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HomeMy WebLinkAboutSwann-Tyee Intertie Update DRAFT 57 mile 137 Kv Intertie 2002Swann-Tyee Intertie Update DRAFT 57 mile 138 Kv Intertie Chronological Project History In 1987, the Alaska Energy Authority commissioned a study by Harza Engineering to look at Intertie alternatives in the Southeast. The Swan-Tyee and Juneau to Green-Creek were identified as the ones with the best "economic rational." The Swann-Tyee was considered to have promise because it would make surplus Tyee energy available to Ketchikan, but it was noted that if Ketchikan load growth did not materialize that the Intertie would have "little benefit." In 1990, an ISER concluded that full output of Swan Lake would be consumed by 1992 and that supplemental diesel would be needed at that time. In 1991, RW Beck issued a market and financial assessment report. In 1991 dollars the cost was estimated at 39 million. The analysis indicated that if KPU paid 5.6 cents/kwh in 1996 for power over the Intertie, then revenue from the project could support 10 million in bonds and the state would have to contribute the remaining portion of the cost. The study indicated approximately 40 million in economic benefit associated with building the Intertie compared with using diesel to meet excess power needs in Ketchikan. In 1992, the project was discussed at a Ketchikan City Council Public Hearing. It was noted then that the project was justified based on 80,000 MWH annual excess energy available from the Lake Tyee Project and projected load growth in Kethikan. At the time it was noted that Ketchikan was using 10,000 MWH less energy than what was available from the Swan Lake Project, but it was expected that their demand would grow so that they would be using all their available hydro energy in a short time. There was a presumption that the excess from Tyee would be used in lieu of diesel in Ketchikan, which would be needed to meet future load growth. The Alaska Energy Authority was working on a feasibility study to "build the project" and at that time estimated a cost of "about 40 million." The concept of the state funding 50% and AEA issuing revenue bonds for the remaining 50% was discussed. In 1992, the cost was updated to 55 million. In 1993, the legislature appropriated 20 million for payment as a loan under the Power Project Fund Statute. Later in 1993, the legislature provide a grant of 4.5 million to KPU for design and construction of the Intertie and 4 million in 1994, and enacted legislation to provide similar grants on an annual basis. In 1994, HDR Engineering completed an economic and financial assessment of 3 KPU power supply options - the Intertie, Mahoney Lake, and diesel. The study identified Mahoney Lake as the preferred resource for 6 different base case assumptions. The Intertie was preferable in the case where "a state grant is available each year of the project and the Intertie energy is either no cost or the Four Dam Pool variable rate (2.6 cents/kwh in 1994),." In 1995, KPU began designing and engineering using state grant funds. In 1996, by this time 11.2 million in state grant funds had been committed to the project to cover all pre-construction costs. In 1997, KPU decided to use the 20 million dollar loan and a resolution accepting the loan was passed by the city council. KPU also moved forward on permitting, power sales with the Four Dam Pool, analysis, and efforts to obtain federal funding for the project. In 1997, a letter from KPU to Commissioner Tom Irwin indicates that the Department of Community and Regional Affairs concluded that an important test for the Intertie would be for Ketchikan voters to approve 20 million in debt service. The letter indicates that the Department of Community and Regional Affairs also questioned the cost effectiveness of the Intertie based on KPU's estimated 70 million dollar construction cost. KPU notes that Ketchikan voters passed a 13.7 million bond issue for back-up diesel generators and the Intertie is defended as the best alternative to diesel. KPU notes that "it is not only cost-effective, it is imperative to our economic recovery that the state facilitate the development of the Swann-Tyee Intertie." KPU notes that commitment to diesel will adversely impact electric rates. KPU further notes that they agree the project relies on "speculative economics" but expresses concern that this outlook could be self-fulfilling without the project. In 1997, the Forest Service completed key aspects of the permitting. In 1998, KPU's dependence on diesel generation had grown to 27,000 MWH. In 1998, Cape Fox Corporation and AP&T formed a joint venture (Ketchikan Electric) to develop the Mahoney Lake Project for which a FERC license was recently granted. Ketchikan Electric offered to sell power to KPU at 6.5 cents/kwh and indicated that both the Intertie and Mahoney Lake projects should be pursued. Financial status as of 1998 based on information documented in the files: 11.2 million - state grants (5 million unspent in 1998) 2.4 million - state grants (Southeast Energy Fund) 20 million - state loan from Power Project Fund (requires public vote that had not occurred) 10 million - federal funds Total - 43.6 million In 1999, AIDEA hired several consultants to review the project need. It indicated that the Intertie was not the best economic option, but under high growth projections it is comparable. The analysis noted other factors make the project attractive. Recommendations were made to ensure the state had no ongoing state responsibility. In 2000, Ketchikan Electric argued to the 4 Dam Pool and KPU that Mahoney Lake should have preference for power purchases over the Swann-Tyee Intertie since it was licensed as a PURPA project. The 4 -Dam Pool noted that energy sales from Lake Tyee are needed to generate revenue to justify project purchase from state. KPU petitioned FERC to grant a waiver from PURPA and FERC complied, placing Lake Tyee power ahead of Mahoney Lake. In 2001, Ketchikan Electric filed suit contending FERC's waiver. KPU countered the suit by saying the 4-Dam Pool sale was contingent on selling Lake Tyee Power to 4-Dam Pool. The DC circuit court of appeals upheld FERC's PURPA waiver. Ketchikan Electric did not petition for a rehearing. In 2001, Ketchikan Electric filed a suit against KPU, alleging KPU acted in bad faith in negotiating a PSA and sought the court to impose a PSA on KPU. The 4-Dam Pool joined KPU and the case was dismissed. In late 2001 and 2002, preliminary design work was completed. Also, KPU obtained permits and legal OK for right-of-way clearance contingent on completing certain permit conditions. In 2001/2002, HB 528 provided authorization to grant 20 million subject to legislative appropriation. That amount includes principle and interest and the 4-Dam Pool is valuing it at 14 million in their latest budget. The 4-Dam Pool has not borrowed against that authorization and is currently trying to meet with and get a commitment from the governor to appropriate the money since other HB 528 money was vetoed. In 2002, ROW clearing completed on the first 18 miles. In 2002, the budget was updated to 85 million assuming no timber sales from clearing. In early, 2002, a KPU budget indicated they had secured 45 million in state (16) and federal (29) grants, leaving an unfunded balance of approximately 40 million. The 20 million dollar loan referenced earlier was not included in the budget. As of 1° quarter 2002, about 8.5 million had been spent to date by KPU. In 2002, as a condition of the 4-Dam Pool sale, money held for the 20 million dollar loan was returned to the railbelt energy fund, and in its place a 5 million dollar credit available as a loan was provided for the Intertie Project. AEA made no commitment in the 4-Dam Pool Sale to fund over the value of the 5 million dollar loan. Current Status Engineering design and fabrication work is proceeding. A 13 million dollar contract to complete ROW clearing and some geo-technical evaluations was let and the work has been substantially completed. The project is scheduled to be transferred to 4-Dam Pool and negotiations are underway. On October 15th the Ketchikan City Council approved transfer of grants and assets to 4 Dam Pool. Transfer has not been not signed and approved by 4-Dam pool members yet. Tom Lovas, CEO of Four Dam Pool, is working on finalization of asset transfer and has it on the agenda for his next board meeting on Nov 20th. The 4-Dam Pool Board accepted an updated completion cost estimate of 90 million per phone conversation with Tom Lovas. The 4-Dam Pool is working on design modifications to try to get the cost down. They are targeting construction next summer providing can get remaining funds in place. Tom Lovas said something about needing a line of credit from AIDEA. In terms of Intertie priorities, currently the Southeast Conference is treating the Swann- Tyee line as a done and fully funded priority and is focusing current efforts on Juneau- Hoonah and Petersburg-Kake. One of the Petersburg-Kake routes includes routing near a mine prospect currently being investigated. If that is a feasible development, it could be an opportunity for 4-Dam Pool Power Sales using excess power from Lake Tyee also. A related issue is that SE Conference has hired a DC lobbyist to try to capture the non- federal match accumulated in the Swann-Tyee Project and private AEL&P match to be invested in Lake Dorothy, etc. If this can be accomplished, the federal match requirement would be solved for a large portion of the overall Intertie projects needs. A budget update including information from KPU on costs to-date, has been requested but nothing has been received to date. The exact status of the budget now and in the past is unknown. Based on latest KPU reporting (note this is KPU characterization of the budget and available funds and is unverified by AEA), that is unverified by AEA, available funds include: 11.2 million - State grants from 94/95 4.4 million - State grant from AEA in '99 5.0 million - "Payment by 4-Dam Pool" 14 million - "Bonds issued by Four Dam Pool upon issuance of debt" (HB 528) 39.6 million - Federal Funds (including 7.6 million recently reported) 79.2 million available - as characterized by KPU and unverified by AEA The amount spent to date is unknown, but last reporting by KPU in June 2002, indicates that 9.8 million had been spent. Since then at least another approximately 13 million had been spent on line clearing. Current Diesel Usage in Ketchikan A DH Hittle Intertie study provided the most recent update of diesel usage in Ketchikan. The following is from page 28 of the phase II study: Ketchikan Public Utilities (KPU), a municipally owned electric utility, is the second largest electric utility system in Southeast Alaska. KPU obtains the majority of its power supply from KPU-owned hydroelectric projects and the Swan Lake project, a Four Dam Pool Power Agency project. In most years, KPU’s electric loads exceed the available hydroelectric generation capability and diesel generators must be used to supply the net power requirement. KPU is presently constructing the Swan-Tyee Intertie to gain access to the surplus generation capability of the Lake Tyee project. The electric requirements of KPU will affect the net generation available to Kake from the Lake Tyee project. Following the closure of the Ketchikan Pulp Company pulp mill power plant in 1997, KPU’s total energy sales increased with the sale of power to the Gateway Forest Products sawmill. The sawmill closed at the end of 2001 and KPU saw a decrease in total energy sales. Electric loads are assumed to increase at average annual rates of 1.1%, 0.3% and 2.2% for base, low and high forecast scenarios, respectively. KPU’s forecasted electric requirements are summarized in the following table. TABLE 2-4 Ketchikan Public Utilities Projected Energy Requirements — Medium Growth Scenario 2003 2004 2005 2006 2007 2012 Energy Requirements (MWh) . 153,972 155,666 157,378 159,109 160,859 169,903 Less: KPU Hydro? (68,460) (68,460) (68,460) (68,460) (68,460) (68,460) Less: Swan Lake ® (68,108) (68,585) (69,065) (69,401) (69,725) (70,668) Net Requirement * 17,404 18,621 19,853 21,248 22,674 30,775 Assumes average growth in energy requirements of 1.1% per year. Estimated annual energy generation from KPU-owned hydroelectric projects assuming average precipitation levels. Estimated annual generation from the Swan Lake hydroelectric project assuming average precipitation levels. Average energy usage is expected to increase somewhat as the KPU load increases. Projected net energy requirement to be provided from diesel generation, new hydro project generation or the Lake Tyee hydroelectric project, assuming the Swan-Tyee Intertie is constructed. The study indicates that KPU currently needs 17,404 MWH in diesel generation (or presumably from the Intertie when it is completed) to meet current needs based on a normal water year and the need grows 1.1% annually. Currently, however, it is my understanding that high water levels in 2003 at Swan Lake and other KPU hydros combined with reduced demand associated with the Gateway closure have negated a recent need for diesel generation to date in 2003. Ketchikan's current energy needs are on the low-side of what was predicted in earlier studies. Future load growth projections have also been requested from KPU to confirm this data. Economic Benefit of using Excess Lake Tyee Energy The DH Hittle study listed that the cost of diesel generated power in Ketchikan as follows: TABLE 3-4 Projected Variable Cost of Power Production with Diesel Generation’ (nominal cents per kWh) 2003 2004 2005 2006 2007 2012 2017 2022 Skagway-Haines (AP&T) 9.2 9.3 9.6 9.8 10.1 11.3 12.9 14.5 Chilkat Valley (THREA)? : - - - 10.0 UTA 13.4 15.1 Hoonah (THREA) 12.3 12.6 12.9 13.3 13.6 15.4 17.4 19.7 Kake (THREA) 11.8 12.0 12.4 12.7 13.0 14.7 16.6 18.8 KMC-GC (Greens Creek) 9.2 9.4 9.6 9.9 10.1 11.4 - - Excursion Inlet 9.9 10.1 10.3 10.6 10.9 12.3 13.9 15.8 Gustavus 13.4 13.7 14.1 14.4 14.8 16.7 19.0 21.4 Angoon (THREA) 12.2 12.4 12.8 13.1 13.4 15.2 17.2 19.4 Sitka 10.9 11.2 11.5 ney, 12.0 13.5 15.3 17.4 Ketchikan 8.7 8.9 9.1 9.4 9.6 10.8 12.3 13.9 Prince of Wales (AP&T) 9.1 9.3 9.5 9.8 10.0 11.3 12.8 14.5 The Four Dam Pool Annual report indicates the wholesale power cost to communities it serves as 6.4 cents/kwh, resulting in a 2.3 cents/kwh energy savings associated with using excess energy from the Lake Tyee Project. Using the Hittle estimate of the Ketchikan diesel requirement in 2003 (17,404 MWH), the gross savings in 2003 using Lake Tyee power over diesel would have been approximately $400,000.00. Actual conditions however in 2003, would have resulted in negligible economic benefit as the KPU diesel's were not used much in 2003. Available Excess Generation from the Lake Tyee Project The following is from pages 2-20 and 2-21 of the DH Hittle phase II Intertie study: The generating capability of the 20-MW Lake Tyee project is presently committed to Petersburg and Wrangell. The Swan-Tyee transmission Intertie, currently under construction, will provide Ketchikan with access to generation from the Lake Tyee project that is surplus to the needs of Petersburg and Wrangell. Several estimates of the annual energy capability of the Lake Tyee project have been developed in the past; however, the loads connected to the project have never been large enough to evaluate how well the estimates compare with actual performance. Generally, it has been estimated that under average water conditions, the annual energy generation capability of the project is about 129,000 MWh. Based on actual experience and the knowledge of individuals familiar with the operation of the project, the average annual energy generation could be as low as 110,000 MWh per year. Hydroelectric generation is highly variable from year to year depending on local precipitation and other environmental conditions. As previously indicated, the average annual estimated energy generation capability of the Lake Tyee project is 129,000 MWh. Under dry, low water conditions, the energy generation is estimated to be 112,700 MWh whereas it could be as high as 154,800 MWh. The following table summarizes the energy generation available from the Lake Tyee project assuming average annual energy generation of 120,000 MWh from the project. TABLE 2-12 Estimated Hydroelectric Energy Generation From the Lake Tyee Project - Medium Growth, Average Water (MWh) 2003 2004 2005 2006 2007 2012 Lake Tyee Generation 120,000 120,000 120,000 120,000 120,000 120,000 Energy Requirements Zi Petersburg/Wrangell 54,455 54,974 55,498 56,026 56,560 59,299 Ketchikan 17,404 18,621 19,853 21,248 22,674 30,775 Net Energy Available 3 48,141 46,405 44,649 42,726 40,766 29,926 Assumed generation for purpose of this analysis. Actual generation will vary from year to year. Based on medium growth scenario, see Tables 6-4 and 6-5. Estimated annual generation from the Lake Tyee project available to Kake. v w This estimate by DH Hittle is consistent with past studies, however, private conversations indicate that past studies of annual generation capability at the Lake Tyee Project were based on data from an adjacent drainage basin and that resulted in estimates that may be higher than actual and the Hittle study indicates it could be as low as 110,000 MWH. An update of the projects energy capability using actual lake level data from the project may be helpful to better define the projects capability. Regardless, there is excess energy that can be allocated regionally as opportunities develop. Allocating that excess energy requires hypothetical assumptions about future energy demand, which is a function of the economy, and project capability, which is a function of the weather. Here are some hypothetical considerations: Using the Hittle estimates for 2003, if Wrangell/Petersburg usage and Ketchikan assumed usage to displace diesel are backed out, the net annual excess energy available is 48,141 MWH. Assuming the Kake Petersburg Intertie is built, and the Kake energy requirement of 4,685 MWh is also backed out the potential excess energy for potential mining activity on Woewodski Island is limited 43456 MWH annually. The power needs for the mine are not known, but the DH Hittle study noted that " if a new mining operation similar in size to the KMC-GC mine were to be developed, additional energy requirements in the range of 50,000 MWh per year could be realized." A mine of this size would create a capacity shortfall from Lake Tyee of -6544 MWH. If capacity estimates are 10,000 MWh lower, the shortfall in excess energy could be as much as -16544 MWH from Lake Tyee. Future load growths could exacerbate the shortage. The point being there may not ib be enough excess to go around to meet all possible needs. Conversely however, if the ae » need in Ketchikan is lower, consistent with today's demand, an additional 17404 MWH 7. 4 becomes available that significantly mitigates the potential shortfall at the mine. Alsoif —\ there was a shortfall, there is surplus hydro in Metlakatla and other generation resources ae \ that could be developed. According to the DH Hittle study: , ¢ ht of Nv Three hydroelectric projects have been identified for potential development in the Ketchikan area: Z Whitman Lake, Connell Lake and Mahoney Lake. In addition, surplus hydroelectric generation ate presently exists in Metlakatla. The interconnection between Ketchikan and Metlakatla (SEI-3) has 04 ‘a been studied in the past and would allow for transmission of MP&L’s surplus hydro energy within _ yer wv the Tyee-Swan region. Although the energy requirements and existing resources in the region oo would imply that the Metlakatla Intertie would not be needed until around 2020, it can be ot reasonably expected that this interconnection would be beneficial prior to that time, particularly if ary, an interconnection with the Prince of Wales electric system is constructed. no epee ~ The overall pint, however, is as mentioned that allocating excess energy requires hypothetical assumptions. An Intertie combined with new generation best mitigates these uncertainties in the long-term allowing more optimal and efficient sharing of electrical resources. However, prioritizing funding to meet specifi eds may be advantageous where capital dollars are constrained or there are immediate short-term needs. There are however, legal, environmental, and regulatory-copistraints to overcome with each new development. Other Generation Options There are other hydro generation options in the region that have been detailed as follows in the recent DH Hittle report: A number of new hydroelectric projects have been studied that could serve the Southeast Alaska area. Costs of these projects, as well as other factors including location, generating capacity, interconnected loads and the availability of better alternatives have precluded development of these projects. The development of a transmission interconnection system could make development of some of these projects economically and technically feasible at some later date. Hydroelectric projects that have been identified, the community they are closest to, and their estimated capacity and annual energy generation are provided in Table 2-13. Several of the projects shown in Table 2-13 were only studied on a reconnaissance basis while others have been studied in more detail. Further, the timing of the most recent studies conducted for these projects varies significantly. In total, the combined capacity of all the projects shown in Table 2-13 is 195,300 kW, essentially the same as the current amount of installed hydroelectric capacity in Southeast Alaska. The estimated total average annual energy generation of the potential hydroelectric projects is 701,000 MWh. It should be noted that other projects have been identified for the region in the past, such as the Lake Grace project near Ketchikan, that are not included in Table 2-13 because of problems that have been identified with their potential development. TABLE 2-13 Potential New Southeast Alaska Hydroelectric Projects Upper Lynn Canal Region Kasidaya Creek Connelly Lake Subtotal North Region Lake Dorothy - Phase 1 Lake Dorothy - Phase 2 Gartina Falls Water Supply Creek Falls Creek Subtotal West Central Region Takatz Lake Katlian River Thayer Creek Subtotal Tyee-Swan Region Thomas Bay (Swan Lake) Lake Tyee Third Turbine Sunrise Lake Anita - Kunk Lake Virginia Lake Thoms Lake Whitman Lake Connell Lake Mahoney Lake Triangle Lake Subtotal Prince of Wales Region South Fork Lake Mellon/Reynolds Creek Subtotal Totals Annual Energy Estimated Generation Capital Capacity Capability ' Cost ? Cummunity / Utility (kW) (MWh) ($millions) Haines-Skagway/AP&T 3,000 12,000 7.0 Haines-Skagway/AP&T 5,000 30,000 14.0 5,000 30,000 Juneau/AEL&P 15,000 75,000 Juneau/AEL&P 32,000 94,000 Hoonah 600 1,900 3.8 Hoonah 600 1,800 34 Gustavus/GEC __ 800 2,500 4.1 49,000 175,200 Sitka 20,000 82,800 82.0 Sitka 7,000 29,800 70.5 Angoon 1,000 8,500 NA 28,000 121,100 Petersburg 40,000 164,400 193.0 Petersburg - Wrangell 10,000 1,000 NA Wrangell 4,000 12,200 NA Wrangell 8,000 28,200 NA Wrangell 12,000 42,700 NA Wrangell 7,300 25,600 NA Ketchikan/KPU 4,600 19,640 76 Ketchikan/KPU 1,900 11,640 5.5 Ketchikan/KEC 9,600 45,600 NA Metlakatla/MP&L ___ 3,900 16,885 12.9 101,300 367,865 Craig-Klawock/AP&T 2,000 7,000 3.5 Craig-Klawock/AP&T 10,000 - NA 12,000 7,000 195,300 701,165 ' Estimated average annual energy generation. ? Estimated costs as derived from previous studies, adjusted to 2003 cost levels. Various legal actions have prioritized usage of excess generation from Lake Tyee, via the Intertie, in Ketchikan ahead of possible Mahoney Lake Development. The status of other new generation in the Lake Tyee region is unknown but may face similar legal consequences.