OMPA Revenue and Competitors

OMPA was formed to provide an adequate, economical, and reliable source of electric power for cities who owned their municipal electric system on the date of "The Act." With this proven joint action approach, the participants could both enjoy the financial benefits of a large utility while obtaining control of their own wholesale electric utility. This allows for additional benefits for the locally owned and controlled electric system. Conditions in the late 1970's and early 1980's had become harsh for publicly owned utilities. Many were faced with the choice of selling their systems or becoming full requirements customers of investor-owned utilities. Wholesale rates were prohibitive, at times even higher than comparable retail, and future supplies of power were uncertain. Specific concerns differed with each city, but ultimately the cities realized that by working together through a joint action agency their common goals could be realized: a solution to the problem of rapidly increasing power costs, control of their wholesale electric supply, and the desire to preserve public power in Oklahoma. Through efforts of the Municipal Electric Systems of Oklahoma (MESO), legislation was drafted, "The Act" passed and 43 cities declared their intention to participate with OMPA to develop power supply resources. "The Act," as the legislation is referred to, stipulated the following: The Authority was created for the purpose of providing adequate, reliable and economic sources of electric power and energy to Oklahoma municipalities and public trusts operating municipal electric systems on June 2, 1981. As a governmental agency of the State of Oklahoma, the Authority can: acquire, construct and operate generation and transmission facilities, purchase, sell, exchange, and transmit electric energy within and without the State of Oklahoma and issue its obligations, including the Bonds to carry out any of its corporate purposes and power. The Authority cannot participate in any nuclear powered generating plant. The Authority can exercise power of eminent domain in the purchase of certain property. The Authority is exempt from property taxes. The Authority does not have taxing power. The Authority does not receive appropriated moneys from the State of Oklahoma. Faced with this charge of providing a dependable, low cost source of power on a long-term, cooperative basis, the Board of Directors developed a three phase plan. In Phase I, R.W. Beck and Associates was commissioned to study the technical and economic aspects of OMPA becoming a bulk power supplier to its member cities. The results of the reconnaissance power supply study indicated a potential for significant savings between 1982 and 1995 for the 33 participants included in the study. The savings indicated in the study were based on economic conditions as they existed in 1982. Some of these factors were high interest rates, high natural gas costs and high inflation factors. An initial step of the reconnaissance power supply study involved R.W. Beck and Associates projecting the future electric needs of the participants. R.W. Beck then developed a series of eight different plans of development of power supply resources to meet the OMPA peak demand. The cost of power supply to each participant was determined by projecting the cost of OMPA's power supply under each plan, considering all of the cost required to deliver the power to each city. In a similar manner, the projected cost to each participant under its present power supply arrangement was developed by projecting the rate of the present power suppliers utilizing the same techniques and assumptions which were used to project OMPA's cost. The results of these projections indicated that the participants of OMPA would pay more during the early years, but could expect to realize savings beginning in the third year under this plan with savings increasing each year as time goes on. Upon receiving these favorable conclusions from the study, the Board set Phase II into motion. Phase II was the actual negotiation of the power supply plan, final feasibility study and a presentation to the participants of a power supply plan, which was to include the estimated costs of this plan compared to continuation of existing arrangements. Thus began 2 12 years of negotiations, hard work and unflagging commitment by the OMPA Board of Directors, limited staff and the consultant team. It is important to note that OMPA's power supply program was formed around assumptions of high inflation, expectations of continued inflation, high demand growth rates caused by the superheated Oklahoma economy, and cost concerns where investor-owned utilities wholesale costs were at times higher than comparable retail cost. This non-competitive wholesale pricing environment created a need to pool resources to maximize efficiencies in load demand and delivery. The higher costs were caused by generation expansion coming on line, high fuel inflation in both gas and coal and the desire by investor-owned utilities to get out of the wholesale business. The projections in the 1984 final feasibility study showed losses for any city signing the power sales contract for the first three to five years. These cities would experience savings after five years. The study projected minimal savings for Southwestern Power Administration (SWPA) customers. SWPA is a federal agency headquartered in Tulsa, which markets hydroelectric power generated at federal dams located in Oklahoma, Missouri, Arkansas and Texas. These dams are operated by the U.S. Army Corps of Engineers. OMPA serves as a secondary supplier to those cities who are Southwestern Power Administration customers, and provides them with thermal power if they should exceed their SWPA allocation or if not enough water is available for hydroelectric generation. Attesting to the strong commitment of joint action, the essential need of a long-term solution to power supply, and the desire to maintain local control of their electric utility, 26 cities signed Power Sales Contracts by December of 1984. And so began Phase ll whereby ownership agreements were executed and transmission and power sales agreements were finalized. On July 1, 1985, OMPA came into existence as a full fledged all requirements (except for the original 12 SWPA cities) supplier for its 26 member cities. The success of the first year led to six more cities joining in July of 1986 and in 1989 the 33rd member, Fairview, joined the agency's power supply program. On December 20, 1993, Perry signed a Power Sales Agreement becoming the 34th participant in OMPA's power supply program. The Town of Manitou became the 35th participant when the Authority started supplying the town with power on July 1,1995. In addition, the City of Winfield, Kansas approved a unit and supplemental power sales contract on December 4, 1995. OMPA began supplying the City of Winfield with power and energy on April 1, 1996. The Winfield contract is a five-year term and shows the flexibility inherent in OMPA's power supply plan in meeting the needs of municipal systems. In April of 1996, OMPA and Brownsville, Texas established a Public Power Pool and the first transaction began on May 1, 1996. Other states have indicated an interest in the pool and the Power Pool will be expanding during 1996. In order to supply this power efficiently, dependably and reasonably, OMPA acquired ownership interests in Oklaunion #1 (78 MW), Dolet Hills #1 (25 MW), Pirkey #1 (15 MW) and GRDA #2 (25 MW Life of Unit) generating plants. In September of 1989, construction was completed on the Kaw Hydroelectric Plant (25 MW) of which OMPA is the sole owner. Through an agreement signed in October of 1990 with the Ponca City Utilities Authority, OMPA started the repowering of the Ponca City Steam Plant Unit #1. Construction of the $42 million repowering project was essentially completed October 1, 1995, five months ahead of schedule and approximately 20 percent under budget. OMPA and Ponca City held an open house at the project site on October 1, 1995. The combined cycle capacity of the project without duct firing is approximately 52 MW, with duct firing it is approximately 60 MW. Additionally, power purchase agreements with Oklahoma Gas & Electric, Western Resources Inc., Western Farmers Electric Cooperative, Public Service Company of Oklahoma and Southwestern Power Administration were all in effect by August of 1986. Also, five member cities maintained ownership of small generating plants (Fairview, Kingfisher, Mangum, Pawhuska and Ponca City). In accordance with the Capacity Purchase Agreements, the Authority schedules and buys their generated power and the fuel required to generate. In 1987 the Supervisory Control and Data Acquisition (SCADA) System became fully operational and allowed OMPA to monitor the total power supply system. With the ability to follow the actual system load hour by hour, the Operations Center is able to match system demand with economical delivery of resources. By doing so, costs of operation can be held down by scheduling resources as actually needed and through opportunity purchases off-system. As OMPA has gone through the different stages of development, it has, by and large, met the challenges set forth by those cities who initially formed OMPA. That is, the provision of an adequate, reliable and affordable power supply controlled by the cities. The conditions existing when the Authority was formed did not continue and the projections in the 1984 Beck study did not materialize. The 15 current SWPA/OMPA cities have saved a significant amount under the OMPA power supply program, in direct contradiction to the study. Inflation has gone down significantly, growth rates, which went negative when the Oklahoma economy sagged, are recovering and the price squeeze has disappeared because of the competitive nature in the wholesale market caused by OMPA. The investor-owned utilities' costs are down significantly, due to fuel costs and the 1986 Tax Reduction Act. With lower power requirements, existing capacity was adequate and cost pressur