Purchase Power and Wheeling Scoring (2020DOE Transition)
| Book 2 - Issue Papers
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| Entire 2020 DOE Transition book As of October 2020 |
The Power Marketing Administrations (PMAs) have long-term power marketing plans and power sale contracts with their customers. When the Federal hydropower generated is insufficient to fulfill contractual power commitments, the PMAs purchase power to fulfill their obligations. Without the Purchase Power and Wheeling (PPW) Program, the PMAs could not fulfill their contractual delivery requirements, placing the recovery of annual costs and repayment of the Federal investment at risk. Receipts for PPW are linked to expenditures for PPW in the budget and there is language and scoring to reflect that principle.
Summary
The Southeastern Power Administration (SEPA), Southwestern Power Administration (SWPA), and Western Area Power Administration (WAPA) have long-term contractual obligations with customers to market and deliver Federal power. The PPW program is critical to meeting the PMAs’ mission to deliver power. If sufficient power is not generated from Federally-owned sources to fulfill the contractual obligations, generally due to drought conditions, the PMAs are required to purchase power to fulfill their obligations.
PPW Receipt authority was enacted in Fiscal Year (FY) 2001 to provide greater ability to meet the highly variable hydropower generation outputs and the purchase of replacement power when needed.[1] Receipt authority for offsetting collections in excess of amounts matched with cash remains unused and expires at the end of the fiscal year. Alternative financing of PPW supplements the receipt authority. No appropriations are requested or enacted for PPW, resulting in a zero net budget authority request.
As PMA and generating agency requirements rely on power receipts, the PMAs have adopted a strategy to accumulate unobligated reserve balances for PPW programs as a way to strengthen their ability to deliver on contractual power commitments to customers during unanticipated adverse conditions. The accumulation of unobligated balances from receipts credited as offsetting collections to fund PPW provides the PMAs sufficient cash on hand to respond to current and future adverse conditions such as drought. This includes replenishment of unobligated balances to the levels defined in each PMA’s respective risk mitigation strategy.
The PPW program is highly variable—it is affected by energy market conditions; generation and transmission system constraints; reservoir storage levels; drought conditions; and downstream flow restrictions. Flow restrictions result from many different events including icing; flooding; environmental activities; health and safety; recreation; irrigation; and navigation requirements. Adequate PPW authority is essential to meeting the variability in the program, including maintenance of reserves. Without PPW, the PMAs would be required to expend emergency funds payable in the same year with significant rate impacts to customers. PPW allows for a smoothing of rate impacts.
Due to disagreement on scoring of PPW in recent years, Congress has been limiting the PMAs’ PPW funding levels. During the FY 2018 appropriations process, the PMAs were asked to provide more information concerning the accumulation of unobligated balances for PPW in the PMAs’ accounts. Section 308 of the Consolidated Appropriations Act, 2018, required DOE to prepare and submit a report, in consultation with the Office of Management & Budget, on how SEPA, SWPA, and WAPA execute current receipt authority for PPW expenditures to the Committees on Appropriations of the House and Senate. The report explains the execution of the program and the importance of the reserve balance strategies for the PMAs. The final report[2] detailing PPW authority and expense recovery through the rate-setting process was sent to Congress in September 2019.
Key Facts/Points
SEPA
- Actual PPW expenditures each year vary significantly and depend heavily upon water conditions. Hydropower unit outages are highest during severe drought conditions. SEPA’s risk mitigation strategy is to carry unobligated balances sufficient to cover 90 days of expenses. This provides funding early in the new fiscal year and allows time for the collection of receipts necessary to match use-of receipt authority or potential Continuing Fund activation. SEPA recovers PPW expenses bypassing actual costs incurred through to customers on a monthly basis.
- SEPA’s FY 2020 receipt authority request was $65.7 million and $56 million was enacted.
- The FY 2021 receipt authority request is $71.2 million. The House Mark is $52 million, reflecting a reduction of $19.2 million, or 27 percent. SEPA did not appeal the Mark following updated analysis of FY 2021 hydrological conditions, generation, contractual commitments, pricing, and program risk.
SWPA
- Actual PPW expenditures each year vary significantly, dependent upon water conditions and hydropower unit outages, and are highest during severe drought conditions. Drought conditions are largely unpredictable and can develop quickly (in a matter of months) in SWPA’s region.
- To provide for efficient response to drought conditions, the unobligated balance strategy proactively builds up a balance of PPW funds within range of the estimated single-year severe drought PPW need of $93 to $95 million.
- Maintaining receipt authority for PPW in each fiscal year’s appropriation language that is within range of the estimated single-year severe drought PPW needs allows SWPA to manage its unobligated PPW balances, permits SWPA to replenish the PPW funds balance (if expended), and enhances the ability to respond to a multi-year drought.
- SWPA’s FY 2020 receipt authority request was $83 million and $43 million was enacted.
- SWPA’s unobligated balance at the end of FY 2020 was $88 million; still short of SWPA’s unobligated balance strategy of $93 to $95 million.
- In FY 2021, SWPA requested $70 million in receipt authority. SWPA has appealed the House Mark of $15 million.
WAPA
- Actual PPW expenditures each year vary significantly, dependent upon water conditions. Hydropower unit outages are highest during severe drought conditions. WAPA plans for a level of adversity as experienced in FY 2014, and will develop risk mitigation for severe conditions, as in the FY 2001-2008 drought in the Pick-Sloan Missouri Basin. The budget request and rate process provide for a level of surety. Reserve strategies have been developed to mitigate the impacts of a severe long-term drought.
- WAPA’s FY 2020 receipt authority request was $258.9 million and $227 million was enacted.
- At the end of FY 2020, WAPA reached the reserve strategy objective of $393 million for the Construction, Operation and Maintenance account. This strategy was aligned upon with the preference power customers.
- The FY 2021 receipt authority request is $227 million. WAPA has submitted an appeal of the $172 million House Mark. The WAPA appeal is for $192 million, based on current information on hydro conditions, generation, contractual commitments, pricing, and program risk.
Implications
- Alternative financing authorities are voluntary on the part of the customers. Over-reliance on alternative financing increases risk that PPW requirements may not be funded and that the PMAs may not be able to fulfill their contractual power delivery obligations.
- Continued limitations on PPW receipt authority leave the PMAs at risk of breaching contracts, service interruptions during time of drought, and customer vulnerability to higher-priced purchase power and rate spikes.