Free Motion to Dismiss - Rule 12(b)(1) - District Court of Federal Claims - federal

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460

~r. Don [~an Man~er ~he Dalles Irrigation District P.O. Box 767 ~ne Ealles OR 97058 Subject: ~ew Irrigation l~mpin~. Power .~ate (Pov~r Sales)

'Erie rate which your district pays for irrigation pu~pin~ po~r expires Dsc~SDer 31, 1989. We ha~4e been involved in.negotlations with the Bonneville Power Administration (BPA) to dete~i~ine the new rate f~r the period 1990-1994. Althot~h there may be f-arther negotiations, our agreement with BPA provides that the BPA rate proposal as of At~ust 15, 1989, will go ~nto effect Dn an interim basis subject to approval by the Secretary of the ~nterlor. ~e interim rate is therefore fixed at 1.23 mills per kilowatt-hour, a 23 Dercent increase over your [3revlous rate of 1.0 mill per kilowatt-hour. ~is rate is based on the cost of generation at ~he D~lles Powerplant which now exce~s I mill per kilowatt-hour. ~ would be happy to meet with the district to answer any questions that you might have. Please advise if such a r~sting is d~slred. Sincerely,

~JOHNW. KE~S
Regional Director

bc:

~430,

440

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DONDEAN, Operations Phone (503) 296-3366 880 S. E. Olney Road

Manager

Post Office Box 767

;eptember

6, 1989

John W. Keys, IIl Regional Director Bureau of Reclamation Box 043-550 West Fort Street Boise, Idaho 83.724-0043 Re: Dear Power Rates for The Dalles Project -

Mr. Keys:

In reply to your letter of August 23, 1989, I made a phone call to you about a week ago, and talked with your assistant. In this call I requested from your office the basis for the calculations of the cost of power generation from The Dalles Power Plant. I also requested that we have a meeting in this regard as soon as possible. I assume that your office is aware of the various specific terms of our contract with the Government as to po~er cost. The cost ofgeneration at The Dalles Power Plant was calculated a few years ago, and information from your office indicated that the cost for generation was 0.52 mills per kilowatt-hour. At our Board of Directors meeting last evening, th~ Board expressed concern about how that rate could increase 2½ times in about five years. The Dalles Power Plant has not had any significant changes to our knowledge. Please advise when you could be available for a meeting on this, so that we may understand how that cost has been calculated under your new formula. Also, in your files, woul d be letters from Harold Nelson, then the Regional Director,to Bill Luce, head of Bonneville Power, regarding this matter. These letters were exchanged in late 1961, following the approval of our contract. Bill Burpee (now retired) then the attorney for the district office of the Bureau, could perhaps clarify this matter. Yours truly,-

uh

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UnitedStates Department the Interior of
BUREAU RECLAMATION OF

PN 460

SEP28 1989

Chairman of the Board ~e ~lles ~rigatt~ ~stE~ct 880 S. E, Ol~y ~d ~e ~lles OR 97058 Subject: Cost Data for and Meetingto DiscussNew Irrigation PumpingBower Rate (Your letter of September6, 1989) (PowerSale) AS rsquested your subjectletter,we are enclosinga copy of a typlca/ by statement power revenuesand expensesof the FederalColumbiaRiver Bower of S~st~, in this case for the late~t fiscal year, 1988. ~his statementshows the typic@lcosts of ~he Dalles Bowerplant which are used in dete~mlnlng the irrigation pu~pingpo%~r rate and were compile~by the Bonneville Power ~mlnistratlon frc~ data suppliedby the Oorps of Eaglneer~. As discusse~by telephoneon Sept~nber 22, 1989, representatives the of staffs of Recl~natlon and Bonneville Bower Administration will meet with the Districtat 10:00 a.m. on October12, 1989, in the District's office to discussthe calculation the rate. of sincerely,

~sgional Supervisor of Water, Power and Lands

Mr. Tom Blankenship District Manager Bonneville Bower Administration Box 035 - 550 West Fort Street Boise ID 83724

D0392

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By: ]

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DON DEAH, 880 S. E, OlneyRoad

Post CirceBOX767 THI~ D RECLAMATION ~ot OFFICIAL FILE COPY

OCT 61989 "

Dept. of W~ter, Power &. La'hdH Bureau oE Reclamat£on Box 043-550 West ~rt Street Boise, Idaho 83724-0043 Attn~ PN 460

Regarding yo~r letter of September 28, 1989, we appreciate yo~. sanding a data sheet of information supplied by Bonneville P9wer Administration. However, this does not appe~:~q be pertinent to calculating our power cost, since our rate is based only on generation cost at The belles-Dam, Please refer to copies, of letters exchanged between Regional Director Harold Nelson, Bureau of Re=lametion and Char~es Luce head of Bonneville P~wer Administration, £h December 1961. Ope[ation & maintenance were spehific~lly excluded Im ~elculatln~ OUT~owerCOSt. - . Please supply us ~ith current g~neration cost at The. Dalles Dam, in accordance with terms of our .contract with the Dept. of Interi6~, Bureau of Re~lamatio~ dated October 19, 1961o Sinqer.ely yohrs, /-~

DOn W. Baaley, Chair~n Bo.ard of Director's/ uh Encls..Copies of letters H. Nelson & C. Luce's

Page 12 of Repayment regarding Power Cost

Contract

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PN 360

Secretary The DallesIrrigation District P.O.Box 767 The Dalles OR 97058 Subject: Contract No. 14-06-100-2276 (Contract) District Secretary: We are issuingthis noticeof pumpingpowerchargesas required repayment by contract No. 14-06-100-2276. Estimated pumpingpowerfor calendar year 1990 15,083,000 @ 1.23 mills kWh $18,552.00 and maintenance Less: Creditfrom operation of fish screens -1,700.00 Creditfrom Bonneville PowerAdministration -774.00 Totalestimate $16,078.00

Actualpumpingpowerfor calendar year 1989 17,589,426 @ I mill kwh $17,589.00 Creditand fundsavailable for calendar year 1989 14,951.00 Plus deficitfor calendar year1989 Due by AprilI, 1990 2~638.00 $18,715.00

If the fundsadvanced for calendar year 1990 exceedor are less than the actualpumpingpowercharges, the surplusor deficitwill be adjusted the on pumping powerchargefor calendar year 1991. We have not as yet received the approval the Secretary the Interior of of for the rate of 1.23 mills per kilowatt-hour. In the unlikely event that the Secretary does not approvethe rate,your billingwill be adjusted accordingly. Sincerely,

Chief,

Finance 8ranch

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~

~O:

D-51~0/W-6570
Memorandum ¢o: From; Subject: Assist~nt Comissionsr P~Oposed Exhibl= Various Projects, Eevisions to Irrigatio~ Pumpin~ ~ower Rate for Idaho, Oregon, and ~ashington (Powe~ Sales) proposed exhibit revisions to the the Bureau o£ Ee¢~£on (RecZ~t£on) Secretary o Water. and Science

Enclosed contracts

are cop~es ogt~e five which a~e between

Contract No. 14-06-100-2911 (BPANo. 14-03-32210)dated June 6, 1963 Electric servioe 'to the irriga~ion pumpin8 loads of The Dalles Project Concrsct No. 1~-06-100-5585 (BPA No. ~-03-63656) dated April 6, 1967 Electzic service to the irrigation pumping loads of the Spokane Valley Pro~ect Contract No. 1~-06-100-5999 (BPA No. I~-03-73152) dated Septemhe~ 7, 1967 - Electric service to the irrigation pumping loads of the Crooked River Project Contract No~ 14-06-100-7938 (~PA No. 14-03-17506) dated January 25, 1974 - Electric service to the irrigation pump~n~ loads. of ~he Chief Joseph Dam Project Contract No. 14-06-100-8070 (BPA No. 14-03-49151) dated August 23, 1974 - Electric service to the irrigation pumping loads of the Tualatln Project, Eas~ Greenacres Unit of the Rathdrum Prairie Project, and the Spokane Indian Development and to some of the irrigation pumping loads of the Chief ~oseph Dam ProJec~ these are the agreements we have with BPA for service to small projects. Amendments were approved by Assistant Secretary Broadbent on January 9, 1986, which provided for more uniform contrac~ language and established methodology to be used in the determlna~ion of ~he rates for the 1985-1989 period, and for future rates, One requirement of the agreements is that the rates be reviewed at 5-year intervals. Reclamation and BPA recently completed the first such review and have informed the affected irrigation dlstr~cts as to their revised rates beginning in 1990 subject to the approval of the Secretary of the Interior.

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The new rate determination process worked very smoothly although Reclamation and 5PA did identify some minor modlflcat£ons which were desirable to produce more representative rates. However, there were significant increases in many of the rates due to the fact that BPA changed from the sinking fund method of depreciation to the straightline,method. This change in the method of depreciation is an internal .policy chan~e for BPA and is beyond our control and beyond the scope ofthese . agreement s The change was made in ~985 and would have resulted in large losses of revenue over the 1986o1989 period and a much larger impact on the 1990 rate had not BPA agreed that, since 'the apparent losses were the result of an accou~tlng change and not due to the actual expenditure of additional funds, these apparent lost revenues would be ignored in the establlshment of the new rates. Members'of the Reclamation and BPA staffs met with districts at the districts request to explain that, preolatlon method would result in a large increase effect on long-term rates would be very beneficial many of the irrigation. ~even though the new dein current rates, the to the districts.

The rate for the Spokane Valley Project transmission was reduced because BPA had overestimated the costs, of operation and m~intenance for the 1985-1989 . period resulting in a significant overoollection of revenue during that period. Each exhibit is self-explanatory for the derivation of each proposed rate. Our staff has reviewed each of the exhibits for such derivation and adequacy of the proposed rate and concur with each of the proposed exhibit revisions. Accordingly, we recommend-your approval of the proposed" rates for all five exhibits.

Enclosures

Approved :

Ass~~nt Secretary and returned

" Wa~r and Science

Date

cc:

Deputy Commissioner, Attention: D-1000 ~egional Director, Boise, Idaho, Attention: PN-400

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AUTHENTICATED COPY Revision No. 1 Exhlb|tB, Page ] of 4 BPA Contract No. 14-03-32210 USBR CoDtract No. 14-06-I00-2911 Effective 2400 hours on at December31, 19B9 (This revlslon, updatesthe calculations determining cost chargedby for the Bonnevlile for U.S. Bureauof Reclamation Reserved Power and Energyat The Da|lesfor the five year period 1990-1994. The charge for the previousfive year period,1985-19B9, was I.O0 mill per kIlowatthour.) CHARGEAND CALCULATIONS The DallesPro~e~t CHARGE: Commencing D~cember on 31,19B9,at 2400 hours,the Chargefor ReservedPower ¯ and Energyshallbe 1.23 millsper Kilowatthour. CALCULATIONS:

Generation Cost for 1990 LostRevenueComponent Total Unit Cost Total unlt cost,to nearesthundredth mill

1.160mllls per kIlowatthour 0.067 millsper kI1owatthour 1.227-ml]ls kIlowatthour per 1.23 mills per Kilowatthour

Conceptual Overvl ( Expl ew anatlon theCal culatlon Detal ) of I The charge for power purchasedunder this contractremainsfixed for ~ five year period.To determine the charge for the next flve year period,the historical cost of providing power Is first determlned. That hlstorlcal ~ost needsto be increased compensate to BPA for Increases cost that wl]1.occur In over those next flve years. In addition,since It is not possibleto forecast increases cost precisely, in the chargewill also need to be adjusted, for forecasting errorsfrom the prevlousfive year. period;i.e., the chargewill be decreased BPA overcoIIected the last periodOr Increased if in If-BPA undercoIlected. The methodused to adjustthe hlstor~ca~ costs is calledthe "Lost Revenue ComponentMethod".This method providesa means by which the flnanclaI Interestsof both partiesare protected. The term "lost revenue"refers to somethingdifferentfor each flve year period:forthe prevlousperiod, the ¯ lost revenuerepresents the difference betweenthe actualcost of serviceand the revenuecollected from the chargein effect for that period.For the upcoming five year period,the term "lost revenue"refersto the pro~ect Inflatlon (i,e.,the difference betweenthe historical cost of serviceand the projected cost of servicein a given year).

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Revision No. 1 ExhlbltB, Page 2 of 4. 8PA Contract No. 14-03-32210 USBR ContTact No. 14-06-100-2gll Effective 2400 hourson. at December 31. Igsg C~nceptua] Overview (Contlnued) Once the lost revenuefor each.year has been calcul~ted, effecton th~ its hlstori.cal costcanbe determlned. The "Lost RevenueComponent Method"Is used to determine the annualcost of the lost revenue. Is a more accurate It way of flgurlng the amountwhlch should.be chargedthan the more stralghtforward methodof simply.dlvldlng the totallost revenueby the the numberof years In the chargeperiod.. implement To the "LostRevenue Component Method", the actuallong-term interest rate for each of the past five years and the projectcost for the next flve yearsIs. determlned. That cost Is applledto the lost revenueto get a "lostrevenueplus Interest" figure for each of the five past and flveupcomlng years. That total is then discounted get an annualcost. The cost which'Is to chargedIs equal tO the historical cost plus the annualcost of the-lostrevenue. In general, the chargeunder thls Agreement will be greaterthan the cost of providing servicein the first few years and less than the cost of service in the later years. On average,however,the rate should closelyapproximate the actualcost of service. Calculatlon Detail: Generation: The generation ~hargefor power purchased pursu~n~ th|s Agreement to shallbe the greaterof: ¯ I. one (I) mill per kilowatthour, 2. actual generationcosts, excludingInterest. Actual historical generation costs in thousands dollarsat of The Dallesfor the three previous fiscal years,.FY 1986, 1987, and 1988,were taken from BPA's SummaryFinancial Data Tables6 and lOa. .Fiscal Year1985 1986 1987 1988 Cost of " Annual T6tal .Sales Cost in 0 & H~. Depreclat4on Cost (I000 MNH) millslRNh $4,271 $3,595 . $7,866 8,047 0.978 $4,955 $3,598 $8,553 8,145 1.050 $4,970 $3,646 7,6]4 1,132 $8,616 $5,408 $9,068 6,986 1.298 $3,660

Generation cost (average of three.most recent years) The averagecost of generation greaterthan one mill per kilowatthour, is the chargefor 1990-94shall be 1.160 mills per kilowatthour.

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Revtston NO. 1 Exhlb|t B, Page 3 of 4 BPAContract No. 14-03-32210 USBRContract No. 14-06-100-2911 Effective at 24OOhours on ~Oecember 31~ 198~ Lost Revenue Component .1985-94: fo~ Long Term Discount Rat~ (~) 12.375 11.375 8.875' 8.500 9.250 9.660 10.040 10.320 10.030 9.770 -DiscOunt Rate FactorII 2.454 2.193 1.9.91 1.831 1.682 I.$37 1.399 1.270 1.153 I~049 . Lost Revenue ]985-95.21 $ 0 $ 0 $ 0 $ 0 $ 0 $ 397 $ 812 $ 1,226 $ 1,658 $ 2,090 Lost Rev & In( 1985,95 $ 0 $ 0 $ 0 $ 0 $ ¯ 0 $ 610 $ 1,136 $ 1,557 $ 1,912 $ 2,192

Yea_.__zr 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 TOTAL

6.4082/ $ '6,183

The DIscountRate Factor IS based on Interestfrom mld-yea~ofthe yekr under conslderatlon throughDecember31, 1994. TO get the factor, the interest rateforthe year underconsi.deratlon halved,expressed Is as declmal,and added to one. That "half rate" is then multlplled one plus by the interestrate (expressed a decimal)for each succeeding as year through 1994 to get the DiscountRate Factor for the year. The factor expresses the value of ]ost revenueand Interest BonnevI11e to resulting from underrecovery actualpro~ectcosts... of Lost revenueresultsIn part from k rate designedto recoverBonnevIile's ~ costsIn 1988 being appliedto the entire1990-94rate periodand in part from revenueover/underrecoverles since 1985. Actual over/underrecover~es are calculatedby subtracting revenuesreceived, under the 1985 rate from actual costs for ~he period 1986-1989. Since the lost revenuecomponent was not applicable for the 1985-89period,the component assumedto Is Includeonly expectedrevenueshortfalls for the 1990-94period. Unlt generation costs~t The Dalles(.in real terms)were assumeB Increaseby 2~ per year for the period 1990-9~.This estimate, when multlplled the expected by USBR usage under this Agreement, yleldsexpected total costs. Lost revenue Is calculatedby subtracting expected revenueat. 1.160 mills per KIlowatthour from expected costs.

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Revision No. I ExhibitD, Page 4 Of 4. BPA Contract No. 14-03-32210 USBR Contract No. 14-066-I00-2911 Effective 2400 hours onat December 3l, 1989 Total DiscountRate Factoris the total only for the yRars 1990-94.This totalis used sincethe lost revenuewill be co1|ected over the period 1990 through 1994. AnnualDo|larLost RevenueComponent: The AnnualDollarLost RevenueComponent must be calculated summingthe by annualamountof lost revenueplus interest for both the 1985-89and the 1990-94periods, and dividingthe result by the sum of theDiscount Rate Factorsfor the 1990-94period.($7,4071 6.408) = $ 1,156 AnnualUnit Lost Revenue.Component: 0.067millsper kHh

The lost revenuecomponent mills per kilowatthour in (EHh)is equalto the AnnualDollarLost RevenueComponent dividedby the expected USBR energy salesin each flscalyears 1990-94.. ($I,1561 17,271mHh). UNITED STATESOF AMERICA Department Energy of Bonneville Power Administration

/s/ Edward W. Sienkiewicz

Senior Assistant Adm~trj~tor ¯ Power Management " ~ "
JAN i0 1991

ACCEPTED: UNITEDSTATESOF AMERICA Department-of Interior the Bureauof Reclamation
/s/ John W. Keys Ill Regional Director

Date

~ ~--~_

December 14, 1990

(VS6-PHCG-4048c)

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Revision No. 2 Exhibit B, Page 1 of 4 Contract No. 14-03-32210 USBR Contract No. 14-06-100-2911 Effective at 2400 hours on December 31, 1994 CHARGE AND CALCULATIONS TH~ DALI~S PROJECT This revision updates the charge for U.S. Bureau of Reclamation (USBR)Reserved Power and Energy at The Dalles for the period beginning 1995. The charge for the previous 5_-year period, 1990-1994, was 1.23 m/lls per l~owatt-hour (mills]kWh). CH/kRGE Commencing December31, 1994, at 2400 hours, the charge for Reserved Power on and Energy shall be 1.31 mills/kWh. 2. CALCULATIONS (a) Summary. Generation Cost Lost Revenue Component Total Unit Cost Total unit cost, to nearest hundredth mill 1.226 mills/kWh .086 mills/kWh 1.312 mills]kwh 1.31 mills/kwh

(b)

Conceptual Overview (Explanation of the Calculation Detail) The charge for power purchased under this contract remains fixed until the ¯ next revision in accordance with .the Agreement~ determine the charge for To the next period, t~e historical cost ofpreviding power is first determined. That historical cost needs to be increased to compensateBonneville for increases in cost that will occur during the next period. In addition, since it is not possible to forecast increases in cost precisely, the charge will also need to be adjusted for forecasting errors from the previous period, i.e.; the charge will be decreased ffBonneville over-collected in the last period or increased if Bonneville under-collected. The methodused to adjust the historical costs is called the "Lost Revenue ComponentMethod." This method provides a means by which the financial ~ interests of both Parties are protected. Theterm "lost revenue refers to ¯ somethingdifferent for each period. For the previous period, the lost revenue represents the difference between.the actual cost of service and the revenue collected from the charge in effect for that period. For the upcoming period, the term "lost revenue"refers to the projected inflation (i.e., the difference between the historical cost of service and the projected cost of ser~ce in a given year).

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Revision No. 2 Exhibit B, Page 2 of 4 Contract No. 14-03-32210 USBR Contract No. 14-06-100-2911 Effective at 2400 hours on December 31, 1994 Oncethe lost revenue for each year has been calculated, its effect on the historical cost can be determine& The Lost Revenue ComponentMethod is used t6 determine the annual cost of the lost revenue. It is a more accurate way of figuring the amount which should be charged than simply dividing the total lost revenue by the numberof years in the charge period. To implement the Lost RevenueComponent Method, th~ actual long-term interest rates for each year of the past periods and the projected cost for the next period are determined. That cost is applied to the lost revenue to get a '~lost revenue plus interest" figure for the past period and upcomingperiod. That total is then discounted to get an annual cost. The charge is equal to the historical cost plus the annual cost of the lost revenue. In general, the charge under this Agreementwill be greater than the cost of providing service in the first f~w years and less than the cost of se~ice in the later years; however, the average rate should closely approximate the actual cost of service.

(c)

Calculation Detail - " The generation charge for power purchased pursuant to this Agreement shall be the greater off (1) (2) ope (1) ~Wh; actual generation costs, excluding interest."

Generation costs in thOUSands dollers at The Dalles for the Fiscal Years of 1990 through 1993 are from Bonneville's SummaryFinancial Data. Fiscal ~ !90~ " 1991 1992 1993 O&M and Deureciation $ 9,851 7,692 9,989 ~ $37,625 Generation GWh 8,456 9,163 6,888 6,990 Loss Factor 1.0244 1.0239 1.0256 1.0313 Mills ~ 8~255 " 1.193 8,949 0.860 6,716 1.487 6.778 1.489 30,698 1.226 Sales GWh

Generation cost (weighted average):

The average c5st of generation is greater than 1 mi]YkWh. charge for the The next period shall be 1.226 mills/kWh.

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Revision No. 2 Ex~dbit B, Page 3 of 4 Contract No. 14-03-32210 USBRCo~tract No. 14-06-100-2911 Effective at 2400 hours o~ December 31, 1994.

(d)

Lost Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Revenue ~.

Component (1990.1999) Revenue ~ $ (648) (6,734) 4,866 4,300 0 436 873 1,331 1,789 2,270 Lost ~ Revenue $ (1,292) (12,370) 8,316 6,841 0 603 1,124 1,699 2,004 ~ $ 9,186 &

Long-Term Discount Lost Discount Rate (%) Rate Factor ~/ ~ 9.25 7.73 7.32 7.46 7.13 7.44 7.27 . 7.12 ~" 7.47 7.92 1.994 1.837 1.709 1.591 1.483 1.382 1~88 1.201 1.120 1.940 6.031~

Total

(e)

Annual Dollar Lost Revenue Component: $1,523 The Annual Dollar Lost ReVenue Component equals the Lost Revenue plus Interest divided by the sum of the Discount Rate Factors for the 1995-1999 period: $9,186/6.031.

1]

The Discount Rate Factor is based on interest from mid-year of the year under consideration through December 1999. To get the factor, the interest rate for 31, the year under consideration is halved, expressed as a decimal, and added to one (1). That ~halfrate~ is then multiplied by one (1) plus the interest rate (expressed as a decimal) for each succeeding year through 1999 to get the Discount Rate Factor for the year. The factor expresses the va~ueof lost revenue and interest to ~.: Bonneville resulting from under-recovery of actual project costs. ~/ Lost revenue results from applying a charge dhsigned te recover Bouneville's" costs ¯ in 1994 to the entire 1995-1999 period and from revenue over/under-recoveries since 1989. Becauseany lest revenue for 1994is not known until .after 1994, it " will be included ~n the lost revenue for the next period. Unit generation,costs at The Dalles (in real terms) are assumedto increase by 2 percent per year .~er the period 1995-1999. This estimate, whenmultiplied by the estimated sales under this Agreement,yields expected total costs. Lost revenue is calculated by subtracting expected revenue at 1.226 mills/kWh from expected costs. ~/ Total Discount Factor thetotal Rate is only theyears for 1995-1999.total ~s is used since lost the revenue becollected theperiod through will over 1995 1999:

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Revision No. 2 Exhibit Page of 4 B, 4 Contract 14-08-32210 No. USBRContract 14-06-100-2911 No. Effective at 2400 hours on December 31, 1994

Annual Unit Los~. Revenue Component: .086 mills/kWh The Lost Revenue Componentin mills/kWh equals the Annual Dollar Lost Revende Componentdivided by the estimated energy sales: $1,523/17,800 MWh. UNITED STATES OF AMERICA Department of Energy Bonneville Power Administration

By .Generation Supply Name JudithA. Johansen

UNITED STATES OF AMERICA Department of the Interior Bureau of Reclamation

Ti~e

Deputy Regional Director

Date July 7, 1996

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PRJ-1.00

MEMORANDUM To-'. Director, ProgramAnalysis . Attention: W-5000 Manager, Power. Resources Office I~ropos~d Arnandmentsto Various Contracts with the Bonneville Power Administration

From: Subject:

The Pacific Northwest Region (PNJ has "[iv~ contracts withth e Bonneville Power Administration (BPA), unde~ which BPAsupplies reserved or supplemental power and energy, for irrigation pumpingat various projectsin. PN.

Each of the contracts has a provision which reclui~esthe rate be adjusted every five years by theuse of a specified formula, The previous five-year period ended December31, 1994, and BPAprovided the proposed, new rates-by the Specified July 15 deadline. " Becauseof staff reductions and reorganizations, Bonneville has proposed to change the ~djustment provision to require adjustment not more often than every five years. Weagree with ¯ the. PN's finding that this is acceptable, as originally the five-year requirement was established due to BPA's desire tR keep the rates as current as possible while Reclamation's constraint w~s that someof our repayment contracts with the irrigation districts.allowed them to be adjusted not moreoften that every five y~ars, ¯ No change is proposed in the methodologyfor determining the rates. PN's transmittal attached: letter an~t two copies of each of tl~e followingprop0sed amendments are USBR CONTRACT NO. . -The Dalies Spokane Valley Crooked River Chief Joseph PN Region 14-0.6-100-2911 14-06-100-5585 14-06-100-5999 14-06-1Q0-7938 14-06-100-8070

AMENDMENT NO. 2 .2 2 4 5

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2 We co.ncur with PN'that it is not necessary obtain the approvalof the Secretaryof the to Interior (Secretary) for execution of these proposedamendments, only minor changes as the rate .review requirements involved and there will be no cost to the Government. ere ¯ Secret~ry approval for the proposednewrates appearsto be ne.cessary eventhough they haw been calculated by the methodologypreviously approved by the Secretary. PNhas informed the irrigation districts that the proposedrat~s hav.e beenimplemented an on interim basis pending Secretary's approval. ' the Pleasecoordinate obtaining the necessaryapprovals from the Seoretar% If you haveany questions~contact AI Bolinat (208) 378-5294 Dennis.Sloan or. (303) 236-1061,exter~sion 250.

Attachments co:

"

RegionalDirector, Boise ID, Attention: PN-3200 (Bolin) (w/o att)

be: " D-5000, D-5400 (wJoatt)
WBR:JDeto=n~d|g'.4/~195:23e-1061 ~P,'~current~5400~sloan~bp nt~.WPI a co

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United States Department the Interior of BUREAU RECLAMATION OF PACIFIC NORTHWESTOFFICE REGIONAL

RECORD OF EXECUTION OF CONTRACT
Co~trac'; no......V..a...r.Lo...u..s. ................................................. e¢coatr,,¢L.....V..a..r.~9..u..s. Oate .................................................... : ................. Esrir,~atea ta~,oh,ed amo-nt $...N..o.....c..o..s...t....t..o.....t..h..e.._.G..o..y..e..r..n_.m..e..n.~ ............................................................... These MOUs p.r..o..v.i.det..h.e for service irrigatio~ of p~mping po~dr energy and Purpose

.......................................................................................................... i.iiiii~~i.'i~~~ .....
The proposed amendments updatethe chargesfor the powerand energy

¯ Place

Boise, Idaho

Oate

|. Contract transmitted Fteld $o|tc|tor for legal approval. to Regional Supervisor of Water,Power and Lands

~t~..................... ~ece .B.P...i.~.e..,....I..d_a..h.9. ......... .............................
Contract givenlegal a~prova], See attached E-maildatedMay 13, 1996,from Hendrick Willems. Fteld So|tcttor executed and'tranSmitted the following: to 3. Contract Origlna} contract ~egional Director, BoiseID Attn:PN-1820 DupIicat~ orlglnal contracto~ to Copy to: Commissioner, Washington Attention: DC W-5000(10 copies) Manager, Power Resources Office,DenverCO Attention: D-5400(2 copies) FieldSolicitor, BoiseID (I copy) Regional Files(1 copy)

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From:

Subject:

Hendrik WiIIems ibrldml0. Ipn11001.CBOLIN, 867f6.JSLOAN May 13, 199612:26pm Proi~sed Amendments BPA Contracts Power to Rates

Whoops I think this is one that kind of fell betweensomecracks back here - myapologies. Youfolks sent us a memo dated May15, 1995 and one dated November 1995, beth ofwhlchindicated you thought the Secretary of the Interior needed to 9, approve the new rates for contracts with BPA.. AaronWatldns (on mystaffet the time but nowworking elsewhere) workedwith the Solicitor's Office on answering the question of whether or not secretarial approval was readly needed. He indicated to methat DuaneMeacham the Solicitor's Office had in concludedthat since the Secretary had already approvedthe methodology calculating the rates, no further approval was for necessary. Thoseconclusions were presented verbally, we have nothing in writing. So, myquestion to you folks at this time is basically what do we do next? Do you feel you need a memo from the Commissioner stating that the rates are okayand do not needSecretarial approval?If so, wecan put that together, it will need the Solicitor's Office surname,and get it out to you, but it will likely take sometime to get the Sol's Office to sign often it. Or. since the Regional Director has the delegated authority to sign the contract amendments, -50~0 is okay with them, and no approval is D needed from the Secretary, do you need anything official in writing from the Commiss'T6ner7 Let me knowwhat you need and we will expedite any further action. Henk CC: 867f6.MROLUTI

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Revision No. 3 Exhibit B, Page 1 of 4 Contract I~o. 14-03-32210 USBRContract No. 14-06-100-2911 Effective at 2400 hours on December 31, 200! CHARGE AND CALCULATIONS THE DALLES PROJECT ~e charge for U.S. Bureau of Reclamation (USBR)Reserved Power and Energy at ~he Dalles for the period 5eginning 2002. The charge for the previous period, 1995-2001, was 1.31 mills per kilowatt-hour (mills/kWh).

CHARGE
Commencing December S1, 2001, at 2400 hours, the charge for Reserved Power on and Energy, shall be 2.59 ndlls/kWh. 2: CALCUI~TIONS (a) Summary Generation Cost Lost Revenue Component Total Unit Cost Total unit cost, to nearest hundredth mill 1.846 mills/kWh .748 mills/kWh 2.594 mills/kWh 2.59 mills/kWh

Conceptual Overview (Explanation of the Calculation Detail) The charge for power purchased under this contract remains fixed until the next revision in accordance with the Agreement. To determine the charge for the next period, the historical cost of providing poweris first determined. That historical cost needs to be increased to compensateBonneville for increases in cost that will occur during the next period. In addition, since it is not possible to forecast increases in cost precisely, the charge will also need to be adjusted for forecasting errors from the previous period, i.e.; the charge will be decreased if Bonnev~e over-collected in the last period or increased if Bonneville under-collected. The methodused to adjust the bAstorical costs is called the "Lost Revenue ComponentMethod." This method provides a means by which the financial interests of both Parties are protected. The term "lost revenue" refers to something different for each period. For the previous period, the lost revenue represents the difference between the actual cost of service and the revenue collected from the charge in effect for that period. For the upcoming period, the

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Revision No. 3 Exhibit B, Page 2 of 4 Contract No. 14-03-32210 USBRContract No. 14-06-100-2911 Effective at 2400 hours on December 31, 2001

term '2ost revenue" refers to the projected inflation (i.e., thedifference between the historical cost of service and the projected cost of service in a given year). Once the lost revenue for each year has been calculated, its effect on the historical cost can be determined. The Lost Revenue Component Method is used to determine the annual cost of the lost revenue. It is a more accurate way of figuring the amount which should be charged than simply dividing the total lost revenue by the number of years in the charge period. To implement the Lost Revenue Component Method, the actual long-term interest rates for each year of the past periods and the projected cost for the next period are determined. That cost is applied to the lost revenue to get a "lost revenue plus interest ~ figure for the past period and upcoming period. That total is then discounted to get an annual cost. The charge is equal to the historical cost plus the annual cost of the lost revenue. In general, the charge under this Agreement will be greater than the cost of providing service in the first few years and less than the cost of service in the later years; however, the average rate should closely approximate the actual cost of service. Calculation Detail The generation charge for power purchased pursuant be the greater of: (1) (2) one (1) mill/kWh; actual generation costs, excluding interest. to this Agreement shall

Generation costs in thousands of dollars at The Dalles for the Fiscal Years 1994 through 2000 are from Bonnev~e's Summary Financial Data. Fiscal O&M and Year Depreciation 1994 1995 1996 1997 1998 1999 2000 $11,832 13,184 13,263 13,288 13,630 15,459 14,682 Generation GWh 6,102 5,930 7,407 7,876 7,374 7,861 7,579 Mills /kWh 1.939 2.223 1.791 1.687 1.848 1.967 1.937 1.846

Weighted Average FY9600

The average cost of generation is greater than 1 mill/kWh. The charge for the next period shall be 1.846 mills/kWh.

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Revision No. 3 Exhibit B, Page 3 of 4 Contract No. 14-03-32210 USBRContract No. 14-06-100-2911 F, ffective at 2400 hours on December 31, 2001

(d)

Lost

Revenue Component (1994-2006) Discount ~ 7.57 7.62 7.50 7.39 6.82 6.66 6.61 6.60 6.70 6.75 6.78 6.78 6.78 Discount Rate Factor 2.315 2.152 2.001 "" 1.862 1.738 1.628 1.527 1.433 1.343 1.259 1.179 1.104 1.034 5:919 ~ Lost Revenue 1994-2006 ~ $12,745 12,355 7,620 5,680 8,136 12,089 11,083 0 598 1,196 1,824 2,452 3,110 Lost Revenue& In~eres~ 1994-2006 $ 29,505 26,588 15,248 10,576 14,140 19,681 16,924 0 803 1,506 2,150 2,707. 3,216 $71,703

Y--~1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Total

(e)

Annual Dollar Lost Revenue ComPonent: $12,114 The Annual Dollar Lost Revenue Component equals the Lost Revenue plus Interest divided by the sum of the Discount Rate Factors for the 2002-2006 period: $71,703/5.919.

!!

The Discount Rate Factor is based on interest from mid-year of the year under consideration through December 2006. To get the factor, the interest rate for 31, the year under consideration is halved, expressed as a decimal, and added to one (1). That '~half rate" is then multiplied by one (1) plus the interest rate (expressed as a decimal) for each succeeding year through 2006 to get the Discount Rate Factor for theyear. The factor expresses the value of lost revenue and interest to Bonneville resulting from under-recovery of actual project costs. _2/ Lost revenue results from applying a charge designed to recover Bonnevi~e's costs in 2001 to the entire 2002-2006 period and from revenue over]under-recoveries since 1994. Because any lost revenue for 2001 is net knownuntil after 2001, it will be included in the lost revenue for the next period. Unit generation costs at The DaUes(in real terms) are assumedto increase by 2 percent per year for the period 2002-2006. This estimate, whenmultiplied by the esthnated sales under this Agreement, yields expected total costs. Lost revenue is calculated by subtracting expected revenue at 1.846 mills/kWh from expected costs. _3! Total Discount Rate Factor is the total only for the years 2002-2006.This total is used since the lost revenue will be collected over the period 2002 through 2006.

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Revision No. 3 Exhibit B, Page 4 of 4 Contract No. 14-03-32210 USBRContract No. 14,06-100-2911 Effective at 2400 hours on December 31, 2001

Annual Unit Lost Revenue Component: .748 mills~V~h The Lost Revenue Component in mills/kWh equals the Armual Dollar Lost Revenue Component divided by the estimated energy sales: $12,114/16,200 MWh. UNITED STATES OF AMERICA Department of Energy Bonneville Power Administration

(Print/ Cl~pe) Ti~e: Manager for Federal Hydro Projects Date: JUL 1 2 ZOO1

UNITED STATES OF AMERICA Department of the Interior Bureau of Reclamation

By: (Signature) Name: Kenneth R. Pedde (Print / Type) Title: Acting Regional Director

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United States Department the Interior of Btrm~u
PacificNorthWest Region IliONCurtis Road, Suit~lO0 Boise 1D83706-1234

PN-3200 .

Ati6 2 200~

Mr. Mike Richardson Manager TheDallas Irrigation District P.O. Box 767 The Dalles OR97058 Subject: Revised Irrigation Dear Mr. Richardson: Yourirrigation pumpingpoweris supplied by The Dalles PowerPlant.of the Corps of Engineers and transmitted over the Bonneville Pdwer Administration ~PA)tmusmission system. The costs used to determine your irrigation pumpingpowerrote are those incutr~ by The Dallas Power Plant. In aee, ordance With 0ur memorandum understanding With BPA,the rote is to be reviewed not of moreoften than every five years. Thecurrent rate has been in effect for seven yeers;.however, BPA nowreviewed the costs for the 1995-2000period and established a revised rate. has Thenewrate of 2.59 mills per ldlowatt-hour will be effective January 1, 2002. Since this is a substantial inerease in the rote, we are planning to meet Withyour board of directors on October2, 2001, as previously discussed by telephone, to explain the circumstancesleading to this increased rate. Please advise as to the time and location of this meeting. If you have any questions, please contact AI Bolin at (208) 378-5294. PumpingPower Rate - The Dalles Project, OR

Terrald E. Kent Program Manager Facility Operations and Maintenance co: Area Manager, Lower Columbia Area Office, Portland OR Attention: LCA-1001 PN- 1800 WBR:CBolin:vy:08/24/01:5294 H:\common\pn3200\al\tdalrate.242.wpd 000287

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Mike Richardson Operaiions.Manager

Phone (541) 296 3503 OlneyRoad ~ E O. Bc THE DALLES, OREGON !

US Bureau Reclama~on of NW AreaDirector BillMcDonald

McDonald Theposition theBoard Directom TheDalles of of of Inigation District concerning the Districts rate power continues theposition forth that tobe set in letter former f~om Board Chairman; Bailey theBt~rcau Reclamation October 1989,.A of Don to of dated 4, copy which attached your is for convenient reference. Theformula continuously to compute Districts rate used the power since 1961 never has included a charge a "lost for revenue component", does contract nor our provide such for a charge. Rather, rate to be based our is solely generation at the on costs Dalles Dam. Sincerely Marvin Polehn

Chairmanof the Board Directors of

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SHENKER & BONAPARTE,LLP
" .~RDEN SHENKER E,

C

~. ROBERT BONAPARTE E.L

ATTORNEYS LAW AT ONESWCOLUMBIA STREET,SUITE 475 PORTLAND,OREGON 97258-2002 TELEPHONE:.(503) 294-1118 FACSIMILE: 294-~01S (50:~) WEBFAGE: ashenkete~q,corn

LICENSED OREGON, Y6RK, IN NEW ^NOWA~I~NffI'ON, "D,C " ARD~ ~ SH~K~ ~-~ ~henker@~h~ker~q,c0m ¯

May~I5, 2003 Mr. Terrald E. Kent, ProgramManagei Facility Operations and.t~air~te'nance U.S. Department the Interior of Bureau Retlamationof Pacific iN0rthwest Region 1150NorthCurtis.Road,Suite 100 Boise, Idaho 83706-1234 DearMr. Kent: ............ Re: TheDalles Irrigation District -" ....... ~ b3-,, ,-r11~?o3192-......... We havebeenmeetingwith you andyour colleaguesin order to determine the appropriate charges that shouldhavebeen provid~d our captioned for client underits agreement with the Bureau Reclamation0f October19, i961. That agreement of No.. , 14-06-100-2276, unchanged is since the time that it wasnegotiatedandexec~ed. Under ' that.agreement we.have concluded: i ¯ i. 2. 3. TheDalles Irrigation District ~DID) shouldnot.becharged depreciation for expenses. . TDIDshould be charged not for-Bonneville Power Administration'sassertion of s lost revenue. TDID shouldnot be charged anyportion of the joint useor multipie, purpose for " f power. accountings other than for the generation O

We.have donethe final accounting how not of much client hasoverpaidto the Bureau, our andwewouldappreciateyourundertakingto complete that assignment. noted from We our initial meeting with youin TheDal|eson February 2003,that youexpressed 3,. your willingness toundertake acco.unting that assignment, after a determination the .. of .obligation of TDID;conceptually,underits agreement you, and, therefore~hOW with much. it wasovercharged,since 1989.

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Prior to 1989TDID chargedat the rate.or 1 rail per kilowatt hour. ¯That wasthe was orig!n~l contemplation the agreement in with you. If you can. explain to us howthat pottlo n of the bills thathavebeentendei-ed TDID to sho~vs,s,n~:e 1989,that the actu~ costs of the productionOf power in.excessof that 1 r~illage rate, weyvill appreciate are .tlou~" making tho~eexplanations uS. It is possible, of cc~urser for that the actuarates, on increasedefficiehcies, are below1 rdil per kilowatt hbur, but myclient believes that it is " obliged to maintainthal~ 1 mil per kilowatt hour rate, underits agreement with you. Therefore, although a proper accountingmight establish thatthe co~ts should be less.than 1 mil per kilo~,att hour, we.do.not.make request ofY0u in'your further refinemenf~ that and , accounting. .. Welook forward to ~:ompleting the arrangements withy0u, to effect the appropriate accounting and repayment. You had indicated that perhaps the repaymentWouldbe done by credits, rather than the actual transfer of funds. Weare amenable a discussion on to . Welo0k.forward to hearing from you at you~earliest opportunity. ~Nedo appreciate the kind courtesies that you and your colleagueshavetendere~l to us, so that we could reach a ¯ fell understandi.ngof the basis on which the accountingproperly should have beendone for the benefit of our client andin keepingwith its uniqueagreement with you.Kind regards.

A en E. Shei~ker A ,/dlt

-..

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CERTIFICATE OF FILING I hereby certify that on January 26, 2006, a copy of the foregoing "DEFENDANT'S APPENDIX SI~PORTOF ITS MOTION DISMISS" was filed IN TO electronically.

I understand that notice of this filing will be sent to all parties by operationof the Couffs electronic filing system. Parties mayaccess this filing through the Court's system.

/s/KELLY B. BLANK