January 23, 2001
Xxxx Story, General Manager
Alaska Electric Generation and Transmission Cooperative, Inc.
P. O. Box 169
Homer, Alaska 99603
Subject: Second Amendment to the Nikiski Cogeneration Plant System Use and
Dispatch Agreement
Dear Xxxx:
While attempting to calculate the escalation factor in Section 9.2 of the
Agreement to determine the O&M rate for 2001, I discovered some ambiguity
regarding which Bureau of Labor Statistics series to use. Of greater concern, I
noted that the calculation specified using the index for the current year
divided by the preceding year. As written, if inflation were 2% in the first
year and 5% in the second year, the first year rate would be 102% of $5 per MWh
and the second year rate would be 105% of $5 per MWh. I am sure that the intent
was to use the current index divided by a base year as that would allow
inflation in successive years to continue to increase the O&M rate. That way the
first year rate would be 102% and second year rate would be 107% of $5 per MWh.
The Bureau of Labor Statistics releases the indices for any given month around
the middle of the following month. Consumer price indices are final as issued
while producer price indices are revised four months after initially issued. In
order that the calculation can be made at the beginning of each calendar year
and use final indices, I propose that the CPI from November and the PPI from
July be used to calculate the escalation factor in the Agreement. An example
would also remove any future questions on the annual calculation.
Section 9.2(a) of the Agreement is hereby amended as follows to modify the
definition of "A" to remove the ambiguity mentioned above and restore the
original intent:
"A" shall be an adjustment for inflation, to be applied for each calendar year
beginning on January 1, 1999. "A" shall be calculated as follows
A = .2(1+ppi) + .8(1+cpi)
Where
"ppi" is the percentage change, expressed as a decimal, in the Producer Price
Index of Metals Commodities (Series Id: WPU10) as published by the Bureau of
Labor Statistics of the United States Department of Labor, for the month ending
July 31 of the year preceding the date of the adjustment, as compared with such
index for the month ending July 31, 1997; and
"cpi" is the percentage change, expressed as a decimal, in the U. S. Consumer
Price Index for Urban Wage Earners and Clerical Workers (Series Id: cwur0000sa0)
published by the Bureau of Labor Statistics of the United States Department of
Labor, for the month ending on November 30 of the year preceding the date of the
adjustment, as compared with such index for the month ending November 30, 1997.
Example calculation of "A" for calendar year 2000:
cwur0000sa0 for Nov. 1997 was 158.5
cwur0000sa0 for Nov. 1999 was 165.1
WPU10 for Jul. 1997 was 132.0
WPU10 for Jul. 1999 was 124.4
ppi =(124.4-132.0)/132.0= -0.06
cpi =(165.1-158.5)/158.5= 0.04
A=0.2(1-.06)+0.8(1+.04)= 0.2(.94)+0.8(1.04) = .19+.83 = 1.02
Sincerely,
/s/ Xxxx X. Xxxxxx
Xxxx X. Xxxxxx, PE
Manager, Power Control & Fuel Management
I concur in the above.
/s/ Xxxx Xxxxx
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Xxxx Xxxxx
Date: April 4, 2001
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cc: Xxxx Xxxxxxxxx
Xxx Xxxxxxx
Xxx Xxxxxxx
