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Despite Drought and Lower Revenues, Middle Fork Project Continues to Cover Costs

May 19, 2015

The Middle Fork Project, a system of dams, reservoirs and electrical generation facilities in eastern Placer County, continues to hum along, although at a lower than ideal volume. Drought conditions in 2014 reduced the water that can flow through the electrical generators, which in turn reduced revenues. Despite the reductions, the system’s revenues continued to cover operational costs. A similar story is likely to be repeated in 2015.

That’s the news presented to the Placer County Board of Supervisors on Tuesday during the annual update that county staff gives to the supervisors.

For decades, the system was owned and operated by the Pacific Gas & Electric Company. The project was taken over by Placer County and the Placer County Water Agency (PCWA) in May of 2013. During years of normal or near-normal precipitation, the project generates significant revenues from power sales. Placer County and PCWA will split those revenues after operating expenses are met and reserve accounts are fully funded. However, reduced water flows have reduced revenues and in 2014 there was no net revenue distribution.

With budget estimates this year again much lower than expected, it is unlikely the project will have net revenue distributions for 2015.

“We knew there would be bumpy years for this project,” said Brett Storey, who is managing the project for the county’s executive office. “We just didn’t expect the three bumpiest years in the project’s history to be our first three years.

In addition to covering operating expenses, the system’s financing authority requires that the operating, emergency, and capital reserves be fully funded before any net revenues are distributed. In 2014, gross revenues were 4 percent lower than predicted. However, expenditures were 23 percent less due to cutbacks and the financing authority’s prudent fiscal planning.

Placer County works with Placer County Water Agency staff to focus on operating, maintaining and providing economic benefits for the project.  During 2014, the system had few operational issues. There were minimal unplanned outages, power sales into the market were done at the right times, and system availability to produce power was very high.

Last summer’s King Fire burned across some of the system’s infrastructure. System operators had to dip into the operating reserves fund for $1.2 million for debris management. The financing authority is estimating this cost to continue and could be as high as $10 million over the next several years.

With the area entering a fourth consecutive year of drought, system operators are forecasting a low year for power generation. The historical annual range of power production for the Middle Fork Project is from a low of 209,000 Kilowatt hours (MWh), which is an annual measurement of the power produced by an electrical generating facility, to a high of 1,837,000 MWh, with the average year being 1,019,000 MWh. Last year’s production was 513,000 MWh, and the 2015 estimate is 390,000 MWh.  2015 revenues are expected to be substantially less than budgeted. If that is the case, the project will use reduce costs by curtailing some upgrades to the facilities, but will not be able to fund reserves.

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