Southeastern Power Admin. wants to hike rates to pay for hydropower repairs

The Southeastern Power Administration, due to costs of hydroelectric dam repairs in its system, proposes to revise existing schedules of rates and charges applicable to the sale of power from the Cumberland System of Projects effective for a one-year period, October 2015-September 2016.

Southeastern, which is part of the U.S. Department of Energy, said in a notice to be published in the May 28 Federal Register that written comments on these proposed changes are due within 90 days of this notice. 

In February 2007, the U.S. Army Corps of Engineers (Corps) lowered pool levels at the Wolf Creek and Center Hill Projects to reduce the risk of imminent failure of the dams due to seepage issues. At that time the Corps also began the process of mitigating the seepage issues at the Wolf Creek and Center Hill Projects.

Under normal pool levels, the marketing policy for the Cumberland System provides peaking capacity, along with 1500 or 1800 hours of energy annually with each kilowatt of capacity, to customers outside the Tennessee Valley Authority (TVA) transmission system. All remaining energy is scheduled by TVA for the benefit of customers inside the TVA system.

As a consequence of lowered pool levels due to dam repairs, Southeastern was unable to provide peaking capacity and firm energy to the outside customers due to operational restrictions. Southeastern implemented an Interim Operating Plan for the Cumberland System to provide these customers with energy that did not include capacity.

In March 2014, the Corps lifted operating restrictions on the Wolf Creek Project. The operating restrictions on the Center Hill Project remain in effect. As a consequence, Southeastern implemented a Revised Interim Operating Plan that provides reduced capacity and schedulable energy to the outside customers.

Existing rate schedules are predicated upon an August 2011 repayment study and other supporting data contained in a Federal Energy Regulatory Commission docket. The annual revenue requirement in this study is $59,600,000. An updated repayment study, dated January 2015, indicates rates are not adequate to recover cost increases that have been identified and therefore do not meet repayment criteria. The additional costs are due to numerous factors. Corps Operation & Maintenance expenses have exceeded estimates and current rate schedules did not include costs associated with the dam safety repairs of the Wolf Creek and Center Hill Projects. The dam repair costs, after the application of the Dam Safety Act (Water Resources Development Act of 1986 section 1203), are a combined $83,200,000. The Corps has also provided Southeastern with an updated plan of major replacements for the Cumberland System with the total cost of these planned replacements at $868,000,000. Also, TVA notified Southeastern on March 5 that it will charge $1,009,850 per month for delivery of capacity and energy to the outside TVA customers.

A revised repayment study demonstrates that a revenue increase to $78,500,000 per year will meet repayment criteria. The increase in the annual revenue requirement is $18,900,000 per year, or about 32%.

Under section 1203 of the Water Resources Development Act of 1986, otherwise known as the Dam Safety Act, Congress capped the percentage of dam repair costs that may be assigned to project purposes (such as hydropower) at 15%. This cap applies to dam modification costs, “the cause of which results from new hydrologic or seismic data or changes in the state-of-the-art design or construction criteria deemed necessary for safety purposes.” When applicable, the Dam Safety Act requires that dam safety repair costs be recovered within thirty years of completion of the work. If the Dam Safety Act is not applied, 100% of all costs are assigned to project purposes for cost recovery but the thirty-year cost recovery requirement does not attach. Southeastern said it continues to discuss, analyze and seek guidance on the issue from other relevant agencies.

Southeastern is proposing three rate scenarios per rate schedule. All of the rate scenarios have an annual revenue requirement of $78,500,000. This annual revenue requirement was calculated using the lower bound of possible costs associated with the Wolf Creek and Center Hill Dam repairs: 15% assigned to project purposes and recovered within thirty years of completion, an amount that may be adjusted upward pending final determination of the Dam Safety Act’s applicability.

These rates would go into effect once the Corps lifts the restrictions on the operation of the Wolf Creek and Center Hill Projects and the Revised Interim Operating Plan and Southeastern returns to normal operations.

The Southeastern Power Administration was created in 1950 by the Secretary of the Interior to carry out the functions created by the Flood Control Act of 1944. In 1977, Southeastern was transferred to the newly-created DOE. Southeastern, headquartered in Elberton, Georgia, is responsible for marketing electric power and energy generated at reservoirs operated by the Corps of Engineers. This power is marketed to more than 491 preference customers in the states of Georgia, Florida, Alabama, Mississippi, southern Illinois, Virginia, Tennessee, Kentucky, North Carolina, and South Carolina.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.