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Home My WebLink About02/16/1999, C5 - ABANDONMENT OF STENNER CANYON HYDROELECTRIC PLANT Dft council Feb Feb. 16 1999 j ac en oa Repoin F-R� 71 CITY O F SAN LUIS O B I S P O FROM: John Moss, Utilities Director t ' Prepared By: Gary Henders , Water Division Manager 4w*" SUBJECT: Abandonment of Stenner Canyon Hydroelectric Plant CAO RECONEAENDATION Authorize staff to request an abandonment of the Federal Energy Regulatory Commission's granted conduit exemption order for operation of the Stenner Canyon Hydroelectric Plant. DISCUSSION Background The Stenner Canyon Hydroelectric Plant was constructed in the mid-1980's at the old water treatment plant site adjacent to Reservoir #2. The facility utilized the raw water supplied from Salinas Reservoir to generate power which is sold back to Pacific Gas and Electric Company (PG&E). The plant was designed to generate 640 kilowatts per hour (kwh) but only achieved approximately 520 kwh maximum output due to pipeline losses and other system constraints. During the construction of the facility, the City entered into a power purchase contract with PG&E for the energy produced from the facility. The original agreement required the City to supply the full rated capacity of the hydroplant during the peak energy period of May through October between the hours of noon and 6:00 p.m. In 1995, PG&E contacted the City and informed staff that we were not providing adequate power as defined under the terms of our agreement. Since the Salinas Reservoir can not always supply water, as was the case during the drought, and due to operational constraints, the City entered into discussions with PG&E to resolve the contractual problem. In 1995, the City executed a new power purchase agreement with PG&E which doesn't require energy production at specific times. The downside of the new power purchase agreement is that payment for the power produced went from approximately $.08/kwh to about $.02/kwh. Operational Changes Since the original construction of the power generation facility, several changes have occurred which have an impact on the operations of the hydroplant. The water treatment plant underwent a major upgrade during 1994. The major water treatment process change was the use of ozone as the primary disinfectant as opposed to chlorine. Ozone must be produced onsite and requires electricity to produce ozone (03) gas. The process is very sensitive to power interruptions and surges and is easily "knocked" off-line in these situations. A loss of the ozone generators requires a plant shutdown and then a restarting of the plant processes by the operator(s). The C5-1 Council Agenda Report—Abandonment of Stenner Canyon Hydroelectric Plant Page 2 operation of the hydroelectric plant can cause power fluctuations in the area which would likely result in additional plant shutdowns and have potential water quality or other impacts. In addition, if the hydroelectric plant "trips" off-line, staff would have to travel up the canyon to restart the facility which will have impacts on the water plant operations and maintenance. During many night shifts, only one operator is overseeing the water plant operations which would not allow for operation of the hydroelectric plant while still providing full-time oversight of the treatment plant processes. In 1995, construction of the State Water Project resulted in modifications to the Cuesta Tunnel which delivers mw water from Salinas Reservoir to the City of San Luis Obispo. During construction, the telemetry control equipment for the hydroelectric plant was removed and subsequently damaged. The City was compensated for the equipment at the tunnel site as well as equipment at the hydroplant building since the old equipment was no longer available (the control system requires compatible equipment at each site). The control equipment was to be reinstalled by City staff following the end of the construction work at the tunnel. The equipment has not been installed due to the many factors and concerns raised in this report. In addition, modifications at the tunnel raise questions as to whether the system can still be operated to run the hydroelectric plant. Since completion of the water treatment plant upgrade and the State Water Project, the hydroelectric facility has not been operational and therefore has not been generating power. Federal Energy Regulatory Commission In June of 1998, the City was notified by the Federal Energy Regulatory Commission (FERC) that maintenance and operation of the facility has not been performed for several years. FERC is responsible for licensing and oversight of hydroelectric facilities and places requirements for their continued operation. The correspondence states; "Periodic maintenance work must be performed on the power plant to keep it in an operable condition. If the power plant is no longer going to be operated, you may voluntarily surrender the conduit exemption order granted by the Federal Energy Regulatory Commission." Maintenance Maintenance of the facility requires professional technical expertise in high voltage and electric generation equipment. In the past, a local individual provided these services and the annual costs were on the order of $5,000 per year. The individual is no longer available to provide the maintenance services and a professional from out of the area would have to be identified to provide these services which will significantly increase ongoing maintenance costs. In addition, since the facilities have not been operated for over 5 years and with the increasing age of the facilities, maintenance costs can be anticipated to be substantial in the future. C5-2 Council Agenda Report—Abandonment of Stenner Canyon Hydroelectric Plant Page 3 Safety Concerns The Water Treatment Plant Operators have been concerned for many years with the operation of the hydroelectric plant. While staff are highly trained in the technical skills necessary for the proper operation and treatment of water at the plant, they do not have the same skills relative to operation of the hydroelectric plant. In addition, the water supply line which serves the hydroplant requires staff to enter a confined space for operation of valves to divert water to the facility. The access to this valve vault now requires additional resources and precautions that were not required in the past. The pipeline pressures at the valve vault are approximately 300 psi which results in significant vibration and noise during operation of this valves. If a break in the pipeline were to occur while staff were operating the valves, serious injury or death could occur to our employees. Projected Revenues vs. Expenditures Based on the operational limitations and reduced power payments which are discussed above, revenues from operation of the hydroelectric facility would be estimated to be approximately $20,000 per year. Ongoing maintenance costs could be on the order of$10,000 annually and initial costs for installing the telemetry equipment and providing startup maintenance and training would likely be significantly more than $10,000 for the first year. Therefore, ongoing net revenue from operation of the facility would not be expected to exceed$10,000 annually. Summary Based on the operational constraints, safety related issues, reduced revenue projections and increased maintenance costs since the original construction of the hydroelectric facility, staff would recommend that the FERC conduit exemption order for operation of the Stenner Canyon Hydroelectric Plant be surrendered. In addition, staff will prepare a CIP request as part of the upcoming 1999/01 budget process to properly abandon the facility, relocate the pipeline around the hydroplant building and surplus the turbine generator and associated equipment. FISCAL IIdPACT As identified above, net revenue estimates for continued operation of the hydroelectric plant would be approximately $10,000 annually. The budgets and water rate analyses for the past four years have not assumed any revenue relative to the operation of this facility. Therefore, no water rate impacts would be associated with the abandonment of the facility. ALTERNATIVES ♦ Initiate Actions to Reinstate Operation of the Hydroelectric Plant. This would require staff to search for qualified technicians to provide the maintenance necessary to place the facility back in service. In addition, City staff would have to acquire and install the necessary telemetry control systems for the operation of the plant. It is uncertain whether the facility C5-3 Council Agenda Report—Abandonment of Stenner Canyon Hydroelectric Plant Page 4 can be operated as it has in the past due to modifications at the tunnel which serves as the control point for the hydroplant operation. Based on the operational, safety and other constraints and the limited revenue potential, staff does not recommend pursuing this alternative. ♦ Defer any actions relative to the hydroplant. This is essentially what has been done for the past several years. The FERC will require that the City provide maintenance of the facility or abandon the license granted by FERC for the continued operation. Staff does not recommend this alternative. C5-4