With a 6-1 vote, the GVEA board approved a contract to Black and Veatch in the amount of $92.75 million to provide environmental controls to both of GVEA's coal fired power plants in Healy. In addition, they also approved $50,372,131 for making Healy 2 functional. It has been mothballed since 1997.
With investments of over $320 million prior to this, I believe this might be the most expensive coal fired power plant for the 50 mw it is intended to produce.
Here is the resolution. It was a last minute addition to the agenda and not included on the downloadable member book from GVEA.
Monday, April 28, 2014
Sunday, April 27, 2014
Alaska Energy Authority Railbelt Transmission Study March 2014
Available in draft form dated March 17, 2014, the Alaska Energy Authority has released the Pre/Post - Watana Transmission Study. Whether or not Susitna gets funded, the pre- aspect of the report is helpful to understand the current status of the Railbelt utilities and what should be done to address the current status. It is quite detailed. In some respects, this study is an update of the 2009-2010 study mentioned in my last blog. It offers projects for $900 million with $2.7 billion in benefits. This is of course much more debt than utilities can take on themselves, so substantive state funding would be requested, some of which included perhaps in the construction cost of Susitna-Watana if we get that far.
The summary of the report says:
The recommended transmission system improves reliability, mitigates future cost increases to Railbelt rate payers, allows unconstrained energy transfers and the use of peaking capacity from the Bradley Lake hydroelectric project, provides improved and increased energy transfers between all areas of the Railbelt, and facilitates the addition of the Watana large hydro project.
The summary of the report says:
The recommended transmission system improves reliability, mitigates future cost increases to Railbelt rate payers, allows unconstrained energy transfers and the use of peaking capacity from the Bradley Lake hydroelectric project, provides improved and increased energy transfers between all areas of the Railbelt, and facilitates the addition of the Watana large hydro project.
The benefit of the projects as a whole results in a net present value savings of over $2,678,425,000 over the 50-year life of the projects in power production simulations when compared to projected 2015 operating conditions.The economic benefit of improved reliability as measured by unserved energy, capacity deferral of individual utilities, reservoir optimization of the Bradley and Cooper Lake hydro plants, the use of excess energy during high water years,construction savings during the required rebuild of existing facilities and the amount of capacity deferral saving further increase the benefit of the projects by an estimated $30-40,000,000 per year although these additional savings were not evaluated in detail.
The benefit of the improvements with increased energy from Bradley’s Battle Creek project or the ability to contract for increased base load gas supplies are not considered in the analysis. With a total construction cost of $903,200,000, this results in a simplified benefit/cost ratio of 3.4 utilizing only the production cost savings, which is an extremely high ratio for electrical transmission projects. The inclusion of additional benefits would push this number even higher. There are few projects that can be evaluated individually, since the benefits to the Railbelt consumers are derived from a combination of individual projects; however the projects can be evaluated by how they improve reliability and economics for the Anchorage–Kenai area, Southcentral Alaska and the Anchorage to Fairbanks (Northern) connection. These system improvements must be constructed and operational prior to commercial operation of the Watana Hydro Project or any other large energy project in
the Railbelt. Although all of these projects are also required to support a large energy project, improvements that are specifically required to support a large hydro project or any other large energy project are addressed in a follow-up study to this report.
GVEA Board discusses generation and transmission strategies
The GVEA board held a special meeting on April 23, 2014 to discuss generation and transmission issues and short, medium, and long term strategic goals. Mike Wright, VP responsible for these, gave a presentation about GVEA's current situation and how it got there. Some of the information was extracted from a 2009-2010 Regional Integrated Resource Plan performed by contractor Black and Veatch for the Alaska Energy Authority.
It was originally scheduled as an executive session except for member comments at the beginning. However, when I showed up as a member to make a comment at the beginning, the board chair kindly opened the meeting for the educational session, closing it a few hours later when it came time for the board to discuss what to do moving into the future with a new Integrated Resource Plan for GVEA, proposed to be contracted to Black and Veatch. The latter is scheduled to come up at the executive session for the regular board meeting on April 28, 2014. The Integrated Resource Study typically precedes a Rate Study that will be required once Healy 2 in on line for a year or so. That will be a subject of other blogs in the future.
High points were:
Some of my observations:
It was originally scheduled as an executive session except for member comments at the beginning. However, when I showed up as a member to make a comment at the beginning, the board chair kindly opened the meeting for the educational session, closing it a few hours later when it came time for the board to discuss what to do moving into the future with a new Integrated Resource Plan for GVEA, proposed to be contracted to Black and Veatch. The latter is scheduled to come up at the executive session for the regular board meeting on April 28, 2014. The Integrated Resource Study typically precedes a Rate Study that will be required once Healy 2 in on line for a year or so. That will be a subject of other blogs in the future.
High points were:
- Anticipated growth (flat*).
- Age and condition of current generation facilities.
- Age and condition of current transmission facilities, including substations
- Challenges in dispatch and balancing generation with demand, optimizing efficiencies with cost of various sources of power (I have great respect for dispatchers).
- Some discussion about what Ft. Knox and Pogo's commitments were and likely future. In the mix: Flint Hills substantially reduced, Ft. Knox reduced, Pogo expanded, Clear AFB added.
- Other large customers and generation folks in the Fairbanks area: Pump 9 in Delta, Ft. Wainwright, Eielson.
- Other generation and transmission in the Railbelt
- Homer Electric (HEA) now on its own generation instead of buying from Chugach.
- Matanuska Electric (MEA) now on its own generation instead of buying from Chugach, and with surplus power available for sale to other utilities.
- Anchorage Munipal Light and Power new generation.
- Opportunities and limitations for GVEA buying natural gas generated electricity from Chugach and in the future from MEA across the intertie.
- Challenges in the Kenai with transmission costs for getting electricity from Bradley Lake.
Some of my observations:
- GVEA has the most diverse fuel-mix generation facilities of any utility in the Railbelt - coal, oil, natural gas from Southcentral, wind, and future trucked natural gas by 2015-16.
- We will have way more generation available to us than needed - out peak load in 2013 was 211 mw with about double that inf capacity.
- We are still paying on quite a bit of this generation facilities - principal, interest and depreciation.
- GVEA still has more debt to be taken on with the restart of Healy 2 - over $190 million that has not impacted our utility charges yet.
- * growth is expected to be flat (except if large projects come on line, such as Tower Hill Gold Mine in Livengood for to 100 mw). GVEA expanded their territory to include up to Livengood in 2013, but I hope that any generation needed is built on-site as, for this large load, it doesn't make sense to incur line loss. Actually, I hope that Tower Hill builds their own generation. Tom Irwin, former GVEA VP, is the local guy in charge of Tower Hill development so he should be aware of the impacts.
- There is a long term objective to see if utilities can pool their interconnecting transmission facilities to provide for a more efficient system for all. A couple of attempts have already been made without bearing fruit. See the Regional Integrated Resource Plan mentioned above. Also, reference the tariff arguments
now in progress before the RCA between HEA and other utilities with HEA now generating their own.
Sunday, April 06, 2014
GVEA, Flint Hills closure, rate increases, debt
A recent Newsminer story detailing the impact of Flint Hills Refinery shutting down to GVEA, I've got a few mitigating solutions and some information to bring to light to our member-owners of GVEA.
GVEA wisely seeks to dispatch the cheapest energy first to meet demand. Conservation is the cheapest source, electricity not used. Natural gas from southcentral is the next cheapest, but is limited to about 80mw across the tieline. GVEA's Healy 1 is the next cheapest, followed by the Co-gen plant at North Pole, then the two older oil fired generation then a few smaller units, including one in Delta. They also have the Eva Creek Wind Farm and a smaller Delta privately owned wind farm from which they buy discount power. Eva Creek, being free power, should be cheaper than coal, but harder to dispatch due to the variability.
I have been advocating a voluntary notification system to the board for over 2 years whereby, when they are about to need the costlier generation of oil, let folks know and see if short term reductions can be accomplished. The CEO says the ball is in his court. Lots of models out there, such as Nixle, the FNSB school notification, air quality alert system in progress, and a handful of utilities around the country. No re-inventing needed for the wheel. See my blog from last month.
We aren't in control of the Koch Brothers refinery decision. They had a chance to participate in the trucked natural gas project, but backed out of it because they didn't want to work with anyone.
Related, GVEA's rate structure is such that, when the cost causer-cost payer principle that guides rate design is used, it has typically penalized those with the variable use (residential, small commercial) vs. the steady and interruptible rates paid by large industrial consumers. When Healy 2 comes on, there will be another rate case and this should be part of the discussion.
Finally, while Healy 2 will be cheaper generation than North Pole on oil, we'll still have an increase in our utility charge to pay the loans and depreciation. We are now beginning to see a bit of an increase from the $71 million invested in Eva Creek. GVEA utility charge goes up 3.4% July 1. Add to that almost $200 million from Healy 2 over the next few years. That's a lot of debt, all told, almost double of what was allowable until we members allowed the board, in a bylaws vote, to exceed the $450 million book value of loans a few years ago.
So, will the Flint Hills Closure cost GVEA? Yes. Are there other ways of addressing the impacts? Yes, again. Is the there a larger picture to consider? Most certainly yes?
GVEA wisely seeks to dispatch the cheapest energy first to meet demand. Conservation is the cheapest source, electricity not used. Natural gas from southcentral is the next cheapest, but is limited to about 80mw across the tieline. GVEA's Healy 1 is the next cheapest, followed by the Co-gen plant at North Pole, then the two older oil fired generation then a few smaller units, including one in Delta. They also have the Eva Creek Wind Farm and a smaller Delta privately owned wind farm from which they buy discount power. Eva Creek, being free power, should be cheaper than coal, but harder to dispatch due to the variability.
I have been advocating a voluntary notification system to the board for over 2 years whereby, when they are about to need the costlier generation of oil, let folks know and see if short term reductions can be accomplished. The CEO says the ball is in his court. Lots of models out there, such as Nixle, the FNSB school notification, air quality alert system in progress, and a handful of utilities around the country. No re-inventing needed for the wheel. See my blog from last month.
We aren't in control of the Koch Brothers refinery decision. They had a chance to participate in the trucked natural gas project, but backed out of it because they didn't want to work with anyone.
Related, GVEA's rate structure is such that, when the cost causer-cost payer principle that guides rate design is used, it has typically penalized those with the variable use (residential, small commercial) vs. the steady and interruptible rates paid by large industrial consumers. When Healy 2 comes on, there will be another rate case and this should be part of the discussion.
Finally, while Healy 2 will be cheaper generation than North Pole on oil, we'll still have an increase in our utility charge to pay the loans and depreciation. We are now beginning to see a bit of an increase from the $71 million invested in Eva Creek. GVEA utility charge goes up 3.4% July 1. Add to that almost $200 million from Healy 2 over the next few years. That's a lot of debt, all told, almost double of what was allowable until we members allowed the board, in a bylaws vote, to exceed the $450 million book value of loans a few years ago.
So, will the Flint Hills Closure cost GVEA? Yes. Are there other ways of addressing the impacts? Yes, again. Is the there a larger picture to consider? Most certainly yes?
GVEA Board met March 31.
The GVEA board of directors met on Monday, March 31. There was predictably a couple hours of discussion to which members weren't invited, but topics were Healy 2, the closure of the Flint Hills Refinery, and the trucked natural gas project. You can see the agenda on their website. All board meetings now have info available.
We know a little more about the Flint Hills impact, as the Fairbanks Daily News Miner had an article last week about how and why energy costs were expected to increase.
My understanding is that the trucked natural gas project is likely to result in more expensive gas than hoped, around$17/mcf instead of the $10-$12/mcf previously bandied about. If $12 is equivalent to $2/gal for fuel oil, then you can do the math.
As an aside, there will be an Interior Energy Open House Wedgewood hosted by state agencies AIDEA and AEA. Also, the FNSB granted a $7.5 million revolving loan to the Interior Gas Utility Board (IGU) with lots of fiscal controls on expediture. This $7.5 million was part of the settlement over valuation and back taxes that Alyeska Pipeline owed the FNSB, pending appeals. And the governor is trying to stack the deck against the next assessment, but that's another story.
Other issues included:
Approval of a 3.4% increase in the utility rate, effective I believe June 1. This was attributed to the debt interest on Eva Creek. While this expected increase, it is also hoped that the energy charge would go down at least equal based upon the free wind energy.
Ft. Knox, asking what GVEA would charge to transmit Matanuska Electric power across GVEA's lines. Apparently, Ft. Knox thinks they might get cheaper power than from GVEA directly.
The board did approve the Early Capital credit Retirement proposal you can see on the agenda. First come, first serve is the policy, but the board (and myself, here) would like to see some outreach so it isn't just those in the know that take advantage of it.
GVEA is also getting prepped for the annual meeting April 30. This year, there will be no freebies for registration to save $. In many respects, the CEO is heading an effort to cut the fluff within the company. There will probably be fewer cookies at the meeting too. OK with me. There will still be must-be-present-to-win raffles.
This was the first meeting where a board member was actually 2 way audio and video from a remote location. While not ideal, it makes it possible to attend meetings that have either been unsatisfyingly audio only or have a board member be a no-show. Most board members don't miss meetings, a good thing of course. Eventually, we might be able to get them live-streamed, but some on the board are currently not at all receptive.
The GVEA board changed their May meeting as the one calendared fell on Memorial Day that comes early this year. So the May meeting will be May 19 instead.
We know a little more about the Flint Hills impact, as the Fairbanks Daily News Miner had an article last week about how and why energy costs were expected to increase.
My understanding is that the trucked natural gas project is likely to result in more expensive gas than hoped, around$17/mcf instead of the $10-$12/mcf previously bandied about. If $12 is equivalent to $2/gal for fuel oil, then you can do the math.
As an aside, there will be an Interior Energy Open House Wedgewood hosted by state agencies AIDEA and AEA. Also, the FNSB granted a $7.5 million revolving loan to the Interior Gas Utility Board (IGU) with lots of fiscal controls on expediture. This $7.5 million was part of the settlement over valuation and back taxes that Alyeska Pipeline owed the FNSB, pending appeals. And the governor is trying to stack the deck against the next assessment, but that's another story.
Other issues included:
Approval of a 3.4% increase in the utility rate, effective I believe June 1. This was attributed to the debt interest on Eva Creek. While this expected increase, it is also hoped that the energy charge would go down at least equal based upon the free wind energy.
Ft. Knox, asking what GVEA would charge to transmit Matanuska Electric power across GVEA's lines. Apparently, Ft. Knox thinks they might get cheaper power than from GVEA directly.
The board did approve the Early Capital credit Retirement proposal you can see on the agenda. First come, first serve is the policy, but the board (and myself, here) would like to see some outreach so it isn't just those in the know that take advantage of it.
GVEA is also getting prepped for the annual meeting April 30. This year, there will be no freebies for registration to save $. In many respects, the CEO is heading an effort to cut the fluff within the company. There will probably be fewer cookies at the meeting too. OK with me. There will still be must-be-present-to-win raffles.
This was the first meeting where a board member was actually 2 way audio and video from a remote location. While not ideal, it makes it possible to attend meetings that have either been unsatisfyingly audio only or have a board member be a no-show. Most board members don't miss meetings, a good thing of course. Eventually, we might be able to get them live-streamed, but some on the board are currently not at all receptive.
The GVEA board changed their May meeting as the one calendared fell on Memorial Day that comes early this year. So the May meeting will be May 19 instead.
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