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HomeMy WebLinkAbout11/18/2003, BUS 4 - STENNER CANYON HYDROELECTRIC FEASIBILITY STUDY council lNov. 18, 2003 Agenda Report " h L)s CITY OF SAN LUISOBISPO FROM: John Moss, Utilities Directo Prepared By: Gary Hende on Water Division Manager SUBJECT: STENNER CANYON HYDROELECTRIC FEASIBILITY STUDY CAO RECOMMENDATION 1. Receive and file the Stenner Canyon Hydroelectric Facility Feasibility Study. 2. Endorse further evaluation of Alternative 2B relative to reactivation of the Stenner Canyon Hydroelectric Facility. 3. Approve amendment to contract with Black and. Veatch for additional analysis and project support for an amount not to exceed $27,255 (included as Task 730 of Amendment 1 to contract with Black and Veatch for Phase H services for the Water Treatment Plant Improvement Project, separate agenda report). (See Business Item_'.3) REPORT-IN-BRIEF The Stenner Canyon Hydroelectric Facility Feasibility Study was prepared by Black and Veatch to evaluate alternatives available for maximizing the hydroelectric power recovery potential of the Salinas Reservoir raw water supply system that feeds the Water Treatment Plant (WTP). The existing Stenner Canyon Hydroplant was constructed in 1984-1985 but has not been operated since 1994 due to modifications at the WTP and the Cuesta Tunnel (which delivers water to the hydroplant). The study evaluated various alternatives and developed capital cost estimates, as well as potential savings and long term benefits of the project. The most promising alternative envisions operating the existing hydroelectric plant and utilizing the generated power for operation of the WTP as well as the Transfer Pump Station. There is a much greater potential savings associated with providing our own power to the WTP versus selling the power to PG&E at the hydroplant site and buying power from PG&E (at higher rates) for the WTP. While the recommended alternative appears financially beneficial, there are still a number of questions and design issues that must be further evaluated to ensure a successful project that will not impact the water quality and the operational reliability of the WTP. The recommended action will provide further.detailed engineering analysis of the remaining questions and assist with negotiations with PG&E relative to the contract for power purchases. Y-1 Council Agenda Report—Stenner Canyon Hydroelectric Feasibility Study Page 2 DISCUSSION Background The Stenner Canyon Hydroelectric Plant was constructed in 1984-1985 at which time the City contracted with PG&E to sell the energy generated. The original contract with PG&E required full power generation during all peak energy periods. This contract requirement could not be guaranteed due to potential limitations in water quality and storage at Salinas Reservoir which provides the raw water source for the hydro operation. In the mid-1990's, City staff were notified by PG&E that we were in violation of the terms of our contract. As such, the contract was converted to a Standard Offer #1 (SO1) contract which allows excess power purchases at any time. The current contract pays less for the energy generated than the original contract. The City has studied the potential for reactivation of the hydroelectric facility in the past and many questions still remained relative to the ability to safely operate the hydro facility while maintaining the WTP's water quality and operational reliability. The engineering firm of Black and Veatch was retained to provide a more detailed evaluation of potential alternatives available relative to reactivation of the hydroelectric facility. The objective of the feasibility study is to identify and evaluate alternatives,at a conceptual level, for maximizing the hydroelectric power recovery potential of the Salinas Reservoir raw water supply system that feeds the WTP. Issues There are three main areas of concern raised by staff relative to reactivation of the power plant. 1. Safety - The safety issues involve the physical diversion of raw water to the hydroelectric unit. The control valves require manual operation below ground level and the high pressures result in extreme vibrations and the potential for pipe failure. 2. Operations - The second issue has to do with modifications that have occurred since the hydroplant was last operated. Modifications to the Cuesta Tunnel have reduced the available water storage in the tunnel which was utilized to provide constant head pressure for the hydroplant. Also, flows into the WTP were modified so that the pipelines from Whale Rock and Salinas deliver water directly into the ozone basin. These changes in operation brought into question whether the hydro facility can be operated under the current conditions. 3. Power Fluctuations - The final area involves potential impacts to the operation of the WTP. There is the potential for the hydroelectric facility to cause power fluctuations which could cause the ozone generation system at the WTP to shut down. Unanticipated shut downs would cause operational problems and could result in impacts to water quality. y-z Council Agenda Report—Stenner Canyon Hydroelectric Feasibility Study Page 3 Black and Veatch has analyzed each of these areas of concern and have formulated strategies which will minimize or eliminate them. The following list summarizes the analysis and solution to each of the issues discussed above. 1. Safety - To address the safety issue, the valve vault and pipeline alignment would be modified to eliminate the 90° bends in the pipeline and install motor operated control valves to allow remote operation of the valves. The reconstruction of the junction structure should minimize potential safety related concerns raised by operations staff. 2. Operational - With the modifications to the Cucsta Tunnel as part of the State Water Project, the previous operation strategy for the hydroplant will likely not work. In addition, the modifications at the WTP have changed how water is conveyed into the treatment plant. To address these issues, Black and Veatch has developed a strategy to potentially utilize the abandoned clarifier from the old water treatment plant which is located near the hydroplant. The clarifier would be used to control the flow rate to the water treatment plant and minimize pressure in the pipeline from the hydroplant to the WTP. The control strategy should allow proper operation of the hydroelectric plant while providing relatively constant flow rates to the WTP, which is necessary to insure proper water treatment. 3. Power Fluctuation - The area of concern relative to power fluctuation is still one of the larger concerns associated with activation of the hydroplant. At the conceptual level, Black and Veatch engineers believe that electrical transfer switching and other protection measures can minimize potential impacts to the WTP operations. This issue will have to be more fully evaluated and developed through conversations with PG&E during project design. While there may be ways to minimize potential impacts to WTP operations, there may still be the possibility of unanticipated hydroplant shutdown which could result in a power "blip" which would likely shutdown the plant ozone power supply units. An operational strategy and procedure will need to be developed to address this concern. Feasibility Study Alternatives The feasibility study evaluated numerous alternatives available to the City if the hydroelectric facility were to be reactivated. The study evaluated the capital cost of each alternative, annual power generation, impacts on the WTP and operational flexibility. The alternatives evaluated are summarized below. Table 1 on Page 5 summarizes all of the alternatives and resulting annual costs, net cost/savings (per year) and payback periods. The net cost or net savings takes into account the annual debt service payments, operation and maintenance costs, energy sales and savings due to utilizing power from the hydroplant for WTP operations instead of purchasing power from PG&E. y-3 Council Agenda Report—Stenner Canyon Hydroelectric Feasibility Study Page 4 Alternatives IA and 1B Alternatives IA and 113 involve Net Cost/(Savings) Compared restarting the existing Alternative Capital Cost hydroelectric facility and to Present Condition selling energy to PG&E under IA $1,006,000 ($35,000) the existing SOI contract. 1B $1,249,000 ($16,000) Alternative 1B includes an interconnection with the abandoned clarifier at the hydroelectric plant site to provide regulating storage that will reduce flow impacts on the WTP. Alternatives 2A, 213, and 2C These three alternatives all involve restarting the existing hydroplant, but using the power from the facility for operation of the WTP and the transfer pump station via a new 12kV electrical line between the facilities. These alternatives have the benefit of Alternative Capital Cost Net Cost/(Savings) Compared significantly reducing power to Present Condition purchases from PG&E, the cost 2A $2,087,000 ($56,000) of which are considerably 2B $2,137,000 ($52,000) higher than the price paid by 2C $2,237,000 ($44,000) PG&E for power produced under the terms of the SOI contract. The alternatives also examine different options for selling excess energy generation to either the California Independent System Operator (2A), PG&E (2B), or Cal Poly (2C).. There are issues with any of the three power selling options, but it appears that option 2B (sell to PG&E) is the most viable option to pursue. It will require renegotiation of the power purchase contract with PG&E which will likely result in reduced prices paid for energy generation. Since there is minimal excess power generated after the WTP energy demands are met, there is not a significant impact to the project viability from reduced energy revenues. Alternatives 3A and 3B These alternatives consider Net Cost/(Savings) Compared operating the hydroplant and Alternative Capital Cost to Present Condition WTP on a 24-hour basis. This 3A $4,295,000 $86,000 may have some operational 3B $2,087,000 ($29,000) benefits and would generate power during peak energy demand periods which could result in higher prices paid for energy produced. Alternative 3A considered construction of a 2.5 mg storage facility near the Cuesta Tunnel to allow the Salinas raw water system to pump only during off-peak periods. Alternative 3B involves running all raw water, hydroelectric, and WTP facilities around the clock (i.e.. without a storage facility at the Cuesta Tunnel). y�� I/ Council Agenda Report—Stenner Canyon Hydroelectric Feasibility Study Page 5 Alternative 4 Alternative 4 considers constructing a new hydroelectric facility at the WTP site to take advantage of the additional Net Cost/(Savings) Compared head for power generation. Alternative Capital Cost to Present Condition This option would require 4 $5,711,000_ $218,000 replacing the existing pipeline from the current hydroplant site to the WTP. There are significant capital costs (above those of the other alternatives) associated with this option. Study Recommendation Of the alternatives analyzed, the most promising appears to be Alternative 2B which may provide the City with approximately $52,000 in total annual savings compared to the present operation. With total capital costs for this alternative estimated at $2;137,000, an annual net savings of $52,000 may be viewed as a minimal rate of return on the investment. Table 1 below provides a summary of the annual costs for each alternative, the net cost or savings per year and the estimated payback period. Table l: Total Annual Costs, Savings and Payback Period Project Total Annual Net Cost/(Savings) Compared Payback Costs to Present Condition. . . . .. _ Period (years) Present Condition $260,000 $0 -- Alternative IA $225,000 ($35,000) 11.1 Alternative 1B $244,000 ($16,000) 13.8 Alternative 2A $204,000 ($56,000) 10.5 Alternative 2B $208,000 ($52,000) 10.8 Alternative 2C $216,000 ($44,000) 11.3 Alternative 3A $346,000 $86,000 18.4 Alternative 3B $231,000 ($29,000) 12.2 Alternative 4 $478,00 $218,000 26.6 While the analysis prepared for the recommended alternative appears promising, there are additional design considerations which will need further evaluation in subsequent phases if the Council elects to move forward with the project. It should be noted that the analysis for the recommenced Alternative 2B (and other similar alternatives) is based on the assumption that the hydroelectric facility provides the majority of the annual power demand for the operation of the WTP and the transfer pump station. While Black and Veatch are fairly confident that an operations strategy, along with system components, can be developed to meet this assumption, additional analysis needs to be undertaken to properly confirm these conclusions. The electrical inter-connection system will be installed to automatically pull power from the grid if needed due to lower hydroplant power generation than WTP demand or if the hydroplant is off-line for any reason. y� Council Agenda Report—Stenner Canyon Hydroelectric Feasibility Study Page 6 If the WTP places a power demand on the PG&E grid, there is an immediate demand charge, on top of the energy charges, even if the demand was only for one minute during the month. If this were to occur each month, the projected annual savings may be substantially reduced. Another factor to consider is that there are times that availability of water from Salinas Reservoir is reduced due to water quality issues or is not available at all due to low water levels. These factors will likely increase the payback periods shown above and reduce annual savings. Summary The feasibility study for the Stenner Canyon Hydroelectric Facility prepared by Black and Veatch recommends that if the City wishes to reactivate the facility, Alternative 2B is the most promising project to pursue. While there is a moderate projected annual savings associated with the recommended alternative, there are still a number of design issues that will need to be further evaluated to ensure reliable operation of the WTP. In addition, the SOI contract with PG&E will need to be renegotiated to allow surplus power(above the WTP needs) to be sold to PG&E. This project will have significant capital costs which should be balanced against potential savings and obstacles to those savings. FISCAL IMPACT The fiscal impact will depend on whether the Council decides to move forward with the project or curtail further work on the project. If the Council wishes to move forward with the project, staff would recommend proceeding in a phased approach to continue development of the project to ensure that the assumptions and design considerations are appropriately addressed. The next phase of the project would include discussions with PG&E relative to the power purchase contract and the facilities and safeguards that must be installed for connection to the power grid. In addition, operational strategies need to be developed to fully address remaining questions relative to WTP long term,reliable operation. The scope of work for the next phase has been developed and the additional compensation to support this work is $27,255. This amount is included in the amendment to the contract for Black and Veatch which was considered by the Council as part of tonight's agenda report for the Water Treatment Plant Improvement Project Preliminary Design Report. ALTERNATIVES 1. Do not proceed with the project - Council could decide to curtail work relative to reactivation of the Stenner Canyon Hydroelectric Facility. The high initial capital costs and the minimal return on the capital investment could be factors that would support abandoning the hydroplant facility. If Council chooses this alternative, the scope of work and related compensation in the amendment to the contract with Black and Veatch will be modified accordingly. * Full copy of the Stenner Canyon Hydroelectric Feasibility Study is in the Council reading file. y!6