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Home My WebLink AboutReso 93-374 - Approve COR entering into the Long-Term Power Sales Agreement with Pacificorp RESOLUTION NO. 93- 3 7q i A RESOLUTION OF THE CITY COUNCIL OF THE CITY OF REDDING APPROVING THE CITY OF REDDING ENTERING INTO THE LONG- TERM POWER SALES AGREEMENT WITH PACIFICORP; AND i AUTHORIZING THE MAYOR TO SIGN. i WHEREAS, as noted in an Electric Department 11/23/92 memorandum to City Council, staff identified a unique opportunity for the City of Redding to obtain an economical source of Pacific Northwest power via a three-party arrangement amongst the City of Redding, the Western Area Power Administration (Western) , and PacifiCorp; and i WHEREAS, the parties tentatively agreed to a concept whereby the City would enter directly into a business relationship with PacifiCorp, and Western would play a secondary role by executing a companion agreement with the City; and WHEREAS, in March 1993 a Memorandum of Understanding (MOU) between PacifiCorp and the City was executed; and WHEREAS, among other things, this MOU provided for the purchase by the City of 50MW of capacity and associated energy; and WHEREAS, the MOU also called for the negotiation and ultimate execution of a Power Sales Agreement between the City and PacifiCorp, conditioned upon the City entering into a related agreement with Western; and WHEREAS, presented herewith is the negotiated Long-Term Power Sales Agreement with PacifiCorp for City Council' s consideration; with the related Agreement with Western accompanying this agenda item; NOW, THEREFORE, IT IS HEREBY RESOLVED by the City Council of I the City of Redding as follows: 1. That it is in the best interests of the City of Redding to enter into the Long-Term Power Sales Agreement with PacifiCorp, a true copy of which is attached hereto and incorporated herein by reference. 2. That the Mayor of the City of Redding is hereby authorized and directed to sign said Agreement on behalf of the City of Redding; and the City Clerk is hereby authorized and directed to attest the signature of the Mayor and to impress the official seal of the City of Redding thereto. j I HEREBY CERTIFY that the foregoing Resolution was introduced and read at a regular meeting of the City Council of the City of Redding on the 19th day of October, , 1993 , and was duly adopted at said meeting by the following vote: AYES: COUNCIL MEMBERS: Anderson, Dahl, Kehoe, Nbss; and Arness NOES: COUNCIL MEMBERS: None ABSENT: COUNCIL MEMBERS: None ABSTAIN: COUNCIL MEMBERS: None i I CARL ARNESS, Mayor City of Redding A ST: CONNIE S OHMA City Clerk FORM APPROVED: i RANDALL A. S, City Attorney 2 LONG-TERM POWER SALES AGREEMENT BETWEEN PACIFICORP AND CITY OF REDDING LONG-TERM POWER SALES AGREEMENT BETWEEN PACIFICORP AND CITY OF REDDING Index to Sections Section Page 1 Preamble . . . . . . . . . . . . . . . . . . . . . 1 2 Explanatory Recitals . . . . . . . . . . . . . . . 1 3 Agreement . . . . . . . . . . . . . . . . . . . . . 2 4 Definitions . . . . . . . . . . . . . . . . . . . . 2 5 Term and Termination . . . . . . . . . . . . . . . 7 6 Firm Capacity . . . . . . . . . . . . . . . . . . 8 7 Firm Energy Delivery Provisions . . . . . . . . . 9 8 Prices . . . . . . . . . . . . . . . . . . . . . 9 9 Scheduling . . . . . . . . . . . . . . . . . . . 15 10 Billing . . . . . . . . . . . . . . . . . . . . . 18 11 Cost Determination Changes . . . . . . . . . . . . 23 12 Audit Rights . . . . . . . . . . . . . . . . . . . 23 13 Notices . . . . . . . . . . . . . . . . . . . . . 24 14 Uncontrollable Forces . . . . . . . . . . . . . . 25 15 Regulatory Impact . . . . . . . . . . . . . . . . 26 16 Waiver . . . . . . . . . . . . . . . . . . . . 26 17 Indemnification . . . . . . . . . . . . . . . . . 27 18 Dispute Resolution . . . . . . . . . . . . . . . . 27 19 Entire Agreement . . . . . . . . . . . . . . . . . 28 20 Assignability . . . . . . . . . . . . . . . . . . . 28 Appendix A Annual Fixed Cost . . . . . . . . . A-1 Appendix B Annual Variable Cost . . . . . . . . B-1 Appendix C Resource Pool . . . . . . . . . . . C-1 Appendix D Maximum Combined Charge Price . . . D-1 Appendix E Calculation of Contract Year Price E-1 Appendix F Example Calculation Establishing Adjustments for Interest . . . . . . . . . . . . F-1 i ! LONG-TERM POWER SALES AGREEMENT BETWEEN PACIFICORP AND CITY OF REDDING 1 . Preamble : THIS POWER SALES AGREEMENT ("Agreement") , dated this day of , is between PacifiCorp, an Oregon Corporation ("PacifiCorp") , and the City of Redding, a municipal corporation organized under the laws of the state of California, i ("Redding") ; Redding and PacifiCorp are sometimes referred to collectively as "Parties" and individually as "Party . " 2 . Explanatory Recitals 2 . 1 PacifiCorp and Redding are both engaged in the generation, transmission and distribution of electric power and energy. 2 . 2 Redding desires to purchase long-term capacity and energy from PacifiCorp under the terms and conditions of this Agreement . 2 . 3 PacifiCorp desires to sell long-term capacity and energy to Redding under the terms and conditions of this Agreement . 2 . 4 PacifiCorp and the Bonneville Power Administration (BPA) have executed a Letter of Understanding (LOU) dated May 28, 1993 in which BPA will provide PacifiCorp 125 MW of 1 additional firm transmission scheduling rights on the Northwest A.C . Intertie through either an additional allocation of non-Federal ownership rights in the Third A.C . Intertie or a firm transmission wheeling contract . 2 . 5 Redding is a member of the Transmission Agency of Northern California (IANC) and as such has a participation percentage of TANC' s entitlement in the COTP . i 2 . 6 Redding is a member of the M-S-R Public Power Agency I (M-S-R) and M-S-R is a party to an agreement with BPA dated October 31, 1989, under which, among other things, M-S-R purchases 100 MW of capacity and associated energy from BPA. Redding has a 15% interest in this agreement . 3 . Agreement : The Parties agree to the terms and conditions set forth herein . 4 . Definitions : As used herein, the following terms have the following meanings when used with initial capitalization, whether singular or plural : 4 . 1 "Agreement" means this Agreement between Redding and PacifiCorp, including Appendices A, B, C, D, E, and F, which are attached hereto and made part of this Agreement . 4 .2 "Annual Fixed Cost", for the calendar year 1995, has the meaning, and shall be determined, as set forth in Appendix A. 2 i For calendar year 1996 through the balance of the term of this Agreement, "Annual Fixed Cost" means, in any calendar year, the fully distributed weighted fixed cost expressed in dollars per kilowatt-month ($/kW-mo . ) , as determined by the methodology set forth in Appendix A, of the resources contained in the Resource Pool in such calendar year, with the costs of new resources, if any, added to the Resource Pool pursuant to Appendix C, being determined by a methodology substantially similar to that set forth in Appendix A. 4 . 3 "Annual Variable Cost", for the calendar year 1995, has the meaning, and shall be determined, as set forth in Appendix B . For calendar year 1996 through the balance of the term of this Agreement, "Annual Variable Cost" means, in any calendar year, the weighted variable cost expressed in dollars per megawatt hour ($/MWh) , as determined by the methodology set forth in Appendix B, of the resources contained in the Resource Pool in such calendar year, with such costs of new resources, if any, added to the Resource Pool pursuant to Appendix C, being determined by a methodology substantially similar to that set forth in Appendix B . 4 . 4 "California-Oregon Border" (COB) means the boundary between the States of California and Oregon . 3 i 4 . 5 "California-Oregon Transmission Project" (COTP) means the 500-kV transmission facilities in California constructed between Tesla Substation and the COB as described in Exhibit C of the Intertie Interconnection Agreement between certain COTP participants and Northwest participants (Contract No . DE-MS79-91BP93158) . 4 . 6 "Combined Charge Price" means the price for each Contract Year during the period June 1, 1995, through May 31, 2000, which shall be calculated as the sum of : (1) 50, 000 kilowatts multiplied by 12 months multiplied by the Annual Fixed Cost component of the Contract Year Price, pursuant to Appendix E expressed in $/kW-mo for the applicable Contract Year, multiplied by ninety-four and seventy-nine/hundredths percent ( 94 . 790) ; and (2) the Firm Energy, expressed in megawatt-hours, purchased during such Contract Year pursuant to Section 7, multiplied by the Annual Variable Cost component of the Contract Year Price, pursuant to Appendix E expressed in $/MWh for the applicable Contract Year; the sum of ( 1) and (2) to be divided by the Firm Energy during such Contract Year and expressed in $/MWh . 4 . 7 "Contract Year" means during the term of this Agreement a continuous 12 month period beginning each June 1 of each calendar year and ending May 31 of the following calendar year . For example, the 1995 Contract Year begins June 1, 1995 and ends May 31, 1996 . 4 i i 4 . 8 "Contract Year Price" means the price for Firm Capacity and Firm Energy as defined in Appendix E . 4 . 9 "Estimated Annual Fixed Cost" means PacifiCorp ' s estimate of the Annual Fixed Cost, based on the best information available to PacifiCorp at the time such estimates are made pursuant to Section 8 . 6, to be used for billing purposes under Section 10 . 1 . 4 . 10 "Estimated Annual Variable Cost" means PacifiCorp ' s estimate of the Annual Variable Cost, based on the best information available to PacifiCorp at the time such estimates are made pursuant to Section 8 . 6, to be used for billing purposes under Section 10 . 1 . 4 . 11 "Firm Capacity" means system capacity that is made available to Redding, as set forth in Section 6, from PacifiCorp ' s total system resources to facilitate associated deliveries of Firm Energy. 4 . 12 "Firm Energy" means the energy associated with Firm Capacity as set forth in Section 7 . 4 . 13 "Implicit Price Deflator" means the U . S . Gross Domestic Product Implicit Price Deflator index number for any calendar year during the term of this Agreement as published in the 5 0 0 Survey of Current Business, by April 1 of each year, by the U.S . Department of Commerce, Bureau of Economic Analysis . Whenever the U. S . Gross Domestic Product Implicit Price Deflator index number for the calendar year preceding the current calendar year is shown only by quarter, the U .S . Gross Domestic Product Implicit Price Deflator index number for such preceding calendar year shall equal the arithmetic mean of the quarterly data . I 4 . 14 "Northwest A.C . Intertie" means the existing and planned 500-kV transmission facilities or portion of transmission facilities in Oregon as described in the Northwest Intertie Agreements, such agreements being the agreements between and among BPA, PacifiCorp, and Portland General Electric (Northwest Participants) and any amendments thereto, which among other things, set forth the Northwest Participants' rights and obligations between and among themselves with respect to the Northwest A.C . Intertie and associated facilities, identified as the Bonneville-PacifiCorp Contract No. DE-MS7986BP92299 and associated agreements and the Bonneville- Portland General Electric Contract No . DE-MS79-87BP92340 and associated agreements . 4 . 15 "Northwest Reinforcement Project (NRP) " means the facilities planned to be added to the Northwest A.C . Intertie, pursuant to and as described in the Northwest Intertie Agreements . 6 i i 4 . 16 "Period of Interruption" means through the term of this Agreement the period commencing at the hour ending 0100 hours on November 16 each calendar year and continuing through hour ending 2400 hours on March 15 of the next succeeding calendar year. 4 . 17 "Point of Delivery" means for all transactions hereunder at or near the COB where the Northwest A. C . Intertie interconnects with the COTP, or other points as mutually agreed upon . 4 . 18 "Resource Pool" means a combination of resources available to PacifiCorp and to be used by PacifiCorp for purposes of pricing of Firm Capacity and Firm Energy hereunder, as defined in Appendix C . 4 . 19 "Third A.C . Intertie" means the existing and planned facilities north of the COB, including the NRP, which are expected to increase the north to south firm transfer capability of the Northwest A.C . Intertie from 4000 MW to 4800 MW. 5 . Term and Termination 5 . 1 Effective Date and Termination Da This Agreement shall be effective following its execution by both Parties and upon its acceptance or approvals provided for in Section 5 . 2 . Service will commence at the hour ending 0100 on June 7 • • 1, 1994 . Except as provided for in the termination options set forth in Sections 5 . 2, 8 . 4, 8 . 5, and 15 and the final billing adjustment as provided for in Section 10 . 2, this Agreement shall terminate at 2400 hours, May 31, 2014 . 5 . 2 Regulatory Approval : PacifiCorp, at its expense, shall file this Agreement with the Federal Energy Regulatory Commission (FERC) in a timely manner subsequent to its execution . PacifiCorp shall provide Redding with a copy of the filing prior to submittal to the FERC and Redding shall i file a letter of concurrence with the FERC supporting PacifiCorp' s filing of this Agreement . If the FERC does not approve or accept this Agreement for filing in its entirety, the Parties shall exercise best efforts to amend the Agreement pursuant to Section 15 to comply with the FERC action in a manner consistent with the Parties' original intent . In the event such amendment is not executed by the Parties within 60 days, or longer if the Parties mutually agree to an extension, following the FERC' s action, PacifiCorp shall file a notice of cancellation with the FERC in a timely manner and this Agreement shall terminate . 6 . Firm Capacity: Commencing on June 1, 1994 and continuing through the term of this Agreement, PacifiCorp shall make available at the Point of Delivery, (utilizing the transmission made available under the LOU pursuant to Section 8 i 2 . 4 or its successor agreement) , and Redding shall purchase, 50 MW of Firm Capacity each month . 7 . Firm Energy Delivery Provisions : Commencing on June 1, 1994 and continuing through the term of this Agreement, PacifiCorp I shall deliver Firm Energy associated with Firm Capacity at load factors as scheduled by Redding not to exceed 100 percent per hour, 100 percent per month, and 85 percent per Contract Year except as provided by Sections 9 . 4 . 2 and 14 . Redding shall purchase such Firm Energy at load factors of not less than 70 percent per month, and 85 percent per Contract Year except as provided by Sections 9 . 4 . 2 and 14 . 8 . Prices : Redding shall be obligated to pay PacifiCorp for all Firm Capacity and Firm Energy at the prices set forth below: 8 . 1 June 1, 1-994 through May 31 , 1995 : Commencing June 1, 1994 and continuing through May 31, 1995, Redding shall pay a fixed price of $40 . 71/MWh (based on $15 . 34/kW-mo for capacity and $15 . 99/MWh for energy) for all Firm Capacity and Firm Energy, plus transmission charges pursuant to Section 8 . 4 . 8 .2 June 1 . 1995 , throucrh May 31 000 : During the period June 1, 1995, through May 31, 2000, the price for Firm Capacity and Firm Energy shall be the lesser of either the Combined Charge Price or the Maximum Combined Charge Price as defined in Appendix D, plus transmission charges pursuant to 9 • • Section 8 . 4 that are not included in the Annual Fixed Cost component of the Contract Year Price, expressed in $/MWh. 8 . 3 June 1, 2000, through May 31, 2014 : Except as otherwise provided in Section 8 . 5, for each Contract Year during the period June 1, 2000, through May 31, 2014, the price for Firm Capacity shall be the Annual Fixed Cost component of the Contract Year Price multiplied by ninety-four and seventy- nine/hundredths percent ( 94 . 790) , plus transmission charges pursuant to Section 8 . 4 that are not included in the Annual Fixed Cost component of the Contract Year Price, expressed in $/kW-mo . For each Contract Year during the period June 1, 2000, through May 31, 2014, the price for Firm Energy shall be the Annual Variable Cost component of the Contract Year Price . 8 . 4 Associated Transmission Charge: Commencing June 1, 1994 and continuing through the term of this Agreement, Redding shall reimburse PacifiCorp for transmission costs and losses associated with PacifiCorp' s acquisition of additional firm scheduling rights in the Third A.C . Intertie, as set forth in Appendix A, Section Al2, and/or other third party wheeling charges necessary to provide service to Redding under this Agreement; provided, that if third party wheeling i charges are necessary to provide service to Redding, and only in the circumstance where such third party wheeling charges exceed 65 percent of the cost PacifiCorp would have incurred 10 I if PacifiCorp had acquired additional firm scheduling rights in the Third A.C . Intertie from BPA, then Redding shall reimburse PacifiCorp for such third party wheeling charges at a price as mutually agreed upon . Such agreed-upon price shall not exceed PacifiCorp' s actual cost of acquiring firm scheduling rights from third parties . Both Parties shall use best efforts to mutually agree to a price; if no price can be mutually agreed upon, either Party may terminate this Agreement; provided, that neither Party, pursuant to this Section 8 . 4, may terminate this Agreement prior to May 31, i 2000 . If third party wheeling charges are less than 65 percent of the cost PacifiCorp would have incurred if PacifiCorp had acquired additional firm scheduling rights in the Third A.C . Intertie from BPA, Redding shall reimburse PacifiCorp for the actual amount of such charges . 8 . 5 Resource Pool Forecast and Termination Option : 8 . 5 . 1 Beginning March 1, 1998, and on each March 1 thereafter through the term of this Agreement, PacifiCorp shall provide Redding a forecast of the resources to be contained in the Resource Pool for the subsequent third Contract Year plus the price estimate of the Annual Fixed Cost and the Annual Variable Cost for such subsequent third Contract Year. (Example : On March 1, 1998, PacifiCorp shall provide a forecast of resources plus the associated price estimates for the Contract Year beginning June 1, 2000) . Such estimates 11 shall utilize the best information then available to PacifiCorp . PacifiCorp shall provide Redding appropriate work papers and documentation supporting the determination of the estimates . 8 . 5 . 2 Based on the estimated prices provided to Redding pursuant to Section 8 . 5 . 1, Redding shall have the option to either: (1) accept the price estimates provided by PacifiCorp for such subsequent third Contract Year, (2) not accept the price estimates for such subsequent third Contract Year, or (3) terminate this Agreement . Redding shall provide written notice to PacifiCorp of Redding' s selected option within 60 days of receiving PacifiCorp' s notice of the estimated prices for such subsequent third Contract Year. Both Parties may agree in writing to extend the 60 day period. 8 . 5 . 3 If Redding elects not to accept the price estimates provided by PacifiCorp pursuant to Section 8 . 5 . 2 for such subsequent third Contract Year, PacifiCorp shall have the option to either : (1) charge Redding for deliveries in such subsequent third Contract Year in accordance with the provisions of Section 8 . 5 . 3 . 1, or (2) terminate this Agreement . PacifiCorp shall provide written notice to Redding of PacifiCorp' s selected option within 60 days of receiving Redding' s 12 notice . Both Parties may agree in writing to extend the 60 day period. 8 . 5 . 3 . 1 In the event PacifiCorp does not elect to terminate this Agreement pursuant to Section 8 . 5 . 3, the prices PacifiCorp shall charge Redding for deliveries in the Contract Year three years following the Contract Year of notification shall be derived by first adding ( 1) the Estimated Annual I Fixed Cost, (2) the Estimated Annual Variable Cost, and (3) transmission charges pursuant to Section 8 . 4 for the calendar year two years following the Contract Year of notification; the sum of which shall then be multiplied by the sum of one (1) plus the percent change in the Implicit Price Deflator between the Contract Year two years following the Contract Year of notification and the Contract Year three years following the Contract Year of notification . 8 . 5 . 4 In the event that either Party elects to terminate the Agreement pursuant to this Section 8 . 5, such termination shall be effective at 2400 hours on May 31 of the year three years following the Contract Year in which PacifiCorp provides Redding the forecasted price for such Contract Year . (Example : If on July 1, 13 2000 a Party elects to terminate this Agreement, then such termination shall be effective May 31, 2003 . ) 8 . 6 Estimated Capacity Price and Estimated Energy Price : Beginning on March 15, 1995, and on or before each March 15 thereafter, PacifiCorp shall provide to Redding the Estimated Annual Fixed Cost component of the Contract Year Price and the Estimated Annual Variable Cost component of the Contract Year Price which will be applicable for billing purposes during the following Contract Year in order for payments to be made on a monthly basis pursuant to Section 10 . 1 . Such estimates shall also be used to calculate the estimated Combined Charge Price for the period June 1, 1995 through May 31, 2000, for billing purposes . Such estimates shall be determined in a manner consistent with Sections 8 . 2 and 8 . 3 above utilizing the best information then available to PacifiCorp . PacifiCorp shall provide, at Redding' s request, appropriate work papers and documentation supporting the determination of the estimates . To the extent such estimates result in payments on a Contract Year basis that differ from Redding' s obligation to pay as stated in Sections 8 . 2 and 8 .3, the Parties will reconcile such differences pursuant to Section 10 . 2 . If, at any time during any Contract Year, PacifiCorp determines that the Estimated Annual Fixed Cost component of the Contract Year Price or the Estimated Annual Variable Cost component of the Contract Year Price used for billing purposes during the Contract Year should be adjusted 14 1 I to reflect more accurate estimates, PacifiCorp shall notify and supply supporting documentation to Redding as soon as possible and shall revise the Estimated Annual Fixed Cost component of the Contract Year Price and the Estimated Annual Variable Cost component of the Contract Year Price . Said revised estimates shall be used for billing purposes in the remaining billing periods for such Contract Year . 9 . Schedulina 9 . 1 Projected Monthly Schedules : Prior to June 1 of each year, Redding shall submit to PacifiCorp in writing the projected monthly amounts of the Firm Energy associated with Firm Capacity to be scheduled for the 12-month period commencing on June 1 of the following year . Such projections shall represent a good faith estimate by Redding of its anticipated purchases hereunder . Such estimates shall not be binding and shall be used by PacifiCorp for informational purposes only . 9 . 2 Preschedules of Firm Capacity and Firm Energy: Redding shall preschedule (by telephone unless otherwise agreed by the Parties' schedulers) deliveries of Firm Energy from PacifiCorp no later than 1000 hours on each work day observed by both Parties immediately preceding the day or days on which such energy is to be delivered, or as mutually agreed by the Parties ' dispatchers or schedulers . PacifiCorp shall deliver in accordance with those preschedules which comply 15 0 0 with the delivery obligations specified in Section 7 . In the event of changes in Redding' s system between the time of preschedule and the actual schedule hour due to significant changes in resources and/or loads, Redding may request a change in preschedule with no less than a two and one-half hour notice, and PacifiCorp shall make best efforts to accommodate such changes in Redding' s preschedules . 9 . 3 System Logs : All deliveries hereunder shall be deemed to be made during the hours and in the amounts as accounted for in Redding ' s and PacifiCorp ' s dispatchers ' system logs; provided, that if scheduled deliveries are interrupted due to an Uncontrollable Force as defined in Section 14, such schedules shall be adjusted to reflect such interruption and any scheduled delivery so interrupted shall be rescheduled in amounts and at times as mutually agreed. In the event of such interruption, Redding' s schedule will be reduced on a pro rata share basis with PacifiCorp ' s other firm off-system wholesale sale obligations affected by such Uncontrollable Force . 9 . 4 Schedule Curtailments 9 . 4 . 1 Curtailments Associated with Pacific Gas & Electric Co . : At times when PacifiCorp is unable to deliver or Redding is unable to receive deliveries of energy hereunder as a result of the Western Area Power Administration' s inability to receive deliveries of i I 16 I energy from Redding due to curtailments by Pacific Gas and Electric Company (PG&E) for low load conditions in the PG&E service area, or curtailment of schedules on the Northwest A. C. Intertie and/or the COTP due to loop flow or line outages, Redding shall be relieved of its obligation to purchase such energy and PacifiCorp shall be relieved of its obligation to provide energy during those hours of curtailment conditions . The Parties shall use best efforts to estimate the hours of such curtailments and submit such estimates in a timely fashion . Any energy interrupted hereunder shall be rescheduled in amounts and at times as mutually agreed. 9 . 4 . 2 Curtailments during the Period November 16 through March 15 : During each Period of Interruption, PacifiCorp may, upon providing Redding with no less than a two and one-half hours notice, interrupt scheduled energy deliveries, for any reason including economic reasons, for up to 10, 000 MWhs each month for the months of December, January and February and up to 5, 000 MWhs for the period November 16 through November 30 and up to 5, 000 MWhs for the period March 1 through March 15 but no more than 28, 000 MWhs during each Period of Interruption . All interrupted energy shall be delivered to Redding as rescheduled by Redding pursuant to the delivery provisions in Section 7 within eight months of the end of each Period of Interruption; provided, that 17 such delivery provisions may be waived, including the total amount of energy scheduled by Redding and delivered by PacifiCorp in any hour (i .e . , regular contract energy plus interrupted energy may exceed 50 MWhs per hour) , upon the mutual agreement of the Parties dispatchers and schedulers . Interruptions pursuant to this Section 9 . 4 . 2 do not include interruptions caused by Uncontrollable Forces pursuant to Section 14 . j9 . 4 . 3 The Parties agree that if transmission schedules on the Northwest A.C . Intertie and/or the COTP are curtailed, Redding' s M-S-R/BPA resource shall take precedent . That is, if transmission curtailments are required, Redding share of such curtailments shall be met first by reducing its deliveries under this Agreement; provided however, with respect to curtailments, that deliveries under this Agreement shall take precedent over those under future agreements that use the same transmission resources and are entered into by Redding after the date of this Agreement, 10 . Billina During the term of this Agreement, Redding shall pay PacifiCorp each month of each year for Firm Capacity and Firm Energy made available to Redding as follows : 10 . 1 Firm Capacity and Energy Payments 18 0 • 10 . 1 . 1 June 1, 1994 through May 31, 1995 : Commencing upon June 1, 1994 and continuing through May 31, 1995, the payment each month for Firm Capacity and Firm Energy deliveries pursuant to Sections 6 and 7 respectively, shall equal the sum of : (1) the price specified in Section 8 . 1 and (2) transmission charges pursuant to Section 8 . 4 expressed in $/MWh multiplied b the amount P P Y of Firm Energy delivered (or required to be purchased, whichever is greater) , during such month pursuant to Section 7 expressed in megawatt-hours . 10 . 1 . 2 June 1, 1995, through May 31, 2000L During the period June 1, 1995, through May 31, 2000, the payment for each month shall equal the amount of Firm Energy delivered or required to be purchased pursuant to Section 7 during the month expressed in megawatt-hours multiplied by the lesser of (1) the estimated Combined Charge Price specified in Section 8 . 6 or (2) the Maximum Combined Charge Price as defined in Appendix D, plus transmission charges pursuant to Section 8 . 4 that are not included in the Estimated Annual Fixed Cost component of the Contract Year Price, expressed in $/MWh. 10 . 1 . 3 June 1, 2000, through May 31. 2014 : For the period June 1, 2000, through May 31, 2014, the payment for each month shall equal the sum of : ( 1) the amount 19 of Firm Capacity stated in kilowatts pursuant to Section 6 multiplied by the applicable Estimated Annual Fixed Cost component of the Contract Year Price specified in Section 8 . 6, and (2) the amount of Firm Energy delivered or required to be purchased pursuant to Section 7 during the month stated in megawatt hours multiplied by the sum of the Estimated Annual Variable Cost component of the Contract Year Price specified in Sections 8 . 6 and transmission charges pursuant to Section 8 . 4 (expressed in $/MWh) that are not included in the Estimated Annual Fixed Cost . 10 . 2 Annual Adjustments . 10 . 2 . 1 Prior to the September invoice of each of the calendar years 1997 through 2014, utilizing the FERC Form 1 data upon which the Annual Fixed Cost and the Annual Variable Cost are based, PacifiCorp shall determine Redding' s payment obligation for the Contract Year ending May 31 sixteen months prior to such September invoice based on the Contract Year Price determined in accordance with Sections 8 . 2 and 8 . 3 and if applicable, Section 8 . 4 applied to Firm Capacity pursuant to Section 6 and the annual Firm Energy pursuant to Section 7 . In the event the amount so determined is greater than the amount actually paid by Redding pursuant to Sections 10 . 1 .2 and 10 . 1 . 3, as applicable, PacifiCorp shall add the amount of such 20 difference, as adjusted for interest pursuant to Appendix F, to the September invoice of said year. In the event the amount so determined is less than the amount actually paid by Redding pursuant to Sections 10 . 1 .2 and 10 . 1 . 3, as applicable, PacifiCorp shall subtract the amount of such difference, as adjusted for interest pursuant to Appendix F, from the September invoice of said year; provided, that, if such amount to be subtracted is greater than the September invoice amount, PacifiCorp shall promptly pay to Redding the difference between such amount and the September invoice amount . However, if the difference is greater than ten percent of the total annual payment obligation associated with the Contract Year being adjusted for, then either party may elect to spread the payment associated with such difference over a twelve month period commencing with the September invoice of said year with interest calculated at the prime rate as defined pursuant to Appendix F . 10 . 2 . 2 By July 31, fourteen months following the termination of this Agreement, PacifiCorp shall determine Redding' s payment obligation for the final Contract Year of this Agreement based on prices determined in accordance with Sections 8 . 2 and 8 . 3 and if applicable, Section 8 . 4 applied to Firm Capacity pursuant to Section 6 and to Firm Energy pursuant to 21 0 • Section 7 . In the event the amount so determined is different than the amount actually paid by Redding pursuant to Sections 10 . 1 . 2 and 10 . 1 . 3 then PacifiCorp shall refund or send Redding an invoice for such difference, whichever is appropriate, as adjusted for interest pursuant to Appendix F . Such price adjustment and invoice shall be submitted to Redding by August 15 of the calendar year immediately following the termination of this Agreement . 10 . 3 Billing and Payment Schedules : PacifiCorp shall bill Redding each month by certified mail for services provided during the preceding month. Redding shall pay such amounts within 30 days of receipt of such bill . Payments for all services provided hereunder are to be made by means of an electronic wire transfer (EFT) to the following: (Electronic Wire) Attention : Cash Administrator United States National Bank of Oregon Metropolitan Branch 900 S . W. Sixth Avenue Portland, OR 97204 (For credit to PacifiCorp, Account No. 070-0000-169, A.B.A. No. 123000220) 22 Payments not received within such 30 day period shall be considered overdue . Overdue bills shall have added to them an initial charge of two percent (2%) of the amount unpaid. Each day thereafter, a charge of five hundredths percent (0 .05%) of the principal sum unpaid shall be added until the amount due, including the two percent (2%) initial charge, is paid in full . Payments received will first be applied to the charges for late payment assessed on the principal and then to payment of the principal . Overdue charges consisting of the initial charge of two percent (2%) and the daily charge of five hundredths (0 . 05%) will not exceed the highest rate allowed under applicable law. 11 . Cost Determination Changes : The cost methodologies utilized for pricing purposes in this Agreement and the pricing formulae specified herein shall remain in effect through the term of this Agreement, and neither Party shall petition the FERC pursuant to the provisions of Section 205 or 206 of the Federal Power Act to amend such methodologies or formulae, or support such a petition by any other person or entity, absent agreement in writing from the other Party. 12 . Audit Rights : Redding, at its expense, shall have the right to audit and to examine any cost, payment, settlement or supporting documentation related to any item set forth in this Agreement . Any such audit shall be undertaken by Redding or its representatives at reasonable times and in 23 0 • conformance with generally accepted auditing standards . The right to audit a cost shall extend for a period of five years following the billing for such cost under this Agreement . PacifiCorp fully agrees to cooperate with such audit and to sar retain all necessary records or documentation for the entire I� Y length of the audit period. Redding shall take all steps reasonably available to secure the confidentiality of PacifiCorp ' s accounting records and supporting documents . If any such audit discloses that an overpayment or an underpayment has been made, the amount of such overpayment or I underpayment shall promptly be paid to the Party to whom it is owed by the other Party plus interest at the prime rate as defined pursuant to Appendix F . 13 . Notices : All written notices, demands or requests required by the Agreement or the provisions hereunder, including billing invoices, shall be considered given when delivered in person, or prepaid telegram, or sent by first class mail, postage prepaid deposited in the U. S . Mail, directed as follows : To Redding: City Manager City of Redding, Electric Department 760 Parkview Avenue Redding, California 96001-3396 24 i To PacifiCorp: Vice President, Power Systems and Development PacifiCorp 700 NE Multnomah, Suite 1600 Portland, Oregon 97232-4116 i The Parties may change at any time the persons to whom notices are addressed, or their addresses, by providing notice thereof as specified in this Section 13 . 14 . 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 an Uncontrollable Force . The term "Uncontrollable Force" means any cause beyond the control of the Party affected, including, but not limited to, failure of facilities, flood, tsunami, 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 to the extent that by exercise of due diligence it shall not have been able to overcome . A Party shall not, however, be relieved of liability for failure of performance to the extent such failure is due to causes arising out of its own negligence or to the extent such failure is the result of removable or remediable causes which it fails to remove or remedy with 25 reasonable dispatch. Any Party rendered unable to fulfill any obligation by reason of an Uncontrollable Force shall exercise due diligence to remove such inability with all reasonable dispatch and shall notify the other Party of such Uncontrollable Force as soon as practicable . Nothing contained herein, however, shall be construed to require a Party to prevent or settle a strike against its will . 15 . Regulatory Impact : In the event that the FERC or any agency or court of competent jurisdiction materially modifies any term or condition of this Agreement in such a manner that either Party is required to incur new or different obligations not expressly provided herein, the Parties shall attempt in good faith to renegotiate the terms and conditions of this Agreement so as to preserve the original intent contemplated by the Parties . In the event the Parties are unable to renegotiate the terms and conditions of this Agreement, this Agreement shall terminate within 60 days of receiving notification from FERC, any agency, or any court of competent jurisdiction requiring material modifications to this Agreement . 16 . Waiver: Any waiver by a Party to this Agreement of its rights with respect to a default hereunder, or with respect to any other matter arising in connection herewith, shall not be deemed to be a waiver with respect to any subsequent default or matter . No delay, short of the statutory period 26 I • i of limitations, in asserting or enforcing any right hereunder shall be deemed a waiver of such right . I 17 . Indemnification : Neither Party (First Party) , shall be i liable whether in warranty, tort, or strict liability, to the i other Party (Second Party) for any injury or death to any person, or for any loss or damage to any property, caused by or arising out of any electric disturbance on the First Party' s electric system, whether or not such electric disturbance resulted from the First Party' s negligent act or j omission . Each Second Party releases the First Party from, and shall indemnify and hold harmless the First Party from, such liability. As used in this Section, (1) the term "Party" means, in addition to such Party itself, its directors, officers, and employees; (2) the term "damage" means all damage, including consequential damage; and (3) the term "person means any person, including those not connected with either Party to this Agreement . 18 . Dispute Resolution : The Parties shall make best efforts to settle all disputes arising under this Agreement as a matter of normal business and without recourse to litigation . Pending resolution of a disputed matter, the Parties shall continue performance of their respective obligations pursuant to this Agreement . 27 i • 19 . Entire Agreement : This Agreement constitutes the entire agreement of the Parties hereto and supersedes all prior agreements, whether oral or written, with respect to the transactions addressed herein . This Agreement may be amended only by a written document signed by both Parties hereto. 20 . Assignability: This Agreement shall not be assigned without the prior written consent of the Parties, which consent shall not be unreasonably withheld, except : (a) To any person or entity into which or with which the Party making the assignment is merged or consolidated or to which the Party transfers substantially all of its assets; (b) To any person or entity wholly owning, wholly owned by, or wholly owned in common with the Party making the assignment . Nothing contained in this Section shall be construed to prevent PacifiCorp from making a collateral assignment of the revenues due under the terms of this Agreement . No assignment, merger or consolidation shall relieve any Party of any obligation under this Agreement . Subject to the foregoing restrictions in this Section 20, this Agreement shall be binding upon, inure to the benefit of, and be enforceable by the Parties and their respective successors and assigns . 28 IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be executed in their respective names by their respective officers thereunder duly authorized. i i F®R,M A P P t V HE CITY OF REDDING By: CITY LE6 PSC Title . Address : (SEAL) PACIFICO By. Attest : Title : Vice Pres dent µt-� By: fleu Av A Address : 700 NE Multnomah Title : Portland, OR 97232 29 • i APPENDIX A ANNUAL FIXED COST Introduction This Appendix sets forth the elements and techniques to calculate Annual Fixed Cost . The Annual Fixed Cost shall be the per-MW total of the following: (1) 70 MW multiplied by the Colstrip Project Annual Fixed Cost pursuant to Section A2 plus 95 MW multiplied by the Jim Bridger Project Annual Fixed Cost pursuant to Section A4, plus 235 MW multiplied by the Hunter #2 Project Annual Fixed Cost pursuant to Section A6, plus 400 MW multiplied by the Hunter #3 Project Annual Fixed Cost pursuant to Section A8, (2) dividing the above sum by 800 MW, (3) adding an amount for system transmission pursuant to Section A10, and (4) dividing by 0 . 95 for transmission losses . The Annual Fixed Cost for PacifiCorp ' s share of the Colstrip Project, PacifiCorp ' s share of the Jim Bridger Project, PacifiCorp ' s share of the Hunter #2 Project and PacifiCorp ' s share of the Hunter #3 Project is the per-MW sum of each Project ' s : (a) initial levelized annual fixed cost, (b) levelized annual fixed costs of subsequent capital additions, replacements and betterments (if any) , and (c) other fixed annual charges directly related to the resources in the pool, including but not limited to property taxes, insurance, and taxes other than income tax. Appendix A - 1 I Section Al - Discussion of Methodology 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 'I levelized fixed charge translates these charges into a level annual amount which remains constant over time . The present values of the two streams (actual versus levelized) are equal . 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 . As of December 31, 1990, an initial levelized annual charge rate will be applied to the total investment of each Project . The rate will 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 percentage of pollution control revenue bonds outstanding; (b) the interest rate on pollution control revenue bonds; (c) PacifiCorp' s rate of return on common equity (ROE) , as allowed by the Federal Energy Regulatory Commission (FERC) , or (d) income tax law, but not to be applied retroactively. Appendix A - 2 Subsequent levelized annual fixed charge rates will be calculated each year to reflect the most current information and will be applied each year to the amount of capital additions, replacements (less credit for net salvage and insurance proceeds, if any) and betterments of each Project completed through the end of the preceding calendar year . Section A2 : Determination of Colstrig Project Annual Fixed Cost Colstrip Project Annual Fixed Cost shall be determined by (a) adding the amounts calculated under Sections A2 . 1 through A2 . 5, and (b) dividing the total by 140 MW ( "Net Colstrip Capacity") , provided that, in the event the capacity of the Colstrip Project increases or decreases as a result of additions, replacements or betterments the Net Colstrip Capacity will be adjusted to reflect such change . A2 . 1 PacifiCorp ' s initial levelized annual fixed charge rate for the Colstrip Project determined annually in accordance with Section A3 of this Appendix, multiplied by the total investment in the Colstrip Project as of December 31, 1990 . For the purposes of this section, PacifiCorp ' s total investment in Colstrip Project is $196, 018, 575 . Such total investment shall remain constant through the term of the Agreement . A2 .2 The sum of all subsequent annual levelized fixed charges, each of which shall be determined by multiplying (a) PacifiCorp ' s subsequent levelized annual fixed charge rate for Appendix A - 3 each year, as calculated in accordance with Section A3, below, by (b) the dollar investment in capital additions, replacements (less credit for net salvage and insurance proceeds, if any) , and betterments of the Colstrip Project, completed during the calendar year immediately preceding establishment of such subsequent levelized annual fixed charge . Such dollar investment, to be determined from data contained in PacifiCorp ' s FERC Form 1 or its successor thereto, shall not include any dollar amounts incurred by PacifiCorp prior to January 1, 1991 . A2 .3 All ad valorem taxes imposed upon the Colstrip Project . A2 . 4 Any tax, assessment, payment, in lieu of taxes, or other charge imposed by any governmental body assessed or charged against PacifiCorp relating to the Colstrip Project, excluding ad valorem taxes, state and federal income taxes . A2 . 5 Administrative and General Expense shall be an amount equal to the product of 1) the quotient of total PacifiCorp administrative and general expenses to total PacifiCorp electric plant in service; and 2) the total investment in the Colstrip Project as filed in PacifiCorp ' s FERC Form No. 1, or its successor thereto. Section A3 : Elements of Colstri8 Project ' s Levelized Annual Fixed Charge Rates A3 . 1 Capital Structure : Appendix A - 4 ' • • I A3. 1 . 1 For purposes of calculating initial levelized annual fixed charge rates, PacifiCorp ' s capital structure will remain constant . The capital structure for Colstrip Project is : Long Term Debt and Pollution i Control Revenue Bonds 520 Preferred Stock 12% Common Stock Equity 36% Total Capital 100% The proportion of Pollution Control Revenue Bonds A to Total Capital will be the quotient of (a) $45, 000, 000 (the principal amount of Pollution Control Revenue Bonds relating to the Colstrip Project issued in January 1988) divided by (b) $196, 018, 575, , .e . , the sum of PacifiCorp ' s total investment cost of the Colstrip Project as of December 31, 1990 . The proportion of Pollution Control Revenue Bonds B to Total Capital will be the quotient of (a) $8, 500, 000 (the principal amount of Pollution Control Revenue Bonds relating to the Colstrip Project issued in December 1986) divided by (b) $196, 018, 575, i .e . , the sum of PacifiCorp ' s total investment cost of the Colstrip Project as of December 31, 1990 The proportion of Long Term Debt to Total Capital will be the difference between (a) fifty-two percent (52%) , (b) the proportion of Pollution Control Revenue Bonds A as calculated above, and (c) the proportion of Pollution Control Revenue Bonds B as calculated above . If PacifiCorp ' s City of Forsyth, Rosebud County, Montana, Floating Rate Monthly Demand Pollution Control Revenue Bonds, Series 1988 Appendix A - 5 i � • or Series 1986 (Pacific Power & Light Company Colstrip Project) , as referenced above, are prepaid, redeemed or exchanged for bonds, in their entirety, the interest of which is taxable under federal income tax laws, the capital structure will be adjusted to i determine the initial levelized annual charge rates in the jcalendar years immediately succeeding the year of prepayment or redemption, such that the Pollution Control Revenue Bonds (A or B) proportion will be zero (0) and the Long-Term Debt proportion will be the difference between (a) Fifty-two percent (520) and (b) the remaining proportion of Pollution Control Revenue Bonds A or B as calculated above . In the event that the above-referenced pollution control revenue bonds are exchanged for another issue of bonds, the interest of which is exempt under federal income tax laws, the capital structure consequent to the subsequent issue will be employed prospectively for calculations under this section. A3. 1 .2 PacifiCorp ' s capital structure will remain constant for purposes of calculating subsequent levelized annual fixed charge rates and is as follows : Long-Term Debt 48% Preferred Stock 60 Common Stock Equity 460 Total Capital 1000 provided, that if any part of PacifiCorp ' s portion of the capital additions, replacements, or betterments which occasioned a subsequent levelized annual fixed charge cost is financed by Appendix A - 6 ! i long-term debt, the interest of which is exempt from federal income taxes, the long-term debt portion of the above capital structure shall be apportioned between the long-term debt and the tax exempt long-term debt accordingly. In no case shall the long-term debt portion exceed forty-eight (48%) of total capitalization . A3 .2 Cost of Capital : A3. 2 . 1 Interest Rate for Debt : The interest rate for debt shall be equal to 1) the product of the proportion of Long Term Debt to Total Capital multiplied by the total Colstrip Project Investment times the bond interest rate (12 . 8%) as specified in Subsection A3 . 2 . 1 . 1, plus 2) the product of the amount of tax exempt Pollution Control Revenue Bonds A multiplied by the variable interest rate (which in 1990 was 7 . 124%) as specified in Subsection A3 . 2 . 1 . 2, plus 3) the product of the amount of tax exempt Pollution Control Revenue Bonds B multiplied by the variable interest rate (which in 1990 was 4 . 91%) as specified in Subsection A3 .2 . 1 . 3; the sum of the products of 1) and 2) and 3) divided by the sum of 4) the product of the proportion of Long Term Debt to Total Capital as specified in Subsection A3 . 1 . 1 times the Total Colstrip Project investment, plus 5) the amount of tax exempt Pollution Control Revenue Bonds A, plus 6) the amount of tax exempt Pollution Control Revenue Bonds B. A3 . 2 . 1 . 1 Long-Term Debt : Bond interest applicable in the calculation of each initial levelized annual fixed charge rate Appendix A - 7 will be twelve and eight-tenths percent ( 12 . 80) . Bond interest applicable in the calculation of each subsequent levelized annual fixed charge rate for future capital additions, replacements, or betterments shall be the effective cost rate to PacifiCorp of the most recent issue of long-term bonds, excluding special-purpose issues not related to the Colstrip Project, in the twelve (12) -month period prior to the date of the completion of construction of the capital additions, replacements or betterments for which the subsequent levelized annual fixed charge rate is calculated. In the event there are no bond issues within the said twelve (12) -month period, then an estimated bond interest rate will be used in the billings, based upon the bond rating then applicable to PacifiCorp until such time as there is a bond issue, at which time all future billings will reflect the actual cost to PacifiCorp of such bond issue . In the event such bond issue is subsequently exchanged for other bonds, the new bond rate shall be used for subsequent billings . A3 . 2 . 1 . 2 Pollution Control Revenue Bonds A: Bond interest applicable in the calculation of the 1990 initial levelized annual fixed charge rate shall be seven and one hundred, twenty-four thousandths percent (7 . 124%) . Bond interest applicable in the calculation of the initial levelized annual fixed charge rate in year from 1992 through 2010 shall be the average of that effective interest rate paid by PacifiCorp during the previous calendar year relating to its $45, 000, 000 City of Forsyth, Rosebud County, Montana, Floating Rate Monthly Demand i Appendix A - 8 Pollution Control Revenue Bonds, Series 1988 (Pacific Power & Light Company Colstrip Project) . If such series of bonds is prepaid, redeemed, or exchanged for bonds, in their entirety, the interest of which is subject to federal income taxes, there will be no interest relating to Pollution Control Revenue Bonds A in I the initial levelized annual fixed charge rates computed in the calendar year immediately following such prepayment or redemption . In the event that the above-referenced Pollution Control Revenue Bonds A are exchanged for another issue, the interest of which is exempt from federal income taxes, the interest rate consequent to the subsequent issue shall be employed prospectively for calculations under this section . A3 . 2 . 1 . 3 Pollution Control Revenue Bonds B: Bond interest applicable in the calculation of the 1990 initial levelized annual fixed charge rate shall be four and ninety-one hundredths percent (4 . 910) . Bond interest applicable in the calculation of the initial levelized annual fixed charge rate in each year from 1992 through 2010 shall be the average of that effective interest rate paid by PacifiCorp during the previous calendar year relating to its $8, 500, 000 City of Forsyth, Rosebud County, Montana, Floating Rate Monthly demand Pollution Control Revenue Bonds, Series 1986 (Pacific Power & Light Company Colstrip Project) . If such series of bonds is prepaid, redeemed, or exchanged for bonds, the interest of which is subject to federal income taxes, there will be no interest relating to Pollution Control Revenue Bonds B in the initial levelized annual fixed Appendix A - 9 0 • charge rates computed in the calendar year immediately following such prepayment or redemption . In the event that the above- referenced pollution control bonds B are exchanged for another issue, the interest of which is exempt from federal income taxes, the interest rate consequent to the subsequent issue shall be employed prospectively for calculations under this section. A3.2 .2 Preferred Stock: Return on preferred stock applicable in the calculation of each initial levelized annual fixed charge rate shall be thirteen and three-tenths percent (13 . 30) . Return on preferred stock applicable in the calculation of subsequent levelized annual fixed charge rates for future capital additions, replacements, or betterments shall be the same as for bond interest used in calculation of subsequent annual fixed charge rate, plus fifty (50) basis points . 83 .2 . 3 Common Stock Eojity: For pricing purposes only the component for the rate of ROE applicable in the calculation of the initial levelized annual fixed charge rate and each subsequent levelized annual fixed charge rate for any calendar year shall be equal to PacifiCorp ' s rate of ROE which has been authorized by the FERC . PacifiCorp shall use a rate of ROE of eleven and seventy- hundredths percent (11 . 700) as authorized for use by FERC in FERC Docket No. ER 93-052-000 . PacifiCorp shall make a timely filing with the FERC for a change of rates to reflect any change in the rate of ROE as authorized by the FERC . Appendix A - 10 • • 263 .3 Book Depreciation: Book depreciation charges shall be at a straight-line rate based on a thirty-five (35) -year life I �I in calculating the initial levelized annual fixed charge rates . Book depreciation charges for subsequent levelized annual fixed ' charge rates shall be based on the estimated remaining service life of the Project including the effects on such life due to the j subsequent investment . A3 . 4 Income Tax Reguirements : 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 change : A3. 4 . 1 The federal corporate income tax rate, 46% up through 1986, 40% in 1987 and 34% for the years 1998 through 1992 and 35% in 1993 and thereafter. A3. 4 . 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 . A3. 4 .3 Accelerated Cost Recovery System (ACRS) method of tax depreciation in accordance with the Tax Equity and Fiscal Responsibility Act of 1982 shall be used in calculating each initial levelized annual fixed charge rate and the modified Accelerated Cost Recovery System (modified ACRS) method of tax Appendix A - 11 depreciation in accordance with the Tax reform act of 1986 shall be used in calculating subsequent levelized annual fixed charge rates . I A3. 4 .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 . A3. 4 . 5 Tax basis will be seventy-five percent (750) of the book basis in calculating each initial levelized annual fixed charge rate and one hundred percent ( 1000) of the book basis in calculating each subsequent levelized annual fixed charge rate . Such amounts will be adjusted for allowed Regular Investment Tax Credits . Section A4 : Determination of Jim Bridger Project Annual Fixed Cost- Jim ostJim Bridger Project Annual Fixed Cost shall be determined by (a) adding the amounts calculated under Section A4 . 1 through A4 . 5, and (b) dividing the total by 1, 333 MW ( "Net Jim Bridger Capacity") , provided that, in the event the capacity of the Jim Bridger Project increases or decreases as a result of additions, replacements or betterments the Net Jim Bridger Capacity will be adjusted to reflect such change . A4 . 1 PacifiCorp ' s initial levelized annual fixed charge rate for Jim Bridger Project will be determined annually in accordance with Section A5 of this Appendix multiplied by the ! Appendix A - 12 total investment in the Jim Bridger Project as of December 31, 1990 . For purposes of this section, PacifiCorp ' s total investment in Jim Bridger Project is $735, 106, 493 . Such total investment shall remain constant through the term of the Agreement . A4 .2 The sum of all subsequent annual levelized fixed charges, each of which shall be determined by multiplying (a) PacifiCorp ' s subsequent levelized annual fixed charge rate for each year, as calculated in accordance with Section A5, below, by (b) the dollar investment in capital additions, replacements (less credit for net salvage and insurance proceeds, if any) , and betterments of the Jim Bridger Project, completed during the calendar year immediately preceding establishment of such subsequent levelized annual fixed charge . Such dollar investment, to be determined from data contained in PacifiCorp ' s FERC Form 1 or its successor thereto, shall not include any dollar amounts incurred by PacifiCorp prior to January 1, 1991 . A4 . 3 All ad valorem taxes imposed upon the Jim Bridger Project . A4 . 4 Any tax, assessment, payment in lieu of taxes, or other charge imposed by any governmental body assessed or charged against PacifiCorp relating to the Jim Bridger Project, excluding ad valorem taxes, state and federal income taxes . A4 . 5 Administrative and General Expense shall be an amount equal to the product of 1) the quotient of total PacifiCorp Administrative and General Expenses to total PacifiCorp electric plant in service; and 2) the total investment in the Jim Bridger Appendix A - 13 Project as filed in PacifiCorp' s FERC Form No. 1, or its successor thereto. Section A5 : Elements of Jim Bridger Project ' s Levelized Annual Fixed Charge Rates A5 . 1 Capital Structure A5. 1 . 1 For purposes of calculating initial levelized annual fixed charge rates, PacifiCorp ' s capital structure will remain constant . The capital structure for Jim Bridger Project is : Long-Term Debt and Pollution Control Revenue Bonds 540 Preferred Stock 100 Common Stock Equity 360 Total Capital 1000 The proportion of Pollution Control Revenue Bonds A to total Capital will be the quotient of (a) $101, 014, 000 (the principle amount of the Fixed Rate Pollution Control Revenue Bonds relating to the Jim Bridger Project issued in 1973, 1975, 1976 and 1977) divided by (b) $735, 106, 493, i .e . , the sum of PacifiCorp' s total investment cost of the Jim Bridger Project at December 31, 1990 . The proportion of Pollution Control Revenue Bonds B to total capital will be the quotient of (a) $131, 500, 000 (the principle amount of Pollution Control Revenue Bonds relating to the Jim Bridger FGD Retrofit Project issued in 1983, 1984, and 1988) divided by (b) $735, 106, 493, i .e . , the sum of PacifiCorp ' s i Appendix A - 14 • • total investment cost of the Jim Bridger Project as of December 31, 1990 . The proportion of Long Term debt to Total Capital will be the difference between (a) fifty-four percent (540) , (b) the proportion of Pollution Control Revenue Bonds A as calculated I above and (c) the proportion of Pollution Control Revenue Bonds B as calculated above . If PacifiCorp ' s Sweetwater County, Wyoming, Floating Rate Monthly Demand Pollution Control Revenue Bonds, Series 1983, 1984 , and 1988 (Pacific Power & Light Company Jim Bridger Project) , as referenced above, are prepaid, redeemed or exchanged for bonds, in their entirety, the interest of which is taxable under federal income tax laws, the capital structure will be adjusted to determine the initial levelized annual charge rates in the calendar years immediately succeeding the year of prepayment or redemption, such that the Pollution Control Revenue Bond B proportion will be zero (0) and the Long Term Debt proportion will be the difference between (a) fifty-four percent (540) and (b) the proportion of Pollution Control Revenue Bonds A as calculated above . In the event that the above-referenced pollution control revenue bonds B are exchanged for another issue of bonds, the interest of which is exempt under federal income tax laws, the capital structure consequent to the subsequent issue will be employed prospectively for calculations under this section . A5. 1 .2 PacifiCorp ' s capital structure will remain constant for purposes of calculating subsequent levelized annual Appendix A - 15 i I fixed charge rates and is as follows : Long-Term Debt 480 Preferred Stock 60 Common Stock Equity 460 Total Capital 1000 provided, that if any part of PacifiCorp ' s portion of the capital additions, replacements, or betterments which occasioned a subsequent levelized annual fixed charge cost is financed by long-term debt, the interest of which is exempt from federal income taxes, the long-term debt portion of the above capital structure shall be apportioned between the long-term debt and tax exempt long-term debt accordingly. In no case shall the long- term debt portion exceed forty-eight (480) of total capitalization . A5 . 2 Cost of Cagital A5 . 2 . 1 Interest Rate for Debt : The interest rate for debt shall be equal to 1) the product of the proportion of Long Term Debt to Total Capital times the total Jim Bridger Project Investment times the bond interest rate (9 . 380) as specified in Subsection A5 .2 . 1 . 1, plus 2) the product of the amount of tax exempt Pollution Control Revenue Bonds A times the fixed interest rate (70) as specified in Subsection A5 .2 . 1 . 2, plus 3) the product of the amount of tax exempt Pollution Control Revenue Bonds B times the variable interest rate (which in 1990 was 7 . 340) as specified in Subsection A5 . 2 . 1 . 3; the sum of the products of 1) and 2) and 3) divided by the sum of 4) the product i Appendix A - 16 i of the proportion of Long Term Debt to Total Capital as specified in Subsection A5 . 1 . 1 times the Total Jim Bridger Project investment, plus 5) the amount of tax exempt Pollution Control Revenue Bonds A, plus 6) the amount of tax exempt Pollution Control Revenue Bonds B. AS - 2 . 1 . 1 Long-Term Debt : Bond interest applicable in the calculation of each initial levelized annual fixed charge rate will be nine and thirty-eight hundredths percent ( 9 . 38%) . Bond interest applicable in the calculation of each subsequent levelized annual fixed charge rate for future capital additions, replacements, or betterments shall be the effective cost rate to PacifiCorp of the most recent issue of long-term bonds, excluding special-purpose issues not related to the Jim Bridger Project, in the most recent twelve (12) -month period prior to the date of the completion of construction of the capital additions, replacements or betterments for which the subsequent levelized annual fixed charge rate is calculated. In the event there are no bond issues within the said twelve (12) -month period, then an estimated bond interest rate will be used in the billings, based upon the bond rating applicable to PacifiCorp until such time as there is a bond issue, at which time all future billings will reflect the actual cost to PacifiCorp of such bond issue . In the event such bond issue is subsequently exchanged for other bonds, the new bond rate shall be used for subsequent billings . Appendix A - 17 9 9 A5 . 2 . 1 . 2 Pollution Control Revenue Bonds A: Bond interest applicable in the calculation of each initial levelized annual fixed charge rate will be seven percent (7 . 00%) . A5 . 2 . 1 . 3 Pollution Control Revenue Bonds B (Retrofit) : Bond interest applicable in the calculation of the 1990 initial levelized annual fixed charge rate shall be seven and thirty-four hundredths percent (7 . 34%) . Bond interest applicable in the calculation of the initial levelized annual fixed charge rate in each year from 1992 through 2010 shall be the average of that effective interest rate paid by PacifiCorp during the previous calendar year relating to its Sweetwater County, Wyoming, Floating Rate Monthly Demand Pollution Control Revenue Bonds, Series 1983 (Pacific Power & Light Company Project) . If such series of bonds is prepaid, redeemed, or exchanged for bonds, in their entirety, the interest of which is subject to federal income taxes, there will be no interest relating to Pollution Control Revenue Bonds B in the initial levelized annual fixed charge rates computed in the calendar year immediately following such prepayment or redemption . In the event that the above-referenced pollution control bonds B are exchanged for another issue, the interest of which is exempt from federal income taxes, the interest rate consequent to the subsequent issue shall be employed prospectively for calculations under this section . A5 . 2 . 2 Preferred Stock: Return on preferred stock applicable in the calculation of each initial levelized annual Appendix A - 18 fixed charge rate shall be nine and five-tenths percent (9 . 5%) . Return on preferred stock applicable in the calculation of subsequent levelized annual fixed charge rates for future capital additions, replacements, or betterments shall be the same as for bond interest used in calculation of subsequent annual fixed I charge rate, plus fifty (50) basis points . A5. 2 .3 Common Stock EQuity: For pricing purposes only the component for the rate of ROE applicable in the calculation of the initial levelized annual fixed charge rate and each subsequent levelized annual fixed charge rate for any calendar year shall be equal to PacifiCorp ' s rate of ROE which has been authorized by the FERC . PacifiCorp shall use a rate of ROE of eleven and seventy hundredths percent (11 . 70%) as authorized for use by FERC in FERC Docket No. ER 93-052-000 . PacifiCorp shall make a timely filing with the FERC for a change of rates to reflect any change in the rate of ROE as authorized by the FERC . A5 . 3 Book DeRreciation: Book depreciation charges shall be at a straight-line rate based on a thirty-five (35) -year life in calculating the initial levelized annual fixed charge rates . Book depreciation charges for subsequent levelized annual fixed charge rates shall be based on the estimated remaining service life of the Project including the effects on such life due to the subsequent investment . A5. 4 Income Tax Reauirements : Income Tax Requirements applicable in calculating both initial and subsequent levelized Appendix A - 19 annual fixed charge rates shall be based on the following items; provided, that subsequent changes in tax laws shall be incorporated in computing levelized annual fixed charge rates for periods following such tax law change : A5. 4 . 1 The federal corporate income tax rate, 46% up 1 through 1986, 40% in 1987 and 34% for the years 1998 through 1992 and 35% in 1993 and thereafter . I A5. 4 . 2 A state corporate income tax rate equal to the estimated composite weighted average of PacifiCorp ' s three (3) -factor formula for unitary allocation of state taxable income taxed upon payroll, property, and revenue in each state in which PacifiCorp provides retail service . A5 . 4 . 3 Asset Depreciation Range (ADR) method of tax depreciation shall be used in calculating each initial levelized annual fixed charge rate and the modified Accelerated Cost Recovery System (modified ACRS) method of tax depreciation in accordance with the Tax Reform Act of 1986 shall be used in calculating subsequent levelized annual fixed charge rate . A5. 4 . 4 Investment Tax Credits shall be zero (0) in calculating each initial levelized annual fixed charge rate . 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, shall be used when calculating subsequent levelized annual fixed charge rates . Appendix A - 20 I i • • ii A5. 4 . 5 Tax basis shall be one hundred percent (1000) of the book basis in calculating each initial levelized annual fixed charge rate and one hundred percent (1000) of the book basis in calculating each subsequent levelized annual fixed charge rate . i Section A6 : Determination of Hunter #2 Project Annual Fixed Cost Hunter #2 Project Annual Fixed Cost shall be determined j by (a) adding the amounts calculated under Sections A6 . 1 through i A6 . 5, and (b) dividing the total by 235 MW ("Net Hunter #2 I Capacity") , zrovided that, in the event the capacity of the Hunter #2 Project increases or decreases as a result of additions, replacements or betterments the Net Hunter #2 Capacity will be adjusted to reflect such change . The costs referred to above are : A6 . 1 PacifiCorp ' s initial levelized annual fixed charge rate for the Hunter #2 Project determined annually in accordance with Section A7 of this Appendix, multiplied by the total investment in the Hunter #2 Project as of December 31, 1990 . For the purposes of this section, PacifiCorp ' s total investment in Hunter #2 Project is $175, 028, 100 . Such total investment shall remain constant through the term of the Agreement . A6.2 The sum of all subsequent annual levelized fixed charges, each of which shall be determined by multiplying (a) PacifiCorp ' s subsequent levelized annual fixed charge rate for each year, as calculated in accordance with Section A7, below, by (b) the dollar investment in capital additions, replacements (less Appendix A - 21 II credit for net salvage and insurance proceeds, if any) , and betterments of the Hunter #2 Project, completed during the calendar year immediately preceding establishment of such subsequent levelized annual fixed charge . Such dollar investment, to be determined from PacifiCorp' s general accounting records, the required portions of which shall be provided by PacifiCorp each year, shall not include any amounts incurred by PacifiCorp prior 'I to January 1, 1991 . �I A6.3 All ad valorem taxes imposed upon the Hunter #2 Project . A6.4 Any tax, assessment, payment, in lieu of taxes, or I other charge imposed by any governmental body assessed or charged against PacifiCorp relating to the Hunter #2 Project, excluding ad valorem taxes, state and federal income taxes . A6. 5 Administrative and General Expense shall be an amount equal to the product of 1) the quotient of total PacifiCorp administrative and general expenses to total PacifiCorp electric plant in service; and 2) the total investment in the Hunter #2 Project as filed in PacifiCorp ' s FERC Form No . 1, or its successor thereto. Section A7 : Elements of Hunter #2 Project ' s Levelized Annual Fixed Charge Rates A7 . 1 CaRital Structure: A7. 1 . 1 For purposes of calculating initial levelized annual fixed charge rates, PacifiCorp ' s capital structure will Appendix A - 22 remain constant . The capital structure for Hunter #2 Project is : Long Term Debt 500 Preferred Stock 100 Common Stock Equity 400 Total Capital 1000 A7 . 1 .2 PacifiCorp ' s capital structure will remain constant for purposes of calculating subsequent levelized annual fixed charge rates and is as follows : Long-Term Debt 480 Preferred Stock 60 Common Stock Equity 460 Total Capital 1000 provided, that if any part of PacifiCorp ' s portion of the capital additions, replacements, or betterments which occasioned a subsequent levelized annual fixed charge cost is financed by long-term debt, the interest of which is exempt from federal income taxes, the long-term debt portion of the above capital structure shall be apportioned between the long-term debt and the tax exempt long-term debt accordingly. In no case shall the long-term debt portion exceed forty-eight percent (480) of total capitalization . A7 .2 Cost of Capital : A7 .2 . 1 Long-Term Debt : Bond interest applicable in the calculation of each initial levelized annual fixed charge rate will be eleven and ninety-seven hundredths percent (11 . 970) . Bond interest applicable in the calculation of each subsequent Appendix A - 23 0 9 levelized annual fixed charge rate for future capital additions, replacements, or betterments shall be the effective cost rate to PacifiCorp of the most recent issue of long-term bonds, excluding I special-purpose issues not related to the Hunter #2 Project, in the twelve (12) -month period prior to the date of the completion of construction of the capital additions, replacements or betterments for which the subsequent levelized annual fixed charge rate is calculated. In the event there are no bond issues within the said twelve (12) -month period, then an estimated bond interest rate will be used in the billings, based upon the bond rating then applicable to PacifiCorp until such time as there is a bond issue, at which time all future billings will reflect the actual cost to PacifiCorp of such bond issue . In the event such bond issue is subsequently exchanged for other bonds, the new bond rate shall be used for subsequent billings . A7 . 2 . 2 Preferred Stock: Return on preferred stock applicable in the calculation of each initial levelized annual fixed charge rate shall be ten and ninety-six hundredths percent (10 . 96%) . Return on preferred stock applicable in the calculation of subsequent levelized annual fixed charge rates for future capital additions, replacements, or betterments shall be the same as for bond interest used in calculation of subsequent annual fixed charge rate, plus fifty (50) basis points . A7 . 2 . 3 Common Stock Equity: For pricing purposes only the component for the rate of ROE applicable in the calculation of the initial levelized annual fixed charge rate and Appendix A - 24 each subsequent levelized annual fixed charge rate for any calendar year shall be equal to PacifiCorp' s rate of ROE which has been authorized by the FERC . PacifiCorp shall use a rate of ROE of eleven and seventy- hundredths percent (11 . 700) as authorized for use by FERC in FERC Docket No. ER 93-052-000 . PacifiCorp shall make a timely filing with the FERC for a change of rates to reflect any change in the rate of ROE as authorized by the FERC . A7 . 3 Book Depreciation: Book depreciation charges shall be at a straight-line rate based on a thirty-five (35) -year life in calculating the initial levelized annual fixed charge rates . Book depreciation charges for subsequent levelized annual fixed charge rates shall be based on the estimated remaining service life of the Project including the effects on such life due to the subsequent investment . A7 . 4 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 change : A7 . 4 . 1 The federal corporate income tax rate, 46% up through 1986, 40o in 1987 and 34% for the years 1998 through 1992 and 35% in 1993 and thereafter. A7 . 4 . 2 A state corporate income tax rate equal to the estimated composite weighted average of PacifiCorp ' s three-factor i I Appendix A - 25 formula for unitary allocation of state taxable income based upon payroll, property, and revenue in each state in which PacifiCorp provides retail service . A7. 4 . 3 Sum of the Years Digits method of tax depreciation shall be used in calculating each initial levelized annual fixed charge rate and the Modified Accelerated Cost Recovery System (modified ACRS) method of tax depreciation in accordance with the Tax reform act of 1986 shall be used in calculating subsequent levelized annual fixed charge rates . A7 . 4 • 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 . A7 . 4 . 5 Tax basis will be one-hundred percent (1000) of the book basis in calculating each initial levelized annual fixed charge rate and one hundred percent (1000) of the book basis in calculating each subsequent levelized annual fixed charge rate . Such amounts will be adjusted for allowed Regular , Investment Tax Credits . Section A8 : Determination of Hunter #3 Project Annual Fixed Cost Hunter #3 Project Annual Fixed Cost shall be determined by (a) adding the amounts calculated under Sections A8 . 1 through A8 . 5, and (b) dividing the total by 400 MW ( "Net Hunter #3 Capacity") , provided that, in the event the capacity of the Hunter Appendix A - 26 I #3 Project increases or decreases as a result of additions, replacements or betterments the Net Hunter #3 Capacity will be adjusted to reflect such change . The costs referred to above are : A8 .1 PacifiCorp ' s initial levelized annual fixed charge rate for the Hunter #3 Project determined annually in accordance with Section A9 of this Appendix, multiplied by the total investment in I, the Hunter #3 Project as of December 31, 1990 . For the purposes of this section, PacifiCorp ' s total investment in Hunter #3 Project is $454, 542, 832 . Such total investment shall remain constant through the term of the Agreement . I i A8 .2 The sum of all subsequent annual levelized fixed I charges, each of which shall be determined by multiplying (a) PacifiCorp ' s subsequent levelized annual fixed charge rate for each year, as calculated in accordance with Section A9, below, by (b) the dollar investment in capital additions, replacements (less credit for net salvage and insurance proceeds, if any) , and betterments of the Hunter #3 Project, completed during the calendar year immediately preceding establishment of such subsequent levelized annual fixed charge . Such dollar investment, to be determined from PacifiCorp ' s general accounting records, the required portions of which shall be provided by PacifiCorp each year, shall not include any dollar amounts incurred by PacifiCorp prior to January 1, 1991 . A8 .3 All ad valorem taxes imposed upon the Hunter #3 Project . Appendix A - 27 • O A8 .4 Any tax, assessment, payment, in lieu of taxes, or other charge imposed by any governmental body assessed or charged against PacifiCorp relating to the Hunter #3 Project, excluding ad valorem taxes, state and federal income taxes . Expense shall be an amount Administrative and General Ex A8 . 5 P equal to the product of 1) the quotient of total PacifiCorp administrative and general expenses to total PacifiCorp electric plant in service; and 2) the total investment in the Hunter #3 Project as filed in PacifiCorp ' s FERC Form No. 1, or its successor thereto. Section A9 : Elements of Hunter #3 Project ' s Levelized Annual Fixed Charge Rates A9 . 1 CaRital Structure : A9. 1 . 1 For purposes of calculating initial levelized annual fixed charge rates, PacifiCorp' s capital structure will remain constant . The capital structure for Hunter #3 Project is : Long Term Debt 500 Preferred Stock 100 Common Stock Equity 400 Total Capital 1000 A9. 1 .2 PacifiCorp ' s capital structure will remain constant for purposes of calculating subsequent levelized annual fixed charge rates and is as follows : Appendix A - 28 0 • Long-Term Debt 480 Preferred Stock 60 Common Stock Equity _46% Total Capital 1000 I � 9rovided, that if any Part of PacifiCor ' s portion of the capital additions, replacements, or betterments which occasioned a subsequent levelized annual fixed charge cost is financed by long-term debt, the interest of which is exempt from federal income taxes, the long-term debt portion of the above capital structure shall be apportioned between the long-term debt and the tax exempt long-term debt accordingly . In no case shall the long-term debt portion exceed forty-eight percent (480) of total capitalization . A9 . 2 Cost of Capital : A9 . 2 . 1 Long-Term Debt : Bond interest applicable in the calculation of each initial levelized annual fixed charge rate will be fourteen and fifty-two hundredths percent (14 . 520) . Bond interest applicable in the calculation of each subsequent levelized annual fixed charge rate for future capital additions, replacements, or betterments shall be the effective cost rate to PacifiCorp of the most recent issue of long-term bonds, excluding special-purpose issues not related to the Hunter #3 Project, in the twelve (12) -month period prior to the date of the completion of construction of the capital additions, replacements or betterments for which the subsequent levelized annual fixed charge rate is calculated. In the event there are no bond issues within Appendix A - 29 the said twelve (12) -month period, then an estimated bond interest rate will be used in the billings, based upon the bond rating then applicable to PacifiCorp until such time as there is a bond issue, at which time all future billings will reflect the actual cost to PacifiCorp of such bond issue . In the event such bond issue is subsequently exchanged for other bonds, the new bond rate shall be used for subsequent billings . A9 . 2 .2 Preferred Stock: Return on preferred stock applicable in the calculation of each initial levelized annual fixed charge rate shall be eleven and six-tenths percent (11 . 60) . Return on preferred stock applicable in the calculation of i subsequent levelized annual fixed charge rates for future capital additions, replacements, or betterments shall be the same as for bond interest used in calculation of subsequent annual fixed charge rate, plus fifty (50) basis points . A9. 2 . 3 Common Stock Eguity: For pricing purposes only the component for the rate of ROE applicable in the calculation of the initial levelized annual fixed charge rate and each subsequent levelized annual fixed charge rate for any calendar year shall be equal to PacifiCorp ' s rate of ROE which has been authorized by the FERC . PacifiCorp shall use a rate of ROE of eleven and seventy- hundredths percent (11 . 700) as authorized for use by FERC in FERC Docket No. ER 93-052-000 . PacifiCorp shall make a timely filing with the FERC for a change of rates to reflect any change in the rate of ROE as authorized by the FERC . Appendix A - 30 I A9. 3 Book Depreciation: Book depreciation charges shall be at a straight-line rate based on a thirty-five (35) -year life in calculating the initial levelized annual fixed charge rates . Book depreciation charges for subsequent levelized annual fixed i charge rates shall be based on the estimated remaining service life of the Project including the effects on such life due to the subsequent investment . A9. 4 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 change : A9. 4 .1 The federal corporate income tax rate, 46% up through 1986, 40% in 1987 and 34% for the years 1998 through 1992 and 35% in 1993 and thereafter . A9. 4 . 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 . A9. 4 . 3 Accelerated Cost Recovery System (ACRS) method of tax depreciation in accordance with the Tax Equity and Fiscal Responsibility Act of 1982 shall be used in calculating each initial levelized annual fixed charge rate and the Modified i Accelerated Cost Recovery System (modified ACRS) method of tax Appendix A - 31 depreciation in accordance with the Tax reform act of 1986 shall be used in calculating subsequent levelized annual fixed charge rates . A9. 4 . 4 Regular Investment Tax Credits allowed in i accordance with the provisions of the Internal Revenue Code of 1954 , as amended, regardless of whether PacifiCorp is able to use such credits . i A9. 4 . 5 Tax basis will be ninety-five percent (950) of the book basis in calculating each initial levelized annual fixed charge rate and one-hundred percent ( 1000) of the book basis in calculating each subsequent levelized annual fixed charge rate . Such amounts will be adjusted for allowed Regular Investment Tax Credits . Section A10 : Determination of Annual System Transmission Cost- System ostSystem transmission cost each year shall be the amount determined pursuant to this Section A10 . System transmission cost pursuant to this Section A10 herein, shall be determined by (a) adding the amounts calculated under Sections A10 . 1 through A10 . 5, less A10 . 6, and (b) dividing the total by PacifiCorp ' s coincidental peak (kW) for the most recent 12 month calendar year . Such coincidental peak shall include PacifiCorp ' s native load plus all firm wholesale sales . A10 . 1 PacifiCorp' s levelized annual fixed charge rate for system transmission determined annually in accordance with Section Appendix A - 32 All of this Appendix, multiplied by PacifiCorp' s total investment in system transmission as determined by adding the amounts calculated under Sections A10 . 1 . 1 through A10 . 1 . 3 below. A10. 1 . 1 PacifiCorp ' s total investment in system transmission as reported in PacifiCorp ' s FERC Form No . 1 . , or its successor, thereto, for the applicable calendar year; less the amount associated with PacifiCorp' s investment in the 3rd A.C . Intertie as determined pursuant to Section Al2 . 1 . 1 . A10 . 1 .2 Allocated general plant determined each year by ( 1) subtracting "Other Tangible Property" from "Total General Plant", both as reported in PacifiCorp ' s FERC Form No . 1, or its successor thereto, and (2) multiplying the difference by five and seventy-seven hundredths percent (5 . 770) . A10 . 1 .3 Allocated intangible plant determined each year by multiplying (1) "Total Intangible Plant" as reported in PacifiCorp ' s FERC Form No. 1, or its successor thereto, by (2) five and seventy-seven hundredths percent (5 . 770) . A10 .2 Wheeling expense, reported as "Transmission of Electricity by Others" in PacifiCorp ' s FERC Form No . 1, or its successor thereto . A10 .3 Transmission O&M determined by subtracting "Transmission of Electricity by Others" from "Total Transmission Expenses" both as reported in PacifiCorp ' s FERC Form No . 1, or its successor thereto; less the amounts charged by BPA associated with PacifiCorp' s investment in the 3rd A.C . Intertie as determined pursuant to Section Al2 .2 . Appendix A - 33 i A10 .4 For purposes of this Agreement only, taxes other than income taxes imposed against PacifiCorp including (a) Property taxes imposed against PacifiCorp relating to system transmission shall be an amount equal to the product of (1) the quotient of total PacifiCorp property taxes to total PacifiCorp electric plant in service; and (2) the total investment in system j transmission as filed in PacifiCorp ' s FERC Form No . 1, or its successor thereto; (b) Any additional taxes other than income taxes appropriately allocated to transmission service; less the amount associated with PacifiCorp' s investment in the 3rd A.C. Intertie as determined pursuant to Section Al2 . 3 . A10 . 5 Administrative and General Expense shall be an amount equal to the product of (1) the quotient of total PacifiCorp administrative and general expenses to total PacifiCorp electric plant in service; and (2) the total investment in system transmission as filed in PacifiCorp ' s FERC Form No . 1, or its successor thereto. A10 . 6 Total system wheeling revenues as reported in PacifiCorp ' s FERC Form No. 1, or its successor thereto . Section A11 : Elements of System Transmission Levelized Annual Fixed Charge Rates A11 . 1 Cagital Structure: For the purposes of calculating the levelized annual fixed charge rate, PacifiCorp ' s capital structure shall be the capital structure authorized by the FERC Appendix A - 34 • pursuant to PacifiCorp ' s most recent filing for firm wheeling service under Section 205 of the Federal Power Act . A11 . 2 Cost of Capital : A11 . 2 . 1 , Long-Term Debt : Long term debt interest applicable in the calculation of the levelized annual fixed char I pp e g I rate shall be the cost rate of Long-Term Debt of seven and ninety- nine-hundreths percent (7 . 990) authorized by the FERC pursuant to PacifiCorp ' s most recent filing for firm wheeling service under Section 205 of the Federal Power Act (ER-93-675-000) . A11 . 2 . 2 Preferred Stock: Return on preferred stock applicable in the calculation of the levelized annual fixed charge rate shall be the cost rate of Preferred Stock of seven and fifteen-hundredths percent (7 . 150) authorized by the FERC pursuant to PacifiCorp ' s most recent filing for firm wheeling service under Section 205 of the Federal Power Act (ER-93-675-000) . A11 . 2 . 3 Common Stock Equity: For pricing purposes only the component for the rate of ROE applicable in the calculation of the initial levelized annual fixed charge rate and each subsequent levelized annual fixed charge rate for any calendar year shall be equal to PacifiCorp ' s rate of ROE which has been authorized by the FERC . PacifiCorp shall use a rate of ROE of eleven and seventy- hundredths percent (11 . 700) as authorized for use by FERC in FERC Docket No. ER 93-052-000 . PacifiCorp shall make a timely filing with the FERC for a change of rates to reflect any change in the rate of ROE as authorized by the FERC . Appendix A - 35 i • A11 . 3 Book DeRreciation: Book depreciation charges shall be at a straight-line rate based on a thirty-eight (38) -year life in calculating the levelized annual fixed charge rates and will j only be subject to change by mutual agreement between the Parties . i A11 . 4 Income Tax Requirements : Income Tax Requirements applicable in calculating the 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 change . A11 . 4 . 1 The federal corporate income tax rate, 46% up through 1986, 40% in 1987 and 34% for the years 1998 through 1992 and 35% in 1993 and thereafter . A11 . 4 . 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 . A11 . 4 .3 The Modified Accelerated Cost Recovery System (modified ACRS) method of tax depreciation in accordance with the Tax reform act of 1986 shall be used in calculating the levelized annual fixed charge rates . A11 . 4 .4 Regular Investment Tax Credits, to the extent such credits are allowed by tax laws in effect at the time of the calculation, regardless of whether PacifiCorp is able to use such credits . Appendix A - 36 • s A11 . 4 . 5 Tax basis will be one-hundred percent (1000) of the book basis in calculating the levelized annual fixed charge rate . Such amounts will be adjusted for allowed Regular Investment Tax Credits . Section Al2o Determination of PacifiCoRR' s Annual Transmission Cost in the 3rd A C Intertie PacifiCorp' s transmission cost each year for 3rd AC i Intertie Transmission shall be the amount determined by either 1) PacifiCorp' s actual third party wheeling costs incurred to provide service to Redding under this Agreement subject to Section 8 . 4 or 2) the product of (a) the sum of the amounts calculated under Sections Al2 . 1 through Al2 .3 divided by the total of PacifiCorp' s transmission capacity (kW) acquired in the 3rd A.C . Intertie pursuant to Section 3 of the June 1, 1993 LOU between PacifiCorp and BPA, and (b) sixty-five (65) percent . Al2 . 1 PacifiCorp' s total investment in the 3rd AC Intertie Transmission Project as reported by the Company at the time of purchase multiplied by PacifiCorp' s levelized annual fixed charge rate for system transmission determined annually in accordance with Section All of this Appendix with the exception that Book Depreciation charges pursuant to Section All . 3 shall be at a straight-line rate based on a twenty (20) year life instead of a thirty-eight (39) year life in calculating the levelized annual fixed charge rates . i Appendix A - 37 i I • • Al2 .2 Transmission O & M associated with the 3rd A.C . Intertie investment charged to PacifiCorp annually by BPA. Al2 .3 For purposes of this Agreement only, taxes other than income taxes imposed against PacifiCorp including but not limited i to (a) property taxes imposed against PacifiCorp relating to the 3rd A.C. Intertie which shall be an amount equal to the product of (1) the quotient of total PacifiCorp property taxes to total PacifiCorp electric plant in service; and (2) PacifiCorp` s total investment in the 3rd AC as reported by the Company at the time of purchase; and (b) any additional taxes other than income taxes appropriately allocated to transmission service . Appendix A - 38 Colstrip Project Annual Fixed Cost (Based on 1990 Actual Costs) Initial Levelized Fixed Charge Colstrip Project Colstrip Initial Project Investment $196,018,575 Initial Levelized Annual Fixed Rate 12.616% i Initial Levelized Annual Fixed Charge 8 $24,729,703 Subsequent Investment Subsequent Levelized Annual Fixed Rate Subsequent Levelized Annual Fixed Charge $0 Ad Valorem Tax $1,582,443 Taxes, assessments and in lieu of taxes $0 Administrative & General Expenses: 1990 Total PacifiCorp A&G Expense $145,713,190 1990 Total PacifiCorp Electric Plant In Service $7,884,778,137 A&G Expense as a percent of Investment 1.85% Colstrip A & G Expense $3,622,485 Total Fixed Cost $29,934,632 Net Colstrip Capacity 140 Annual Fixed Cost per MW $213,819 Monthly Fixed Cost per kW $17.82 Appendix A - 39 I Jim Bridger Project Annual Fixed Cost (Based on 1990 Actual Costs) i Initial Levelized Fixed Charge Jim Bridger Project Jim Bridger Initial Project Investment $735,106,493 Initial Levelized Annual Fixed Rate 12.055% Initial Levelized Annual Fixed Charge $88,617,088 Subsequent Investment Subsequent Levelized Annual Fixed Rate Subsequent Levelized Annual Fixed Charge $0 Ad Valorem Tax $2,558,776 Taxes, assessments and in lieu of taxes $0 Administrative & General Expenses: 1990 Total PacifiCorp A&G Expense $145,713,190 1990 Total PacifiCorp Electric Plant In Service $7,884,778,137 A&G Expense as a percent of Investment 1.85% Jim Bridger A & G Expense $13,585,000 Total Fixed Cost $104,760,864 Net Jim Bridger Capacity 1,333 Annual Fixed Cost per MW $78,590 Monthly Fixed Cost per kW $6.55 Appendix A - 40 ! Hunter #2 Project Annual Fixed Cost (Based on 1990 Actual Costs) i i Initial Levelized Fixed Charge iHunter#2 Project i Hunter#2 Initial Project Investment $175,028,100 Initial Levelized Annual Fixed Rate 13.269% j Initial Levelized Annual Fixed Charge $23,224,479 Subsequent Investment Subsequent Levelized Annual Fixed Rate Subsequent Levelized Annual Fixed Charge $0 Ad Valorem Tax $1,897,464 Taxes, assessments and in lieu of taxes $0 Administrative & General Expenses: 1990 Total PacifiCorp A&G Expense $145,713,190 1990 Total PacifiCorp Electric Plant In Service $7,884,778,137 A&G Expense as a percent of Investment 1.85% Hunter#2 A & G Expense $3,234,575 Total Fixed Cost $28,356,517 Net Hunter#2 Capacity 235 Annual Fixed Cost per MW $120,666 Monthly Fixed Cost per kW $10.06 Appendix A - 41 • e Hunter #3 Project Annual Fixed Cost (Based on 1990 Actual Costs) Initial Levelized Fixed Charge Hunter#3 Project i Hunter#3 Initial Project Investment $454,542,832 Initial Levelized Annual Fixed Rate 14.371% Initial Levelized Annual Fixed Charge $65,322,350 Subsequent Investment Subsequent Levelized Annual Fixed Rate Subsequent Levelized Annual Fixed Charge $0 Ad Valorem Tax $4,931,151 Taxes, assessments and in lieu of taxes $0 Administrative & General Expenses: 1990 Total PacifiCorp A&G Expense $145,713,190 1990 Total PacifiCorp Electric Plant In Service $7,884,778,137 A&G Expense as a percent of Investment 1.85% Hunter#3 A & G Expense $8,400,095 Total Fixed Cost $78,653,596 Net Hunter#3 Capacity 400 Annual Fixed Cost per MW $196,634 Monthly Fixed Cost per kW $16.39 Appendix A - 42 ANNUAL FIXED COST (Based on 1990 Actual Costs) I Annual Fixed Cost $/kW-mo= (70MW x 17 . 82) + (95MW x 6 . 55) + (235MW x 10 . 06) + (400MW x 16 , 39) 800 MW $/kW-mo = $13 . 49 W/System Transmission, (1) $/kW-mo = $13 . 49 + $2 . 48= $15 . 97 W/Transmission Cost Associated with Investment in 3rd AC Intertie, (2) $kW-mo=$15 . 97 + $1 . 76 = $17 . 73 Adjusted for Losses = $17 . 73/0 . 95 Annual Fixed Cost = $18 . 66/kW-mo . (1) Excludes cost of transmission associated with investment in addtional 3rd A.C . Intertie . System transmission costs are calculated on page 46 of this Appendix A. (2) Transmission costs associated with the 3rd A.C . Intertie are calculated on page 47 of this Appendix A. Appendix A - 43 PACIFICORP Twelve Months Ended December 31, 1990 System Transmission Costs (Thousands of Dollars) "Example" Less Amts .Assoc . System Transmission /w Inv. in Percent Total Cost 3rd AC Levelized Annual Components Investments rn i .(i) Fixed Charae Cost Transmission* $1, 557, 693 $10, 750 11 . 330 $175, 269 Wheeling Expense 31, 015 (2) 31, 015 Transmission O&M 21, 526 (3) 138 21, 388 Taxes Other Than Income 15, 052 (9) 105 14, 947 System Transmission A&G 28, 787 (5) 28, 787 Wheeling Revenues <18, 531>(6) <18, 531> Total System Transmission Cost (net) $252, 875 Unit System Transmission Cost : Coincidental Peak (kW) Including Firm Wholesale Sales = 8, 492, 000 kW. $252, 875, 000 divided by 8, 492, 000 kW = $29 . 78/kW-yr, or $2 . 48/kW-mo. FERC Capital Cost and Capital Structure (Based on October 1989 Filing) Long-Term Debt 49 . 0% @ 7 . 990 = 3 . 920 Preferred Stock 6 . 0% @ 7 . 150 = 0 . 430 Common Equity 45 . 0% @11 . 700 = 5 . 260 9 . 61% Less Amts .Assc . /w Inv. in Adjusted Total PacifiCorp 3rd A . Intej:tie Total * Transmission $1, 543, 401 (7) $10, 750 $1, 532, 651 Allocated General Plant 20, 686(8) 20, 686 Allocated Intangible Plant 4 , 356(9) 4, 356 Total $1, 568, 443 $10, 750 $1, 557, 693 (1) 3rd A.C . Intertie transmission costs are calculated on page 47 . (2) From FERC Form No. 1 page 321, line 87 (3) From FERC Form No . 1 page 321, line 99 minus line 87 (4) Total Company Property Tax for each state (FF . 1, Pg 262-263, column i) divided by total electric plant in service (FF . 1, Pg 207, line 88) , the quotient multiplied by the total transmission plant investment; plus any other Taxes other than income . (5) Total Company A&G (FF . l,page 323, line 167) divided by total electric plant in service (FF . l,page 207, line 88) the quotient multiplied by the total transmission plant investment . (6) From F .E.R.C . Form No. 1 page 330 . (7) Sum of FERC Form No . 1 page 207, line 53 and total investment in 3rd AC Intertie, if not included on page 207, line 53 . (8) From FERC Form No . 1 page 206, line 83 minus line 82, multiplied by 5 . 77% (9) From FERC Form No . 1 page 204, line 5 multiplied by 5 . 770 . Appendix A - 44 0 0 PACIFICORP Twelve Months Ended December 31, 1990 Transmission Costs of 3rd AC Intertie (Thousands of Dollars) "Example" Investment System Transmission Associated Percent Total Cost with 3rd AC Levelized Annual Components Intertie Fixed Charae Cost Transmission $10, 750(1) 12 . 8590 $1, 382 Transmission O&M 138(2) 138 Taxes Other Than Income 105(3) 105 Total 3rd AC Intertie Transmission Cost (net) $1, 625 Unit System Transmission Cost : Capacity (kW) of 3rd AC Intertie Purchase = 50 kW. $1, 625 divided by 50 kW = $32 . 50/kW-yr, or $2 . 71/kW-mo . Redding Utilization Factor : 656 Cost of 3rd A.C . Intertie charged to Redding : $2 . 71/kW-mo . @ 650 = $1 . 76/kW-mo. FERC Capital Cost and Capital Structure Long-Term Debt 49 . 06 @ 7 . 990 = 3 . 920 Preferred Stock 6 . 06 @ 7 . 156 = 0 . 430 *Based on October 1989 Filing Common Equity 45 . 0% @11 . 700 = 5 . 260 9 . 61% (1) Estimated investment associated with 3rd A.C . Intertie : $215/kW @ 50 MW = $10, 750, 000 . (2) Estimated annual 0 & M expense for 3rd A.C . Intertie, $2, 000, 000; PacifiCorp share, $2, 000, 000 @ 50 MW/725 MW = $138, 000 . (3) Total Company Property Tax for each state (FF 1 . , pp 262-263, Column i) divided by total electric plant in service (FF 1 . , pg 207, line 88) , the quotient multiplied by the total transmission plant investment in 3rd A.C . Intertie; plus any other taxes other than income . Appendix A - 45 COLSTRIP PROJECT CALCULATION OF INITIAL FIXED CHARGE RATE (Based on $100, 000 of Capital Expenditure) i CAPITAL STRUCTURE : Component Structure Rate Debt 52% ° 9 . 640 Preferred 120 13 . 3000 Common 36% 11 . 700% Weighted Cost of Capital 10 . 820 INPUT DATA: IN SERVICE DATE : 1985 I INVESTMENT TAX CREDIT : loo ITC Basis 750 SALVAGE VALUE : 0 BOOK LIFE (Straight Line) 35 Years TAX LIFE (ACRS) 15 Years TAX RATE 46 . 00% (1986) , 40 . 00° (1987) , 34% for the years 1988 through 1992 and 35% in 1993 and thereafter PW RATE 10 . 82% STATE CORPORATE INCOME TAX 4 . 260 CALCULATED DATA: CAP . RECOV. FACTOR 0 . 11126 (1*) i INITIAL LEVELIZED FIXED CHARGE RATE = 12 . 6160 (*11) Appendix A - 46 COLSTRIP PROJECT FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Sample Calculations based on YR 1 & shown rounded to nearest whole dollar) (*1) CAPITAL RECOVERY FACTOR, (CRF) = i (l+i) n/ (1+i) n -1 Where i=weighted cost of capital and n=ave . life of plant . CRF = 0 . 1082 (1 + 0 . 1082) 35/ ( (1 + 0 . 1082 35 - 1) = 0 . 11126 (*2) BOOK DEPRECIATION = $100, 000/35 Years = $2, 857 (*3) TOTAL RETURN, (TR) = A x WS Where A = Average Rate Base; and WS = Weighted Cost of Preferred and Common Stock . Let A = (Ro + R, ) /2 Where R, = Rate Base (Year 0) R1 = Rate base (End of Year 1) Let R, = Ib + I,/Lg - D - T I, = Cumulative ITC (*9) Lg = Book Life (35 years) D = Cumulative Book Depreciation (*2) T = Cumulative Deferred Tax (*5) Ib = E x (1 - I, x ITC Basis) Where E = Capital Expenditure ($100, 000) Jr. = ITC Rate (0 . 10) Therefore, Ib = $100, 000 (1-0 . 1 x 0 . 75) _ $92, 500 R, = $92, 500 + $7, 500/35 - $2, 857 - $737 = $89, 120 A = ($100, 000 + $89, 120) /2 = $94, 560 TR = $94, 560 x ( . 12 x . 133 + . 36 x . 1170) _ $5, 492 (*4) INTEREST, (I) = A x Wd Where Wd = Weighted Cost of Debt Therefore, I = $94, 560 x ( . 52 x . 0964) _ $4, 740 (*5) DEFERRED TAX, (T) _ (TD -D) x TR + Ba /LC, x Tr Where To = Tax Depreciation (*8) TR = Tax Rate (48 . 300) Ba = Basis Adjustment Let Ba = $100, 000 - Tb x Ia x $100, 000 Appendix A - 47 COLSTRIP PROJECT FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Con ' t . ) Where Ia = ITC Adjustment = 1- Ir/2 = 1 - 0 . 1/2 = 0 . 95 Tb = Tax Basis (750) Therefore, Ba = $100, 000 - 0 . 75 x 0 . 95 x $100, 000 = $28, 750 T = ($3, 563 - $2, 857) x . 4830 + $28, 750/35 x . 4830 T = $737 (*6) INCOME TAX = (Total Return + Book Depreciation + Deferred Tax - Tax Depreciation) x (Tax rate/ (1-Tax rate) ) INCOME TAX = ($5, 492+ $2, 857 + $737 - $3, 563) x ( . 4830/ (1- . 4830) ) =$5, 161 (*7) ANNUAL COST = Book Depreciation + Total Return + Interest + Deferred Tax + Income Tax ANNUAL COST = $2, 857 + $5, 492 + $4, 740 + $737 + $5, 161= $18, 988 (*8) TAX DEPRECIATION = (ACRS Percentages 15 Year Public Utility) x Original Tax Basis TAX DEPRECIATION = 5% x 0 . 95 x 0 . 75 x $100, 000 = $3, 563 (*9) ITC = IT Credit x ITC Basis x Cumulative Book ITC = 10% x 75% x $100, 000 = $7, 500 (*10) PRESENT WORTH ANNUAL COST = Annual Cost x 1/ (l+i) n PRESENT WORTH ANNUAL COST = $18, 988 x 1/ (1 + . 1082 ) 1 = $17, 134 where i = weighted cost of capital and n = first year . (*11) INITIAL LEVELIZED FIXED CHARGE RATE = (CRF x Total Present Worth Annual Cost) /Total Original Book Cost INITIAL LEVELIZED FIXED CHARGE RATE = (0 . 11126 x $113, 393) / $100, 000 = 0 . 12617 = 12 . 616% Appendix A - 48 s • WL2 V N O r ul M — V !n n c 7 C, zr C1 g x M 00 m r- < N Qd �?'nr V'?�OVCvi- — t�Nr ^ cvvv, t�x -m �,nrx0 ^ cnv�r CD Ir \0 r m O,C m O\ N C, Vl N 00 ,C 7 N C x ,O WF 01 00 x r r h ,O ,C ul V'1 In ,r 7 7 M m M M M N N N N L,L] In In m. x x 'n V-I In In In In In ,n In c o o C C C C C O C O 0 o C O O C 0 0 OI O N U l0.Ll 2 rl Q > 7 V N -I O c r O N V x10 N Mi ,C c c m C, In N oo V x C, r C, r � 7 M vy M C., x m x o r N C, fV o V M h C, !n N N N V ,C c V C, — ^ 0 V1 M — w u O Z p — v v_N — N M r C !n C v', ri a, \q v N c C, x r In 'r V r; N (-j N — .-• — M W Q � a OU U ry - 01 y0In � aoSMcvN - - - - - W w � F U .� ^ ¢ z Z v " 00 O, — x C x O M ,Ci x — `f N IC _ C, 7 x N ,C — In � � � � WQF" xxx ,CMNv ,Crrrrxxcmr Mr �,, vr — vr — � x — vtoo — ,n — a` — ^ N C, Ix CZ olcn olM oo til x Irl N a t` K-CA Cn x !n m O r ul N 4A r V C1 M UO o o, U aO ZU xrinvriririN — =OOaC,000000 rrr O O1010InInI) Vivvvmm C m QF ry - X (- - - - - - _ _ _ _ _ _ _ a z Q Z 0 - N ,C+ ON S ,n 0, ^ r Vl m, — C„C Ir N r — 10 — ,C !n ^ -7 C, V C, M 00 M r N r- � Z � V m ,C 7 x ,C V o r In N p N ,C 0, m ,O C M t� g r o 7 r — V x -- In 00 r X W W w w W ') w -- N r x r OR r r ,c "m N — O In ',I: m M r1 N — O C) x x rC, ,C V1 Vr V nN -- N 2 v) Q C In -- - - - - ^ ^ ^ — ^ — _. _. �.ic�iNricvNnic�i- - — - — — -- _ C a =' U Q cr V N waa wv i 'r -t t -7 ======== ======= n ol a N N N N N N N C1 O1 D, QA Q` T a C7, DA C, 0, 'a, 0, C), C7, C, C, C, 41 r m ,c h Z LL In pp,, m r — V1 C, m — m V7 r a, — m, V; h D\ M V1 r Q\ m In r Q\ r W p (Y x7 ,C C v1 8V1 C ,D — r f d r M rl ,O oo O N z Z 0, ,C 7 N — Q1 x ,D Vl m N O C, r ,O In M N N — C x x h In 7 M N — m M M M m N N N . 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V1 o [- x a O N (`'1 7 v1 �c [- x a N t+; V' v1 \C r` xxxooxaaaaaaaaaa Q a a a a a a a a a a a a a a a 8 8 .5 8 8 8 8 8 8 0 0 o 0 o c c c W - - - — ^ - - - - - - - - - - N N N N N N N N N N N N N O E"' JIM BRIDGER PROJECT SAMPLE CALCULATION OF INITIAL FIXED CHARGE RATE (Based on $100, 000 of Capital Expenditure) CAPITAL STRUCTURE : Component Structure Rate Debt 540 8 . 100 Preferred 100 9 . 500 Common 36% 11 . 700 i Weighted Cost of Capital 9 . 540 INPUT DATA: IN SERVICE DATE : 1977 INVESTMENT TAX CREDIT : Not applicable SALVAGE VALUE : 0 BOOK LIFE (Straight Line) 35 Years TAX LIFE (ACRS) 28 Years TAX RATE 46 . 00% (1986) , 40 . 00% (1987) , 34% for the years 1988 through 1992 and 35% in 1993 and thereafter TAX BASIS 100 . 00% of Book PW RATE 9 . 54% STATE CORPORATE INCOME TAX 4 . 26% CALCULATED DATA: CAP . RECOV. FACTOR 0 . 09946 (*1) INITIAL LEVELIZED FIXED CHARGE RATE = 12 . 0550 (*11) Appendix A - 49 Jt BRIDGER PROJECT • FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Sample Calculations based on Year 1 and shown rounded to nearest whole dollar) (*1) CAPITAL RECOVERY FACTOR, (CRF) = i (l+i) n/ (1+i) n -1 Where i = weighted cost of capital and n = ave . life of plant . CRF = 0 . 0954 (1 + 0 . 0954) 35/ ( (1 + 0 . 0954) 35 - 1) = 0 . 09946 (*2) BOOK DEPRECIATION = $100, 000/35 Years = $2, 857 (*3) TOTAL RETURN, (TR) = A x WS Where A = Average Rate Base; and WS = Weighted Cost of Preferred and Common Stock j Let A = (Ro + R1) /2 Where R, = Rate base (Year 0) R, = Rate base (End of Year 1) Let R, = Ib + I, /LB - D - T Where I, = Cumulative ITC ( *9) LB = Book Life (35 years) D = Cumulative Book Depreciation (*2) T = Cumulative Deferred Tax ( *5) Ib = E x (1 - Ir x ITC Basis ) Where E = Capital Expenditure ($100, 000) Ir = ITC Rate (0 . 00) Therefore, Ib = $100, 000 (1-0 . 1 x 0) = $100, 000 R1 = $100, 000 + 0/35-$2, 857-$344 = $96, 799 A = ($100, 000 + $96, 799) /2 = $98, 399 TR = $98, 399 x ( . 10 x . 095 + . 36 x . 1170) $5, 080 (*4 ) INTEREST, (I) = A x Wd Where Wd = Weighted Cost of Debt Therefore, I = $98, 399 x ( . 54 x . 081) = $4, 304 (*5) DEFERRED TAX, (T) _ (Tp -D) x TR + Ba /LB x Tr Where TD = Tax Depreciation (*8) TR = Tax Rate (48 . 300) Ba = Basis Adjustment Let Ba = $100, 000 - Tb x Ia x $100, 000 Appendix A - 50 JIM BRIDGER PROJECT FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Con ' t . ) Where Ia = ITC Adjustment = 1 - Ir/2 = 1 - 0 . 0/2 = 1 . 00 Tb = Tax Basis (100%) Therefore, Ba = $100, 000 - 1 . 00 x 1 . 00 x $100, 000 = 0 T = ($3, 570-$2, 857) x . 4830 + 0/35 x . 4830 = $344 ( *6) INCOME TAX = (Total Return + Book Depreciation + Deferred Tax - Tax Depreciation) x (Tax rate/ (1-Tax rate) ) INCOME TAX = $5, 080+ $2, 857 + $344 - $3, 570) x ( . 4830/ (1- . 4830) ) = $4 , 401 ( *7) ANNUAL COST = Book Depreciation + Total Return + Interest + Deferred Tax + Income Tax ANNUAL COST = $2, 857 + $5, 080+ $4 , 304 + $344 + $4, 401= $16, 986 ( *8) TAX DEPRECIATION = (200% Declining Balance converting to Straight Line) x (1/2 yr . amort . in 1st year) TAX DEPRECIATION = 2 . 00 x ($100, 000/28) /2 = $3, 570 ( *9) ITC = Not Applicable (*10) PRESENT WORTH ANNUAL COST = Annual Cost x 1/ ( l+i) n PRESENT WORTH ANNUAL COST = $16, 986 x 1/ (1 + . 0954) 1 = $15, 507 (*11) INITIAL LEVELIZED FIXED CHARGE RATE - (CRF x Total Present Worth Annual Cost) /Total Original Book Cost INITIAL LEVELIZED FIXED CHARGE RATE = (0 . 09946 x $121, 197) /$100, 000 = 0 . 12055= 12 . 055% Appendix A - 51 w C, ,D C, N C In N 00 M ID r — M 00 C r C O M ^ oo ,O M c 00 In M C In 00 _ V r O M a a\ O vi — ,a C C r m O M ,o r r ^ r M o\ vi O ,a N LoM, C, In — O r a\ O -^ <n Q ¢ M M r N O C, V' 00 V' M M V ,O Q1 M ,O O M r 00 V) 00 N ,D N N 1O^N V1 ,D M C r In N O r 7 N C, ,O V — oo In ,n V -11, -IT In M, N N N N ^ — F- w F- ¢ W Q Q a w ,D H F' U O Op O O O O C pp O O O C O C O 0 0 00 C C o 0 0 0 0 0 O 0 0 0 0 0 OI vri � 0o�, viN �v000vM%NCoMo. �vMi'vr"% vr''ivMivM `"ivMmM-, v"ivM-, vM-, vm-, r- O ¢cr, 'D N H Q M \O ,D In V) In zT M M M M N (-1 N N (V rV cV N N IN N . 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X O N F U, oa a zF - � vo^o ^ a, ^ Mo� �ngo.opo aaaaaao� M LU z W x x V D x V r x N N N N N N N N N N N N N a r r r r r r Q M w mar V N O u W M LLJ w u C4LLJ c o c o c c c o 0 o c o C c c c o 0 0 o c c o 0 o c o 0 0 0 0 o c o cl of U �J Hm o o c o 0 0 0 C O o c o c o C C coo 0 C c c o o 0 0 0 C o o o o o cd of za w O i F- F. Cl) w � F- o 0 0 0 0 0 o c o 0 0 0 0 0 o C o o c o C o 0 0 0 0 0 0 0 0 0 0 0 o cl of O U aC LU O r t 6 cG n n n !n Wi !n !n In !n Wi In In In !n !n v v n v !n In In In In In !n !n !n !n n n n n v v x 00 w a 00 00 00 00 x o a 00 00 00 x x x oo x 00 x oo m o0 x w w x x x x 00 00 00 x w w ---------------------------------- Lij ° y^. N !n 00 ^ V r- Ir ' a a N r �Y a V N 00 r n C M Q !n r N x V O !n r M 00 N M 7 �D r x z Q C M \O M r O V r V'1 00 N In a N z 'D r M oo R - r zt c r 'f N a V 00 \0 M C x Vl N C r d N O 00 V M - -^ w Cc = r xa 0r- rl 00 0 N M In �D r x a C N M V In \D r 00 a C� ^ N M 11 10 r x a C ^ ESE SESSEcso w . . . . . . . . . . . . `] O HUNTER #2 j CALCULATION OF INITIAL FIXED CHARGE RATE i (Based on $1000, 000 of Capital Expenditure) CAPITAL STRUCTURE : i Component Structure Rate Debt 500 11 . 97% Preferred 10% 10 . 96% Common 400 11 . 700 � Weighted Cost of Capital 11 . 76% INPUT DATA: IN SERVICE DATE : 1980 INVESTMENT TAX CREDIT : 109. SALVAGE VALUE : 0 BOOK LIFE (Straight Line) 35 Years TAX LIFE (SYD) 22 . 5 Years TAX RATE 46 . 00% (1986) , 40 . 00% (1987) , 34% for the years 1988 through 1992 and 35% in 1993 and thereafter TAX BASIS 100 . 00% of Book PW RATE 11 . 76% STATE CORPORATE INCOME TAX 4 .260 CALCULATED DATA: CAPITAL RECOVERY FACTOR 0 . 12006 (*1) INITIAL LEVELIZED FIXED CHARGE RATE = 13 . 2690 ( *11) Appendix A - 52 HUNTER #2 PROJECT • FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Sample Calculations based on Year 1 and shown rounded to nearest whole dollar) (*1) CAPITAL RECOVERY FACTOR, (CRF) = i (1+i) n/ (1+i) n -1 Where i = weighted cost of capital and n = ave . life of plant . CRF = 0 . 1176 (1 + 0 . 1176) 35/ ( (l + 0 . 1176) 35 - 1) = 0 . 12006 (*2) BOOK DEPRECIATION = $100, 000/35 Years = $2, 857 (*3) TOTAL RETURN, (TR) = A x W, Where A = Average Net Investment; and W, = Weighted Cost of Preferred and Common Stock Let A = Beginning Investment - (D+T) /2 Where Beginning Investment = Previous year ' s beginning investment - previous year ' s D and T . D = Book Depreciation (*2) T = Deferred Tax (`5) Therefore, beginning investment = $100, 000 A = $100, 000 - (2857 + 675) /2 = $98, 23 TR = $98, 234 x ( . 10 x . 1096 + . 40 x . 1170) = $5, 674 (*4 ) INTEREST, (I) = A x Wd Where Wd = Weighted Cost of Debt Therefore, I = $98, 234 x ( . 50 x . 1197) = $5, 879 (*5) DEFERRED TAX, (T) _ (TD -D) x TR Where TD = Tax Depreciation (*8) TR = Tax Rate (48 . 30%) Let T = (4, 255 - 2, 857) x . 4830 = $675 j Appendix A - 53 i HUNTER #2 PROJECT • FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Con ' t . ) ( *6) INCOME TAX = (Total Return + Book Depreciation + Deferred Tax - Tax Depreciation + ITC) x (Tax rate/ (1- Tax rate) INCOME TAX = $5, 674+ $2, 857 + $675 - $4, 255 - $286) x ( . 4830/ (1- . 4830) ) = $4, 359 ( *7) ANNUAL COST = Book Depreciation + Total Return + Interest + Deferred Tax + Income Tax + ITC ANNUAL COST = $2, 857 + $5, 674+ $5, 879 + $675 + $4, 359- $286 = $19, 159 ( *8) TAX DEPRECIATION = (Sum of the Year ' s Digits) = (Year' s remaining/sum of Digits) x (Beginning Investment = Cumulative Tax Depreciation) Where Sum of Digits in yr . 1 = 264 . 5 (For 22 . 5 year tax life) TAX DEPRECIATION = (22 . 5/264 . 5) x (1000, 000 - 0) = $8, 510 Adjusted for 1/2 year = $8, 510/2 = $4, 255 ( *9) ITC = Beginning Investment x ITC Rate/Book Life ITC = $100, 000 x 0 . 10/35 = $286 (*10) PRESENT WORTH ANNUAL COST = Annual Cost x 1/ (1+i) n PRESENT WORTH ANNUAL COST = $19, 159x 1/ (1 + . 1176) 1 = $17, 143 Where i = weighted cost of capital and n = first year . (*11) INITIAL LEVELIZED FIXED CHARGE RATE = (CRF x Total Present Worth Annual Cost) /Total Original Book Cost INITIAL LEVELIZED FIXED CHARGE RATE = ( . 12006x $110, 516) /$100, 000 = . 13269 = 13 . 2690 Appendix A - 54 W W 'r oc O O, 10 r r r 10 7 N O N <t 1D o0 O N 7 'D oo O NI V V1 M — 00 V o0 - - V't M 7 G'1 C, 00 00 V 1D V1 V V n r C1 ^ M 1D 00 O N "T h W ¢ Q N h M O C -�n — O N v', ay v', ri— — M 10 --o0 1D 1D oo — vi d, CQ DD m 00 M 00 M W 10 N 00 v1 N C\ 10 m O 00 V1 M 01 DD 10 7 2 m C 00 r Vl M N a W CN O1 o0 00 r r 1D O V1 V -IT -17 V M. M m M. N N N N ^ - - - - — w > � F Q o pj d F U v� a1 10 N N 10 r — -^ 'T -,1- 10 r O1 C N V v� r oo O C C O C ¢ rn Q �n N Q' 1D CV,1 M V1 r U N 7 1D 00 C NT r T — M Vl r 01 00 N N M C1 V1 — oo � O 1D N 01 `0. V aD r r-[- 10 1D vl Vl 'R V V("1 M M N N — — — o \,C) N p a 1D w) V M C1 rvl N o0 -- r N N V r r 7 o0 W r O m m D, 1D 10 N V7 M v1 M 00 1D 10 1D Q p ¢ a Q. 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M M N N N N N — -- -- - - -. H ^ ' LLl Q r 00 a C — N M S v'1 \C r o0 ^ r 00 a 0 N M c)• 000000 o0 oo oc o0 oo o0 o0 as a a a aaaaaXxx � Xx X 038 - - a a a a a a a a a 0 0 0 0 0 } - - - - - - "" — — N N N N N N N N N N N N N N N „] Q H i � HUNTER #3 • CALCULATION OF INITIAL FIXED CHARGE RATE (Based on $100, 000 of Capital Expenditure) i CAPITAL STRUCTURE : Component Structure Rate i ,I Debt 500 14 . 520 Preferred 100 11 . 600 i Common 40% 11 . 70% i Weighted Cost of Capital 13 . 10% INPUT DATA: IN SERVICE DATE : 1983 INVESTMENT TAX CREDIT : 10% SALVAGE VALUE : 0 i BOOK LIFE (Straight Line) 35 Years TAX LIFE (ACSR) 15 Years TAX RATE 46 . 00% (1986) , 40 . 0096 (1987) , 34% for the years 1988 through 1992 and 35% in 1993 and thereafter TAX BASIS 95 . 00° of Book PW RATE 13 . 10% STATE CORPORATE INCOME TAX 4 . 260 CALCULATED DATA: CAPITAL RECOVERY FACTOR 0 . 13279 (*1) INITIAL LEVELIZED FIXED CHARGE RATE = 14 . 371% ( *11) Appendix A - 55 i HUNTER #3 PROJECT • FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Sample Calculations based on Year 1 and shown rounded to nearest whole dollar) (*1) CAPITAL RECOVERY FACTOR, (CRF) = i (1+i) n/ (1+i) n -1 Where i = weighted cost of capital and n = ave . life of plant . CRF = 0 . 1310 (1 + 0 . 1310) 35/ ( (1 + 0 . 1310) 35 - 1) _ . 13279 (*2) BOOK DEPRECIATION = $100, 000/35 Years = $2, 857 (*3) TOTAL RETURN, (TR) = A x WS Where A = Average Net Investment; and WS = Weighted Cost of Preferred and Common Stock Let A = Beginning Investment - (D+T) /2 Where Beginning Investment = Previous year ' s beginning investment - previous year ' s D and T D = Book Depreciation (*2) T = Deferred Tax (*5) Therefore, beginning investment = $100, 000 A = $100, 000 - (2, 857 + 983) /2 =$98, 080 TR = $98, 080 x ( . 10 x . 1160 + . 40 x . 1170) = $5, 728 (*4 ) INTEREST, (I) = A x Wd Where Wd = Weighted Cost of Debt Therefore, I = $98, 080 x ( . 50 x . 1452) = $7, 121 (*5) DEFERRED TAX, (T) _ (TD -D) x TR + BA /LB X TR Where TD = Tax Depreciation (*8) TR = Tax Rate (48 . 300) Ba = $100, 000 - Tb X Ia X $100, 000 LB = Book Life (35 years) Appendix A - 56 HUNTER #3 PROJECT FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Con ' t . ) Where Ia = ITC Adjustment = 1 - Ir/2 = 1 - 0 . 1/2 = 0 . 95 Ir = Tax Rate (0 . 10) Tb = Tax Basis ( . 95%) i Therefore, Bd = $100, 000 = 1 . 00 x 0 . 95 x $100, 000 $5, 000 T = ($4, 750 - $2, 857) x . 4830 + 5000/35 x . 4830 = $983 ( *6) INCOME TAX = (Total Return + Book Depreciation + Deferred Tax - Tax Depreciation + ITC) x (Tax rate/ (1-Tax rate) INCOME TAX = ($5, 728+ $2, 857 + $983 - $4, 750 - $286) x ( . 4830/ (1- . 4830) _ $4, 235 ( *7) ANNUAL COST = Book Depreciation + Total Return + Interest + Deferred Tax + Income Tax + ITC ANNUAL COST = $2, 857 + $5728 + $7, 121 + $983 + $4, 235- $286 = $20, 638 ( *8) TAX DEPRECIATION = (ACRS Percentages 15 Year Public Utility) x Original Tax Basis TAX DEPRECIATION = 5% x 0 . 95 x 1 . 00 x $100, 000 = $4 , 750 ( *9) ITC = Beginning Investment x ITC Rate/Book Life ITC = $100, 000 x 0 . 10/35 = $286 (*10) PRESENT WORTH ANNUAL COST = Annual Cost x 1/ ( l+i) n PRESENT WORTH ANNUAL COST = $20, 638 x 1/ (1 + . 1310) 1 = $18, 247 where i = weighted cost of capital and n = first year. (*11) INITIAL LEVELIZED FIXED CHARGE RATE _ (CRF x Total Present Worth Annual Cost) /Total Original Book Cost INITIAL LEVELIZED FIXED CHARGE RATE _ (0 . 13279 x $108, 229) /$100, 000 = 0 . 14371 = 14 . 3710 Appendix A - 57 W W r- c' O N m x v� N r v — O) 'D M c 00 N r -- rn 'o 7 ' v'i v'��D 0�N h c M oo V �D Cr N V) r M vl 00 ('4 x V^ 10 N x 7 O M — O x 'O V1 M — O,00 0,r 'c -f N CL w r T x x h r 10 I �D In Vl V V 7 M M M In N N N W > Q W Q Y F W F r Q QF U ^ SoSooSXS � SSS � B000000000000000000CDol g r- vivV'-, ��Drrt�hrt�rrr b o0 v F L� •o �.. �7 0� oo h �D �O V1 V1 V1 V1 V1 V) In to In rn v L N !`, D Q � V 1 Q ¢ r O x O — V �D 1D �c C h h N v1 N - - r � M x m 1C 1c — N x r V1 N N 7 — �c 10 h p — D` — ? ^ ol V vl c V O x r x V C\ V r V — C� r �o V1 V MI N W jC W �" Q cy v, xr- 00 - Ixv_�� M - co x 10 InvvMNNN - - - O sap �� U OU Z U oov NOx O nv 7m NN ^ - - O i U r Lu ¢ Z x L" .G. [-. 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N.i N..!i�v � Q ,n 00 00 v� 00 00 00 00 x 00 ,n w oc v� w w oc w �n 00 on vc oc vi S[ � 00 oo oox xo000mxxxo0 oo x ooxxcoxxxxoo x ooxxxo0 x 0oxxoox CJ [0.y] -----✓-J -1 ----J N -N --�----1 �.J �--J �.l - -N -----N 8 Q C7 W O C, N p V xN v1 C, 7 8 v'i O �n x — r^, �D 4\ N V r r^� v: x -- Zcn¢ O � O I ^ .Co N ri nc " v� In \,; a r O N n x C c z CY1 Q O T C, 7 O '-D rV 00 V C 10 N x V N - Cl r v1 V N ^ .'"'� r v`� r�'1 N 00 'O In r^, 'Z W - U C� 00 r r r 10 Vl V1 V1 V V cl, IUi] Q Q 00wnwocOcOcC � CC, 00) o Cca 8C 8 8888 � � � � 0 � � � W r — ^ — — — — — — — - — N N N N N N N N N N N N N N N N N N W ¢ f-' *SYSTEM TRANSMISSION e CALCULATION OF INITIAL FIXED CHARGE RATE (Based on $100, 000 of Capital Expenditure) CAPITAL STRUCTURE : Component Structure Rate Debt 49 . 0% 7 . 99% Preferred 6 . 0% 7 . 15% Common 45 . 0% 11 . 70% Weighted Cost of Capital 9 . 61% INPUT DATA: i INVESTMENT TAX CREDIT : Not Applicable SALVAGE VALUE : 0 BOOK LIFE (Straight Line) 38 Years TAX LIFE (Modified ACSR) 20 Years TAX RATE 46 . 00% (1986) , 40 . 00% (1987) , 34% for the years 1988 through 1992 and 35% in 1993 and thereafter TAX BASIS 100 . 00% of Book PW RATE 9 . 61% State Corporate Income Tax Rate 4 . 26% CALCULATED DATA: CAPITAL RECOVERY FACTOR 0 . 09912 (*1) INITIAL LEVELIZED FIXED CHARGE RATE = 11 . 33% (*11) Appendix A - 58 i i YSTEM TRANSMISSION FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Sample Calculations based on Year 1 and shown rounded to nearest whole dollar) (*1) CAPITAL RECOVERY FACTOR, (CRF) = i (1+i) n/ (1+i) n -1 Where i = weighted cost of capital and n = ave . life of plant . CRF = 0 . 0961 (1 + 0 . 0961) 38/ ( (1 + 0 . 0961) 38 - 1) = 0 . 09912 I (*2) BOOK DEPRECIATION = $100, 000/38 Years = $2, 632 (*3) TOTAL RETURN, (TR) = A x WS Where A = Average Rate Base; and Ws = Weighted Cost of Preferred and I Common Stock Let A = (R, + RI ) /2 Where Ro = Rate base (Year 0) R1 = Rate base (End of Year 1) Let R1 = Ib + I, /LB - D - T Where I, = Cumulative ITC (*9) LB = Book Life (38 years) D = Cumulative Book Depreciation (*2) T = Cumulative Deferred Tax (*5) Ib = E x (1 - Ir x ITC Basis) Where E = Capital Expenditure ($100, 000) Ir = ITC Rate (0 . 00) Therefore, Ib = $100, 000 (1-0 . 1 x 0) = $100, 000 R, _ $100, 000 + 0/38 - $2, 632 - $412 = $96, 956 A = ($100, 000 + $96, 956) /2 = $98, 478 TR = $98, 478 x ( . 06 x . 0715 + . 450 x . 1170) = $5, 607 (*4) INTEREST, (I) = A x Wd Where Wd = Weighted Cost of Debt Therefore, I = $98, 478 x ( . 49 x . 0799) = $3, 856 (*5) DEFERRED TAX, (T) _ (Tp -D) x TR + Ba /LB X TR Where To = Tax Depreciation (*8) TR = Tax Rate (36 . 810) Ba = Basis Adjustment Let Ba = $100, 000 = Tb x Ia x $100, 000 Appendix A - 59 I I aYSTEM TRANSMISSION FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE Where Ia = ITC Adjustment = 1 - Ir/2 = 1 - 0 . 0/2 = 1 . 00 Tb = Tax Basis (1000) Therefore, Ba = $100, 000 = 1 . 00 x 1 . 00 x $100, 000 = 0 T = ($3, 750-$2, 632) x . 3681 +0/38 x . 3681 = $412 ( *6) INCOME TAX = (Total Return + Book Depreciation + Deferred i Tax - Tax Depreciation) x (Tax rate/ (1-Tax rate) ) INCOME TAX = ($5, 607 + $2, 632 + $412 - $3, 750) x ( . 3681/ (1- .3681) ) = $2, 855 ( *7) ANNUAL COST = Book Depreciation + Total Return + Interest + Deferred Tax + Income Tax ANNUAL COST = $2, 632 + $5, 607 + $3, 856 + $412 + $2, 855 = $15, 361 ( *8) TAX DEPRECIATION = ( 150o Declining Balance converting to Straight Line) x (1/2 yr . amort . in 1st year) TAX DEPRECIATION = 1 . 50 x ($100, 000/20) /2 = $3, 750 ( *9) ITC = Not Applicable (*10) PRESENT WORTH ANNUAL COST = Annual Cost x 1/ ( l+i) n PRESENT WORTH ANNUAL COST = $15, 361 x 1/ (1 + . 0961) 1 = $14, 014 where i = weighted cost of capital and n = first year . (*11) INITIAL LEVELIZED FIXED CHARGE RATE = (CRF x Total Present Worth Annual Cost) /Total Original Book Cost INITIAL LEVELIZED FIXED CHARGE RATE = (0 . 09912 x $114, 329) /$100, 000 = 0 . 1133 = 11 . 330 Appendix A - 60 W W 00 r M 'o V) r 0 V) M 00 M r N 'o ^ h V'1 V'1 V) 7 "t 7 c-, M M N N U h (:T, r N zr (V o 7 - W 'O M 00 V) M 0o V) M N 'o N 00 C 10 N 00 a 0 10 N Wcr Q Q h ul V1 Io C M � N a �O M a �o M O �o M O O v r — V) 00 N V1 a M �O O M h - V 00 ¢ (� M ' N 00 V) ^ 00 Ln ^ 00 V1 00 V) N 00 V1 N a h V) M N ^ 00 h vl M N O Q,r W W a a O� 00 00 h r r �D Io �D V1 V1 V) M M M N N N N N N _ _ ^ > F ¢ W F F F U a h oo N N O N h M V) - -- N ^ N — N ^ CIA O O O C C C C C C O O O O O O O OI o w N rq V V V V 7 7 N 8 V � � Q N 7 J Q F > NW V"1 a Cl W O N V� 00 a m c r C r v V1 a 10 r a '71 Gl. 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INTERTIE CALCULATION OF INTITIAL FIXED CHARGE RATE (Based on $100, 000 of Capital Expenditure) I CAPITAL STRUCTURE : i Component Structure Rate Debt 49 . 0% 7 . 990 Preferred 6 . 0% 7 . 150 Common 45 . 0% 11 . 70% Weighted Cost of Capital 9 . 610 i INPUT DATA: INVESTMENT TAX CREDIT : Not Applicable SALVAGE VALUE : 0 BOOK LIFE (Straight Line) 20 Years TAX LIFE (Modified ACSR) 15 Years TAX RATE 35 . 00% TAX BASIS 100 . 000 of Book PW RATE 10 . 09% State Corporate Income Tax Rate 4 .26% CALCULATED DATA: CAPITAL RECOVERY FACTOR 0 . 11434 ( *1) INITIAL LEVELIZED FIXED CHARGE RATE = 12 . 859% ( *11) i i Appendix A - 61 i I I i THIRD A. C. INTERTIE FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Sample Calculations based on Year 1 and shown rounded to nearest whole dollar) (*1) CAPITAL RECOVERY FACTOR, (CRF) = i (l+i) n/ (1+i) n -1 I Where i = weighted cost of capital and n = ave . life of plant . CRF = 0 . 0961 (1 + 0 . 0961) 201 ( (1 + 0 . 0961) 20 - 1) = 0 . 11434 (*2) BOOK DEPRECIATION = $100, 000/20 Years = $5, 000 (*3) TOTAL RETURN, (TR) = A x W$ Where A = Average Rate Base; and WS = Weighted Cost of Preferred and Common Stock Let A = (R, + R1) /2 Where Ro = Rate base (Year 0) R1 = Rate base (End of Year 1) Let R, = Ib + I, /LB - D - T Where I, = Cumulative ITC ( *9) LB = Book Life (20 years) D = Cumulative Book Depreciation (*2) T = Cumulative Deferred Tax ( *5) Ib = E x (1 - Ir x ITC Basis) Where E = Capital Expenditure ($100, 000) Ir = ITC Rate (0 . 00) Therefore, Ib = $100, 000 (1-0 . 1 x 0) = $100, 000 R, = $100, 000 + 0/20 - $5, 000 - $0 =$95, 000 A = ($100, 000 + $95, 000) /2 = $97, 500 TR = $97, 500 x ( . 06 x . 0715 + . 450 x . 1170) = $5, 551 (*4 ) INTEREST, (I) = A x Wd Where Wd = Weighted Cost of Debt Therefore, I = $97, 500 x ( . 49 x . 0799) = $3, 817 (*5) DEFERRED TAX, (T) _ (TD -D) x TR + Ba /LB X TR Where Tp = Tax Depreciation (*8) TR = Tax Rate (36 . 81%) Ba = Basis Adjustment Let Ba = $100, 000 = Tb x Ia x $100, 000 Appendix A - 62 I I I THIRD A.C. INTERTIE FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE Where Ia = ITC Adjustment = 1 - Ir/2 = 1 - 0 . 0/2 = 1 . 00 Tb = Tax Basis (1000) Therefore, Ba = $100, 000 = 1 . 00 x 1 . 00 x $100, 000 = 0 T = ($5, 000 - $5, 000) x . 3687 +0/38 x . 3681 = $0 ( *6) INCOME TAX (Total Return + Book Depreciation + Deferred Tax - Tax Depreciation) x (Tax rate/ (1-Tax rate) ) INCOME TAX = ($5, 551 + $5, 000 + $0 - 5, 000) x ( . 3681/ (1 - . 3777) ) = $3, 369 ( *7) ANNUAL COST = Book Depreciation + Total Return + Interest + Deferred Tax + Income Tax ANNUAL COST = $5, 000 + $5, 551 + $3, 817 + $0 + $3, 369= $17, 738 ( *8) TAX DEPRECIATION = ( 150o Declining Balance converting to Straight Line) x ( 1/2 yr . amort . in lst year) TAX DEPRECIATION = 1 . 50 x ($100, 000/15) /2 = $5, 000 ( *9) ITC = Not Applicable (*10) PRESENT WORTH ANNUAL COST = Annual Cost x 1/ ( 1+i) n PRESENT WORTH ANNUAL COST = $17, 738 x 1/ (1 + . 0961) 1 = $16, 183 where i = weighted cost of capital and n = first year. (*11) INITIAL LEVELIZED FIXED CHARGE RATE = (CRF x Total Present Worth Annual Cost) /Total Original Book Cost INITIAL LEVELIZED FIXED CHARGE RATE = (0 . 11434 x $112, 464) /$100, 000 = 0 . 12859 = 12 . 8590 Appendix A 63 I i PACIFICORP THIRD A.C. INTERTIE TRANSMISSION 49% DEBT FINANCING ®7.99% 0.11434 CAPITAL RECOVERY FACTOR 6% PREFERRED EOUITY0 7.15% 1990 IN SERVICE DATE 45% COMMON EQUITY ®11.7% 20 YEAR ESTIMATED LIFE +I 9.61% WEIGHTED COST OF CAPITAL 20 YEAR BOOK LIFE-STRAIGHT LINE $100,000 CAPITAL INVESTMENT 15 YEAR TAX LIFE-MODIFIED ACRS $12,859 LEVELIZED ANNUAL COST N/A TAX RATE PRIOR TO 1987 $12,859 LEVELIZED FIXED CAPITAL COSTS N/A TAX RATE IN 1987 $1,684 LEVELIZED INCOME TAXES 37.77% TAX RATE AFTER 1987(35%FEDERAL,4.26%STATE) $395 LEVELIZED DEFERRED TAXES 0% INVESTMENT TAX CREDIT(ITC) $2,355 LEVELIZED INTEREST EXPENSE 100% ITC BASIS ADJUSTMENT $258 LEVELIZED PREFERRED RETURN 100% TAX BASIS(%OF ORIGINAL COST) $3,167 LEVELIZED COMMON RETURN 100% BOOK BASIS(%OF ORIGINAL COST) O&M A&G PROPERTY BOOK INTEREST PREFERRED COMMON INCOME TAXES ANNUAL NPV TAX AVERAGE YEAS EXPENSE EN!ENSE TAXES DEPREC EXPENSE RETURN RETURN pEFERRFn QUfEUE COST O= QEMM RATE RASE 1990 0 0 0 5,000 3.817 418 5,133 0 3,369 17,738 16,183 5,000 97,500 1991 0 0 0 5.000 3,588 393 4,825 1,700 1,468 16,974 14,128 9,500 91,650 1992 0 0 0 5,000 3.333 365 4,482 1,341 1,601 16,122 12,243 8,550 85,130 1993 0 0 0 5,000 3.091 339 4,157 1,020 1,709 15,315 10,610 7,700 78,950 1994 0 0 0 5.000 2,861 313 3,847 729 1,796 14,547 9,195 6,930 73,075 1995 0 0 0 5,000 2,642 289 3,553 465 1,867 13,816 7,967 6,230 67,479 1996 0 0 0 5.000 2.430 266 3.268 340 1,805 13,110 6,897 5,900 62,076 1997 0 0 0 5.000 2,221 243 2,987 340 1,621 12,413 5,958 5,900 56,736 1998 0 0 0 5,000 2.012 220 2,706 344 1,432 11,715 5,130 5,910 51,395 1999 0 0 0 5,000 1,803 198 2,425 340 1,252 11,017 4,401 5,900 46,053 2000 0 0 0 5,000 1,594 175 2,143 344 1,063 10,319 3,761 5,910 40,711 2001 0 0 0 5,000 1,385 152 1,862 340 882 9,621 3,199 5,900 35,369 2002 0 0 0 5,000 1,176 129 1,581 344 694 8,923 2,707 5,910 30,027 2003 0 0 0 5,000 966 106 1,300 340 513 8,225 2,277 5,900 24,686 2004 0 0 0 5,000 757 83 1,018 344 325 7,527 1,901 5,910 19,344 2005 0 0 0 5.000 570 62 767 (774) 1,277 6,902 1,590 2,950 14,559 2006 0 0 0 5.000 426 47 573 (1,888) 2,265 6,423 1,350 0 10,890 2007 0 0 0 5,000 305 33 410 (1,888) 2,157 6,016 1,154 0 7,779 2008 0 0 0 5,000 183 20 246 (1,888) 2,050 5,610 981 0 4,667 2009 0 0 0 5,000 61 7 82 (1,888) 1,942 5,203 831 0 1,556 2010 0 0 0 0 0 0 0 0 0 0 0 0 0 2011 0 0 0 0 0 0 0 0 0 0 0 0 0 2012 0 0 0 0 0 0 0 0 0 0 0 0 0 2013 0 0 0 0 0 0 0 0 0 0 0 0 0 2014 0 0 0 0 0 0 0 0 0 0 0 0 0 2015 0 0 0 0 0 0 0 0 0 0 0 0 0 2016 0 0 0 0 0 0 0 0 0 0 0 0 0 2017 0 0 0 0 0 0 0 0 0 0 0 0 0 2018 0 0 0 0 0 0 0 0 0 0 0 0 0 2019 0 0 0 0 0 0 0 0 0 0 0 0 0 2020 0 0 0 0 0 0 0 0 0 0 0 0 0 2021 0 0 0 0 0 0 0 0 0 0 0 0 0 2022 0 0 0 0 0 0 0 0 0 0 0 0 0 2023 0 0 0 0 0 0 0 0 0 0 0 0 0 2024 0 0 0 0 0 0 0 0 0 0 0 0 0 2025 0 0 0 0 0 0 0 0 0 0 0 0 0 2026 0 0 0 0 0 0 0 0 0 0 0 0 0 2027 0 0 0 0 0 0 0 0 0 0 0 0 0 2028 0 0 0 0 0 0 0 0 0 0 0 0 0 2029 0 0 0 0 0 0 0 0 0 0 0 0 0 2030 0 0 0 0 0 0 0 0 0 0 0 0 0 2031 0 0 0 0 0 0 0 0 0 0 0 0 0 2032 0 0 0 0 0 0 0 0 0 0 0 0 0 2033 0 0 0 0 0 0 0 0 0 0 0 0 0 2034 0 0 0 0 0 0 0 0 0 0 0 0 0 2035 0 0 0 0 0 0 0 0 0 0 0 0 0 2036 0 0 0 0 0 0 0 0 0 0 0 0 0 2037 0 0 0 0 0 0 0 0 0 0 0 0 0 2038 0 0 0 0 0 0 0 0 0 0 0 0 0 2039 2 2 Q- 2 Q- 2 2 2 2 Q 2 L 0 OTAL SL Q 2 100.000 35.222 3.859 47.366 2 31.089 217.536 112.464 100.000 1990 NET PRESENT VALUE®9.61% Q 2 43,729 20,598 2.257 27,699 3.451 14,731 112.464 112,464 52.865 t PACIFICORP THIRD A.C. INTERTIE TRANSMISSION BEGINNING BOOK INVESTMENT TAX CREDI DEFERRED TAXES ENDING EXCESS INCOME TAX BOOK � RATE BASE Q� CREDIT RFsrrxaca 1 REC__AP711RF ( RESTORED RATE RASE_ DEFEREED TAX RATE p@gEC QEPREC 1990 100.000 (5,000) 0 0 0 0 0 95.000 0 37,77% 5.000% 5.00% 1991 95.000 (5.000) 0 0 0 (1,700) 0 88,300 (125) 37.77% 9.500% 5.00% 1992 88.300 (5,000) 0 0 0 (1,341) 0 81,960 (98) 37.77% 8.550% 5.00% 1993 81.960 (5.000) 0 0 0 (1,020) 0 75,940 (75) 37.77% 7.700% 5.00% 1994 75.940 (5,000) 0 0 0 (729) 0 70,211 (53) 37.77% 6.930% 5.00% 1995 70,211 (5,000) 0 0 0 (465) 0 64,746 (34) 37.77% 6.230% 5.00% 1996 64,746 (5,000) 0 0 0 (340) 0 59.406 (25) 37.77% 5.900% 5.00% 1997 59,406 (5,000) 0 0 0 (340) 0 54,066 (25) 37.77% 5.900% 5.00% 1998 54,066 (5.000) 0 0 0 (344) 0 48.723 (25) 37.77% 5.910% 5.00% 1999 48.723 (5,000) 0 0 0 (340) 0 43,383 (25) 37.77% 5.900% 5.00% 2000 43.383 (5,000) 0 0 0 (344) 0 38,039 (25) 37.77% 5.910% 5.00% 2001 38.039 (5,000) 0 0 0 (340) 0 32.699 (25) 37.77% 5.900% 5.00% 2002 32.699 (5,000) 0 0 0 (344) 0 27,356 (25) 37.77% 5.910% 5.00% 2003 27.356 (5,000) 0 0 0 (340) 0 22,016 (25) 37.77% 5.900% 5.00% 2004 22,016 (5.000) 0 0 0 (344) 0 16.672 (25) 37.77% 5.910% 5.00% 2005 16,672 (5,000) 0 0 0 774 0 12.446 57 37,77% 2.950% 5.00% 2006 12.446 (5,000) 0 0 0 1,888 0 9.335 138 37.77% 0.000% 5.00% 2007 9.335 (5.000) 0 0 0 1,888 0 6.223 138 37.77% 0.000% 5.00% 2008 6.223 (5,000) 0 0 0 1,888 0 3,112 138 37.77% 0.000% 5.00% 2009 3.112 (5.000) 0 0 0 1,888 0 0 138 37.77% 0.000% 5.00% 2010 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2011 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2012 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2013 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2014 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2015 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2016 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2017 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2018 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2019 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2020 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2021 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2022 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2023 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2024 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2025 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2026 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2027 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2028 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2029 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2030 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2031 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2032 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2033 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2034 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2035 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2036 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2037 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2038 0 0 0 0 0 0 0 0 0 37.77% 0.000% 0.00% 2039 0 Q_ IZ Q_ Q_ (L QL 0 Q_ 37.77% 0.000% 0,00% TOTAL (100.0001 Q_ Q Q_ Q_ Q_ Q 100.000% 100.00% I ,I it ;i �� i APPENDIX B ANNUAL VARIABLE COST This Appendix sets forth the elements and techniques to calculate the Annual Variable Cost . Section B1 : Determination of Annual Variable Cost The Annual Variable Cost shall be the $/MWh result of the following: (1) the product of 70 MW multiplied by the Colstrip annual load factor multiplied by the Colstrip Project Annual Variable Cost plus the product of 95 MW multiplied by the Jim Bridger annual load factor multiplied by the Jim Bridger Project Annual Variable Cost plus the product of 235 MW multiplied by the Hunter #2 annual load factor multiplied by the Hunter #2 Project Annual Variable Cost plus the product of 400 MW multiplied by the Hunter #3 annual load factor multiplied by the Hunter #3 Project Annual Variable Cost, (2) dividing the above sum by the total of 70 MW multiplied by the Colstrip annual load factor plus 95 MW multiplied by the Jim Bridger annual load factor plus 235 MW multiplied by the Hunter #2 annual load factor plus 400 MW multiplied by the Hunter #3 annual load factor, and (3) dividing the above ratio by 0 . 95 which represents the adjustment factor for transmission losses . i Appendix B - 1 i I a Section B2 : Determination of Colstriu Project Annual Variable Cost. Jim Bridger Project Annual Variable i Cost.Hunter 02 Project Annual Variable Cost and I Hunter #3 Project Annual Variable Cost The Colstrip Project Annual Variable Cost, the Jim Bridger Project Annual Variable Cost, the Hunter #2 Project Annual Variable Cost and the Hunter #3 Project Annual Variable Cost shall be determined, for each Project, by (a) adding the amounts as set forth in Sections B2 . 1 through B2 .2 (plus B2 . 3 for Hunter #2 and plus B2 . 4 for Hunter #3) and (b) dividing each Project total by I PacifiCorp ' s share of the associated Project ' s annual energy production as filed with the Federal Energy Regulatory Commission (FERC) in PacifiCorp ' s FERC Form No . 1, or its successor thereto. 82 . 1 Production Expenses shall be equal to the production expenses of resources in the Resource Pool as filed in PacifiCorp ' s FERC Form No . 1, or its successor thereto . B2 .2 In lieu of payments shall consist of any assessment, payment in lieu of taxes or other charge which is imposed against PacifiCorp by governmental authority and related to the operation and maintenance of each Project . B2 .3 Hunter #2 Project allocated mining expenses, to be determined by adding the amounts calculated under Sections B2 .3 . 1 through B2 .3 . 4 below: B2 . 3. 1 PacifiCorp ' s adjusted initial levelized annual fixed charge rate for the Hunter #2 project mining investment multiplied by the Hunter #2 project mining initial investment, Appendix B - 2 determined pursuant to Section B3, as of December 31, 1990 . For purposes of this section, PacifiCorp ' s total investment in Hunter #2 project mining is $26, 195, 889 . Such total investment shall remain constant through the book life (14 years) and shall be $0 afterwards . Such adjusted initial levelized annual fixed charge rate shall be determined by subtracting book depreciation (1/book life) from PacifiCorp ' s initial levelized annual fixed charge rate for the Hunter #2 project mining investment determined annually in accordance with Section B4, below. Such book depreciation is reflected in Hunter #2 fuel cost . B2 . 3 .2 The sum of all subsequent annual levelized fixed charges, each of which shall be determined by multiplying (a) PacifiCorp ' s subsequent levelized annual fixed charge rate for each year, for the Hunter #2 Project mining investment, as calculated in accordance with Section B4, below, by (b) the dollar investment in capital additions, replacements (less credit for net salvage and insurance proceeds, if any) , and betterments of the Hunter #2 Project allocated mining investment, completed during the calendar year immediately preceding establishment of such subsequent levelized annual fixed charge . Such dollar investment, to be determined from data contain in PacifiCorp ' s FERC Form 1 or its successor thereto, shall not include any dollar amounts incurred by PacifiCorp prior to January 1, 1991 . 82. 3 . 3 All ad valorem taxes imposed upon the Hunter #2 Project mining investment . B2. 3. 4 Administrative and General Expense shall be an Appendix B - 3 amount equal to the product of 1) the quotient of total PacifiCorp administrative and general expenses to total PacifiCorp electric plant in service; and 2) the total Hunter #2 Project mining investment . X2 .4 Hunter #3 Project allocated mining expenses, to be determined by adding the amounts calculated under Section B2 . 4 . 1 through B2 . 4 . 4 below: B2. 4 . 1 PacifiCorp ' s adjusted initial levelized annual fixed charge rate for the Hunter #3 Project mining investment multiplied by the Hunter #3 Project mining initial investment, determined pursuant to Section B3, as of December 31, 1990 . For purposes of this section, PacifiCorp ' s total investment in Hunter #3 project mining is $44, 588, 747 . Such total investment shall remain constant through the book life (14 years) and shall be $0 afterwards . Such adjusted initial levelized annual fixed charge rate shall be determined by subtracting book depreciation (1/book life) from PacifiCorp ' s initial levelized annual fixed charge rate for the Hunter #3 project mining investment determined annually in accordance with Section B4, below. Such book depreciation is reflected in Hunter #3 fuel cost . B2. 4 .2 Each subsequent annual levelized fixed charge shall be determined by multiplying (a) PacifiCorp' s subsequent levelized annual fixed charge rate for the Hunter #3 Project mining investment, as calculated in accordance with Section B4, below, by (b) the dollar investment in capital additions, replacements (less credit for net salvage and insurance proceeds, Appendix B - 4 if any) , and betterments of the Hunter #3 Project allocated mining investment, completed during the calendar year immediately preceding establishment of such subsequent levelized annual fixed 41 charge . Such dollar investment, to be determined from data contain in PacifiCorp ' s FERC Form 1 or its successor thereto, shall not include any dollar amounts incurred by PacifiCorp prior i to January 1, 1991 . B2. 4 . 3 All ad valorem taxes imposed upon the Hunter #3 Project mining investment . B2 . 4 . 4 Administrative and General Expense shall be an amount equal to the product of 1) the quotient of total PacifiCorp administrative and general expenses to total PacifiCorp electric plant in service; and 2) the total Hunter #3 Project mining investment . Section B3 : Allocation of Mining Investment to Hunter #2 and Hunter #3 Projects Hunter #2 mining initial investment and Hunter #3 mining initial investment shall be determined by (a) multiplying the dollar amount as set forth in Section B3 . 1 by (b) the ratio of PacifiCorp ' s share of the associated Project ' s capability (235 MW for Hunter #2 Project and 400 MW for Hunter #3 Project) divided by the total capability of all Projects served by the mines (presently 1995 MW) . Hunter #2 mining subsequent investment and Hunter #3 mining subsequent investment shall be determined by (a) multiplying the dollar amounts as set forth in Section B3 . 2 by (b) Appendix B - 5 . • the ratio of PacifiCorp ' s share of the associated Projects capability (235 MW for Hunter #2 Project and 400 MW for Hunter #3 Project) divided by the total capability of all Projects served by i the mines (presently 1995 MW) . B3 .1 Gross coal plant, as reported in FERC account 399 as "Total Other Tangible Property" in PacifiCorp ' s FERC Form 1 as of December 31, 1990 . B3 .2 Each subsequent coal mine investment in capital additions, replacements (less credit for net salvage and insurance proceeds, if any) , and betterments, as determined pursuant to data contain in PacifiCorp ' s FERC Form 1 or its successor thereto . Section B4 : Elements of Hun - -r #2 and Hunter #3 Project Mining_ Investment Levelized Annual Fixed Charge Rates B4 . 1 CaBital Structure : B4 . 1 . 1 For purposes of calculating initial levelized annual fixed charge rates, PacifiCorp ' s capital structure will remain constant . The capital structure for Hunter #2 and Hunter #3 Project is : Long Term Debt 500 Preferred Stock 100 Common Stock Equity Z Total 1000 B4 . 1 .2 PacifiCorp ' s capital structure will remain constant for purposes of calculating subsequent levelized annual i Appendix B - 6 i s • fixed charge rates and is as follows : Long-Term Debt 480 Preferred Stock 6% Common Stock Equity A-E% Total 1000 provided, that if any part of PacifiCorp ' s portion of the capital additions, replacements, or betterments which occasioned a subsequent levelized annual fixed charge cost is financed by long-term debt, the interest of which is exempt from federal income taxes, the long-term debt portion of the above capital structure shall be apportioned between the long-term debt and the tax exempt long-term debt accordingly . In no case shall the long-term debt portion exceed forty-eight (48%) of total capitalization . B4 . 2 Cost of Cavital : B4 . 2 . 1 . 1 Long-Term Debt : Bond interest applicable in the calculation of each initial levelized annual fixed charge rate will be eight and forty-seven hundredths percent (8 . 47%) . Bond interest applicable in the calculation of each subsequent levelized annual fixed charge rate for future capital additions, replacements, or betterments shall be the effective cost rate to PacifiCorp of the most recent issue of long-term bonds, excluding special-purpose issues not related to the Hunter #2 and Hunter #3 Project Mining Investment, in the twelve (12) -month period prior to the date of the completion of construction of the capital additions, replacements or betterments for which the subsequent Appendix B - 7 • . levelized annual fixed charge rate is calculated. In the event there are no bond issues within the said twelve (12) -month period, then an estimated bond interest rate will be used in the billings, based upon the bond rating then applicable to PacifiCorp until such time as there is a bond issue, at which time all future billings will reflect the actual cost to PacifiCorp of such bond issue . In the event such bond issue is subsequently exchanged for other bonds, the new bond rate shall be used for subsequent billings . E4 . 2 . 2 Preferred Stock: Return on preferred stock applicable in the calculation of each initial levelized annual fixed charge rate shall be eight and twenty-four hundredths (8 . 240) . Return on preferred stock applicable in the calculation of subsequent levelized annual fixed charge rates for future capital additions, replacements, or betterments shall be the same as for bond interest used in calculation of subsequent annual fixed charge rate, plus fifty (50) basis points . B4 . 2 . 3 Common Stock E itv: For pricing purposes only the component for the rate of ROE applicable in the calculation of the initial levelized annual fixed charge rate and each subsequent levelized annual fixed charge rate for any calendar year shall be equal to PacifiCorp ' s then-effective rate of ROE which has been authorized by the FERC . PacifiCorp shall use a rate of ROE of eleven and seventy- hundredths percent (11 . 700) as authorized for use by FERC in FERC Docket No . ER-93-052-000 . PacifiCorp shall make a timely filing Appendix B - 8 I with the FERC for a change of rates to reflect any change in the rate of ROE as authorized by the FERC . 84 . 3 Book Depreciation: Book depreciation charges shall be at a straight-line rate based on a fourteen (14) year life in calculating the initial levelized annual fixed charge rates . Book depreciation charges for subsequent levelized annual fixed charge rates shall be based on the estimated remaining service life of the Project including the effects on such life due to the subsequent investment . Because book depreciation is reflected in the Hunter #2 and #3 fuel cost, an adjustment is made to the initial levelized annual fixed charge rate for the Hunter #2 and #3 project mining investment, pursuant to Subsections B2 . 3 . 1 and B2 . 4 . 1 . 84 . 4 Income Tax Regyirements : 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 change : 84 . 4 . 1 The federal corporate income tax rate, 46% up through 1986, 40o in 1987 and 34% for the years 1998 through 1992 and 35% in 1993 and thereafter. B4 . 4 . 2 A state corporate income tax rate equal to the estimated composite weighted average of PacifiCorp ' s (3) three-factor formula for unitary allocation of state taxable income based upon payroll, property, and revenue in each state in Appendix B - 9 i r which PacifiCorp provides retail service . B4. 4 .3 The Modified Accelerated Cost Recovery System (modified ACRS) method of tax depreciation in accordance with the Tax reform act of 1986 shall be used in calculating both the initial and subsequent levelized annual fixed charge rates . B4. 4 . 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 shall be used when calculating subsequent levelized annual fixed charge rates . B4 . 4 . 5 Tax basis shall be one hundred percent (1000) of the book basis in calculating each initial levelized annual fixed charge rate and one hundred percent (1000) of the book basis in calculating each subsequent levelized annual fixed charge rate . Appendix B - 10 Colstrip Project Annual Variable Cost (Based on 1990 FERC Form 1) Colstrip Project Annual Energy Production (MWh) 951,695 Production Expenses Operation, Supervision and Engineering $175,543 Fuel $7,481,054 Steam Expenses $676,840 Electric Expenses $310,816 Misc. Steam Power Expenses $1,032,897 Rents ($97,341) Maintenance, Supervision and Engineering $232,610 Maintenance of Structures $168,140 Maintenance of Boiler Plant $1,462,168 Maintenance of Electric Plant $483,955 Maintenance of Misc. Steam Plant $228,956 Subtotal $12,155,638 In Lieu of Payments * $197,102 Total Variable Costs Colstrip Project $12,352,740 Colstrip Project Annual Variable Cost $12.98 per MWh * Montana Electrical Energy License Tax Appendix B - 11 1 i Jim Bridger Project Annual Variable Cost (Based on 1990 FERC Form 1) I Jim Bridger Project Annual Energy Production (MWh) 9,727,673 Production Expenses Operation, Supervision and Engineering $1,906,989 Fuel $110,073,590 Steam Expenses $5,378,692 Electric Expenses $1,924,875 Misc. Steam Power Expenses $2,996,408 Rents $36,080 Maintenance, Supervision and Engineering $3,402,476 Maintenance of Structures $2,296,637 Maintenance of Boiler Plant $12,060,367 Maintenance of Electric Plant $2,361,026 i Maintenance of Misc. Steam Plant $1,458,585 Subtotal $143,895,725 In Lieu of Payments - Total Variable Costs Jim Bridger Project $143,895,725 Jim Bridger Project Annual Variable Cost $14.79 per MWh Appendix B - 12 i 0 Hunter #2 Project Annual Variable Cost (Based on 1990 FERC Form 1) i Hunter#2 Project Annual Energy Production (MWh) 1,772,948 Production Expenses Operation, Supervision and Engineering $359,749 Fuel $14,892,163 Steam Expenses $1,255,642 Electric Expenses $710,564 Misc. Steam Power Expenses $740,621 Rents $874 Maintenance, Supervision and Engineering $542,858 Maintenance of Structures $367,544 Maintenance of Boiler Plant $1,488,547 Maintenance of Electric Plant $149,289 Maintenance of Misc. Steam Plant ($21,706) Subtotal $20,486,145 Allocated Mining Expenses $2,201,249 In Lieu of Payments - Total Variable Costs Hunter#2 Project $22,687,394 Hunter #2 Project Annual Variable Cost $12.80 per MWh Appendix B - 13 i Hunter #3 Project Annual Variable Cost (Based on 1990 FERC Form 1) Hunter#3 Project Annual Energy Production (MWh) 3,348,751 Production Expenses Operation, Supervision and Engineering $562,579 Fuel $26,295,191 Steam Expenses $2,281,882 Electric Expenses $1,277,460 Misc. Steam Power Expenses $1,199,505 Rents $1,254 Maintenance, Supervision and Engineering $855,461 Maintenance of Structures $575,125 Maintenance of Boiler Plant $2,026,339 Maintenance of Electric Plant $243,417 Maintenance of Misc. Steam Plant $111,556 Subtotal $35,429,769 Allocated Mining Expenses $3,746,806 In Lieu of Payments _ Total Variable Costs Hunter#3 Project $39,176,575 Hunter #3 Project Annual Variable Cost $11.70 per MWh Appendix B - 14 1 Annual Variable Cost (Based on 1990 FERC Form 1) Project Annual Load Factors 1990 Generation _ Capacity Load Factor (Mwh) MW Colstrip 951,695 140 78% Jim Bridger 9,727,673 1,333 83% Hunter#2 1,772,948 235 86% Hunter#3 3,348,751 400 96% Weighted Variable Cost Capacity Load Factor Variable Cost Numerator Denominator MW $/MWh Colstrip 70 78% 12.98 705 54 Jim Bridger 95 83% 14.79 1,170 79 Hunter#2 235 86% 12.80 2,591 202 Hunter#3 400 96% 11.70 4,473 382 Total 8,99 718 Numerator= Capacity x Load Factor x Variable Cost Denominator= Capacity x Load Factor Weighted Variable Cost= 8,939 - 718 = $12.45 Adjusted for Losses = $12.45 _ 0.95 Annual Variable Cost = $13.10 Appendix B - 15 HUNTER #2 AND #3 MINING INVESTMENT ALLOCATION CALCULATION ,I Gross Coal Plant (FERC F . 1-Pg 207a) $222, 386, 377 Power Plants served by Mines : MW Huntington #1 400 Huntington #2 415 Hunter #1 UPI, 366 Hunter #1 Provo 24 Hunter #2 UPL 235 Hunter #2 DG&T 155 Hunter #3 UPL 400 Total : 1995 Hunter #2 Mining Investment = 235/1995 x $222, 386, 377 = $26, 195, 889 Hunter #3 Mining Investment = 400/1995 x $222, 386, 377 = $44, 588, 747 Appendix B - 16 Hunter #2 Project Allocated Mining Expense (Based on 1990 Actual Costs) Initial Levelized Fixed Charge Hunter#2 Project Hunter#2 Mining Investment $26,195,889 Adjusted Initial Levelized Annual Fixed Rate 6.555% 1 Initial Levelized Annual Fixed Charge $1,717,141 Subsequent Investment Subsequent Levelized Annual Fixed Rate Subsequent Levelized Annual Fixed Charge $0 Ad Valorem Tax $0 Taxes, assessments and in lieu of taxes $p Administrative & General Expenses: 1990 Total PacifiCorp A&G Expense $145,713,190 1990 Total PacifiCorp Electric Plant In Service $7,884,778,137 A&G Expense as a percent of Investment 1.85% Hunter#2 A & G Expense $484,108 Total Fixed Cost $2,201,249 Appendix B - 17 i 1 Hunter #3 Project Allocated Mining Expense (Based on 1990 Actual Costs) Initial Levelized Fixed Charge Hunter#3 Project Hunter#3 Mining Investment $44,588,747 Adjusted Initial Levelized Annual Fixed Rate 6.555% Initial Levelized Annual Fixed Charge $2,922,792 Subsequent Investment Subsequent Levelized Annual Fixed Rate Subsequent Levelized Annual Fixed Charge $0 Ad Valorem Tax $0 Taxes, assessments and in lieu of taxes $0 Administrative & General Expenses: 1990 Total PacifiCorp A&G Expense $145,713,190 1990 Total PacifiCorp Electric Plant In Service $7,884,778,137 A&G Expense as a percent of Investment 1.85% Hunter#3 A & G Expense $824,014 Total Fixed Cost $3,746,806 Appendix B - 18 i BUNTER #2 AND #3 MINE INVESTMENT CALCULATION OF ADJUSTED INITIAL FIXED CHARGE RATE (Based on $100, 000 of Capital Expenditure) CAPITAL STRUCTURE : Component Structure Rate Debt 500 8 . 47% Preferred 10% 8 . 24% Common 40% 11 . 70% Weighted Cost of Capital 9 . 74% INPUT DATA: INVESTMENT TAX CREDIT : Not Applicable SALVAGE VALUE : 0 BOOK LIFE (Straight Line) 14 years TAX LIFE (MACRS) 7 years TAX RATE 37 . 77% (includes state Corp . tax) TAX BASIS 100 . 00% of Book PW RATE 9 . 74% CALCULATED DATA: CAPITAL RECOVERY FACTOR = 0 . 13382 (1*) INITIAL LEVELIZED FIXED CHARGE RATE = 0 . 13698 = 13 . 698% (*11) ADJUSTED INITIAL LEVELIZED FIXED CHARGE RATE* = 13 . 698% less book depreciation, where book depreciation = 1/14 years = 0 . 07143 = 7 . 1430 = 13 . 698% - 7 . 143% = 6 . 555% *Book depreciation is reflected in fuel cost . Appendix B - 19 1 HUNTER #2 AND #3 MINE INVESTMENT FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Sample Calculations based on Year 1 and shown rounded to nearest whole dollar) i (*1) CAPITAL RECOVERY FACTOR, (CRF) = i (1+i) n/ (1+i) n -1 Where i = weighted cost of capital and n = ave . life of plant . CRF = 0 . 0974 (1 + 0 . 0974) 19/ ( (1 + 0 . 0974 ) 14 0 . 13382 (*2) BOOK DEPRECIATION = $100, 000/14 Years = $7, 143 (*3) TOTAL RETURN, (TR) = A x Ws Where A = Average Net Investment; and Ws = Weighted Cost of Preferred and Common Stock Let A = Beginning Investment - (D+T) /2 Where Beginning Investment = Previous year ' s beginning investment - previous year ' s D and T . D = Book Depreciation (*2) T = Deferred Tax (*5) Therefore, beginning investment = $100, 000 A = $100, 000 - (7, 143 + 2631) /2 = $95, 113 TR = $95, 113 x ( . 10 x . 0824 + . 40 x . 1170) = $5, 235 (*4) INTEREST, (I) = A x Wd Where Wd = Weighted Cost of Debt Therefore, I = $95, 113 x ( . 50 x . 0847) _ $4, 028 (*5) DEFERRED TAX, (T) _ (Tp -D) x TR Where Tp = Tax Depreciation (*8) TR = Tax Rate (36 . 81%) Let T = (14, 290 - 7, 143) x . 3681 = $2, 631 Appendix B - 20 0 0 HUNTER #2 AND #3 MINE INVESTMENT FORMULAS FOR CALCULATING INITIAL LEVELIZED FIXED CHARGE RATE (Con ' t . ) (*6) INCOME TAX = (Total Return + Book Depreciation + Deferred Tax - Tax Depreciation) x (Tax rate/ (1-Tax i rate) INCOME TAX = ($5, 235+ $7, 143 + $2, 631 - $14, 290) x ( . 3681/ (1- .3681) = $419 (*7) ANNUAL COST = Book Depreciation + Total Return + Interest + Deferred Tax + Income Tax ANNUAL COST = $7, 143 + $5, 235 + $4 , 028 + $2, 631 + $419 = $19, 456 r (*8) TAX DEPRECIATION = (Modified ACRS) x Original Investment TAX DEPRECIATION = 14 . 2996 x 1 . 00 x $100, 000 = $14, 290 (*9) ITC = Not Applicable (*10) PRESENT WORTH ANNUAL COST = Annual Cost x 1/ (1+i) n PRESENT WORTH ANNUAL COST = $19, 456x 1/ (1 + . 0974) 1 = $17, 729 where i = weighted cost of capital and n = first year . (*11) INITIAL LEVELIZED FIXED CHARGE RATE = (CRF x Total Present Worth Annual Cost) /Total Original Book Cost INITIAL LEVELIZED FIXED CHARGE RATE = (0 . 13382 x $102, 357) /$100, 000 = 0 . 13698 = 13 . 698% Appendix B - 21 i 1 � • W W M N N a a M c N ', a v w M � o c c O C o c o C C c o c o 0 o O c o 0 of N Iq h a a lO — N 7 'O a -1- O V) — 'C N WW a 00 h �O Vl 'r M N N N i LQ ¢ Q z oc c O o C C c c C O c c o 0 o C C o C 0 0 0 o c c o 0 C 0 of o � � ¢ ,z NccciT�av_ 25 Q a > U a M N 7 N M ^ ^ a V h ^ r 0 0 0 0 0 0 0 O O O O 0 0 0 0 0 0 0 0 0 OI N O m r v r h oo h N M — M aCG W O z O h an I: o0 00 M 00 a C U w p U O U U h V N 0 00 h�c V1 M M N N N N ¢ QuwF U .� — — c W h nF" ¢ Z LL 00 "T CL z j � ChMC) In0, r ^ � OVnC C-- occoC0oCo0ocoo0000 a („[] Z Q r V'1 V �C a h h QD p — N a W V (� n V C�cn o0 N lC O V 1111-0 0 00 aaU x0 ZO ar � v �r N=oo�"I W N N F oOw ZU " - - - - _ ^ c-I zp s� a o v N - M � N ao a a o o ^ o o 0 0 o o o o o c o o o o o 0 0 0 0 o of ¢ Z — NCO V rMMo mC7, 'r O Xwww W W V1 inn NO C� In Qt+'1 N N a rtcr xrxv) ¢ oaw cc < XXXX � v 0 w Q ¢ ¢ ¢ > U ¢ 00 X U r ¢ ¢ ss � s � s° wC� - � ao � �+ �- �:, �r;i;r�r`�oC00000000c000000000do -!N N - —� -� h M Z LL p 2 a a Z Z U WBOO M�' 11 rT z L V M M N N N - - - N -� z Q X w o�oo°OoorMo � Nr-4tn ?oCCCCOCooccco00000000010 00 M C }, w w cr 10 V1 V1 '7 M Mt N N — — W cxcnw ��I crnill Z .a. wawa W W x Zw w W � > F W w LL, Mz Q -� M �,-� Q p -0.n- Q LU 1 2 F" w a r w N M M � '7 v1 O c O C O C 0 0 0 c C 0c 0 0 0 0 0 0 0 01 N Uj Q' O 'A N M ^ O+ N a �D �D �n �D h oo a M h Lu w w w U [-+ w Z O �n 0 �/1 N 00 Vl N O 00 �D 7 N DD N N N N N ¢ > w m C4 0.w. 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W W �D oo 10 M vi C O V O C4 v Q N h n r co C oo M ^� Vi 7t oo O N W Lztl o a a o, � X O � oa F W oc w 00 0O o0 00 0 0 0 0 0 0 0 0 0 0 0 0 0 0 o c c c o c of z M o0 O N r h rCY, D, D\ (01 a C M U. W 'D M 00 O D 'o 'o O D �D �D �D \D 'O M W `� — N N N N N N O : U _Jz en �' vFi F a o 0 0 0 0 0 0 0 0 0 c c o 0 0 0 0 0 0 0 0 o c o 0 0 o c c c c o 0 0 0l cl 4 0G a C H Q U U Q C o 0 0 o C C o 0 c c Cl c C 0 c O c 0 o c c c 0 o C o o C C of cl za W O � F F � 'n W W > F 00000coococ00000000cccoOcc000000000l cl z p .- W a U M M M M M M M M M M M M cn M O O O O O O O O O O O O O O O coo c = --I O O a Q C7 p oo M O N_ N h N 10 — v O O c o o C O c C C O C c O o C o C o C Cl z h oo N N h cn o0 7 W F W ne W a oa � OCO1CNC, C, C, a, � Z55 � 8888888000 � 000000000m0 -' - - - � N N N N N N N N N N N N N N N N N N N N N N N � Q F O F • i APPENDIX C RESOURCE POOL This Appendix sets forth the amount of capacity (MW) and the combination of resources which may be included in the Resource Pool which shall be the basis for determining the prices for Firm Capacity and associated Firm Energy under Sections 8 . 2 and 8 . 3 . During the period June 1, 1995 through May 31, 2014, the Resource Pool shall contain 800 megawatts of capacity consisting of the following combination of resources : Capacity Resource (MW) Colstrip Project 70 Jim Bridger Project 95 Hunter No . 2 Project 235 Hunter No . 3 Project AQQ Total 800 MW Provided, that commencing June 1, 2000, and each June 1 thereafter through the the Contract Year ending May 31, 2014, PacifiCorp may replace up to a maximum of 100 megawatts of resources and associated costs in the then-existing Resource Pool with other cost resources; i .e . , in the Contract Year ending May 31, 2001 the Resource Pool shall contain a minimum of 700 megawatts of resources that were included in the Resource Pool in the Contract Year ending May 31, 1996 and in the Contract Year ending May 31, 2003 the Resource Pool shall contain a minimum of 500 megawatts of resources that were included in the Contract Year ending May 31, 1996 . Appendix C - 1 The resources placed into the Resource Pool may consist of any combination of resources PacifiCorp owns or may acquire, including, but not limited to, thermal generation it owns or leases and firm power purchases under contracts with a term of three years or more; provided, that resources placed in the Resource Pool shall only be resources that (1) PacifiCorp acquires through prudent utility management practices and (2) have been declared to be in commercial operation prior to January 1 of the calendar year in which such resources are included in the Resource Pool; provided further, that no resources that utilize fissionable energy sources shall be included in the Resource Pool . Appendix C - 2 APPENDIX D MAXIMUM COMBINED CHARGE PRICE This Appendix states the Maximum Combined Charge Price which Redding shall pay PacifiCorp for Firm Capacity and associated Firm Energy respectively for each month from June 1, 1995 through May 31, 2000 . with the exception of adding the additional costs associated with an energy tax as discussed below in this Appendix, the Maximum Combined Charge Price for each Contract Year during this period shall be as follows : Maximum Combined Contract Year Charge Price June 1, 1995 - May 31, 1996 $42 . 94/MWh June 1, 1996 - May 31, 1997 $43 . 89/MWh June 1, 1997 - May 31, 1998 $44 . 92/MWh June 1, 1998 - May 31, 1999 $46 . 02/MWh June 1, 1999 - May 31, 2000 $47 . 19/MWh In the event that PacifiCorp experiences increased costs from its generating resources due to a tax that may be imposed directly on the generation of electricity or on the use of any fuel in the generation of electricity or on any emissions resulting from the generation of electricity (including a carbon, Btu or similar tax) by a governmental authority subsequent to the effective date of this Agreement, the effect of such tax shall be added to the Maximum Combined Charge Price . Appendix D - 1 APPENDIX E CALCULATION OF CONTRACT YEAR PRICE This Appendix provides the methodology for calculating the Contract Year Price for each Contract Year based on the Annual Fixed Cost and Annual Variable Cost as calculated for each calendar year. The Annual Fixed Cost component of the Contract Year Price for each Contract Year is equal to sum of (1) the Annual Fixed Cost for the calendar year which ends five months before the ending date of the Contract Year multiplied by fifty-eight and thirty- three hundredth percent (58 . 330) and (2) the Annual Fixed Cost for the calendar year which ends seven months after the ending date of the Contract Year multiplied by forty-one and sixty-seven hundredth percent (41 . 670) . The Annual Variable Cost component of the Contract Year Price for each Contract Year is equal to sum of (1) the Annual Variable Cost for the calendar year which ends five months before the ending date of the Contract Year multiplied by fifty-eight and thirty- three hundredth percent (58 . 330) and (2) the Annual Variable Cost for the calendar year which ends seven months after the ending date of the Contract Year multiplied by forty-one and sixty-seven hundredth percent (41 . 67°) . Example Contract Year: June 1, 1994 - May 31, 1995 The calculation of Contract Year Price is based on the Annual Fixed Cost and the Annual Variable Cost for the calendar years 1994 and 1995 . Annual Fixed Cost component of the Contract Year Price : assume the Annual Fixed Cost is $19 . 22/kW-mo in 1994 and $19 . 26/kW-mo in 1995 . The Annual Fixed Cost component of the Contract Year Price would be calculated as follows : $19 . 22/kW-mo x . 9479 x . 5833 = $10 . 63/kW-mo $19 . 26/kW-mo x . 9479 x . 4167 = $7 . 61/kW-mo Annual Fixed Cost $18 .24/kW-mo component of Contract Year Price Annual Variable Cost component of the Contract Year Price : assume the Annual Variable Costis $15 . 35/MWh in 1994 and $16 . 28/MWh in Appendix E - 1 1995 . The Annual Variable Cost component of the Contract Year Price would be calculated as follows : $15 .35/MWh x . 5833 = $8 . 95/MWh $16 . 28/MWh x . 4167 = $6 . 78/MWh Annual Variable Cost $15 . 73/MWh component of Contract Year Price i i I Appendix E - 2 APPENDIX F EXAMPLE CALCULATION ESTABLISHING ADJUSTMENTS FOR INTEREST Simple interest "Mid-year Convention" shall be utilized in calculating the amount of the adjustments for interest . Assumptions For Example Calculations : (1) Total Annual Payment Difference for Contract Year June 1, 1995 through May 31, 1996 $12, 000 (2) Prime Rate(') 9% (3) Time of Adjustment October 1, 1997 Adjustments For Interest : Year Prime RateliL Factor(2) Jnterest Rate June 1995-May 1996 9 . 0% multiplied by 1/2 = 4 . 50% June 1996-September 1997 9 . 0o multiplied by 16/12 = 12 . 00% 16 . 50% 16 . 50% x $12, 000 = $1. 980 Adjustment For Interest (1) The prime rate shall be the time weighted average prime rate for the period. For the example above it would be for the period January 1995 through September 1997 . The prime rate shall be as established by 1) Morgan Guaranty Trust Company of New York, or 2) mutual agreement of the Parties . (2) June 1995-May 1996 mid-year convention 1/2 year June 1996-September 1997 16 months Appendix F - 1