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HomeMy WebLinkAbout05/15/2001, 3 - STENNER CANYON HYDROELECTRIC PLANT FEASIBILITY STUDY ADcouncil Agenda RepoRt ,�N 3- CITY O F SAN LUIS O B I S P O FROM: John Moss, Utilities Directar��1 Prepared by: Bob Hamilton, Water Supply Supervisor Gary W. Henderson, Water Division Manager SUBJECT: STENNER CANYON HYDROELECTRIC PLANT FEASIBILITY STUDY CAO RECOMMENDATION 1. Receive and file the "Stenner Canyon Hydroelectric Feasibility Study" by Henwood Energy Services, Inc. (HESI) 2. Direct staff to return to Council with a comprehensive energy policy for the City. If consistent with the adopted energy policy, staff will prepare a Request for Proposals for a complete engineering analysis and design for a hydro-generation plant in Stenner Canyon. REPORT-IN-BRIEF The HESI feasibility study was awarded to determine the operating potential for the presently de- commissioned Stenner Canyon Hydroelectric Plant. HESI's study finds that the hydroplant could be operated and provide a small amount of revenue, however, these projections do not include ongoing personnel expense or annual generator maintenance. When the HESI figures are revised to include these additional expenses (see table on page 3), the HESI revenue projections are reduced, and the associated capital payback times are increased accordingly. Though the report reviews the feasibility of operation of the facility in its existing configuration, staff feels that the HESI study does not analyze the issues sufficiently to conclude that operating the hydrogenerator would be in the best interests of the City. HESI recommends flow testing the supply pipeline to confirm the flow assumptions used within the study, and determine if recent supply line modifications will impact the hydroplant operation or generator output. Staff concurs with this recommendation. In addition to the costibenefit analysis and operating scenarios provided in the HESI study, staff would like to determine if changes made to the Water Treatment Plant (WTP), supply pipeline, or Cuesta Tunnel will impact proper operation of the hydroplant. Operating safety, finished water quality, and the current power crisis are also critical issues which should be addressed before the hydroplant is operated, even in its existing configuration. Staff will be returning to Council in June or July with a comprehensive analysis_ and policy recommendation relative to the City's future position and role in the energy arena. This policy could range from full municipalization of the local distribution system to merely providing energy conservation information to residents. Following Council approval of an energy policy �3= 1 r � Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 2 for the City, if use of the Stenner Canyon hydro-plant is consistent with that policy, Staff would recommend that a more thorough engineering and feasibility analysis be performed and if appropriate, revised facilities be designed to provide a reliable, safe and efficient electrical generation operation for the City. Staff estimates the additional studies and analysis of improved generation facilities would cost somewhere in the range of$150,000. DISCUSSION Background In June of 1998, the City was advised by the Federal Energy Regulatory Commission (FERC) that maintenance and operation of the Stenner Canyon hydrogenerator would be required to keep the operating permit valid, or surrender of the permit would be required. Since the original construction of the power generation facility, changes have occurred which impact the operation of the hydroplant. Staff presented a preliminary analysis of the benefits associated with continued operation of the hydroelectric plant to Council on February 16, 1999, which recommended decommissioning and surplusing the unit. Council, however, directed staff to initiate a more thorough study of the operating benefits and associated costs necessary for safe, reliable hydroplant operation. On January 18, 2000, Council approved a contract with HESI in the amount of $29,000 for a feasibility study of the Stenner Canyon Hydroelectric Plant. The feasibility study for operation of the Stenner Canyon Hydroplant was awarded to HESI to determine the feasibility of utilizing the hydroelectric facility and evaluate the potential for exchange or direct use of electrical power from Cal Poly. Since award of the contract, however, dramatic changes have occurred in the electrical industry, which invalidate some of HESI's findings in the study. In general, the study recommends that though the payback for some operational alternatives may take several years, the facility could generate power and create a small amount of revenue for the City. With the recent upheaval of the electrical industry in California, and anticipated rate increases, staff feels there may be potential for the hydroplant to provide better revenue and paybacks than originally estimated in HESI's findings, but electrical rates are difficult to predict, therefore projections based on cost/revenue feasibility alone should be considered inadequate. While the HESI study evaluates the feasibility of operating the existing hydroelectric plant and provides an estimated payback, staff does not recommend operation of the existing unit in its current configuration, even with the"minimal"improvements noted by HESI. HESI Findings The HESI study provides operating scenarios and estimated annual revenues and payback periods for several operating alternatives. 13_a Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 3 Alternative 1 - This alternative assumes that the hydroelectric plant will operate as it was originally designed, with minimal upgrades and modifications, with the power being sold to the Power Exchange (APX). Alternative 2A - considers that a new power line is constructed in a right-of-way other than that of the existing P.G.&E. line, with the power from the hydroelectric generator utilized at the WTP, and excess power sold to the APX. Alternative 2B - is essentially the same as alternative 2A above, where a new power line,is constructed in a right-of-way other than the existing P.G.&E . line,but the excess power is sold to P.G.&E. rather than the APX. Alternative 2C - considers that a joint-pole agreement is negotiated with P.G.&E. and the new powerline connecting the hydroplant and the WTP is run underneath the existing P.G.&E. line that currently connects the hydroplant with the rest of their system, with the excess power sold to the APX. Alternative 2D - is identical to alternative 2C except that the excess power is sold to P.G.&E,. rather than the APX. Alternative 3 - This alternative involves the construction of a line to connect the WTP to Cal Poly's electrical system,without operating the hydroplant. Alternative 4 - Alternative 4 is a combination of alternatives 2 and 3 above. With this alternative, a line is run from the University electrical system to the WTP and then to the power plant. As in alternative 2, there are two options on how the line could be routed between the hydroplant and the WTP. Alternative 4A— considers that a new power line is constructed from the University's system to the WTP on Cal Poly property. From the WTP to the hydroplant the line would run in a right-of- way other than the existing P.G.&E. line. Alternative 4B — considers that a joint-pole agreement is negotiated with P.G.&E. and the new power line is run underneath the existing P.G.&E. line that connects the hydroplant with the rest of their system. Staff review of the report indicates that HESI tends to downplay the estimated startup and ongoing maintenance costs that will be associated with the operation of the hydroplant. On the other side, with the recent statewide electrical rate increases, revenues will likely be greater than the report estimates, but this cannot be confirmed, because of the proprietary nature of the electrical rate projections used by HESI in the study. Conversations with the consultant have confirmed that ongoing operating expenses (approximately $50,000 annually) were not included in the payback period estimates, and staff has revised the revenue and payback estimates for the listed alternatives from Section 4.1.2 of the HESI report in the matrix below. s Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 4 Alternative Annual Net Capital 20-Year Revenue Income Payback (NPV) (YRS) 1 $-22,178 none None 2A $17,196 12.3 $130,795 2B $22,707 8.8 $253,515 2C $13,591 13.7 $86,195 211) $15,102 11.5 $128,915 3 $24,300 3.4 $402,250 4A $31,061 8 $370,595 49 $26,443 8.5 $305,735 When ongoing operating expenses are added to the HESI matrix, the additional costs increase the payback periods on all the alternatives and eliminate one operating alternative completely. The most attractive option from the standpoint of capital payback alone, (alternative 3) does not operate the hydro facility, but would provide power for the water treatment plant and one large pumping station from the Cal Poly electrical substation. This alternative eliminates the hydroplant startup and ongoing operating expenses, providing a reduced payback period and higher net present value (NPV), howevei,the electrical rate currently in use at the university will be revised in 2002, as current energy contracts in place with Enron will expire at that time. All other alternative scenarios operate the hydro facility with the power produced being utilized and/or sold. All alternatives (except no. 3) compared the option of generating power during the premium on-peak electrical period (from noon to 6 p.m.)against the cost of purchasing power for operation of raw water pumps (from Salinas Dam) and water treatment equipment during the same period, and found that the additional revenue generated during this period would not offset the cost of operating the large water supply pumps during the increased on-peak electrical rate. Though this facility is capable of generating some power, the HESI study indicates that the operation of the facility is significantly constrained by the"length and insufficient diameter of the supply pipeline". The study assumes a 470 kW output from the generator at all times the plant is operated, however, our records from past operation indicate that 470 kW was not maintained for extended periods. During generator operation from 5/4/92 to 2/21/93 an average of only 421.8 kW was generated. This is a more realistic best-case generation assumption for the facility, which would further increase the above payback time estimates and further reduce the feasibility of operating the hydroplant. In addition to these output reductions, there are normal reductions in water flow to the water treatment plant during periods of reduced water demand. This water demand reduction would also diminish the hydroplant's ability to generate power. These issues will require additional research before commitments should be made to operate the facility. Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 5 HESI Study Conclusions and Recommendations As mentioned above, the HESI study estimates that though the payback for some operational alternatives may take several years, the facility could generate power and create a small amount of revenue for the City. Additional recommendations by HESI include the following: 1. Perform a plant maintenance inspection and prepare the plant for operation. Staff concurs that inspection of the facility is necessary if the City plans to operate the hydroplant, and it could assist in providing an accurate estimate of the facility startup cost, however, actual preparation of the plant for electrical generation (if desired) would best be performed when the operating alternatives have been clearly defined. The facility inspection should be included in the early stages of a detailed engineering study. 2. Analyze Alternative 2D in more detail. This alternative involves over-building (adding more power lines with a joint-pole agreement) the existing PG&E power line in Stenner Canyon and utilizing the hydropower generated at the water treatment plant, with a small excess of power sold to the power exchange. Adding the ongoing maintenance and operation costs not included by HESI for alternative 2D increases the payback period for recovery of funding from 2.58 years to 11.46 years. Staff does not concur with this recommendation. 3. Analyze Alternative 2B in more detail. This alternative involves establishing a new right-of-way and constructing new power lines in Stenner Canyon, utilizing the hydropower generated at the water treatment plant, with a small excess of power sold to PG&E. Adding the ongoing maintenance and operation costs not included by HESI for alternative 2B increases the payback period for recovery of funding from 2.92 years to 8.8 years. Staff does not concur with this recommendation. 4. Pursue Alternative 1 if 2B and 2D fail. This alternative assumes that hydroelectric plant will operate as it was originally designed, with the power being sold to the power exchange. Adding the ongoing maintenance and operation costs not included by HESI for alterative 1 creates a deficit situation of approximately$22,000 annually. Staff does not recommend this alternative. 5. Do not connect the Water Treatment Plant to the Cal Poly electrical system. Staff has reviewed the alternative of connecting to the Cal Poly electrical system (alternative 3) and agrees that the Cal Poly power contract with Enron would expire before the electrical transmission system could be constructed. However, the analysis shows only a 3.4 year payback of the required electrical distribution system construction costs even under the current electrical rate structure. With the addition of the City's electrical charges for the large water pumps immediately adjacent to the proposed electrical transmission line, alternative 3 may be a good choice in the future for power procurement for the water treatment plant if the revised Cal Poly electrical contract provides similar savings when compared to the City's electrical rates. r'J i Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 6 Staff Findings and Conclusions The HESI evaluation of the feasibility of re-activating and operating the hydroelectric plant included review of three major areas of concern. A cost/benefit feasibility analysis was provided to determine the economic aspects of re-activating and operating the hydroplant. Safety issues were reviewed to determine the requirements for upgrading the water delivery system for the generator, and lastly that use of the hydroplant would not impact the operation of the City's Water Treatment Plant (WTP) in terms of water quality or delivery of water to the WTP in terms of water quantity. These issues were addressed in the HESI study from a feasibility level, however, staff feels that HESI did not analyze the safety and operational issues sufficiently to conclude that the existing facility is operable in its current configuration. Staff concurs with the HESI analysis that the facility could generate a small amount of power, however, the payback for capital funding to make the facility operational would take several years, since HESI has underestimated associated startup and ongoing operational costs. Additionally, the assumption that 470 kW, output is available from the hydro at all times is flawed. Our records indicate that 420 kW output would be the average available on an ongoing basis. This 10% reduction in generator output further impacts the revenue available from the facility. The most cost effective alternative for power savings at the WTP does not operate the hydroplant at all, rather taking power from Cal Poly. HESI's review of the water delivery system to the generator and associated safety concerns was based on the assumption that the facility has been operated safely in the past; and any gross safety issues would surely have surfaced by now. Their recommendation for automation of the inlet valve (one of staff s major concerns) is to install a valve actuator on a butterfly valve. This type of valve is not generally recommended for use as a flow regulating valve, as they have a high. failure rate when utilized in this application. These are the types of issues that can directly affect water quantity and quality. Staff concurs with HESI's determination that "the operation of the facility is significantly constrained by the length and diameter of the supply pipeline". With installation of a larger influent pipeline for water deliveries, operation of the generator at or near the nameplate rating of 750 kW would greatly increase the revenue stream potential from this facility. Staff also concurs with the 14ESI recommendation to provide flow testing for the existing supply pipeline as it has been highly modified since its last use for power generation. This analysis would provide additional insight for projected flow and associated generator output estimates. In terms of potential impacts to water quantity and water quality, the HESI feasibility study does not provide enough detail in these areas to determine the impact hydroplant operation would have on the WTP. .Staff feels that if the hydroplant is not modified to reduce the induction generator's impact on the PG&E electrical system, or some other means of controlling power surges at the WTP is found, water quality i.e. the water delivered to our customers, would be impacted. 3=� Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 7 Additional Study The HESI report indicates that the hydroplant can be operated and generate some revenue for the City. The amount of revenue, as discussed above, is still in question. There are operational issues at the facility which currently remain unanswered, and although HESI has included rate and revenue projections within the feasibility study, the current volatile electric supply situation does not enable staff to verify HESI's projections. Additional operational and safety issues which should be addressed in additional studies include the following: 1. Before a commitment to operate the hydroplant is made, additional study should be performed to provide more detailed engineering analysis of the modified influent supply line, including study of enlarging the line to provide additional water for the WTP and hydroplant generator. 2. Another study consideration is the area of the pipeline "forebay" in the Cuesta tunnel. Staff is concerned that the size reduction within the tunnel by the recent installation of two additional pipelines will impact the operation of the generator supply waterline, and reduce our ability to control the influent water to the hydrogenerator. The study would determine whether our previous problems with the supply line have been corrected or exacerbated. 3. Additional study could include the consideration of"influent pumping control", or the replacement of the existing water pumps at the Santa Margarita Booster Station with variable speed pumps. These pumps have the ability to provide variable flow rates, which may help to increase control of the hydroplant influent supply.. 4. Since technology has improved steadily in the power generation industry since installation of the Stenner hydroplant, the study should also include analysis of the existing induction generator, its current application, and other generation possibilities at the Stenner site. The study would provide engineering analysis of the existing facilities and equipment, applications, and design alternatives for upsizing, utilizing the existing components, or abandoning the Stenner hydrogenerator. 5. Staff is concerned that operation of the hydroplant supply valves without engineering review of the supply pipeline would present personnel safety issues and increase the potential to damage the pipeline, which is the primary water supply pipeline for the City. The existing diversion valve is not appropriate for hydrogenerator service, and staff has had difficulty operating the valve in the past. These issues could be addressed concurrently with engineering analysis for proper supply line sizing. 6. The WTP should be protected from power surges or other negative influences in order to provide the highest quality water to our customers. One focus of the study would be to provide analysis of the potential for power surges or interruptions of power to the WTP. As the current water treatment process used at the WTP depends entirely on electrical Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 8 power to produce the ozone utilized for disinfection, further study is recommended to assure there will be no future problems with the treatment process. FISCAL IMPACT Staff estimates the costs for the additional studies and analysis would be around $150,000. Staff is currently preparing a comprehensive analysis of the State's energy situation and a policy recommendation for the City relative to our role in today's energy arena.. Staff plans to bring this discussion before Council in June or July of 2001. With Council approval of an energy policy for the City, and if consistent with that policy, staff will prepare a detailed RFP and return to Council for approval of the RFP. At that time, a more precise and researched estimate of the funding necessary to complete the identified work will also be provided along with a preliminary analysis of the cost/benefit of a revised project. Additionally there are a number of bills pending at the State which may provide at least partial funding for alternative energy projects such as contemplated here, therefore staff will further research the funding options and identify funding source(s) at the time of RFP approval. ALTERNATIVES 1. Abandon facility. This alternative was the original staff recommendation to Council, however, as directed by Council, a thorough costibenefit evaluation of the operation of the hydroplant may reveal long-term financial benefits for the City. Additionally, Council may adopt an energy policy, which could consider factors beyond a pure economic analysis which would make operation of the facility desirable. If the City decides not to operate the hydroplant, an outside energy service provider could petition the Federal Energy Regulatory Commission (FERC), to operate the plant. This could reduce the City's control of our own resource and compromise water quality. Staff does not recommend this alternative. 2. Use electrical power from Cal Poly. If Cal Poly (in conjunction with the State University System) is able to renegotiate a favorable power contract with Enron or another energy service provider, alternative 3 would provide the least expensive power for the Water Treatment Plant. This alternative could still be pursued even if the hydroplant is abandoned, however, there is no guarantee that the University System will continue to receive favorable electrical rates, therefore this option should be considered only after the University negotiates a new power contract and the States' electrical generation system stabilizes. Staff has reviewed this option with Cal Poly officials and they are not opposed to such an arrangement, presuming there is some mutual benefit to be derived. As identified in the HESI report, there may be some significant regulatory constraints to this type of arrangement, therefore, staff recommends continuing to review the market conditions, the State University's new (2002) power purchase agreement, and if significant benefit H � Council Agenda Report—Stenner Canyon Hydroelectric Plant Page 9 _ appears to be available, staff will return to Council with a more thorough discussion of this option for direction. Attachments Attachment 1- Executive Summary to Stenner Canyon Hydroelectric Plant Feasibility Study Available in Council Office for Review: Stenner Canyon Hydroelectric Plant Feasibility Study(Full Report) STENNER CANYON HYDROELECTRIC FACILITY FEASIBILITY STUDY EXECUTIVE SUMMARY The City of San Luis Obispo requested Henwood Energy Services, Inc. (Henwood) to evaluate the feasibility of re-activating the Stenner Canyon Hydroelectric Plant (Hydroelectric Plant or Plant)that has been out of service since 1994. The decision to re-activate the plant will be based on a favorable cost/benefit analysis conducted as part of the feasibility study as well as a determination that the City's Stenner Canyon Water Treatment Plant (WTP) will riot be adversely impacted by Hydroelectric Plant operations. Alternative uses for the power generated by the Hydroelectric Plant include 1) selling the power to PG&E or into the California power market through an existing metered connection to PG&E's distribution grid and 2) constructing a new transmission line to convey the power to the WTP. The feasibility study also considered the possibility of the California Polytechnic State University providing power to the WTP via a new transmission line that would tie into the University's 10,000 kW substation and distribution system. Four alternatives were considered for the feasibility study: • Alternative 1 —Sell Power to Distribution Grid at the Hydroelectric Plant Alternative 2 — Construct New Transmission Line to Provide Power from the Hydroelectric Plant to the WTP • Alternative 3 —Provide Power to the WTP from the University Substation Alternative 4 — Provide Power to the WTP from the Hydroelectric Plant With the University Providing Emergency Backup Because the water supply for the Hydroelectric Plant is also the source of water for the WTP, the feasibility study also included an evaluation of several operational constraints that have to be considered to prevent disruption of the City's water distribution system if the Hydroelectric Plant is re-activated. Considerations include: Maintaining a constant supply of water to the WTP and avoiding adverse impacts to the quality of the facility's water supply; Protecting the electrical power supply at the WTP from fluctuations due to outages at the Hydroelectric Plant; • Balancing the operation of the WTP at off peak hours to take advantage of favorable power rates against operating the Hydroelectric Plant during peak hours to maximize power revenue; and ©2000 Henwood Energy Services, Inc. ES-1 STENNER CANYON HYDROELECTRIC FACILITY FEASIBILITY STUDY • Maintaining safe working conditions for maintenance personnel and operations staff. If the Hydroelectric Plant is re-activated, operation of the Hydroelectric Plant should not impact either the quantity or quality of the water delivered to the WTP. Because there is no water storage capacity in the conveyance system between Cuesta Tunnel and the Hydroelectric Plant, the Hydroelectric Plant would only be operated when water is delivered to the WTP to meet the City's water supply needs. Because no chemicals are added to the system, there is no water storage that could introduce turbidity or sediments, and contact with the water and lubricants are minimal, water quality will not be impacted by operation of the Hydroelectric Plant. The electronic control system for the Hydroelectric Plant would be designed to maintain uninterrupted flow to the WTP as the first priority. In the event of an outage of the Hydroelectric Plant, deflectors divert flow away from the turbine wheel, but the flow continues uninterrupted through the turbine nozzles. If the outage is a result of a minor problem; the Hydroelectric Plant may be restarted after correcting the problem, either remotely through the surveillance control and data acquisition (SCADA) system used to operate the Hydroelectric Plant or with the attention of an.operator. Restarting the Plant would be accomplished. by adjusting the deflectors to direct the uninterrupted flow back to the turbine wheel. For more extensive repairs, a bypass valve would be activated to divert the entire flow around the Hydroelectric Plant. In either case, flow to the WTP will not be impacted. Because of the sensitivity of the power supply of the ozone generation return at the WTP, there is a potential for the ozone unit to trip in the event of power surges or sags. Currently,the bypass valve must be operated manually which requires operators to climb into the valve vault. In the past, the vibrations and noise caused by the closing of the valve have raised concerns about operator safety. Replacement of the manual valve operator with an electronic operator would address this concern and obviate the need for an operator to enter the vault when closing the valve. The alternative with the most favorable rate of return and shortest return on investment is the joint pole version of the new transmission line connecting the Hydroelectric Plant to the WTP, with excess power sold to PG&E. Payback is calculated at 4 years, with an internal rate of return (IRR) of 33%, and a net present value (NPV) of$596,000 based on a 20-year life of project. Selling the power to PG&E instead of the Automated Power Exchange (APX) market is more attractive because the premium for the green power sold is offset by the ES-2 02000 Henwood Energy Services, Inc. STENNER CANYON HYDROELECTRIC FACILITY FEASIBILITY STUDY annual APX market scheduling cost. The joint pole option requires the l permission of the California Public Utility Commission (CPUC) to construct a f second set of cross arms on the existing utility poles to carry the new transmission wires. This would allow two different circuits to be carried on the f same poles. Although it not usually allowed because of the difficulties inherent I in dual maintenance responsibilities, the CPUC may be willing to grant an exception due to the relatively short length of transmission line involved. The alternativewith the least initial cost includes constructing a transmission line to the University and the WTP. Payback is calculated to take 6.7 years, with a 20-year I NPV of$96,000 and an IRR of 16.8%based on a 20-year life of project. The initial legal costs for negotiating with the Federal Energy Regulatory 1 Commission (FERC) and PG&E were excluded from the initial costs, per the City's i request. 1 1 i ©2000 Henwood Energy Services, Inc, ES-3 d