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HomeMy WebLinkAboutPower Supply Study, Draft Report, City of Unalaska, April 9, 1998POWER SUPPLY STUDY DRAFT REPORT April 9, 1998 UNALASKA, ALASKA CITY OF UNALASKA the Financial Engineering Company Section ES Ill IV City of Unalaska Power Supply Study Table of Contents Page Executive Summary ................:.:ccecceeeeseeeeeesees ESral Introduction OOVEGV IEW irrrrerrrrccr ore cre reese enna etasanenesnacaseesscees [-1 Methodology of Analysis.. ; 1-2 Self; Generatorstemrncee terres 1-3 Power Requirements i II-1 UniSea... I-2 American President Lines . 1-2 Sea-Land-....66050.000c.0000e Il-2 Cold Storage oa 1-3 Combined WoadSeececscceccccecsececsasccseerceccssees 1-3 Existing Power Supply Introductionbessssteteecceeteestesrceeecessesseteeess I-11 City Resources.. ll -1 DEC Operating Permit - City............... Il -2 UniSea RESOULCES .......:cceeeseeeceeeesseesceseeeseeseeeeees Il -3 DEC Operating Permit - UniSea.......... Hl -3 7 eee ene a aaeat ener eeenentarerenteas . Il -3 Sea= Wand :eccecscscesescessconsosnsesesesos fh - 3 Operating Cost HI-3 Adequacy of Resources TI gr ncereeecrerst nprereenereneceereintereaaamnan IV -1 City-Only Loads No Load Growth ........ccsesessesseseeeeeeeeeee IV -2 1 Percent Load Growth.. IV -3 2 Percent Load Growth.. IV -3 City With APL Loads ...... = IV -3 City With Sea-Land Loads............seesseee Iv -3 Cold Storage IV -3 City/UniSea. Iv -3 Observations IV -4 Section VI Vil Vill City of Unalaska Power Supply Study Table of Contents - Continued Page Potential Resources (General eccsssrsrrsrerssrssrstsnesrescacereentenessescesses V-i1 Pyramid Creek Hydro Project V-2 Wind cocccccsececesscsesosecescnsessesesceceors vV-2 Makushin Geothermal Project .. = V-3 SOU serencennerseereterern nents V-4 Combustion Turbines .............:csccssseseeeeseee V-6 Internal Combustion. V-8 V-8 vV-9 SINE regennccnccscnsvaksstesacoscsceamanssasinussvessncsenees V-10 VI-1 VI-2 Assumptions VI-3 Analysis City/UniSea Operations Separate ........ VI-3 City/UniSea Operations Merged.......... VI-4 Observations and Conclusions .............+s0+ Vil - 1 Action Plan..........ss0 secusceetsatesstusesessesaseteteets VII - 1 Appendixes: Appendix A — Minimum/Maximum Hourly Loads Appendix B — Existing Resource Data Appendix C — Potential Resources C-1: Pyramid Hydro Project C-2: Wind C-3: Makushin Geothermal Project C-4: Coal C-5: Combustion Turbines C-6: Internal Combustion Appendix D — Dispatch Analysis Appendix E — Finance Runs Table OMON AAU LPWN N= Be ae eB ee ee ee SCO MAN AUN FWN HK OC Installed Cap: City of Unalaska Power Supply Study Table of Contents - Continued List of Tables CIEY sossesccnsaseccastossvussaccutesstcosusesustvadsnecsensssusssass City Peak and Energy Requirement ..............:cscsceseeseseseeeeees Summary of Assumed Power Requirements ............sses0eee00 Maintenance Intervals — City RESOUPCES ............sccscesssseseeeees Permitted Operations — City ReSOUrCES ..........ceceeseeeseeeeeeeee Summary of Existing Resources....... City Reserve Margins at Present Loads Pyramid Creek Hydro Project.......ccscsssssssseseessscsesesesesssesesees Wind Resource Costs...... Makushin Geothermal Project ..........cccsssssessseseessseseseseeesesees Optimum Size of Coal Resource ..........ccscseseseseeseseseeeseeeeeeeees Coal Project Costs........ccsscsesssssseessssssesseeseeseseseeseesseeeeeseeeeees Combustion Turbine .... Comparison of Emission Rates...........::cscssescsssseeeseeseneeeeeees Internal Com Fuel Cell...... Hydro Sensit Summary of Summary of Assumptions UASU4 OM os ceseeeucecensscoressesasereuoseeesearseanceassisenrasenssecs IVItY oo. eeeessesesesccesescecseesssesesssssseeeeessseeecesseeneneaes Results (Without UniSea) ........ ce eeseeeeseeeseee Results (With UniSea) ......... cece ceeeeeseeeeees —_— <= = 1 ‘ 1 i — = << < < << << CHONIDAUNALWHN 4 6 VI-7 VI-8 << City of Unalaska Power Supply Study Table of Contents - Continued List of Figures Figure Page l LOC ALON: MOD veeszvececeseec-cseesescsesecovessusnenssncusssvssesssnenesasnseesesessss 1-5 2a City Monthly Energy Distribution...............:cccscsesseeseeseeeeeeees 1-5 2b UniSea Energy Distribution ...........ccceesesssesseeeeeteeeteeeeeseneeeees Il-6 2c APL Energy Distribution ..................s.cssesssssossscssosnscesenseererees I-7 5 Average Cost of Gemneration ..........sccssescsesesesesessseseseseseeteeeeenes Ill - 6 Incremental Cost of Generation. ..........csccssssssesessssesssseeeeeeeees Hl-7 5 Installed Capacity/Peak Requirements — City With No Load Growth ...........cecsssesssseseecessesesssseseeees IV-5 6 Installed Capacity/Peak Requirements — City With 1% Load Growth......cccccessseseeseseseseseeeteeeeeeees IV -6 7 Installed Capacity/Peak Requirements — City With 2% Load Growth.........ccccceseseseseeseseeeseseeeeeeeee IV-7 8 Installed Capacity/Peak Requirements — City Wii PU rcs ocsz sc eucxccn exec cccnarcsusvavevensusexasacncneasuoneass IV-8 9 Installed Capacity/Peak Requirements — City With: Cold: Storage cicsccccscccsssssesessnsvsntenssesessenescessossesn Iv -9 10 Installed Capacity/Peak Requirements — City With Sea-Land .........cccceseeseseseeseessesseseeneneneeenenenenee IV - 10 I Installed Capacity/Peak Requirements — City With Unie 8 sicssacs.cscnscscessecesusnsseovensonsuonssnsvononasveessces IV -11 12a Coal Price vs. Resource Size .........:cccssssseseessseseeseseeesseseseensnees V-11 12b Coal Price for Given City Loads... teeseseseesesceeeeeseseeseees V-11 13 Cost of Power (Potential Resources) 0.0.0.0... ccseeseseeeseeeeeeees V-12 EXECUTIVE SUMMARY TO COME Power Supply Study Draft - 04/08/98 Page ES- | I. INTRODUCTION OVERVIEW Like many other rural Alaskan utilities, the City of Unalaska’s Electric Utility (the “City”) has relied on diesel-fueled internal combustion generation for its power requirements. Other resources have been investigated but were never developed due primarily to their high capital costs and uncertainty of future loads. Consequently, new diesel units were added as resource retirements and load growth dictated. In the early to mid 1990’s, however, new environmental regulations were implemented by state and federal agencies in an attempt to prevent further degradation of air quality in certain areas. The Unalaska/Dutch Harbor area was of concern to the regulators since the City’s power requirements had increased five fold since the mid 1980’s and several processors had established their own generators at various sites. Therefore, temporary limits were placed on the amount of energy that the City and others could annually produce until long-term operating permits could be put into effect. These temporary limits had several affects on the City. First, even though the City had adequate installed capacity to provide for loads, supplemental energy had to be purchased from one of the self generators. Second, requests by two self-generators, American President Lines (“APL”) and Sea-Land, for full City service had to be denied and system expansion was curtailed. In___, the City was successful in obtaining an air quality operating permit for its generating resources. This permit increased the amount of energy that could be produced by the City from the levels provided in the temporary permit. However, the City still faces a number of issues regarding its power supply. These include: e Loads have grown to the point where the City will soon have insufficient reserve margins based on having enough capacity at peak load periods if the largest unit is not available. e Energy production limits contained in the City’s air quality operating permit are greater than present energy requirements. However, the limits are resource specific and could result in capacity and energy shortages towards the end of a calendar year if a resource is used too much in the early months. e New fossil-fueled resources must undergo a permitting process, and environmental restrictions may increase the installed costs to the point where other forms of generation are more economic. Power Supply Study Draft - 04/08/98 Pagel-1 e It is unclear whether or not the incremental cost of providing service to the two self generators would be offset by the incremental revenues gained from power sales. Accordingly, the City issued a Request for Proposals to investigate the City’s power supply options and to make recommendations as to how to provide for future loads. The analysis is to: 1. Assess the City’s capacity constraint problem. 2. Provide a ranked assessment of the projected life-cycle costs of power supply alternatives available to the City. 3. Identify the three most feasible options. 4. Assess the steps required to implement the three most feasible options. This report provides a summary of the investigations and analyses conducted by the Financial Engineering Company during its review of the City’s power supply options. METHODOLOGY OF ANALYSIS A number of alternatives exist for the City regarding both power supply and power requirements. Therefore, the analysis summarized herein compares the cost of power under various assumptions regarding: e Customer base e Load growth e Resource alternatives e General economic/financial conditions Central to the analysis is estimating the amount of power produced from each generating resource over the study period, and this was accomplished by constructing a computer- simulated dispatch model. The model uses an economic dispatch methodology such that the least-cost resource for a given hourly load is dispatched first, followed by the next least-cost resource, and so on. Costs in the dispatch model are defined as fuel, amortized costs of overhauls, and provisions for miscellaneous maintenance. The capital costs of replacing a resource when it is retired were not considered when estimating the appropriate dispatch order. The analysis is performed on an hourly basis, and detailed load patterns had to be developed. Patterns used for each year of the study period are based on estimates of hourly loads during calendar year 1997, and the development of this data is described later in this report. Typical power supply studies evaluate power supply options by comparing total production costs of various resource alternatives over the study period. In this case, however, total production cost is probably not the correct index to use. If the City incorporates APL into the customer base, for example, total production costs will increase. However, this could result in lower costs for the City’s existing customers since fixed costs can be spread over a larger customer base. Therefore, total system costs, including non-production costs, were estimated Power Supply Study Draft - 04/08/98 Page l-2 over a 22-year study period beginning January 1999 and ending December 2020. These costs and the estimated sales are then used to develop average system costs in dollars/kilowatt-hour from which assessments of various power supply and customer base options could be made. SELF GENERATORS The first step in the analysis was to determine which self-generators, if any, were interested in being included as part of the City’s power supply options or load requirements. In addition to the City, there are now seven major self generators located in the area. Figure provides the location of the City’s existing generating sites, a general description of its distribution system, and the location of the self generators. Total installed capacity is equal to 42 megawatts and is detailed in Table 1. Table 1 Installed Capacity (megawatts) Installed Capacity City 7.4 Alyeska Seafoods. 6.4 American President L 1.4 Icicle Seafoods............. 2.1 Offshore Systems, Inc.. 1.3 Sea-Land... . 1.4 UniSea’..... 3 15.2 Westward Seafoods 6.9 42.1 1 Exclusive of portable gensets and generation dedicated to crane operations. 2 Exclusive of Caterpillar units. A meeting was held with the three processors (Alyeska Seafoods, UniSea, and Westward Seafoods) and APL to discuss the scope of this study and their plans regarding future power supply. Alyeska Seafoods and Westward Seafoods both indicated that they wished to continue self generation and did not want to provide the City with any supplemental power requirements other than for emergency purposes only. UniSea, however, expressed an interest in having the City take over its power supply if the economics were favorable. APL also expressed an interest in having the City provide its power requirements. Power for crane operations would, however, continue to be provided from their own generators. Sea-Land (who was not contacted at this time) currently purchases part of its power requirements from the City and self-generates the remaining amount. In the past, they have indicated a desire to purchase all of its power requirements from the City; but under the City’s previous production limits, Sea-Land could not be accommodated. However, these loads are included in this study based on their prior requests. Power Supply St Draft - 04/08/98 Page | - 3 pply Offshore Systems, Inc. (“OSI”) has not expressed a strong interest in the past to be a City customer, and their excess capacity is fairly minimal relative to City requirements. Therefore, they were not contacted and are not included in the study. Power Supply Study Draft - 04/08/98 Page 1-4 8 ~ 4 sean est ye e | sae am wx e ¥ ISLAND, < » POWER HOUSE AND SUB STATION ‘ S.0.H. SUB STATION gy DUTCH g cane * MARGARET BAY SUB STATION UNISEA SUB STATION CAPT. BAY fi wumes TOWN ~~ ; SUB STATION SUB STATION ~ SS is at g S . 7 ee Q & 2 om wmmewewe 34.5 KV ———— 12.470 KV 4160 KV vores THIS MAP WAS DIGITIZED FROM U.S.6.5 ‘DUTCH HARBOR PROVISIONAL HAP, BATED 1990, SCALE 125000. Il. POWER REQUIREMENTS The development of detailed projections of power requirements for each of the load centers was not included in the scope of work of this review. Instead, data for the most recent year was used as a base from which different annual growth rates could be applied. The following provides a description of the loads assumed for each load center, and the resulting monthly peak and energy requirements are provided at the end of this section. CITY Although the City’s energy requirements have increased over five fold since the mid 1980’s, loads have remained essentially constant since 1995. Table 2 provides a summary of City peak and energy requirements over the past five years. Table 2 City Peak and Energy Requirements (FY 93 — FY 97) FY 93 FY 94 FY 95 FY 96 FY 97 Peak Demand (kW).......... N/A 5,125 5,730 5,510 5,505 Energy Requirements (MWh): Residential = 3,986 3,924 3,948 4,075 4,057 Small Gen Svc 5,205 5,128 5,094 4,325 4,673 Large Gen Svc 2,13 4,822 7,819 6,989 4,727 Industrial 8,965 10,607 11,636 11,872 13,304 20,868 24,480 28,497 27,261 26,761 1,588 1,701 2,546 2,602 3,407 22,456 26,181 31,043 29,863 30,168 Losses/Other' . Total Requirements . Sources of Energy: Generation.. 21,910 25,183 26,566 27,427 29,798 Purchases ... ca 546 998 4.477 2.436 370 (otal Sources srcccscsetsesccers 22,456 26,181 31,043 29,863 30,168 1 Includes station use, Street Lights, and distribution losses. The monthly distribution of the preceding energy requirements are provided in Figure 2a at the end of this section. As can be seen in the figure, the City’s highest loads occur in the February to April time. Power Supply Study Draft - 04/08/98 Page Il - | Hourly loads were estimated based on data provided by the City. This data represented generation demand levels at four-hour intervals for calendar year 1997, and hourly loads were developed by interpolating between each four-hour reading. These loads were then adjusted so that the total energy over each month equaled actual power requirements. The resulting minimum and maximum load levels for each day of the year are provided in Appendix A-1. UNISEA During the past two calendar years, UniSea’s power requirements have remained fairly constant at approximately 29 million kilowatt-hours per year. Figure 2b provides the monthly energy requirements for these two years, and the amounts shown for each year are very similar. High load periods are in the February to April and the September through October time periods. Bi-hourly energy production data from each of UniSea’s six primary generating units was obtained and was simply divided by two to estimate hourly loads. UniSea also uses two auxiliary Caterpillar units that accounted for approximately 13 percent of total energy production in 1997. The data for these units was available only on a monthly basis and had to be averaged over each hour of the month. The combined load used in the analysis may therefore be slightly flattened from actual usage patterns. Finally, purchases by the City were subtracted from the data to obtain UniSea’s native load. The resulting daily minimum and maximum loads are summarized in Appendix A-2. AMERICAN PRESIDENT LINES Bi-daily energy production readings were provided by APL for both calendar years 1996 and 1997. The time each reading was made was not available; and for purposes of this analysis, it was assumed that the readings were made on equal 12-hour increments. Hourly data was developed by simply dividing the total 12-hour production of all the generating units by 12. This, too, may flatten the load from actual usage patterns; but given the random nature of refrigerated van loads, the estimated hourly loads may not be too far from actual. Figure 2c provides the monthly usage patterns, and daily minimum and maximum loads are included in Appendix A-3. If APL becomes a City customer, the crane will continue to be powered by their own generation. Therefore, the production from the generators dedicated to crane operations was not included in the data. SEA-LAND Sea-Land presently purchases part of its overall power requirements from the City and self- generates the rest. Based on past conversations with Sea-Land officials, it is estimated that additional energy requirements from the City would total approximately 2.2 million kilowatt- hours with the load occurring in the January —- March and August — October time periods. The total monthly energy requirements were assumed to be shaped similar to APL loads on an hourly basis. Power Supply Study Draft - 04/08/98 Page Il - 2 COLD STORAGE In February 1998, an engineering firm in Anchorage contacted the City regarding power supply for a cold storage plant that they were designing. Further contact with the firm has provided the following preliminary loads: e Peak load of approximately 1.5 megawatts e Average load of 500 kilowatts e Year-round operations e 70,000 square feet of freezer space/100,000 square feet of total space For purposes of this analysis, hourly loads of 500 kilowatts are assumed. The peak load of 1.5 megawatts is included in the adequacy of capacity analysis described later in this report. COMBINED LOADS Based on the preceding load data, the monthly power requirements used in the analysis are summarized in Table 3. These power requirements are based on existing load levels and do not include any provisions for load growth. Peak requirements of the combined loads will not equal the sum of the individual peaks due to load diversity. Power Supply Study Draft - 04/08/98 Page Il - 3 iD| Apnig Ajddng samog 86/80/¢0 - Youd t- 1] aod Table 3 Summary of Assumed Power Requirements (Base Year) Energy Requirements (Megawatt-hours) Jan. Eeb Mar Apr May dun iu Aug Sep Oct Nov Dec Total City 2.405 3,034 3,076 2,509 2,121 2,063 2,128 2,497 2,359 2,786 2,402 2,787 30,167 UniSea 2,412 3,419 2,660 2,700 2,067 1,855 1,852 1,845 3,731 3,038 1,838 1,792 29,209 APL 226 1,164 899 459 301 296 276 257 557 608 238 222 5,503 Sea-Land 300 390 380 - - - - 320 435 367 - - 2,192 Cold Storage 372 336 372 360 372 360 372 372 360 372 360 372 4,380 Other - - - : - : : : : : - - - Total 5,715 8,343 7,387 6,028 4,861 4,575 4,628 5,290 7,442 7171 4,838 5,172 71,451 Peak Requirements (Megawatts) City 4.0 5.6 Sil 44 Bi7, 3.8 3.8 43 4.5 48 4.2 4.7 5.6 UniSea 10.5 10.0 7.0 6.3 6.0 Se 48 5.0 9.6 74 5.6 4.5 10.5 APL Ll 3.3 4.3 1.9 12 0.8 0.8 1.4 3.0 1.7 0.8 0.9 43 Sea-Land 1.5 ie 1.8 - - - - Lr) 2:3) 1.0 - - 28 Cold Storage 1.5 1.5 rs 1S) 1S. 1S 1.5 LS iS) 1.5 1.5 is) 1.5 Other - - - : - - : - : : - - - Total! 18.7 21.4 19.8 14.1 12.4 11.8 10.9 13.9 20.9 16.3 12.1 11.6 24.2 | Represents sum of non-coincident peaks. Actual combined peak will be less due to system diversity. Apnig <jddng samog 86/80/t0 - You ¢ - 1) 280g Percent of Annual Requirements 12% 10% 8% 6% 4% 2% -— Figure 2a Monthly Energy Requirements (City Loads) Jul Aug, Sep Oct Nov Dec Jan Feb Mar Apr May Jun Apnig 4jddng 1amog 86/80/00 - Youd 9 - 1] 280g Megawatt-hours 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Figure 2b Monthly Energy Requirements (UniSea Loads) Jan Feb Mar Apr May Jun Jul Aug Sep — 1996 —= 1997 Oct Nov Dec apnig Ajddng sanog 86/80/¢0 - Youq - 1] 28D Megawatt-hours 1,400 1,200 1,000 800 600 400 200 Jan Feb Mar Apr Monthly Energy Requirements (APL Loads - 1997) May Figure 2c Jun Jul Aug, Sep Oct Nov Dec Ill. EXISTING POWER SUPPLY INTRODUCTION In order to provide for their respective power requirements, the City and others own, operate, and maintain a number of diesel-fueled internal combustion generators. All of these are operated under air quality operating permits issued by the State of Alaska’s Department of Environmental Conservation (“DEC”). The following provides a description of the existing resources, and a summary is provided in Table 6 at the end of this section. CInhy, RESOURCES The City owns and operates nine Caterpillar units. Eight of these are located in the main powerhouse on Amaknak Island, and another is located in a mobile van in Unalaska Valley on Unalaska Island. This latter unit was placed in that location in the event of a service disruption between the two islands and is operated only on an emergency basis. The City maintains its resources pursuant to manufacturer recommendations. During a maintenance cycle, a minor overhaul is performed, then an in-frame inspection, another minor. overhaul, and finally a major overhaul. At that time, the cycle is repeated until the unit is retired. Specific retirement schedules or policies have not been developed by the City. According to the equipment supplier, each resource should last, if properly maintained, at least 150,000 — 200,000 operating hours. At that time, the engine block is expected to be fairly worn and may have to be replaced or the unit retired. Retirement/replacement of a unit will be a function of a number of factors including: e cost of increased maintenance, if any, associated with older units, e reliability, e cost of new units, e differences in fuel efficiencies, e load levels, and e differences in emissions. Maintenance schedules in effect for the City resources are summarized in Table 4. Cost of maintenance is at times expressed in “dollars per kilowatt-hour of Power Supply Stu Draft - 04/08/98 Page III - 1 ipply generation.” However overhauls are a function of run-time; and if a particular resource is operated at less than full output for a significant amount of time, dollars per kilowatt-hour may not be reflective of actual costs. Therefore, maintenance costs are expressed in this analysis in “dollars per hour of run time” for all existing units regardless of the expected dispatch. Table 4 Maintenance Intervals City Resources' Minor Overhaul In-Frame Inspection Major Overhaul Total unit [Hours | _Cost_| Hows | Cost | Hours | Cost] (S/howr) 1 10,000; 30,000 10,000; 30,000 10,000; 30,000 10,000; 30,000 10,000; 30,000 7,500; 15,000 10,000; 30,000 7,500; 15,000 PAAAANAMN MSM PAAHHMHMNM SH PAMAAMNANMN SM 1 Unit 7 is not included since it is operated on an emergency basis only. DEC OPERATING PERMIT - CITY The City’s Air Quality Control Permit allows the City to operate its generating units at the powerhouse as shown in Table 5. Although a combined total is shown in the permit, the energy and fuel limitations are on a resource-specific basis. Therefore once the energy or fuel limit for a particular resource is reached, that resource cannot be used for the rest of the year. Table 5 Permitted Operations — City Resources' Allowable Allowable Annual Annual Capacity Energy Fuel Unit (kW) (MWh) (gallons) | 1,090.62 84,638 1,090.62 84,638 3,708.11 284,462 SA IZ9ISS 373,509 3,831.71 273,234 9,422.96 673,874 7,721.59 504,235 7,601.62 535,238 ANN SNAKES S00 39,596.78 2,813,828 | Exclusive of Unit 7 which is not located at the powerhouse. Power Supply Study Draft - 04/08/98 : Page Ill - > UNISEA RESOURCES UniSea owns and operates six Fairbanks-Morse units and two small Caterpillar units with waste heat from the Fairbanks-Morse units used to heat company facilities. According to UniSea personnel, a separate boiler is required for heat if only one generating unit is operating. Two operating units can provide sufficient heat for the dock, loading pits, and one dormitory; and three operating units can provide heat for all UniSea facilities including the hotel. UniSea also maintains a set maintenance schedule for its resources. Operators have indicated that inspections are performed every 20,000 operating hours at a cost of $30-40,000 per unit, and major overhauls are performed every 40,000 hours at a cost of $250,000 per unit. This results in a variable maintenance cost of approximately $7.13 per operating hour. While this is significantly higher than the City’s variable maintenance costs, the capacity of the UniSea resources are greater than the City’s. Therefore on a per-kilowatt-hour basis, the variable maintenance costs of the UniSea resources will be comparable to the City’s resources. DEC OPERATING PERMIT - UNISEA UniSea’s permit with DEC is not energy constrained but rather limits operations to four units at any one time. Therefore, the 15,150 kilowatts of installed capacity in the six Fairbanks-Morse units is limited to a maximum of 10,350 kilowatts, the total of UniSea’s four largest units. APL APL has three primary units to provide power for buildings and for part of the refrigerated vans. Small, portable units are also used to provide additional power when the van load is high. Detailed data regarding these resources was not obtained since these units are fairly old and would probably not be used as primary generators if APL became a City customer. These resources could be transferred to other APL operations or used as standby units in the event of unscheduled outages occurring with the City’s primary resources. SEA-LAND Data on Sea-Land’s resources and operating permit were not collected for this analysis. OPERATING COST Fuel consumption at 25, 50, 75, and 100 percent loading of the City’s resources were provided by City personnel, and these are included in Appendix B to this report. Such detailed data were not available for UniSea’s resources, but monthly generating efficiencies were obtained. These are also provided in Appendix B. Based on this fuel data and the previously described maintenance costs, operating costs of the resources at various outputs were estimated and are provided in Figure 3. The inverse relationship between cost and output is primarily a function of operating costs being a Power Supply Study Draft - 04/08/98 Page Ill - 3 p function of operating hours. As the output of a particular resource increases, maintenance costs per kilowatt-hour of output decrease. The cost of fuel included in Figure 3 is assumed to be 78.43 cents/gallon. This represents the City’s base fuel cost when its contract with the primary fuel supplier was signed in 1997. The contract provides for changes in fuel prices depending on the OPIS fuel index. UniSea’s cost of fuel was not obtained, and it may be higher due to the City not having to pay tax. However, should the City obtain the UniSea system, then presumably it would purchase the fuel for all units, including those presently operated by UniSea. The incremental cost of generation from each resource is provided in Figure 4. This represents the additional cost to provide an additional kilowatt of output if a resource is already running. At times, the City must supplement its own resources with purchases from UniSea. The price of this energy is equal to one cent per kilowatt-hour less than the industrial rate established by Ordinance No. 94-26. The energy rate in the referenced ordinance is equal to 12.75 cents per kilowatt-hour, and the purchase power rate of 11.75 cents is included in the figures. Specific conclusions regarding proper dispatch orders are difficult to be made from the two figures alone. Actual dispatch will depend on real-time load levels, expected load levels, maintenance schedules of resources, air quality permit constraints, and other factors. Certain general observations, however, can be made. These include: e City 6 has a higher average cost of generation than the other resources. It is only at high outputs that its cost compares favorably with others. Therefore, City 6 should be operated such that its output is at or near its full capacity. e The incremental cost of generation is always lower than the average cost. Therefore as the output of a resource is increased, cost will decrease in terms of dollars/kilowatt-hour. e Ifthe most efficient units are being used to meet load at any time and they are not fully loaded, small increases in load levels should be met by resources with additional capacity in lieu of starting other resources. Large increases in load may cause other resources to be more efficient. e It is only at very low resource loadings that purchased power is less expensive than the City’s own generation. The information shown in Figures 3 and 4 will also be useful when performing general screening of alternative resources. This will be presented in more detail in Section V. Power Supply Study Draft - 04/08/98 Page Ill - 4 Apnig ajddng sanog 86/80/t0 - Youd - II] 280q C Table 6 Summary of Existing Resources Existing Owner Unit Location Type Hours RPM Maximum Loading No Load Existing Future Cat D353E 84,638 Cat D353E 84,638 Cat D398 284,462 Cat 3512 373,509 Cat 3512 273,234 Cat 3516 673,874 Cat 3512 623,449 Cat 3516 504,235 Cat 3512B 84,638 84,638 284,462 373,509 273,234 673,874 623.449 504,235 535,238 Pwr House Pwr House Pwr House Pwr House Pwr House Pwr House Portable Pwr House Pwr House APL APL APL UniSea PH UniSea PH UniSea PH UniSea PH UniSea PH UniSea PH Cor ane wn = $35,238 1,449,931 1,600,966 1,600,966 1,449,931 1,600,966 1,449,931 1,449,931 1,600,966 1,600,966 1,449,931 1,600,966 1,449,931 Fbx-Morse Fbx-Morse Fbx-Morse Fbx-Morse Fbx-Morse Fbx-Morse OU ekwn elon = Apnig &jddng samog 86/80/t0 - Yo4sd 9 - II] 280d dollars/kWh 0.15 0.14 0.13 0.12 0.11 0.06 0.05 Fad Guan wrt le the Celew Figure 3 Average Cost of Generation 500 1,000 1,500 Unit Loading (kilowatts) City 1 and 2 2,000 2,500 Apnig 4yddng aamog 86/80/t0 - Youd _ IN 280d dollars/kWh 0.14 0.13 0.12 0.11 0.10 0.09 - 0.08 0.07 0.06 0.05 0.04 Figure 4 Incremental Cost of Generation 1,000 Unit Loading (kilowatts) 1,500 City | and 2 — -—-Purchases 2,000 500 GENERAL IV. ADEQUACY OF RESOURCES As shown in Table 7, the City’s resources will provide sufficient capacity to meet present loads as well as adequate reserve margins. Various criteria are used when establishing target reserve margins; but as a minimum, there should be sufficient capacity or access to firm power so that the annual peak load can be met if the largest unit is unavailable due to an unscheduled outage. Purchases from UniSea would not be considered firm since power is provided on an “as-available” basis. Table 7 City Reserve Margins at Present Loads (kilowatts) Installed Capacity 7,430 Largest Unit (1,420) Net 6,010 Annual Peak (5,505) Net 505 Although the City has sufficient capacity at this time, there are a number of issues that the City must address when evaluating its power supply. These include the following. Ie The capacity shown in Table 7 is based on full rated output. If full loading is required for prolonged periods for a resource, maintenance costs could increase. For this reason, the loadings of City resources are typically limited to 85 percent of each unit’s rated output. Capacity includes Unit 7 which is located in a portable van in Unalaska Valley. The City wishes to operate this resource only in emergencies, and load growth or maintenance on other units could increase the reliance on Unit 7 absent energy from UniSea. Load growth on the system will reduce reserve margins such that new resources could be required in the near future. New large customers, such as the proposed cold storage facility, might not be able to be accommodated without the addition of new resources. Furthermore, APL or Sea-Land could not be included in the customer base without additional resources. DEC energy limitations are resource specific on a calendar-year basis. If a particular resource is dispatched for large periods of time in the early months, Power Supply Study Draft - 04/08/98 Page IV-1 | 8 then it may reach its permitted energy production or fuel use prior to the end of the year. In such an event, capacity shortfalls may occur. 6. In order to prevent capacity shortfalls due to the DEC limits, it may be necessary to dispatch the City resources in a manner that is not the most economic. 7. Other resources may exist that are more economic than the existing resources. These issues will be addressed in detail in the following sections of this report. However in order to better understand the issues and to narrow the focus of the analysis, comparisons of installed capacity and peak requirements under various customer base and load growth scenarios have been performed and provided in this section. These comparisons are somewhat limited in nature and will not reveal all the nuances that should be considered. They should, therefore, be considered a guide to when new capacity is required, when reserves should be supplemented, the risks associated with resource outages, and other general factors. The inclusion of large, new customers into the City’s system will result in different patterns in monthly peak requirements for the combined loads. Therefore, the comparisons in this section are performed on a monthly basis in order to better understand the system limitations. It should be noted that generating capabilities and fuel efficiencies of resource will change on a seasonal basis as inlet air temperatures change. Both rated output and fuel efficiency decrease with increased temperatures, and manufacturers typically provide data at various temperatures. For purposes of this analysis, output is based on 40-degree Fahrenheit inlet air temperatures. CITY-ONLY LOADS (FIGURES 5 - 7) No LOAD GROWTH (FIGURES 5A AND 5B) Figure 5a at the end of this section shows that, as expected, reserve margins are adequate at present load levels. During the month of February and March, efforts should be made to have all resources available. If one of the larger units is off-line for maintenance during that time period and another unit tripped off unexpectedly, then capacity shortfalls could occur. Figure 5b is based on limiting resource loading to 85 percent of rated output, which is the City’s current practice. Reserve shortages indicated in this comparison should not be considered absolute since resources can be operated at the higher loadings in Figure 5a for short periods of time. However, the figure does indicate that even at present day load levels, one would expect to use Unit 7 or purchase energy from UniSea during at least the month of February. Whenever the difference between the monthly peak and the installed capacity is less than Unit 7’s capacity of 1,000 kilowatts, then either Unit 7 will have to be run or energy must be purchased from UniSea. The permitted energy production shown at the bottom of the figures includes powerhouse production only and does not include potential production from Unit 7. Permitted production is well over energy requirements; but as will be shown in Section VI, purchased power must still be relied on under certain circumstances. Power Supply Study Draft - 04/08/98 Page IV - 2 Therefore, one should consider an energy requirement of 30,000 — 35,000 megawatt- hours as being the upper limit for the current DEC production limits. 1 PERCENT LOAD GROWTH (FIGURES 6A AND 6B) The potential problems in the No Load Growth scenario are further accented in the scenario that assumes City loads increase at an average rate of | percent per year. Furthermore by the year 2005 or slightly thereafter, reserve margins become inadequate. Energy limitations become of increasing importance; and by 2020, energy requirements are quite close to permitted production. 2% LOAD GROWTH (Figures 7a and 7b) If power requirements increase at a rate of 2 percent per year, reserve margins are inadequate by 2002/2003, and demand cannot be met sometime after 2010. Energy requirements could be of concern around 2005 and exceed permitted production by 2012. CITY WITH APL LOADS (Figures 8a and 8b) Even with no additional load growth for the City’s present customers, the inclusion of APL’s loads causes not just inadequate reserve margins but capacity shortages as well. If the power requirements of the City’s existing customer base increased (such as that shown in Figures 6 and 8), these capacity shortfalls would further increase. As explained previously, APL’s existing capacity has not been included with City resources. CITY WITH SEA-LAND LOADS (Figures 9a and 9b) The inclusion of Sea-Land’s self-generated loads does not place as severe a strain on the system as APL’s load, but the City’s reserve margins are still inadequate in at least two months. As with the APL case, loads are based on no load growth for the City’s existing customer base. COLD STORAGE (Figures 10a and 10b) The proposed cold storage facility increases the City’s load such that reserve margins are minimal even with no other load growth on the City’s system. Energy may be somewhat of a problem, too; and increased production from Unit 7 or purchases from UniSea may have to be relied on. CITY/UNISEA (Figures | 1a and 1 1b) The resources included in this comparison include all of the City’s existing resources and four of UniSea’s six resources. The restriction on UniSea’s capacity is due to their DEC Air Quality Operating Permit which allows only four resources to be operated at any one time. However since they have six resources which are all larger than the City resources, three units would have to be off-line before the assumed capacity is not available. Therefore, the comparisons included in the figures do not include capacity with the largest unit out. Power Supply Study Draft - 04/08/98 Page IV - 3 The figures show that installed capacity is adequate at existing load levels with or without the 85 percent limitation on the City resources. The system could incur up to approximately 2,000 kilowatts of additional load before capacity limitations would occur. Such an amount is still less than APL’s coincident load, and therefore they could not be brought into the customer base without new resources. OBSERVATIONS Several observations can be made regarding the comparison of peak requirements and installed capacity. These include the following. The City has adequate capacity to meet the present level of loads of its existing customer base. However in order to avoid purchases the City must: e Operate resources at full capacity during the peak period in February. e Operate Unit 7 for certain periods if production on City resources is limited to 85 percent of rated capacity. A | percent annual load growth will cause reserve margins to fall below acceptable levels by the year 2010. A 2 percent annual load growth will create reserve margin shortfalls by 2002 or so. The City cannot provide full service to APL without the addition of at least 3,000 kilowatts of capacity. The actual amount required will depend on estimated load growth of the City’s existing customer base and the size of the largest unit in the revised system. The inclusion of Sea-Land’s self-generated loads also causes reserve margins to fall below acceptable levels. Energy could be sold to Sea-Land on an as- available basis, but this could: e Create the need to operate City resources at greater than 85 percent of their rated output, and e Increase the need to purchase supplemental power from UniSea due to DEC energy production limits. The inclusion of the proposed cold storage facility will cause reserve margins to be at minimal levels, and the system could not incur any additional load growth without resource additions. UniSea’s own loads are approaching their permitted capacity restriction of four units operating at any one time, or 10,350 kilowatts. Therefore, the City’s agreement with UniSea for the purchase of supplemental energy on an as- available basis can probably not be converted to firm capacity. Load growth on the City’s system can better be accommodated if the City’s resources and loads were combined with those of UniSea’s. However, APL’s loads cannot be met under such a system due to DEC operating restrictions. Power Supply Study Draft - 04/08/98 Page IV-4 p Figure 5a - No Load Growth City Only (Full Loading of Units) 8,000 $—CCCiCi WCW) $i EZEZX RG GEG SSS pt Ouy ZS rR Rwy ige ZK WS3 SES cs est SIL EZEZX xSS QE sneEMolry MG F*ew”’”PFttto Dec Oct Nov ep n Aug ul 5 u 5 Mar Apr May Feb - No Load Growth Figure Sb (85% Loading of Units) City Only 7,000 ZERSSSSS KK ZEB CWwrs KS EEK RK rg ¢ "|[whwb6"l'o —X,"7°7.nrtt nt WAQASG \\ WSs Be? SSS HY IW 3 pn Y 4.“ NGG AN i Z==C OS AON 3 8 Z g g 3 snemo[ry XX td Feb Mar Apr May = Jun Jul Aug Sep Oct Nov Dec Jan Permitted Energy Production: 39,597 MWh 30,167 MWh Energy Requirements: Page IV - 5 Draft - 04/08/98 Power Supply Study Figure 6a City Only - 1% Load Growth (Full Loading of Units) 8,000 Dec LZR WW EES 8 nro \\\y \\\\ ZZ EKG GQ AO LU AWA dG, CW \ \\ | WHS NS. KR \ \\y WN... SSS \\\ ZZ KRG. Ww WHS... KS LI ZZ. RSJ WW LU 2. <wwCwCiCiCTC OO LU: ESET WOES AVIS / [Tf = i & 23 3 8 BBC RWG Sx 1 ZZ xR WW wi J Dec Nov Nov 39,597 MWh ZBL CCC Oct Sep Sep Aug Aug Jul Jul Permitted Energy Production: May Jun Figure 6b City Only - 1% Load Growth Jun (85% Loading of Units) May Apr Apr Mar Feb Mar Feb 167 MWh 773, MWh 343 MWh 993 MWh 549 MWh 30. 30. 32 37 33. ARROW sgggn 8s sHeMO]LY sueMo}ty Jan Jan 1998 2000 2005 010 2020 Energy Requirements: ? 7,000 6,000 5,000 000 3,000 2,000 1,000 8,000 ‘-6 Page It 04/08/98 Draft - Power Supply Study Figure 7a City Only - 2% Load Growth (Full Loading of Units) 10,000 9,000 8,000 EZIS \_\\\ S S UBS | \\\ \_\\ ZEISS UZBS uw RRS stremoyry SX F=e=Fé7"”B} | tt QM F"°"*=" 31 il PPS s RQ GGG Ss WKS ZR SC QWs QQ WW Sep Oct Nov Dec ug Feb Mar Apr May Jun Jul A Jan Figure 7b City Only - 2% Load Growth (85% Loading of Units) 10,000 9,000 8,000 7,000 ZR rao GAR BAS LZR ny ZR Se SS ESN snemopry B2Z’]>TIC WWW QyGK: WW QG5 RASS Wv’» Wh Sep @ MG |{E_CGG SSF...) Nov Dec Oct Feb Mar Apr May Jun Jul Aug Jan 39,597 MWh Permitted Energy Production: h h 167 MW 386 MWh 259 MWh 638 MW 34.652 MWh 30. 34, 38 46. 31 1998 2000 2005 2010 2020 Energy Requirements: . Page IV -7 Draft - 04/08/98 Power Supply Study Figure 8a Existing City Load + APL (Full Loading of Units) 10,000 9,000 8,000 ZR X CWS AI C&W U]KQXS QD WESC NS LZR INS ll CS SWS UZ. LLC GY eS S WA “BW "’._ ° = a 23 LEE) SSN MEE 7,000 6,000 5.000 4,000 3.000 2,000 1,000 SHEMOTLY Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Figure 8b Existing City Load + APL (85% Loading of Units) 10,000 9,000 8.000 7.000 EEBIRKXQ GCS ZEB ZR SESS EZ RIX... EZR... ZIESESSSS SS AU 6,000 5,000 4,000 3,000 2,000 1,000 SHEMOLLY SS Oct Nov Dec Sep Aug Feb Mar Apr May Jun Jul Jan 39,597 MWh Permitted Energy Production: (Note: Does not include APL's permitted 35,670 MWh Energy Requirements: generation) "8 Page IV Draft - 04/08/98 Power Supply Study Figure 9a Existing City Load + Cold Storage (Full Loading of Units) 8,000 EZZA RX SS EXSSSXSSSS 2. _ x0 i 7w ZB X‘'—77tHKrIJv BSS WHS SSS BE SS SG ZENS CIR INSS 22228 SyeMOLTy 7,000 XX KKWeow SS. S58 S558 KW WW Q SV. SS. 8 Sep Oct Nov Aug Feb Mar Apr May Jun Jul Jan Figure 9b Existing City Load + Cold Storage (85% Loading of Units) —WWK KK ju EZ. DKK WF PR?LuI GG. SG DGG SW QIK "'—>="l___ #2 Ss WIN. CB ZAP QS ZS ICBC CHIL o a > 27 EB. WN ‘ 6a CCW; III-CRK<SK QS SHEMOTY (WW .". 272 Feb Mar Apr May — Jun Jul Aug Sep Oct Nov Dec Jan 39,597 MWh Permitted Energy Production: 34,547 MWh Energy Requirements: Page lV-9 - 04/08/98 Draft Power Supply Study Figure 10a Existing City Load + SeaLand (Full Loading of Units) 8,000 Dec Hl SCS SRG ZR SSS o Nov EES 7.3m) EER SSX Oct ZZ SW Sep PR Zz WW ug A BEE CRC WW ZX CZ ipl ZZEK& RCS AN § 3 . SASS : SS KGL GLP W[0*_00*410999 == 2-5 +s @ Se 22s: es = SHEMO]TY SHEMOTTY Dec Page IV - 10 Sep Oct Nov 39,597, MWh Aug Jul Permitted Energy Production: Jun 04/08/98 May Draft - Apr Mar 32,359 MWh Feb an J Energy Requirements: Power Supply Study Figure Ila Existing City Load + UniSea (Full Loading of Units) 20,000 LZ LLL LLL LLL CELL ULL LLL LEE ETE MELEE SHEMOLLY Oct Nov Dec Jul Aug Sep Jun Feb Mar Apr May Jan Figure 11b Existing City Load + UniSea (85% Loading of City Units) 18,000 , ELLE ae aceon CLA SHEMO[NY Dec Jul Aug Sep Oct Nov Jun Feb Mar Apr May Jan 130,263. MWh Permitted Energy Production: 59,376 MWh Energy Requirements: 2 & ri = Ss 5g g g 2 3 2 4 = 5 3 3 = 2 é g a) = restriction at full baseload operation.) Page IV - 11 Draft - 04/08/98 Power Supply Study V. POTENTIAL RESOURCES GENERAL The installed capacity/peak requirements comparisons in the previous section has shown that the only scenario that provides sufficient reserve margins is the no-load growth scenario with no additional customers. Even this scenario will require Unit 7 to be used or full loading of units at peak periods to reduce the need for purchased power. Scenarios that include load growth or an expansion in customer base result in insufficient reserve margins or the inability to meet load altogether. Therefore, it is realistic for the City to consider the addition of new resources that provide both capacity and energy benefits. Prior to installing new fossil-fueled resources, however, the City and others are now required to notify DEC and have the planned facilities reviewed. Conversations with DEC have indicated that if the resource is replacing a unit and net reductions in emissions can be expected, then emissions modeling does not have to be accomplished. If, on the other hand, net increases in emissions are expected, then the resource may not be allowed at the present generating location. In such an event, several options exist and include: e Locating the resource at a site where emissions would not add to the area of concern. e Locating the resource at another existing generation site (such as APL) if a net reduction in emissions can be demonstrated. e Undertake extensive modeling efforts in an attempt to reduce emission restrictions. Such an undertaking may be fairly expensive, and the desired outcome is not guaranteed. One source of capacity, albeit a small amount, would be from UniSea. However, their peak demands are approaching their permitted generation, and UniSea would probably not be able to provide firm service. They may, however, represent a source of capacity on an emergency basis since only four of their six resources can be operated at onetime. This will be discussed in greater detail in the next section. A number of other generating resources are also available to the City. Several of these are fixed in size while others can be sized depending on expected loads and load patterns. These resources may provide capacity benefits, energy benefits, or both. It is entirely possible that a particular resource alternative may provide a different set of benefits under different customer base/load growth assumptions. The resource alternatives that have been considered in this analysis are described as follows. Several of these will require DEC review due to air emissions, and emissions data was obtained when possible. Power Supply Study Draft - 04/08/98 Page V-1/ PYRAMID CREEK HYDROELECTRIC PROJECT The State of Alaska’s Division of Energy (“DOE”) recently commissioned a review that, among other things, investigated several potential hydroelectric facilities in Unalaska. Five alternatives were evaluated in a preliminary manner, and four of these were further investigated. Of these, the fourth alternative was found to be the most economic. This project consists of tapping into the City’s existing water supply pipeline near the chlorination building and diverting water through a penstock to a powerhouse to be at constructed. The major assumptions regarding Pyramid Creek are provided in Table 8, and estimated daily energy productions are provided in Appendix C-1. Since the project diverts water away from the City water system, increases in domestic water use will decrease the amount of water available for energy production. The production estimates in the DOE report are based on present levels of domestic water use, and details are not provided regarding the extent production decreases with increased domestic water use. Additionally, the production estimates do not take into account any minimum instream flows which may reduce production. Such minimum flows, if required, would not be known until the project proceeds through the licensing process. Table 8 Pyramid Creek Hydroelectric Project (1998 Price Levels) Installed Capacity... 600 kilowatts Annual Energy Production. 2,570 MWh Capital Costs: Standard Construction. $2,177,800 Force Account.. $1,557,900 Capital Replacement Costs $9,000 per year Operating Costs $48,000 per year The analysis performed thus far on Pyramid Creek has not revealed any capacity benefits. Even though the water is diverted from the City reservoir where production levels could be regulated, the DEC report states that there are nine months of the year with periods of no energy production. Further analysis may reveal that there could be capacity benefits, but for purposes of this report, the project is assumed to provide energy benefits only. WIND Wind turbines can provide energy at little or no variable cost of generation if a suitable site can be found. Wind conditions that are typically sought include the following. e Sustained wind ¢ Wind speeds less than the design shut-down speed ¢ Minimum directional shifts This type of resource, however, has a number of disadvantages including high installation costs, lack of capacity benefits, and a history or somewhat unreliable operations. Recent technological improvements have resulted in increased reliability and lowered capital costs, Power Supply Study Draft - 04/08/98 Page V- > and there has been a renewed interest in this type of resource. Here in Alaska, Kotzebue Electric Association (“KEA”) constructed three 66-kilowatt turbines to supplement their diesel-fueled generation. The first of these units was placed in operation May 1997 and the other two in July 1997. KEA experienced problems initially but has had reliable operation since November. The turbines at KEA are manufactured by Atlantic Orient Corporation, and their representative here in Alaska was contacted for construction and operating cost information. Preliminary estimates of capital costs were provided based on a proposed facility in St. Paul, Alaska. However, operating costs were not provided; and estimates were derived from data published in an Electric Power Research Institute (“EPRI”) Technical Assessment Guide. Cost information of a potential wind resource is summarized in Table 9 and provided in detail in Appendix C-2. Table 9 Wind Resources Installed Capacity (5 @ 66 kW)........00. 330 Turbines $330,000 Transformers/Connections 20,000 Crane niasses: 5,000 Foundations. 25,000 Other 50,000 $430,000 Operating Costs rtessrnererte teeters $25/kW-year Cut-in Speed.... 8.2 mph Shut-down Spe 55 mph Peak Survival Speed... 133 mph Energy generation was estimated from hourly wind data recorded at Pyramid Valley next to the City’s water reservoir during 1995 and 1996. The power output/wind speed graph supplied by Atlantic Orient was then used to estimate resource generation for the recorded wind speeds. MAKUSHIN GEOTHERMAL PROJECT The Makushin Geothermal Project (“Makushin”) has been studied intermittently by the State of Alaska and others since at least the early 1980's. The most recent detailed study conducted was in 1995 followed by a limited review in 1996. The 1996 review was a result of the developer proposing to construct the resource using a new process technology for converting geothermal heat into steam to drive the turbines. Since then, however, the rights to develop the resource have been transferred to Kiiguusi Suuluta Land Company (“KSLC”). KSLC proposes to construct a 14-megawatt (net of station service) resource using process technology included in earlier proposals and not the new technology proposed in 1996. Power Supply Study Draft - 04/08/98 Page V-3 Based on communications with KSLC and data available from the 1995 study, the following assumptions are used in evaluating Makushin. Details of several of these assumptions are provided in Appendix C-3 to this report. Table 10 Makushin Geothermal Project (1998 Price Levels) Installed Capacity (Net of Station Service)... 14 megawatts Construction Costs . $68,836,000 Drilling, Field Development, etc.. $10,770,000 Annual Operating Costs: Payroll $968,000 Subcontracts/Wellfield Maintenance .. $1,998,300 Administrative. $142,000 Insurance......... $158,000 Wellfield Insurance . $32,000 Wellfield Maintenance... Steamfield Royalty (Percent of Busbar Costs): $1,260 every 7 years Yeoor I... 2.5% Year I1.. is 3.5% NV CAT 2 Poteccccccorsscesnensssstssstovaresceustestesteeveveveteemeerernte 5.0% COAL DOE recently commissioned a study to estimate construction and operating costs of coal- fired resources with generating capacities of less than 2,500 kilowatts. The developer of the model maintains that the construction costs are all-inclusive in that they include a coal handling system, a “moderate” amount for site work, a powerplant building, and transformer equipment. The model is currently being modified to accommodate generating capacities of resources up to 5,000 kilowatts. The technology included in the DOE study is based on a fluidized-bed system and can, therefore, use several different types of fuel including diesel. Therefore, a cost comparison of diesel and coal was performed to determine the least-cost fuel. A Northern Economics report provided the cost of coal for both developed and undeveloped mines; and for purposes of this study, the price of coal was based on the Healy mine since that mine is operating.' Based on the estimated coal price in the Northern Economics report, coal is less expensive than diesel on an energy equivalent basis. The Northern Economics report also provided a cost estimate for coal from another operating mine. That coal, mined from the Powder River Basin in Wyoming and Montana, was assumed to be transported by rail to Vancouver, British Columbia, and then barged to Unalaska. The estimated cost of delivered coal was slightly less than the price estimated for Healy ($3.73/million BTU versus $3.86/million BTU), but detailed analysis regarding mining costs was not performed by Northern Economics. Therefore, this site was not considered as a fuel source for this analysis. ' Domestic Coal Handling Study, Northern Economics, October 1997. Power Supply Study Draft - 04/08/98 Page V-4 As size of the resource increases, construction and operating costs will also increase but at a lesser rate. Therefore, annual costs expressed in dollars/kilowatt-hour will be inversely related to unit size. (See Figure 12a.) However, this assumes baseload operation where the resource output can be fully utilized. For unit sizes greater than the City’s minimum system load, incremental amounts of energy can only be partially used. This, in turn, can cause per- unit costs to increase if the unusable energy cannot be sold to self generators. Figure 12b provides the relationship between cost and unit size for several load assumptions on the City system. As can be seen, approximately 3,000 kilowatts represents the installed capacity with the minimum per unit cost for the existing City loads. As the City’s customer base is increased, the optimum size increases and the per-unit costs decrease. This does not include any growth on the City’s existing system, however; and Table 11 provides the optimum size for two different load growth scenarios at the end of five and ten years of load growth. Table 11 Optimum Size of Coal Resource At End of Year Shown - City Loads Only (kilowatts) 1998 2005 2010 Two unit sizes were selected to be included in the study, 3,500 and 5,000 kilowatts. The lower capacity represents a reasonable size to construct if UniSea loads are not included with the City, and the larger capacity represents a size that might be constructed if their loads are included. Although the DOE model is for resources 2,500 kilowatts and under, the developer of the model has indicated that it can be used as a proxy for larger units until the update is completed. Table 12 provides the input assumptions included in the analysis for these two installed capacities, and details of these assumptions are provided in Appendix C-4. Table 12 Coal Project (1998 Price Levels) 3,500 kW 5,000 kW CC ORTUCTIOR Coste eee tem serestensananieeaseneuaneaease $7,597,000 $8,455,000 Fuel: Price ($/ton). 60.17 60.17 Energy Content (BTU/Ib)... 7,800 7,800 Full-load Heat Rate (BTU/kWh).. 19,015 18,570 Limestone (Pct of Coal Costs) 10% 10% Ash: Formation (Pct of Coal Weight) 10% 10% Removal Costs ($/ton).... 20.00 20.00 Incremental Operating Staff... 0 0 Parts/Supplies -....2........-cccs.e00. sts $583,334 $833,334 UI tiNi es sere cecccsetcesucresesestoostosaeseovecessscensesesenessrasasseced $145,833 $208,333 Power Supply Study Draft - 04/08/98 Page V-5 Estimated emissions data is not available for a coal-fired resource and will be of concern. However, the economics of this resource will first be examined before pursuing such data. COMBUSTION TURBINES Combustion turbines typically require more fuel per kilowatt of output than internal combustion resources, although they offer the advantage of lower maintenance costs and lower emissions. Therefore, several turbine manufacturers were contacted to obtain cost and operating information. Two manufacturers, Rolls Royce/Allison and Solar Turbines, provided data; and UNC Industrial Power provided general information. Details of the information provided is included in Appendix C-5 and summarized in Table 13. Since these units will be operated in a baseload manner, the overhaul costs were not converted to dollars/hour of run time. Instead, overhaul and miscellaneous variable operating costs are combined and expressed in cents/kilwatt-hour. The amounts shown in Table 13 are conservatively high and are reflective of a cost where the manufacturer assumes most of the maintenance responsibilities. If those responsibilities shifted to the City, the cost could be lowered to some extent. Table 13 Combustion Turbines (Dollars in thousands) 1.204kW 3,636kW 4,269kW 6,467kW Purrotiase Price 5.5.5. scnsoteccsrcccveeceseoense $550 $1,650 $1,700 $3,200 Engineering/Shipping/Installation... 200 561 566 580 Total Capital Cost ... to $750 $2,211 $2,266 $3,780 Full-load Fuel Consumption (BTU/KWh) ue eeseeeesseeeeseeeenenees 13,898 12,357 8,552 8,611 Variable Operating Costs — Without Fuel (cents/KWh).......... cesses 0.5 0.5 0.5 0.5 Detailed emissions data was obtained for one of the turbines. As shown in Table 14 on the next page, it may be possible to replace an existing unit at the powerhouse with a turbine, increase total capacity, and show a net reduction in NO, and CO emissions. DEC has indicated that they are more concerned with these two than with particulates which do not show a reduction. Air flow differs between turbine and internal combustion resources; and therefore, net reduction in emissions by itself does not guarantee that a turbine can be located at the existing powerhouse. Power Supply Stu Draft - 04/08/98 Page V-6 (ppl) Apnis &jddng sanog 86/80/t0 - oud - 1 230g Fuel Limit (gallons) 1,090,620 84,638 1,090,620 84,638 3,708,108 284,462 5,129,549 373,509 3,831,712 273,234 9,422,957 673,874 7,721,590 504,235 7,601,621 535,238 39,596,777 | 2,813,828 Existing Resources COAWhWHN — Rolls Royce/Allison Solar Mercury 50 Solar Centaur 40 Energy and fuel limits and emission rates of existing resources provided in Air Quality Operating Permit No. 9625-AA003 Fuel assumptions per Permit No. 9425-AA003 7.1 Ibs/gal 19,700 BTU/Ib Emission rates for Rolls Royce/Allison unit provided by manufacturer. Rates for Solar units not available and prorated based on capacity. Tons per year based on an assumed plant factor of 90 percent. Table 14 Comparison of Emission Rates Particulates Tons/Yr @ Egy Limit 26.76 141.44 INTERNAL COMBUSTION Similar to combustion turbines, internal combustion generating units offer the advantage of a relatively inexpensive source of capacity since installed costs are lower than many other resources on a dollars/kilowatt basis. With present fuel prices, this type of resource can also provide energy at a moderate price. However, the price of energy will fluctuate as fuel prices vary over time. All of the City’s existing generating units are Caterpillar internal combustion gen-sets; and at the request of the City, the local Caterpillar representative prepared a budget estimate for a new 3,300 kilowatt unit. This estimate is summarized in Table 15 and provided in detail in Appendix C-6. Table 15 Internal Combustion Installed Capacity 3,300 kilowatts Purchase Price $1,587,000 Fuel Consumption @ 93% Load 201.3 gallons/hour Preventive Maintenance, Components 4.7 mills/kWh Overhauls: Minor @ 15,091 hours $80,224 Major @ 30,183 hours $210,000 FUEL CELL Fuel cells have been in existence for a number of years but on a fairly limited scale. Similar to a battery, a fuel cell produces power through chemical reactions. A clean, hydrogen-rich fuel, such as natural gas or propane, reacts with oxygen in the atmosphere to produce electricity. Heat and water are the primary by-products which can be used for other purposes. Very small amounts of hydrocarbons and carbon monoxide are also emitted. Fuel cells have been used extensively in the space program but have until recently seen limited commercial applications. A number of utilities are now investigating the merits of fuel cells, but benefits are typically dependent on: e Use of the heat produced e Access to a source of clean fuel e Requirements for quality power ONSI Corporation, a developer of fuel cells, was contacted to obtain cost and operating data. According to ONSI, there has been limited research in the past regarding the use of liquid fuels. However, that research is no longer being conducted, and commercially reliable fuels include natural gas, propane, methane, and industrial waste hydrogen. Based on conversations with ONSI and others, the following cost and operating data was developed. Power Supply Study Draft - 04/08/98 Page V-8 Table 16 Fuel Cell Data (All data per 200-kilowatt unit) Installed Capacity 200 kilowatts Cost per Unit: Purchase Price (FOB Connecticut) $700,000 Shipping 7,750 Installation/Engineering 75,000 Total Installed Cost $782,750 Annual Operating Cost (excluding fuel) $25,000 Fuel Consumption at Rated Output:' Propane 18.6 gal/hour Natural Gas 1,700 cubic feet/hour | Based on 40 percent efficiency and heat contents of propane and natural gas of 91,850 BTU/gallon and 1,000 BTU/cubic foot, respectively. Two propane suppliers were contracted to obtain an estimate of the delivered cost of propane to Unalaska for the quantities required. Neither supplier provided the requested information, although one provided an estimate of approximately 60 cents/gallon at Kent, Washington. OTHER Other generating technologies exist that were not included in the analysis. Such resources include the following. 1. Combined Cycles — This type of resource may provide economic benefits if waste heat can be used in sufficient quantities. At this time, large heat recipients have not been identified, and this resource is not considered. 2. Batteries — This resource will provide economic benefits only under certain conditions. These conditions include, but are not limited to: e Large fluctuations in loads occurring with a great deal of frequency e Availability of low-cost energy (hydro, wind, etc.) that cannot be fully utilized in loads e Large spinning reserve requirements 3. Solar — Sunlight to electrical energy conversion efficiencies are felt to be too low for this type of resource to be economic in Unalaska. 4. Tidal — This type of resource is felt to be too experimental at this time. Biomass/Refuse Fueled — The amount of fuel available is felt to be too limited for this to be economic. Power Supply Study Draft - 04/08/98 Page V-9 Another resource that is not specifically considered is a combustion turbine that has been proposed by the Exergy Corporation. Their proposal, albeit preliminary in nature, is based on constructing a combustion turbine that uses a new process technology. Exergy was contacted for preliminary cost estimates to include in this analysis; but the developer wished to keep such information confidential. Therefore, their proposed facility cannot be evaluated and is not included in the analysis. Several of the resources considered have potential for waste heat recovery including coal, combustion turbines, fuel cells, and internal combustion units. Recovery of the waste heat will improve the economics of these resources only if the capital costs of implementing heat recovery facilities and the associated operating costs are less than the operating and maintenance costs of the heating system being replaced. The costs and benefits of waste heat recovery have not been considered in this analysis due to lack of detailed data regarding heat loads and other factors. However, the inclusion of such benefits should not change the relative ranking of these resources as compared to each other since the benefits are common to all. However, it could improve their ranking as compared to other resources that do not have waste heat potential such as hydro, wind, and Makushin. The Makushin Project has potential for waste heat recovery; but due to the distance from potential heat loads, waste heat recovery is believed to be uneconomic. COSTS Based on the costs described herein and detailed in Appendix C, the annual costs of generation have been estimated and are shown in Figure 13. This data can be used in screening resources for specific uses. For example if a resource is expected to be used only for reserves with little run time, then a resource with low installed costs and high energy costs might be best suited. If, on the other hand, a resource is expected to run for a significant amount of time, then a resource with low energy or melded (fixed and variable costs combined) costs should be sought. Two important factors should be considered when reviewing the data in Figure 13. First, the energy and melded costs are based on all potential energy production from a particular resource being usable. To the extent that a resource cannot be fully utilized, then per unit costs would increase. Second, hydro and wind costs are included in the melded cost figure only. The costs associated with these two resources are fixed in that they are not dependent on the amount of generation. However, neither of these will provide capacity benefits since energy production cannot be relied on during peak periods. Energy costs for fuel cells are not provided since reasonable estimates of propane costs could not be obtained. However, Figure 13 shows that fuel cells have a relatively high installed cost per kilowatt, and these costs do not include installation of a large propane storage system. Since fuel would be subject to inflationary effects, it is felt that this resource would not be economic when compared to other resources. Thus, it is not considered further in this analysis. Power Supply Study Draft - 04/08/98 Page V- 10 Figure 12a Initial Year Coal Costs - 1998 Price Levels (Baseload Operations of Stated Resource Size) dollars/kWh 0.250 0.200 0.150 0.100 0.050 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Installed Capacity (kW) Figure 12b Initial Year Coal Costs - 1998 Price Levels (Based on Stated Resource Size and Customer Base) 0.250 0.200 —— City Onl: = 0.150 | Pate = —e— City/APL - a | 3 0.100 |— + — -City/APL/SeaLand eee City/APL/SeaLand/ 0.050 Cold Storage ——— All 0.000 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Installed Capacity (kW) Power Supply Study Draft - 04/08/98 Page V-/1 Figure 13 Cost of Generation (Potential Resources) Installed Costs ($/kilowatt) $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 = $1,000 . i s- a ff Ff FF mm & Energy Costs (Based on All Energy Usable) 0.12 0.10 1 0.08 | 0.06 0.04 0.02 - 0.00 Melded Costs (Based on All Energy Usable) 0.14 0.12 0.10 0.08 0.06 ; 2 3 3 3 0.04 0.02 Power Supply Study Draft - 04/08/98 Page V - 12 VI. ANALYSIS GENERAL The City can pursue any one of a number of different options regarding both customer base and resources. As previously described, customer base options include the following. © City by itself with no customer base expansion e = City with APL e City with Sea-Land e Provisions made for the proposed cold storage facility e Inclusion of UniSea loads and resources into City operations Any one or combination of the options can be pursued by the City. However central to these is whether or not the UniSea system is combined into the City. While UniSea has expressed an interest to do so, a number of issues must be considered by both parties; and it is not certain that a merger will eventually be accomplished. Accordingly, the analysis has been separated into two categories: : e The City and UniSea act independent of one another as they presently do. e UniSea loads and resources are combined into City operations. Each customer base option will provide a different set of demand and energy sales that the City’s costs can be allocated to. Therefore, it was necessary to estimate the total system costs for each customer base/resource option investigated. Costs included in the analysis are as follows: 1. Fuel, maintenance, and purchased power costs that are estimated in the dispatch model; 2. Amortized debt payments for each of the new resources being considered; 3. Additional operating costs, if any, of the new resource; 4. Costs of implementing reserve units, if required; and 5. Other costs of the Electric Utility. Other costs of the Electric Utility were estimated by eliminating fuel, purchased power, supplies, and general contractor expenses from the 1998 Operating Budget. The remaining amount of approximately $2.5 million was thought to be a reasonable proxy of those costs not included in the first four items of the above list. Power Supply Study Draft - 04/08/98 Page VI-1 Expansion of the customer base will increase the total system costs due to increases in fuel usage, maintenance costs, other variable operating costs, and other cost components. However, these cost increases will be spread over increased sales, and the City’s existing customers could still benefit. Therefore, the analysis is performed on a cents/kilowatt-hour basis rather than a total dollars basis. RESERVES During the course of normal operations, resources will be taken off-line unexpectedly to perform unscheduled maintenance. The length of unit downtime will depend on the severity of the problem and could range from hours to weeks or even months. Since these unscheduled outages may occur during peak periods, a utility typically has enough installed capacity such that loads at any time during the year can still be met if the largest unit is out. Scheduled maintenance is then performed during the off-peak months when loads can still be met if another unit trips off line unexpectedly. If peak loads do not vary significantly throughout the year, reserve capacity might be increased so that load can still be met if two resources are unavailable. Several resources that are being investigated in this analysis have generating capabilities significantly greater than existing resources. While these large resources can provide benefits through economies of scale, they also have the disadvantage of increasing reserve requirements under certain circumstances. The City has a number of options that it can pursue in obtaining this reserve capacity, but the inclusion of any new thermal resource in the area will require DEC approval. The following options might be considered the most likely if additional reserve capacity is required. 1. Purchase of a new diesel-fueled resource that has equal or less emissions than an existing unit. The new resource is then used as primary generation, and the old unit is not retired but held for reserves. The old unit may have to be relocated to another area such as Unit 7 now is. However since it would not be used except during outages, DEC may be willing to allow it to remain at the powerhouse. 2. Obtaining new or used units and siting them at APL or Sea-Land if they are brought on as a customer. Presumably, their operating permits could be modified to allow the City resources to be sited at these locations since APL or Sea-Land operations would be eliminated. 3. Purchasing reserve capacity from UniSea. UniSea’s existing operating permit allows for a maximum of four units to be operated at any one time. Since they have six primary resources located at their powerhouse, part or all of one unit might be available for reserve purposes for the City. This would, however, require an amendment to their operating permit. 4. Maintaining reserve capacity less than the largest unit. If load patterns are such that high loads occur only during a short duration of time, then the City may feel the additional cost of maintaining the full reserve capacity is too great. However, such a policy would place the system at greater risk for outages during peak periods. Furthermore, the self generators have indicated that they value system reliability by installing large amounts of reserves on their own; and inadequate City reserves could jeopardize the possibility of bringing one or more of these potential customers into the system. Power Supply Study Draft - 04/08/98 Page V1 -2 For purposes of this analysis, reserve capacity is assumed to be provided for pursuant to the first of the options listed above. When reserve margins fall below the minimum requirement, a 1,000 kilowatt diesel internal combustion generator is assumed to be purchased by the City and replace an existing resource. The existing resource is not retired but held for standby purposes. ASSUMPTIONS Costs for each option have been estimated over the 22-year study period from January 1999 through December 2020. In doing so, a number of assumptions regarding future events have been made. These assumptions are listed in Table 20 at the end of this section. ANALYSIS City/UNISEA OPERATIONS SEPARATE Unfortunately, the inclusion of a resource will affect system costs in a variety of ways, and resources cannot be evaluated simply by comparing the incremental debt service, fuel, and operating costs of the new resource with the cost of the displaced energy. The incremental energy and associated variable costs may be difficult to estimate of the full capability of the resource cannot be used throughout the year. Furthermore, the dispatch order of the existing resources will change as will their respective generating efficiencies; and this, in turn, will make it difficult to estimate the cost of the displaced energy. Reserve requirements and their corresponding costs may also vary for each scenario. Therefore, the dispatch model was run for numerous resource/customer base options, and the resulting costs and reserve requirements are summarized in Table 18. Details of the dispatch and financial runs are provided in Appendixes D and E, respectively. The costs shown in the table represent the present value of the costs incurred over the study period divided by the total energy sales for the same period. A discount rate of 6 percent has been used to reflect the assumed cost of capital. Several observations can be made of the results summarized in Table 18. These include the following. 1. Costs can be lowered by expanding the customer base. However as customer base is expanded, additional reserve units are required in certain resource scenarios. 2. The addition of Sea-Land as a customer significantly increases the system’s capacity requirements and, therefore, reserve requirements. 3. The best three resource scenarios for each customer base option all have in common the addition of a combustion turbine (either a 4,269 kilowatt or 6,467 kilowatt). 4. Wind turbines, when combined with a combustion turbine, is the most economic alternative of those evaluated. Power Supply Study Draft - 04/08/98 Page VI - 3 Since the hydroelectric project has significantly more energy available than the wind resource, varying rates of fuel escalation will have a greater impact on the economics of the hydroelectric resource than the wind resource. Table 17 provides an estimate of what the real rate of fuel escalation must be in order for the combustion turbine/hydro resource alternative to be the most economic. Since capital grants may be available for the hydro resource, the amount of grants required for it to be the most economic is also provided. Table 17 Hydroelectric Sensitivity Requirements for Hydro to be Most Economic Alternative Customer Required Required Base Fuel Escalation Grant City Only Infl + 4.0% $1.1 million City/APL Infl + 3.9% $1.1 million City/Cold Storage Infl + 3.6% $1.1 million City/APL/Cold Storage Infl + 5.0% $1.3 million City/APL/Cold Storage/Sea-Land Infl + 3.3% $1.0 million Table 17 shows that if fuel escalated at a real rate of 3 — 5% annually, the combustion turbine/hydro alternative option would be the most economic as compared to the other resource options considered. If fuel escalation remained at the general inflation rate (i.e., no real escalation), $1.0 — 1.3 million of grants would be required for the combustion turbine/hydro alternative to be the most economic. Several considerations should be kept in mind when reviewing the above data. First, the most economic alternative evaluated, the wind/combustion turbine resource combination, is based on very preliminary construction and operating cost estimates of wind turbines. This type of resource does not have a history of successful operations in Alaska, and availability factors and operating costs are not based on detailed analysis of other similar resources. Second, a specific site for the wind turbines has not been identified, and the wind data used may not be commensurate with the final site. Changes in wind direction will also affect generation, and this has not been accounted for. Another consideration is that the hydroelectric resource evaluated herein does not include any capacity benefits. Since the intake to the turbine would be located downstream of the City’s water reservoir, regulation may be possible to provide capacity benefits and offset reserve requirements. Finally, the analysis of the hydro resource does not incorporate any reductions in energy production due to increased domestic water use. The relationship between energy production and domestic water use was not available for this analysis. City/UNISEA OPERATIONS MERGED Although UniSea has expressed a desire for the City to take over its power production operations, the resulting cost of power will be an important criteria in both Power Supply Study Draft - 04/08/98 Page V/-4 parties’ evaluation of the benefits of a merged system. The following steps were used in evaluating a merged City/UniSea system. UniSea’s cost of power under separate operations was first estimated. Their cost of power was assumed to include: e Fuel e Operators e Maintenance Costs Benefits from waste heat used to heat UniSea facilities were not accounted for due to insufficient data. Costs of the merged system were then estimated for various customer bases and new resources. Cost components are the same as those described on page VI-2 except labor. This component was instead increased by the amount estimated for UniSea’s operators in 1. above. This may be somewhat high since the merger could lead to economies of scale with production personnel. The resulting costs of each case were then allocated to UniSea and the City. UniSea’s allocation was assumed to be equal to that estimated in |. above, and the remaining amount was allocated to the other City customers. Based on the results of the analyses without UniSea, the number of resources investigated with UniSea could be limited and still provide sufficient information. The results in Table 19 show that benefits can be obtained by combining the two systems. Furthermore, the inclusion of a combustion turbine into the system would also provide economic benefits. One of the most significant improvements of the combined City/UniSea system is the lack of need for additional reserve units. None of the cases run required additional reserve units. Power Supply Study Draft - 04/08/98 Page VI- 5 Apnyg Ajddng samog 86/80/¢0 - Youq 9 - 1A 280g Table 18 Summary of Results (Without UniSea) (1) Not run. Considered uneconomic or has significant amounts of unserved energy without the use of reserve units. Bold Face denotes cases with slight amunts of unserved energy without the use of reserve units. Apnig 4jddng 4anog 86/80/t0 - Yoaq - 1A 28d Table 19 Summary of Results (1) Not run. Considered uneconomic or has significant amounts of unserved energy without the use of reserve units. Bold Face denotes cases with slight amunts ef unserved energy without the use of reserve units. GENERAL 10. Ui Table 20 Assumptions General inflation is assumed to average 2.5 percent per year. All costs are stated in 1998 dollars and are escalated at the assumed general inflation rate unless otherwise noted. Fuel is assumed to be $0.7843 per gallon. Purchased power from UniSea is assumed to be $0.1175/kilowatt-hour and escalated at one half of the general inflation rate. New resources are assumed to be debt financed with the cost of capital equal to 6.0 percent. Amortization periods are as follows. e Coal — 30 years e Hydro — 30 years e Wind -— 15 years e Combustion Turbines — 20 years e Internal combustion units — 20 years ¢ Geothermal — 30 years Non-production costs of the City are assumed to escalate at the rate of general inflation. UniSea production labor is assumed to be $700,000 per year. Load growth of the existing City loads are assumed to increase by | percent per year. The loads of APL, Sea-Land, the proposed cold storage facility, and UniSea are assumed to remain constant throughout the study period. The loads of the proposed cold storage facility, when included in the analysis, is added to the system in 2000. APL and Sea-Land loads, when included in the analysis, are assumed to be added in the year that a new resource is added to the City system. Annual sales by the City to the various customer bases are as follows: e City system — 26,800,000 kWh e APL —5,500,000 kWh e Sea-Land — 2,192,000 kWh e Cold Storage — 4,380,000 kWh Power Supply Study Draft - 04/08/98 Page VI-8 RESOURCES GENERAL 12° 13. All dispatch analyses assume each resource will be available as required except for specific maintenance schedules described herein. Implicit in this assumption is that unscheduled outages will not occur when a particular resource is required. If such outages are limited to one resource only, then load can still be met with reserve capacity. The emission tax of $5.07 per ton is not estimated due to lack of data. HYDROELECTRIC 14. Capital and operating costs are as specified in Appendix C-1. 15. Hydroelectric resources included in the analysis are assumed to be constructed over a 18-month period with commercial operations commencing in January 2001. 16. Interest during construction is capitalized, and financing costs are assumed to be 2 percent of the total debt requirements. 17. Energy production from the proposed hydroelectric facility is based on the average daily production provided by DOE and spread evenly throughout the day. Potential decreases in production due to increased domestic water use have not been included in the analysis. 18. Maintenance of the proposed hydro facility is assumed to be accomplished at times when there is insufficient water for energy production. WIND 19. Capital and operating costs are as specified in Appendix C-2. 20. Five 66-kilowatt turbines are assumed to be constructed and operational by January 2001. 21. Interest during construction is not capitalized. 22. Energy production is estimated from hourly wind velocity recordings at a site in Pyramid Valley. 23. No additional costs have been included in the analysis for amounts that may be incurred for diesel units to follow load net of wind generation. GEOTHERMAL 24. Capital and operating costs are as specified in Appendix C-3. 25. The geothermal resource, when included in the analysis, is assumed to be constructed over a two-year period with commercial operations commencing in January 2002. 26. Interest during construction is capitalized, and financing costs are assumed to be 2 percent of the total debt requirements. 27. Maintenance of the proposed geothermal facility is assumed to be accomplished such that usable energy is not adversely affected. Power Supply Study Draft - 04/08/98 Page VI-9 28. In lieu of following load with diesel-fired generation for those scenarios with the geothermal facility, the use of a load bank has been assumed at an additional cost of $ 29. The cases with the geothermal project include the costs described earlier in this report as well as a credit of $700,000. This credit reflects the operating staff labor included in the geothermal operating costs which, in turn, would allow the existing City operating staff to be reduced. COAL 30. Capital and operating costs are as specified in Appendix C-4. 31. Coal-fired resources included in the analysis are assumed to be constructed over a two-year period with commercial operations commencing in January 2002. 32. Interest during construction is capitalized, and financing costs are assumed to be 2 percent of the total debt requirements. 33. Annual maintenance of the proposed coal facility is assumed to be accomplished over a one-month period beginning July 1. 34. The price of coal is assumed to escalate at 75 percent of general inflation. COMBUSTION TURBINES 35. Capital and operating costs are as specified in Appendix C-S. 36. Combustion turbine facilities, when included in the analysis, are assumed to be operational by January 2000. 37. No interest is capitalized for combustion turbine facilities. 38. Maintenance costs, including provisions for overhauls, are assumed to be 5 mills/kilowatt-hour. 39. Production from combustion turbines is limited to 95 percent of their continuous rating to account for miscellaneous outages. 40. Combustion turbines are assumed to be sited at the existing City powerhouse. 41. Scenarios that include combustion turbine assume that at least one existing City resource is taken out of active service and placed into stand-by service. INTERNAL COMBUSTION - EXISTING 42. Existing City resources are assumed to be not retired at the end of 200,000 operating hours but rather overhauled at a cost of $200,000 per unit. 43. Provisions for miscellaneous maintenance, exclusive of overhauls, are assumed to total | mill/kilowatt-hour. INTERNAL COMBUSTION - NEW 44. Capital and operating costs are as specified in Appendix C-6. 45. A new internal combustion facility, when included in the analysis, is assumed to be operational by January 2000. 46. No interest is capitalized for internal combustion facilities. Power Supply Study Draft - 04/08/98 Page VI- 10 47. Minor overhauls are assumed to be performed every 15,091 operating hours at a cost of $80,225. Major overhauls are assumed to be performed every 30,183 hours at a cost of $301,809. A second major overhaul is assumed to be accomplished at 60,366 operating hours at a cost of $435,336. All of these intervals and cost estimates were provided by the local Caterpillar representative. 48. Provisions for preventive maintenance, oil, and components are assumed to be 6.0 mills/kilowatt-hour. RESERVES 49. All resource/load scenarios must maintain a capacity reserve margin equal to or 50. greater than the largest unit. When reserve margins are below this amount, a |,000- kilowatt diesel internal combustion generator is assumed to be purchased and installed at a cost of $500,000. The new unit is assumed to replace an existing unit with the existing unit then used as a standby resource. Purchase of the 1,000-kilowatt generator is assumed to be cash financed with no debt amortization. Power Supply Study Draft - 04/08/98 Page VI-11 Based on VII. OBSERVATIONS AND CONCLUSIONS the analysis conducted and summarized herein, certain observations and conclusions can be made regarding the City’s present power supply and what resource/customer base options may provide economic benefits. These include the following. Le 10. The City’s resource base is adequate to provide for existing loads only with no significant load growth. If the City’s loads increases at an average rate of | percent per year, small amounts of unserved energy will occur by approximately 2010. This unserved energy will occur even with the use of Unit 7 and with purchases from UniSea. Any load growth on the system will increase the City’s dependency on Unit 7 production and purchases. In order to provide service to APL, Sea-Land, or the proposed cold storage facility, it will be necessary for the City to add to its resource base. In many of the cases evaluated, the incremental cost (in dollars/kilowatt-hour) of providing service to an expanded customer base is less than the average system cost. Therefore, existing customers could benefit if new, large customers are brought into the system and pay the regular tariffs. If provisions are not made to include. the proposed cold storage facility in the system, that facility, if built, will have to rely on self generation. In that event, it will be more difficult to bring them into the City system at some future time. Expansion of the customer base may require additional units to be installed for reserve purposes so that load can still be met if the largest resource if off-line during peak periods. This is especially true with APL and Sea-Land due to their relatively high demands. The Sea-Land load is expected to have a relatively low load factor such that energy requirements are low with respect to demand. Therefore if Sea-Land is brought on as a customer, demand charges should be thoroughly reviewed to ensure that the rates will recover revenues commensurate with the incremental cost of providing service. Based on the assumptions described herein, benefits could be gained by combining the UniSea and City systems. In all the customer base scenarios evaluated, the most economic resource option included a 4,269-kilowatt combustion turbine. For the Without UniSea scenarios, the combustion turbine combined with a wind turbine was the most economic. Power Supply St Draft - 04/08/98 “Page VIl-1 1g For the With UniSea scenario, the combustion turbine by itself was the most economic. 11. The inclusion of wind turbines in the City’s resource mix carries an amount of risk since this type of resource does not have a long operational history in the area. Consequently, the level of uncertainty associated with both construction and operating costs is probably higher than other potential resources. 12. Construction grants may be available for several resources including coal, wind, and hydro; and these grants would improve the economics of each of these. Power Supply Study Draft - 04/08/98 Page Vil - 2