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HomeMy WebLinkAboutElectric Board - Minutes - 04/21/1999A regular meeting of the Fort Collins Electric Board was held at 5 p.m. on Wednesday, April 21, 1999 in the Utilities Training Room at 700 Wood Street, Fort Collins, Colorado, BOARD PRESENT: Bill Brayden, Jeff Eighmy, Mark Fidrych, Len Loomans, Barbara Rutstein, Richard Smart and Jim Welch STAFF PRESENT: Ellen Alward, Dennis Sumner, Eric Dahlgren, Mike Smith, Bill Switzer, Wendy Williams and Shannon Turner GUESTS: John Bleem and Brian Moeck of Platte River Power Authority OBSERVER: Lu Fisk of the League of Women Voters, Doug Smith, Tom Peck and Ryan Trail AGENDA: 1. APPROVAL OF MINUTES: Changes to the March 17,1999 minutes were proposed. Board Member Fidrych made a motion to approve the minutes as amended. Board Member Loomans seconded the motion. The motion passed unanimously, and the minutes from the March 17, 1999 meeting were approved. WIND ENERGY ENVIRONMENTAL CREDITS: John Bleem provided Board Members with an update on the wind program and wind energy environmental benefits. April 12 marked the first anniversary of operation for the two 600 kW Vestas turbines erected at the Medicine Bow, Wyoming wind site. In February, one of the units went down due to a gear failure. The unit was out of commission for approximately one month and will be down for repairs again (likely this summer), because the entire gearbox will eventually need to be replaced. In March, the other unit was briefly out of operation due to bearing failure. Given the mechanical problems with the two turbines, the units only produced about 90 percent of the energy that was expected for the first year of operation. Thus, energy production costs (per kWh) were about 10 percent higher than expected for the first year. Platte River recently did some research on wind pricing. The average wholesale wind energy price in the region is about 55 mills (5.5 cents/kWh). The owner cities are getting wind energy for 3.9 cents/kWh. John explained there are currently two pricing options available to owner cities: (1) an all-inclusive prit—of 3.9 cents/kWh, assuming that Platte liver provides the capital for the turbines, and (2) a price of 1.6 cents/kWh, assuming the Cities make the capital payment for the turbines. The capital payment can be either a lump sum payment or via annual capital payments (similar to a loan). John also explained the wind energy related environmental benefits. At this time, the Renewable Energy Production Incentive (REPI) credit is the only monetary benefit that exists. REPI credits are available for public entities, which are community owned and tax exempt. The Federal Government provides these subsidies from the tax base and appropriates the money for renewable generation on an annual basis. Platte River must apply each year for this benefit, and the monies are used to reduce the net cost of wind energy. There is also a Production Tax Credit (PTC) for taxable entities. This credit is similar to REPI, except the subsidy is provided via a tax credit, which is available for 10 years. These PTC funds are more secure because they are provided via the tax code, rather than annual appropriation. However, the amount of the funds is about the same as REPI (if funded). During the 1999/2000 budget cycle, congress has considered cutting REPI funds. However, due to recent lobbying efforts, REPI and PTC funding may continue and perhaps expand. If cuts were made, there are two types of renewables that will be affected: "Tier 1" (zero emission renewables, such as wind and solar) and "Tier 2" (renewables that have some emissions, such as biomass and methane recovery). Tier 1 projects receive priority, and considering current funding, approximately 90 percent of the total REPI funds would have to be cut before it would be effected. There was some discussion regarding Platte River's wind energy production costs. When the new 660 kW wind turbines were evaluated, it was estimated it would cost Platte River about 51 mills to make the wind energy. The average benefit of REPI credits is approximately12 mills. Platte River is passing the REPI credits to the cities in the wind rate, so the net price to the cities is 39 mills. Platte River has based pricing on the assumption that REPI credits will be awarded on a yearly basis and the units will operate at 100 percent of expected output. The current wind rate is fixed for 10 years. Although costs were higher and production was lower than expected the first year of operation, rates will not be changed due to the fixed nature of the price. Several scenarios have been considered for wind energy and other renewable resources. These include REPI/PTC subsidies, carbon taxes, portfolio standards and CO, allowance trading (sometimes proposed as "carbon credits"). Other than REPI, none of these emission credits or fossil generation penalties have been implemented in Colorado, but some have been discussed as part of the Electric Advisory Panel effort at the Colorado PUC and other forums. REPI is the only monetary credit that currently exists and is subject to annual appropriation. Scenario one looks at subsidies and would provide incentives or subsidies for renewables in a manner similar to REPI. As in the case of KEPI, the additional subsidy would reduce the net cost of wind energy. If the City makes capital payment, the REPI money would be sent directly to the City. If the City does not make capital payment (i.e., if Platte River puts up the capital), REPI benefits would reduce the net rate for wind energy. Either way, the REPI credit and any other future credits would be used to offset the cost of wind. It is assumed that any additional subsidies would be treated the same way. Scenario two is a potential carbon tax. The actual cost in this scenario is 51 mills. REPI credit reduces the cost by 12 mills. It is assumed that a carbon tax would be applied similar to the way congress considered it in 1993. That is, a tax (premium) would be placed on electricity generated from fossil fuel sources based on the fossil fuel energy (BTUs) used. Since the cost of fossil generation goes up, the difference between wind energy and conventional energy would -2- be decreased due to the (a This would have the effect of lowerfthe wind energy premium in the current rate. Scenario 3 is a portfolio standard. John noted that there might be a legislated requirement to have a certain percentage of renewables as part of the generation portfolio of energy suppliers who operate in Colorado (such as Platte River). In some states, only new renewables would count (resources not existing prior to the legislation). Other states include existing renewables. This scenario is similar to the carbon tax, in that the price for the standard portfolio of resources would be increased, thereby decreasing the difference between wind energy and the standard portfolio. Portfolio standards force a rate -based approach that is significantly different than a market ("green pricing') approach. There was a question regarding how wind energy will be divided between Fort Collins and the other cities that jointly purchase wind turbines. John explained that Platte River would sell Fort Collins the proportionate output of the wind turbine based on the amount requested. The credits will also be proportional. Fort Collins would receive the proportional benefit of both the energy from the units and any environmental benefits. The fourth scenario addresses CO, allowances. This scenario assumes CO, would be treated in the same way as SO,. The value is based on the market price for those who want to sell allowances. Total emissions are capped, and the need to generate new emissions creates a market. At this time there is an inefficient market because there are few trades and no formal limits. The average price traded in this experimental market is approximately 25 cents per ton. Eventually the price will gravitate towards the cost of mitigation. If an organization can mitigate CO, for less than they can purchase it, they will mitigate it. For the sellers, CO, allowances are similar to REPI in that it produces revenue and is like a carbon tax for the buyers. In summary, the benefits are impacted by performance; the units must run in order to get the credits. There is a significant level of uncertainty as to how environmental benefits will be valued. For the scenarios considered to date, the benefits will accrue to the wind program. All scenarios narrow the gap between wind and fossil resources. There was some discussion regarding the wind tariff. Board Members noted that the tariff states that possible future credits shall remain with PRPA and is unclear as to how the credits are to be returned to the City. They felt the language should be changed to clarify how future credits will be distributed and how credits will be returned to the cities, proportional to the investment. Board Members would also like portfolio standards to be considered by PRPA as part of the environmental credits. Mike Smith will present this issue to the Platte River Board. He suggested the Platte River Board might address the future carbon credits by issuing a memorandum to clarify the language. Electric Board Members agreed that a memorandum would be sufficient to address these issues. Brian Moeck was in agreement that clarification was needed and will provide Mike Smith and perhaps other Platte River Board Members with a draft of the memorandum. NEW PLATTE RIVER GENERAL MANAGER Brian Moeck, Platte River's new General Manager, was introduced to the Electric Board. Brian shared some of his background with Board Members. He received his education as an electrical engineer and worked for fifteen years for a large investor -owned utility in California. After moving to Colorado, Brian went to work for the City of Loveland as manager of engineering. -3- He then became the departrL-it head of Loveland's electric utility anaiinally Loveland's City Manager. Brian noted he has been attending meetings of the Restructuring Panel for several months and shared his thoughts on the future of the electric industry in Colorado. There was some discussion regarding communication between PRPA and the Electric Board. Board Members would like additional communication and feedback from PRPA. Brian noted that PRPA is always willing to provide assistance. Providing good communication, being cooperative and assisting the owner cities is PRPA's intent. He suggested the possibility of changing the PRPA Board packet to include more information to better inform the Electric Board. There was some discussion regarding a publication called Industry News, which is no longer being published by PRPA. Board Members felt this publication was helpful and encompassed a large scope of information. Brian noted that he would look into whether there was general interest in again producing this publication. A question was raised regarding Brian's view of what PRPA would have to do to prepare for restructuring in the future. The future of the electric industry is uncertain, but he assured the Board that PRPA would remain responsive to the changes. Staff will be identifying possible scenarios of what restructuring might look like. PRPA will look at these scenarios and plan accordingly. Brian shared that ten years from now, he would like PRPA to be viewed as providing an incredibly valuable service to the Boards and to the cities. In closing, Brian noted the PRPA Board would be discussing the need for additional peaking capacity. There is enough capacity to handle base load for several years, but during peaking conditions capacity is not sufficient to meet the peak. The Board will be discussing various options for peaking capacity including distributed generation, generators and gas turbines. OTHER BUSINESS Dennis Sumner mentioned the summary prepared by Stone and Webster for the Electric Advisory Panel. The summary included a comparison of average retail rates of utilities in Colorado. According to this study, PRPA has the lowest retail rates for the year 2000 and remains the lowest through 2017. The summary was based on Plate River's wholesale rate and is merged with the retail rates of Loveland, Longmont and Fort Collins. There was some discussion regarding fuel cells. A news release from General Electric (GE) describes their plan to market a small-scale fuel cell package, which will sell for $7 to $10,000. GE is anticipating they will be able to cut the price in half by the year 2004. Dennis mentioned he had sent GE an e-mail requesting more information and will share their response with the Board. Jim Kuiken, a consultant for Montgomery Watson, is performing an evaluation of a fuel cell application at Drake Water Reclamation Facility (DWRF). The current daily production of sewer gas is 75,000 cubic feet, which is enough to power a 200 kW fuel cell. Sewer gas contains a lot of hydrogen sulfide, which turns into sulfuric acid. When used in a fuel cell, sulfuric acid must be put though an expensive disposable filter. Sewer gas has only a 60 percent heat content compared to natural gas. Dennis explained the gas generated at the plant is primarily used in the digester process. Another digester will also be added at DWRF in the near future, which will require 40,000 cubic feet per day of sewer gas for heating. It is expected to take 10 to 15 years before 40,000 cubic feet per day will be generated by the new digester. Jim will be investigating capital costpproduction capability and operationalZ'Ssts of a fuel cell Information will be provided to the Board in May. There was some discussion regarding Y2K compliance at the Water Treatment Facility. Mike noted there is not a backup generator able to run the whole facility, but they can run partially for a couple days before having problems. There was some discussion regarding the Cities for Climate Protection Committee. The Board asked about potential impacts should the Climate Protection Committee recommend the City purchase part of its electricity from wind. Board Member Eighmy explained Lucinda Smith would like a recommendation from the Board. Mike noted the Board should advise Council of their opinion on this issue. Staff explained if the City chose to purchase wind power, the Utility would need approximately 14 wind turbines to produce enough power for City consumption. If the City were to have 100 percent of their electricity from wind, approximately 45 percent of the total cost would be from Utility funds and the remaining from General Fund. The wastewater plants are the largest consumers of electricity in the city. An increase in electric rates could lead to an increase in wastewater and water rates. The Cities for Climate Protection public open house is scheduled for May 7, and the study session for June 8. RW Beck Updates: Board Members requested an update on the strategic plan. The consultant has completed phase one and is compiling the contractual details for phase two. There will be a meeting next week to start the phase two process. Staff is currently reviewing the phase one draft report. The second phase involves four areas: customer connections, business planning, organizational structure and outside alliances. Staff estimates it will take four to six months to finish phase two. Board Members requested staff provide information at the next meeting regarding PRPA's and the Utilities' position on the federal regional haze initiative. FUTURE AGENDA ITEMS: Cities for Climate Protection Campaign update Federal Regional Haze Initiative PRPA Board and Electric Board Role/Communications Fuel Cell update — Jim Kuiken R.W. Beck second phase update Adjourned 7:25 p.m. Shannon L. Turner, Board Liaison -5-