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Rates and Repayment

Rates and Repayment

Western conducts annual power repayment studies to ensure power rates for each project are adequate. Data in the study include historic expenses and investments already repaid from power revenues as well as projections for future years. Also listed are estimated annual repayment of generation and transmission investment costs throughout the project's repayment period. More specifically, the studies detail year-by-year revenues and expenses, estimated amounts of investment and interest to be paid each year and the total amount of investment remaining to be repaid. Historical data is gathered primarily from accounting records through the last fiscal year. In addition to Western's marketing and billing records, generation, hydrology and project data, historical and projected figures are provided by the Bureau of Reclamation, the Army Corps of Engineers and the International Boundary and Water Commission. Reclamation and Corps also contribute hydrological forecasting data used to project resource sales and any required purchases.

Sales of electric power repay all costs associated with power generation. Western must establish power rates sufficient to recover operating, maintenance and purchase power expenses and repay the Federal government's investment in building these generation and transmission facilities within 50 years. Rates must also be set to cover certain non-power costs Congress has assigned to power users to repay, such as irrigation costs in excess of water users' ability to repay, interest expenses on the unpaid balance of power-related principal and replacement of power facilities within the expected service life of the replacement.

More information is found in the Repayment of Emergency Purchase Power and Wheeling Costs policy statement (64kb pdf).

How rates work across Western's regions 
Western bundles power from Federal resources into 10 different projects for marketing purposes. Customers pay the same rate for long-term firm power if they receive power from the same project, but rates vary from project to project.

To see rates for these projects, visit the regional websites at:

Federal law requires Western to set its rates to cover all costs associated with power generation and transmission, including part of the cost of constructing the multi-purpose water project. This includes all operating and investment costs—including interest—plus the requirement to repay irrigation investment costs that are above what the irrigators can afford to repay.

Western’s firm power rates are cost-based, not based on what the market will bear. Western and the other power marketing administrations are non-profit, so rate calculations do not have to include a return to shareholders. PMA resources are mostly hydropower, so there is no fuel cost. The PMAs sell power at wholesale, which means that there are no distribution costs included in our rates. Western is also not responsible for load growth, so the cost of obtaining additional power resources is not included in rates. Some of the water resource development projects from which Western sells power are largely repaid, so annual costs drive the rate; the impact of repayment of principal and interest is relatively small. Also, the rates that PMAs charge reflect the results of cost containment.

When and why Western changes rates
Rates are set in a formal public process when Western runs a power repayment study for each project annually to determine if current rates are sufficient to cover annual operation and maintenance costs for Western and the generating agencies and repay the Federal investment, plus interest, in the power and transmission facilities, as well as other costs assigned to power, such as aid to irrigation.

Power repayment studies normally use long-term, average generation expected in all future years of the study. During low-water years, however, Western incurs additional expenses for purchase power to meet contractual obligations and cannot repay as much principal. Any deficits in repaying annual expenses or missing required payments are capitalized at the current interest rate. This can lead to a rate increase if the repayment study shows revenues are not sufficient to meet current operation and maintenance expenses.

Using flexible provisions in our power sales contracts, Western adjusts power rates through a public process. Customers can opt out of their contracts if they don't like the rate change.

Western’s composite rate 
Western’s composite firm power rate is an average of the rates charged by Western’s 10 rate-setting power systems. Customers do not pay this composite rate. Customers pay the specific rate charged by the project from which they buy power.

History
The Reclamation Project Act of 1939 specified the role of power users in repayment. Section 9(c) in part: "Any sale of electric power...made by the Secretary in connection with the operation of any project or division of a project, shall be...at such rates as in his judgment will produce power revenues...to cover an appropriate share of the annual operation and maintenance cost, interest on an appropriate share of the construction investments...and such other fixed charges as the Secretary deems proper: Provided further that in said sales...preference shall be given to municipalities and other public corporations or agencies, and also to cooperatives and other nonprofit organizations financed...by loans made pursuant to the REA Act of 1936..."

Specific legislation authorizing each project often addressed repayment as well. Executive agencies which administer the specific projects have developed procedures to determine these repayment obligations.