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HomeMy WebLinkAbout#1 REPORT for Waterfall Creek Round 7 1 City of King Cove, Alaska Overview of the City’s Power Generation System (September 2013) 1.0 Summary & Purpose This memo provides a summary of the City’s current power generation system and our projected future power demands and financial expectations. The memo also presents a current summary of the City’s expectations for our second hydroelectric facility, Waterfall Creek, which is now anticipated to come on-line in November 2014. Furthermore, this memo serves as a technical reference in support of: 1) requesting an $800,000 grant from the FY15 AEA Renewable Energy Grant Fund (round #7) for the Waterfall Creek hydro project; and, 2) supporting the City’s loan request for up to $1.5 million from the Alaska Municipal Bond Bank for the project. Note that the City is not willing to enter into new debt beyond $1.5 million at this time, primarily due to our remaining existing debt of approximately $850,000 on our Delta Creek hydro facility, which requires an annual payment of $145,000. 2.0 City’s Power Generation System The City of King Cove has owned and operated energy power production facilities, including an underground distribution system, for over five decades. The City has two major components to its power generation system. These include the Delta Creek hydroelectric facility, an 850 kWh run-of-the-river project constructed in 1994, and a diesel plant with four CAT diesels that can generate approximately up to 2.5 megawatts (MW). The Delta Creek hydro facility cost $5.7 million and was funded through a combination of grants from the State of Alaska, U.S. Dept of Energy, Aleutians East Borough, and the City of King Cove and $1.9 million in debt via the U.S. Department of Agriculture/Rural Development. The City was fully responsible for the permitting, design, contracting and construction management of this facility. The prestigious American Consulting Engineering Council awarded the Delta Creek project the 1995 Grand Award for its “Excellence in Engineering Design.” A new diesel plant was constructed and brought on-line in 2008 to compliment the Delta Creek hydro facility. This facility, including a new fuel tank farm with a capacity of 150,000 gallons, costing about $3.2 million and was funded through a combination of grants, cash and in-kind services by the State of Alaska/AEA, Denali Commission, and City of King Cove. There is no debt on the diesel plant. 2 A significant component of the new diesel plant included an upgraded SCADA control system. This new system has integrated the controls and relationship of these two power generation systems, as well as significantly increasing the amount of hydro energy from Delta Creek through better telecommunications and visual monitoring. The hydro facility is located about 6 miles north of the diesel plant. The City also has a recoverable waste heat system, which was designed and constructed as part of the new diesel plant in 2008. An extension of this system was completed in 2012. The Alaska Energy Authority, Denali Commission, and City of King Cove combined financial resources for these two projects, which cost about $500,000. Recoverable heat is provided to adjacent facilities including the new King Cove School (40,000 s.f.), Clinic (10,000 s.f.), and Aleutian Housing Authority multi- housing units (12 units). This system is currently displacing about 25,000 gallons of diesel fuel on an annual basis and is likely to increase another 10,000 gallons. 2.0.1 Other Power Generation System in King Cove Peter Pan Seafoods is located in King Cove. It is one of the largest, year-round seafood processors in Alaska and has the claim of being the largest “wild” salmon processor in North America. They employ over 500 transient processor workers for about 6 months of year. All of their employees live in housing provided by the company. Peter Pan has its own diesel power generation facilities. Their peak load during key processing times can reach over 3,500 kWh/day (compared to an rare peak day for the City of 1,000 kWh/day). The company has consistently indicated a desire to purchase any “surplus” hydroelectric power the City may have available, particularly with the new Waterfall Creek hydro coming online. The initial concept is that this surplus hydro could be used to supply all/some of their domestic demands for their bunkhouses, apartments, laundry facilities, and mess hall. During the concept design phase for the Waterfall Creek project, our engineers evaluated this annual demand to be in range of 600,000 to 800,000 kWh. 3.0 Current System 3.0.1 Demand Table 1 summarizes the last five years of total power generation from the City’s system. Note the current, 3-year average demand is 5.08 megawatts (MW) and 5- year average is 4.88 MW. The current, 3-year average split has been hydro 53% (2.68 MW) and diesel 47% (2.40 MW). The past 5-year average has been about 50/50. This ratio has been similar for the 18 years that Delta Creek hydro has been in operation. 3 Recent control upgrades installed in 2010/2011 will continue to improve our hydro production. In FY12, the hydro produced about 58% (3.02 MW) of our annual demand. However, a glitch in a control password caused our FY13 performance to dip back to a 55% diesel and 45% hydro production. Notwithstanding this issue, the City expects the FY12 performance level will become the new baseline prior to bringing Waterfall Creek online. For every 100,000 kWh shift in power generation from diesel to hydro, the City saves about 7,000 gallons of diesel fuel, which has a current cost of about $30,000. 3.0.2 Financial Performance – Electric Revenue Fund Table 2 is a summary of the City’s electric fund for the last four years (FY10-13). Annual fund revenues are about $1.33 million. About 50% of the revenues are from residential, commercial, and harbor customers with another 30% from the City facilities. The other 20% in revenue comes from harbor accounts and recoverable heat sales. On the expenditure side, fuel costs are more than 50% of the annual expenditures. Personnel costs account for about 15-20% of annual fund expenditures. Debt service on the Delta Creek hydro is about 10%. Between FY10-13, the City’s diesel power system used an annual average of 192,000 gallons of diesel fuel to produce an annual average of 2.5 MW of power. As noted above, for every 10,000 kWh shift from diesel to hydro, there is a corresponding decrease in demand of about 7,000 gallons of fuel. The City has only two customer rate classes, including $.30/kWh for all residential, public, and commercial users and $.35/kWh for all marine vessels. These new rates have been in effect since January 1, 2012. Both of these rates are among the lowest of any communities or harbors throughout rural Alaska. The influence of our lower hydro generation costs is clearly responsible for this cost structure. Otherwise, these rates would likely be in the range of $.48 to $.52/kWh. Prior to FY12, the City had only one rate of $.26/kWh. This rate had been increased from $.20/kWh two years earlier. The City was also more a year in the arrears for our reporting and receiving of State PCE payments. Both of these issues have been subsequently resolved and the City’s electric fund became financially solvent by the end of FY12. 3.0.3 Future Demand Table 3 provides a forecast of power generation demand for the current fiscal year (FY14) and the next four years (FY15-18). Note that table 3 indicates that Waterfall Creek is expected to be on-line by the end of 2014 (FY15). 4 Total MW demand in FY14 is assumed to be 4.86 MW. This is similar to FY13, which experienced about a 7% decline in demand compared to FY12. About one -third of this decline was due to a number of large fishing vessels relocating to Dutch Harbor when their new boat harbor recently opened. Another one-third of the demand reduction is due to a range of energy efficiency measures, like replacing all street and harbor lights throughout King Cove with LED lights. For FY15-18, a conservative .005% annual increase in total generation demand is assumed. The ratio of hydro to diesel demand for FY14 is assumed to be similar to FY12. Then, starting in FY15 and based on the assumption that Waterfall Creek will come online in December 2014, the City expects to have over 60% (3MW) of our power production from hydro (Delta Creek at 2.8 MW and Waterfall Creek at .20 MW). For FY16-18, the total amount of hydro, with the addition of Waterfall Creek, should increase up to 3.4 to 3.5 MW (Delta Creek at 2.9 to 3 MW and Waterfall Creek at .5 MW). The ratio of hydro to diesel is expected to be approximately 70% hydro and 30% diesel. Starting in FY16, the City expects to have between 400,000 and 500,000 kWh of surplus energy to sell to Peter Pan from Waterfall Creek (primarily), but also some summer months’ surplus from Delta Creek. The City anticipates the cost of this power to be $0.15/kWh and generate approximately $60,000 to $75,000 in annual revenue. Waterfall Creek energy production is assumed to be .5 MW in FY16-18. This amount of hydro energy will replace approximately 35,000 gallons of diesel annually, saving about $150,000 at today’s cost. Tables 4A1 (with Waterfall Creek) and 4B1 (without Waterfall Creek) provide financial forecasts for the City’s electric fund for FY14 through FY18. Note the growing disparity between the electric fund balances (with and without Waterfall Creek) during these five years. The FY14 fund balance difference is $45,000, in FY16 it is $285,000, and FY18 it is $735,000. The amount of diesel fuel at continuing escalating costs is the significant cost variable creating this cost difference. This fact continues to be the most significant justification for bringing Waterfall Creek online as soon as possible. See the footnotes at the end of this report, which further explains the cost assumptions in these two tables. 5 3.0.4 Waterfall Creek Status The City is currently getting ready to construct Waterfall Creek. This creek is another tributary of Delta Creek and will be a similar run-of-the-river facility. The amount of annual energy expected from Waterfall Creek is about one-third of the Delta Creek (1MW compared to 3MW). The current schedule is for the City to be ready to bid the project in early 2014 and have it completed and on-line by November 2014. The project will consist of a concrete diversion and intake structure, 4500’ HDPE penstock pipeline, 16”x40” metal powerhouse on a concrete slab, Pelton impulse turbine and induction generator, remote-automated control system, and 5,000’ access road. Revised Cost Estimate Waterfall Creek is now expected to cost $5.5 million. This cost estimate was provided to the City on September 3, 2013 by AMCI/RR, an independent construction cost estimating firm in Anchorage. Prior to this revised estimate, the City was using its September 2012 project cost estimate of $4.3 million. This $1.2 million cost increase came as a surprise to the City. Consequently, the City is now expeditiously seeking additional funding to keep the project on schedule and financially viable. The City anticipates the following funding for the project: o FY13 AEA/Renewable Energy grant $ 200,000 o FY14 AEA/Renewable Energy grant 2,600,000 o FY 15 AEA/Renewable Energy grant 800,000 Subtotal 3,600,000 o City of King Cove – cash 400,000 o City of King Cove – long term debt 1,500,000 Subtotal 1,900,000 TOTAL $5,500,000 Per this revised cost estimate, the City is applying for a FY15 AEA Renewable Energy grant of $800,000. Also, the City was approved for up to $1.5 million debt for the Waterfall Creek project from the Alaska Municipal Bond bank on August 28, 2013. Amount of Renewable Energy The initial hydrology estimates for Waterfall Creek suggested that up to 1.4 MW of energy could come from this source. However, in order to satisfy ADF&G Title 16 (Fish Habitat) permit concerns, the City agreed to reduce the amount of water we would use from the creek by 24%, which equates to a lesser energy expectation of 1.07 MW. 6 However, this 1.07 MW needs to be put into further perspective, including the following considerations: 1) Using Waterfall Creek flow data, monthly estimates of energy generation expectations were prepared for two annual scenarios, consisting of 1.07 MW and 850,000 kWh. See following table 5A. Note that about 70% of the available energy occurs between May and October. This table suggests that if 1.07 MW of energy are produced, the City’s system will use about 600,000 kWh (1.07 MW – 482,000 (surplus) = 588,000). If 850,000 kWh are produced, the City’s system will use about 510,000 kWh (850,000 – 340,000 (surplus) = 510,000). Note the assumptions for this amount of Waterfall Creek energy from the following #2 discussion. Furthermore, note the City’s system demand summary in Appendix 1. These data summarize the last three years of kWh produced by our diesel system, beyond what our Delta Creek hydro provides. These three years are a representative sample of current system energy demands, mix of diesel-to- hydro generation and available surplus. The total of the “average” column at the far right indicates that up to 2.4 MW of diesel generated energy is available to be replaced with Waterfall Creek hydro. This 2.4 MW amount was used in table 5A (third column). The purpose for developing these two energy scenarios and assumptions was to analyze the financial risk to help guide the City’s determination of how much debt is viable to assume for Waterfall Creek. Part of this assessment was to consider the range of surplus energy, and resulting revenue, the City can reasonably expect to sell Peter Pan Seafoods. 2) A review of earlier Delta Creek planning/design assumptions, primarily the expected monthly energy generation amounts, were compared to the actual kWh produced monthly for these last few years and indicate about a 80% ratio of projected –to- actual kWh. Consequently, using 1.07 MW x 80% = 850,000 kWh. 3) In summary, if the Waterfall Creek hydro produces: a) 1.07 MW – there should be approximately 600,000 kWh available to the City’s system, which will replace about 42,000 gallons of diesel fuel, and have between 400,000 to 450,000 kWh to sell Peter Pan Seafoods. b) 850,000 kWh – there should be approximately 500,000 kWh available to the City’s system, which will replace about 35,000 gallons of diesel fuel, and have between 300,000 and 350,000 kWh to sell Peter Pan Seafoods.. 7 4) Additionally, there could be another 100,000 to 200,000 kWh surplus hydro energy from Delta Creek to sell Peter Pan Seafoods. REPORT NOTES & ASSUMPTIONS TABLE 4A1 – With Waterfall Creek coming fully online in November 2014 Revenue – $50,000 conservative amount used for “surplus power sales” at this point. City anticipates this may reach annual maximum of $75,000 based on the sale of 500,000 kWh @ $0.15/kWh. Expenditure – summary of major cost components and variables  Fuel cost assumptions are: FY14 142,000 gallons FY15 130,000 “ FY16 105,000 “ FY17 100,000 “ FY18 100,000 “ These annual gallons represent the projected decline in required diesel fuel with Waterfall Creek coming online and Delta Creek’s performance reaching its FY12 level of 3.02 MW. Table 3 is the basis for the future energy estimates by source (i.e. diesel and hydro). For the last three years (FY11-13), the City used an average of 170,000 gallons a year for its diesel system. Thus, the FY14 projected demand of 142,000 gallons is suggesting a comparative year to FY12. Annual fuel cost escalation increases of between 5 to 10% have been used.  Debt – Current annual debt of $145,000 is used for FY14, increasing to $200,000 in FY15 (partial debt funds assumed to be used in spring/summer of 2014), and $265,000 for FY16-18, which adds the new/additional debt of $120,000 for the MAXIMUM $1.5 million Waterfall Creek debt.  Annual repair & replacement fund of $50,000 (i.e. dedicated/separate funding for major cost items like a new turbine runner, major repairs, etc. – a “mini” depreciation fund)  Other category for FY14 & FY15 – part of the $400,000 cash contribution the City has committed to the project 8 Fund Balance – continues the steady and then-accelerating increase with Waterfall Creek coming fully online in FY16. The prospects of a $500,000 fund balance by FY18 would be a significant long-term energy sustainability step for King Cove TABLE 4B1 – Without Waterfall Creek Revenue – no “surplus power sales” removes $50,000 to $75,000 of revenue for the electric fund. Expenditure – summary of major cost components and variables  Fuel cost assumptions are: FY14 170,000 gallons FY15 170,000 “ FY16 170,000 “ FY17 170,000 “ FY18 170,000 “ Uses the 170,000 gallons average from the last three years (FY11-13). Annual fuel cost escalation increases of between 5 to 10% have been used.  Debt – Current annual debt of $145,000 would remain, but no new debt.  Annual repair & replacement fund would remain at current $30,000.  Other category for FY14 & FY15 – would be reduced by $50,000. Fund Balance – would start to decline, due primarily to the increased amount of diesel with escalating costs. Negative fund balances would be likely by FY16 and becoming significantly worse over time. Significant rate increases would be likely with minimal to no prospects for long-term energy sustainability for King Cove. The projected $700,000 CHANGE is fund balance (comparing Table 4A1 to 4B1) is staggering.