to the original investment of Colstrip Project Unit Nos.
3 and 4. The rate shall be recalculated effective each January 1
only in the event of a change during the preceding calendar year
in any of the following: (a) the capital structure; (b) cost of
long-term debt; (c) preferred retum; (d) the return on common
equity; or, (e) income tax law, but not to be applied
retroactively.
A1.4 Subsequent levelized annual fixed charge rates shall
be calculated each year through December 31, 1996 to reflect the
most current information and shall be applied each year to the
amount of capital additions, replacements (less credit for net
salvage and insurance proceeds, if any) and betterments of the
Colstrip Project completed through the end of the preceding
calendar year.
Section A2: Determination of Annual Fixed Costs
The Annual Fixed Costs for any year shall be determined by
(a) adding the amounts calculated under Sections A2.1 through
A2.5, and (b) dividing the total by Net Colstrip Generation in
MW. The costs referred to above are:
A2.1 The initial levelized annual fixed charge computed as
the product of (1) PacifiCorp's initial levelized annual fixed
charge rate determined annually in accordance with Section AS of
this Appendix A, and (2) PacifiCorp's total Original Investment
in the Colstrip Unit Nos. 3 and 4 of $194,965,667. Black Hills
shall pay no initial levelized annual fixed costs aver 2018,
pursuant to Subsection 5.1.
A2.2 The total subsequent an nual levelized fixed charge
shall be computed as the sum of annual charges determined by the
product of (a) PacifiCorp's subsequent levelized annual fixed
charge rate, as calculated using the then current applicable cost
of capital in accordance with Section A3 of this Appendix A and
(b) the subsequent dollar investment in capital additions,
replacements (less credit for net salvage and insurance proceeds,
if any), and betterments of the Colstrip Project, completed for
each year from January 1, 1986 through December 31, 1996.
A2.3 All ad valorem taxes imposed upon the Colstrip Project
by governmental agencies without limitation for excluded
subsequent capital additions, replacements, and betterments.
A2 4 All taxes, assessments, payments in lieu of taxes, or other
charges imposed by any governmental body assessed or charged
against PacifiCorp relating to the Colstrip Project, excluding ad
valorem taxes, state and federal income taxes and excluding any
tax included in the Variable Cost Rate calculation of Subsection
B3. It is understood that the current Montana electric energy
license tax is included in the Variable Cost Rate.
A2.4 Insurance premiums which shall be deemed to be
$322,941.08 (0.16 percent of the Colstrip production plant
investment as of December 31, 1996).
Section A3: Elements of Levelized Annual Fixed Charge Rates
A3.1 Capital Structure:
A3.1.1 Commencing January 1, 2000, for purposes of
calculating the initial levelized annual fixed charge rate and
subsequent levelized fixed charge rates in any year, PacifiCorp's
then-current FERC approved capital structure as described further
in Subsection A3.3 shall be utilized. Such capital structure
shall be updated as provided for in Section A3.3. The capital
structure approved by the FERC the date of execution of this
Agreement is as follows:
Percent
Long-Term Debt 45.54%
Preferred Stock 8.40%
Common Equity 46.06%
Total Capital 100%
A3.2 Cost of Capital:
A3.2.1 Long-Term Debt: Commencing on January 1,
2000, the long-term debt applicable in the calculation of the
initial and subsequent levelized annual fixed charge rates shall
be equal to PacifiCorp's then-current weighted average cost of
longterm debt calculated using FERC prescribed methods. As of
the execution date of this Agreement, this rate is 7.11%. The
cost of long-term debt shall be updated as provided for in
Subsection A3.3, below.
A3.2.2Preferred Stock: Commencing on January 1,
2000, the return on preferred stock applicable in the calculation
of initial and subsequent levelized annual fixed charge rates
shall be PacifiCorp's then-current weighted average cost of
preferred stock calculated using FERC prescribed methods. As of
the execution date of this Agreement, this rate is 6.76%. The
cost of preferred stock shall be updated as provided for in
Subsection A3.3, below.
A3.2.3 Common Stock Equity: Commencing on January 1,
2000, the return on common stock equity applicable in the
calculation of each initial levelized annual fixed charge rate,
and each subsequent levelized annual fixed charge rate, shall be
the then current FERC approved cost of common equity for
PacifiCorp. The current cost of common stock equity approved by
the FERC at the date of execution of this Agreement is 10.40%.
The cost of common stock equity shall be updated as provided for
in Subsection A3.3 below.
A3.3Updates to FERC-Based Elements of Fixed Charge Rates:
At such times, subsequent to January 1, 2000, as new FERC orders
establish a different capital structure, cost of long-term debt,
cost of preferred stock or cost of common equity for PacifiCorp,
or PacifiCorp enters into a settlement of a FERC rate proceeding
where FERC staff reports known as "top sheets" provide for such
differences, effective the following January 1, such different
capital structure, cost of long-term debt, cost of preferred
stock or cost of common equity shall be substituted in
Subsections A3.1 through A3.2 as appropriate until the next FERC
order or settlement. If more than three years have elapsed
between the Effective Date of this Agreement and a FERC order or
settlement (with FERC staff top sheets), or between FERC orders
and/or settlements (with FERC staff top sheets) establishing a
capital structure, cost of long-term debt, cost of preferred
stock or cost of common equity, either Party may cause PacifiCorp
to promptly apply to the FERC for an order establishing a current
capital structure, cost of long-term debt, cost of preferred
stock and cost of common equity and the FERC findings shall be
substituted effective the January 1 following an order resulting
from such application .
A3.4 Book Depreciation: Book Depreciation charges shall be
at a straight-line rate based on a thirty-five (35) year life in
calculating the initial and subsequent levelized annual fixed
charge rate.
A3.5 Income Tax Requirements: Income tax requirements
applicable in calculating both initial and subsequent levelized
annual fixed charge rates shall be based on the following items:
provided, subsequent changes in tax laws shall be incorporated in
computing levelized annual fixed charge rates for periods
following such tax law changes:
A3.5.1 The actual federal corporate income tax rate
beginning at 46% in 1984, and tracking the actual corporate tax
and projected tax rates for the life of the investment, with tax
rate at the execution date of this Agreement at 35%.
A3.5.2 A state corporate income tax rate equal to the
estimated composite weighted average of PacifiCorp's three-factor
formula for unitary allocation of state taxable income based upon
payroll, property, and revenue in each state in which PacifiCorp
provides retail service. As of the execution date of this
Agreement, the rate is four and four-tenths percent (4.4%).
A3.5.3 Use of 1 5-year depreciation under Accelerated
Cost Recovery System for original investment and additions prior
to 1987, and 20-year depreciation under Modified Accelerated Cost
Recovery System for additions beginning in 1987 through 1 996.
A3.5.4 Regular investment tax credits allowed in
accordance with the provisions of the Internal Revenue Code of
1954, as amended, regardless of whether PacifiCorp is able to use
such credits. The investment tax credit in calculating the
initial levelized annual fixed charge rate shall be deemed to be
9.65 percent of tax basis.
A3.5.5 Tax basis shall be 75.98% of the book basis in
calculating each initial levelized annual fixed charge rate, and
100% of the book basis in calculating each subsequent levelized
annual fixed charge rate.
A3.5.6 The annual income tax amount included in the
levelized annual fixed charge rate shall be calculated utilizing
the methodology demonstrated in Item 3 of Appendix C of this
Agreement.
Appendix B
APPENDIX B: VARIABLE COSTS
This Appendix B sets forth the elements and techniques to
calculate the Adjusted Variable Cost Rate and the Variable Cost
Rate under Subsection 5.3 for each year of this Agreement.
Section B1: Adjusted Variable Cost Rate
During the term of this Agreement, the Adjusted Variable
Cost Rate expressed in dollars per megawatt-hour ($/MWh) in any
year shall be determined by June 1 of each year, to be effective
from such June 1 to May 31 of the following calendar year. The
Adjusted Variable Cost Rate for any year shall be the prior
year's Adjusted Variable Cost Rate multiplied by the ratio of the
prior calendar year's Variable Cost Rate, divided by the Variable
Cost Rate as determined one calendar year earlier. (The Variable
Cost Rate shall be determined pursuant to Section B2.) The
calculation of the Adjusted Variable Cost Rate is as follows:
AVCn=AVCn-1 *(VCmost recent year /VCmost recent year -1)
Where: AVC = Adjusted Variable Cost Rate
VC = Variable Cost Rate
n = current year
For example, the Adjusted Variable Cost Rate effective June
1, 2000 is equal to the Adjusted Variable Cost Rate effective
June 1, 1999 multiplied by the Variable Cost Rate based on 1999
FERC Form No. 1 and divided by the Variable Cost Rate based on
1998 FERC Form No. 1.
The initial Adjusted Variable Cost Rate shall be deemed to
be $12.20/MWh and shall be effective through May 31, 1998. This
Adjusted Variable Cost Rate shall be adjusted each successive
year beginning June 1, 1998 pursuant to this Section B1.
Section B2: Variable Cost Rate
During the term of this Agreement, the prior calendar year's
Variable Cost Rate ($/MWh) shall be determined by June 1 of each
year. The Variable Cost Rate for each year shall be calculated
from PacifiCorp's FERC Form No. 1 for the Colstrip Project as
illustrated in Section B3. The FERC Form No. 1 costs shall be
adjusted to spread the fixed portion of PacifiCorp's fuel costs
over the greater of (1) the actual PacifiCorp Net Colstrip
Generation (MWh) or (2) the generation based on a deemed 150 MW
of capacity at an 80% capacity factor. The commodity component
of the fuel costs shall be a separate calculation using actual
Net Colstrip Generation (MWh). The non-fuel variable cost shall
be computed using the generation based on a deemed 150 MW of
capacity at an 80% capacity factor.
Section B3: Variable Cost Rate Calculation
B3.1 An example calculation is shown in Subsection B3.2.
The input data for the calculation is from PacifiCorp's 1996 FERC
Form No. 1 for the Colstrip Project and the sum of the Western
Energy fixed charges (line 9 of Subsection B3.2) for contract
coal and coal transportation paid in such calendar year. The
1996 Variable Cost Rate is $13.12 pursuant to Subsection B3.2.
B3.2 Variable Cost Rate Calculation - 1996 Example
1 1996 PacifiCorp Colstrip Project
2 Annual Variables
3 Calendar Year 1996
4 PacifiCorp FERC Form No.1 ("Form 1") Page No. 403.1
5 Form 1, line 33, "Total Production Expenses" $11,619,595
6 Form 1, line 19, "Fuel" $7,594,943
7 Form 1, line 12, "Net Generation, Exclusive
of Plant Use", MWh 795,052
8 Hours in the Year (Leap Year) 8784
9 Sum of Western Energy Fixed Charges for
Contract Coal and Coal Transportation $567,744
10
11 Non-Fuel Variable Cost Component
12 Non-fuel Production Expense (line 5-line 6) $4,024,652
13 Deemed Non-Fuel Variable Adjustment Factor
(Electrical energy license tax and A&G) 1.03
14 Black Hills Adjusted Non-Fuel Variable Cost
(line 12 x line 13) $4,145,392
15 Deemed Production for Non-Fuel Calculation
(150 MW @ 80% OF), MWh 1,054,080
16 Non-Fuel Variable Cost, S/MWh (line 14/line 15) 3.93
17
18 Fuel Cost-Fixed Component
19 Western Energy Fixed Charges (line 9) $567,744
20 Deemed Production for FKed-Fuel Calculation,
MWh 1,054,080
(greater of 150MW @ 80% CF or line 7)
21 Fuel - Fixed Cost, $/MWh (line 19/line 20) 0.54
22
23 Fuel Cost - Commodity Component
24 Fuel Production Expense (line 6) $7,594,943
25 Deemed Fuel Variable Adjustment Factor 0.98
26 Black Hills Adjusted Fuel Expense
(line 24 x line 25) $7,443.044
27 Western Energy Feed Charges (line 9) $567,744
28 Black Hills Fuel Commodity Expenses
(line 26- line 27) $6,875.300
29 Net Generation, MWh (line 7) 795,052
30 Fuel Commodity cost, $/MWh (line 28/line 29) 8.65
31
32 1996 Variable Cost Rate, $/MWh
(line 16 + line 21 + line 30) 13.12
Section B4: Unavailability of Colstrip Variable Costs
B4 In years in which the capacity factor of Colstrip Unit
Nos. 3 and 4 together is less than forty percent (40%), or if
Colstrip Project costs are not available for any reason, or if
PacifiCorp is no longer a participant in the Colstrip Project,
the Adjusted Variable Cost Rate shall not be updated for up to a
year after its normal adjustment period. During such time the
Parties shall negotiate an appropriate alternative variable cost
methodology. If the Parties are unable to agree, the issue of
the variable cost methodology shall be submitted to arbitration
based on the fair market price for long term fuel and O&M for a
project similar to Colstrip. For the purpose herein, a "project
similar to Colstrip" is a project located in the western part of
the United States consisting of a generating station of two or
more coal-fired steam electric generators of 500 megawatts or
larger operating at an eighty percent (80%) load factor or more
and situated in close proximity to a surface coal mine from which
the generators are fueled. The Annual Fixed Costs shall not be
modified by such an event.