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HomeMy WebLinkAboutElectric Board - Minutes - 01/20/1999A regular meeting of the Fort Collins Electric Board was held at 5 p.m. on Wednesday, January 20, 1999 in the Utilities Training Room at 700 Wood Street, Fort Collins, Colorado. BOARD PRESENT: Bill Brayden, Jeff Eighmy, Len Loomans, Barbara Rutstein, Richard Smart and Jim Welch BOARD ABSENT: Mark Fidrych STAFF PRESENT: Dave Agee, Lori Clements -Grote, Eric Dahlgren, Bob Kost, Mike Smith, Dennis Sumner, Shannon Turner, Kevin Westhuis and Wendy Williams GUESTS: Mike McFadden of McFadden Consulting, Lucinda Smith and Aaron Fodge of the Natural Resources Department, and John Bleem of Platte River Power Authority OBSERVER: Lu Fisk of the League of Women Voters AGENDA: 1. APPROVAL OF MINUTES: Changes to the December 16, 1998 minutes were proposed. Board Member Loomans made a motion to approve the minutes as amended. Board Member Smart seconded the motion. The motion passed unanimously, and the minutes from the December 16, 1998 meeting were approved. 2. GAS PROJECT UPDATE: Mike McFadden gave a presentation on the Natural Gas Utility Task Force's completed business plan. McFadden Consulting was retained by Fort Collins, Arvada, Lakewood and Commerce City. The natural gas industry has been restructuring since the late 1970's. This process is complex with many uncertainties and could potentially adversely impact residential and small business customers. Colorado legislation has been proposed that would allow residential and small business customers to purchase their gas from a third party supplier. Because of the evolving restructuring and the potential for residential customers to purchase gas from third parties, the cities have investigated gas aggregation and other alternatives to assist their citizens in the transition to a competitive market. The quantitative assessment utilized a 15 year model developed by McFadden Consulting. The decision criteria used for the analysis was net present value. The basic model was comprised of three components, including a cash flow analysis to measure net present value, a sensitivity analysis to identify key variables for success and a probability analysis to assess likelihood of success. The consultant identified six alternatives available to the cities: Citizen Advocacy - Includes influencing the legislature and Public Utilities Commission (PUC) in the restructuring process, and protecting cities rights and opportunities. The estimated cost of citizen advocacy is $160,000 over 15 years. Minimal expenditures would ensure cities' rights are protected. The consultant recommends the cities should stay involved in the process to protect their rights as gas restructuring occurs. 2. Information Provider/Seal of Approval - Provides citizens with information and resources regarding the new deregulated gas environment. The cities could provide a voluntary seal of approval to gas suppliers based on their compliance with established requirements. The estimated cost for this alternative is $2.3 million. The consultant found this approach may be redundant to PUC regulations, and the cost of administration would increase costs to citizens. 3. Licensins Marketers - The cities would license marketers to sell gas to their citizens. Criteria would have to be established for marketers to sell gas within the city limits. The estimated cost for this alternative is $300,000 per city over the 15 year period. The costs would be off - by charging marketers for the license. If the four cities licensed marketers as a joint effort, the costs would be $420,000. The consultant found this scenario was redundant to the PUC, and the cost of administration would increase costs to customers. 4. Gas Marketer - The cities would market gas in the competitive market within the city limits. The consultant looked at three scenarios. The estimated cost for one city is $1.9 million over 15 years. The estimated profit for the four cities in the gas marketer scenario is $2.1 million, and multi -city (18 cities) is $26.7 million. The consultant found this scenario is not profitable for one city. As a four city consortium, gas marketing is marginally profitable as is -2- multi -city. The recommendation is for the cities to stand ready to enter the market only if a competitive market fails to evolve. 5. Exclusive Commodity Provider - In this alternative the cities provide gas commodity on an exclusive basis to its citizens. There would only be one gas supplier, the city, and there would not be a competitive market. This alternative has great financial potential. If one city became an exclusive commodity provider the estimated profit is $11.4 million. The profit to a four city consortium is estimated to be $37.5 million over a 15 year period. The lack of statutory and regulatory authority to become an exclusive commodity provider is an obvious barrier, and there would be significant opposition from other gas suppliers. The consultant feels the resources to achieve this alternative may be better spent on becoming a full utility. 6. Full Utility - Individually the cities would acquire the physical distribution facilities. Fort Collins could purchase the distribution system from PSCo. If the city paid the current average purchase price per customer, the city could provide gas services to citizens at a lower cost than PSCo. There is an opportunity to save the customer a significant amount of dollars over the next 15 years on the distribution services. This alternative offers the best opportunity to benefit citizens and provides local control or rates, service, economic development and social issue. The consultant recommends that cities assess the political climate for pursuing this alternative. There must be a firm commitment from city leaders in order for this alternative to be successful. The consultant's recommended cities stay involved in legislative and regulatory process and become license marketers if PUC oversight does not protect citizens. Cities should market gas supplies only if competitive market forces do not evolve, and assess political commitment to pursuing acquiring distribution facilities. 3. CITIES FOR CLIMATE PROTECTION: Lucinda Smith provided Board Members with an update on the Cities for Climate Protection Campaign. The item has been withdrawn from the Council's March 2, 1999 agenda, and will likely go to Council in April. There was some discussion regarding the limitations of the transmission system at the Medicine Bow wind power site. John Bleem stated the transformer serving the wind site has a capacity of about 10 megawatts, which could serve about 15 turbines (total) if no other requirements were placed on the transformer. If more than 15 turbines were installed, a new transformer would have to be purchased at a cost estimated at about $500,000. Thirty to 40 turbines at the site would cause constraints on Western Area Power Administration's (WAPA's) line, and the cost to build another line and transformer is around $1 to $1.5 million. The site already is limited by constraints on the North/South transmission system from Wyoming to Colorado, called "TOTS". Curtailments on this transmission system are possible at any time, and would increase as more turbines are added at the site. Platte River is working with WAPA to develop estimates of potential curtailments on TOT3 as more turbines are added. -3- There was a question regarding whether there was a solution planned to the TOT3 problem. John explained that Platte River has no ownership in TOT3, but the plan being considered by utilities which own capacity on TOT3 is apparently to build generation next to their Front Range loads rather than upgrading the transmission. Installation of gas turbines along the front range is being considered at this time. John explained that another complication is that existing transmission capacities may be taken by other parties. Platte River is trying to get rights to five megawatts on the line from the wind site to the Medicine Bow substation. Five megawatts equates to about eight turbines. This is the maximum level of turbine output that is currently being planned for. There was some discussion regarding how wind energy is firmed up. John explained that wind generation does not replace the future need for new firm generation since the wind energy is only available when the wind blows. A fine resource would have to be built to back up the non -firm resource. Wind generation can reduce the energy requirements of Fort Collins, currently provided by hydropower and coal, but it cannot reduce the need for new firm capacity. It is probable that some new peaking resource will be needed within the next several years to handle growth. Lucinda reviewed potential costs and issues with the addition of wind turbines The addition of zero to eight turbines has an approximate cost of $0.03 - $0.035 per kWh. Adding nine to 15 turbines would cause the costs per kWh to double. When 16 — 40 turbines are added the transmission capacity at Medicine Bow would have to be increased. There are also issues with adding 16 to 40 turbines, which include obtaining agreement from the system owners to do the upgrade, obtaining an environmental permit, and the perception of environmental impacts from increasing transmission. Adding 41 to 60 turbines has the same cost impacts as adding 16 to 4C turbines. Platte River has been evaluating potential deregulation requirements for renewables. For example, if deregulation mandated one percent of Platte River's energy come from renewables, this would equate to about 12 wind turbines. It is unclear whether the legislation would apply to new renewable resources built after the legislation is passed or existing renewables. Until the legislation on renewables is developed, Platte River plans to continue to support the cities in offering green -priced wind programs. Lucinda mentioned an alternate approach to funding wind power; having the costs covered by the General Fund. There was some discussion as to whether or not City Council would support subsidizing the cost differential for wind power with General Fund monies. Lucinda reviewed the Cities for Climate Protection Campaign's four wind scenarios a) Encourage voluntary subscription through increased marketing and offering wind in smaller blocks, with a goal of adding four more turbines. 5E b) Rate -base four percent of residential electric demand that has been projected for 2010 with wind. (13 turbines) c) Rate -base all new residential electric demand that is projected to occur between 2000 and 2010 with wind. (88 turbines) d) Rate -base all new residential electric demand that is projected to occur between 1990 and 2010 with wind. (166 turbines) Lucinda requested a recommendation from the Board on what direction the Cities for Climate Protection should pursue. The Board recommended the Cities for Climate Protection pursue scenarios (a) and (b). Phased implementation was recommended, with phase one being (a), a short term goal and phase two (b), a long term goal. Some Board members would like to have additional data gathered on scenario (c). There was some discussion regarding rate basing wind power. Mike Smith explained that market rate basing wind power could create problems for the Utility in a competitive market. The Utility mission is to provide low cost reliable power. If wind power is found to be a community value, then perhaps the community should fund it apart from the Utility. PSCo has recently eliminated cost subsidization in their rates thereby reducing their industrial electric rates. Fort Collins no longer has an industrial rate advantage over PSCo. Staff explained discriminatory rate making may be subject to challenge; therefore, if we rate base the wind we must do it for all of our customers not just residential customers. The addition of 13 turbines would result in a 1.43 percent increase in rates. Industrial customers have indicated they will switch electricity providers for''/s a percent increase. Rate basing could be detrimental to the Utility in the face of deregulation. Staff explained that the Utility Billing Office hears regularly from residential customers who are concerned about their electric bills. Rates are an issue for many of our residential customers. Board Members felt it was important to educate the public about how our rates compare with others. The Board was interested in having staff provide information on the costs and implications of the Cities for Climate Protection Campaign scenarios based on green pricing versus rate basing. Staff will generate figures for scenarios (a), (b) and (c) to for Board Members to review in order to make a recommendation to Council. 4. OTHER BUSINESS: Chairperson Loomans raised four issues for discussion. He asked whether the building department is getting the support they need to implement the new building code. Staff explained that the Facilities Department is considering hiring an individual to focus on reducing facility operations costs. Utility staff has been involved in integrated design with Facilities staff in the -5- construction of the new City buildings. Currently Utility staff has scheduled energy audits for ten to twelve City buildings in conjunction with Facilities. There was some discussion regarding whether the Utility could perform the role of energy coordinator for the Facilities Department. Staff explained an energy coordinator would operate on a much bigger scope than the energy consultant role of Utility staff. The coordinator would make facility operations decisions about such things as mechanical systems and carpeting. Many of the duties this individual would perform are beyond the scope of the Utility's energy program. Some Board Members support the idea of the City hiring an energy manager. Dennis Sumner will follow up on this issue. Chairperson Loomans mentioned that he had heard from a fuel cell manufacturer who has been trying to contact the City regarding the installation of fuel cells at the Wastewater Treatment Plant (WTP). He asked that the City explore the option of using fuel cells at the WTP. Mike Smith related the wastewater plant is in the process of reviewing the 1999 master plan, which would include studying energy issues. Board Members asked if there was a staff member assigned to investigating new technologies. Mike explained that while there is not a specific staff member with this function technologies are continually looked at throughout the Utility. The Utility is generally in the forefront of implementing these new technologies. Dennis Sumner will follow up on using fuel cell as a way to dissolve methane. Board Members asked for clarification of the January 15, 1999 memorandum regarding the wind generation proposal. The memorandum was in response to the Cities for Climate Protection proposal, which includes adding a number of wind turbines to meet specific air quality goals. Mike explained that rate basing the wind power program could cause problems in the future. The Utility has a responsibility to the rate payers and City Council to provide reliable, low cost power. Rate basing wind power would raise customers electric bills, many customers are already concerned about their bills, and a free enterprise market is highly competitive and sensitive. Board Members asked whether the Utility needs additional staff to continue promoting the wind power program. If the wind power pilot is moved to a regular program, management will address staffing needs for the administration and promotion of wind power. Staffing is adequate for the existing pilot program. There was some discussion regarding what steps the Utility will take with the wind power pilot program. Mike related when the pilot program is completed the data from the two turbines will be examined at that time, staff will bring the pilot program data back to the Board for recommendations. The Utility is currently working with PRPA regarding capacity issues at the Medicine Bow site. Mike stated that adding two additional turbines, after the completion of the pilot program, is a reasonable goal. Some Board members would like to see the wind power program double its' subscribers, and get Council to approve supplying a few City buildings with wind power. The Board discussed the Cities for Climate Protection scenario of providing residents with one compact florescent bulb per household. The savings of using compact florescent bulbs in this SZ manner would equal the CO2 savings of four turbines. Board Members requested additional information regarding a potential compact florescent bulb program. There was recommendation that Utilities Staff be pro active on the legislative side regarding renewables. FUTURE AGENDA ITEMS: • Cities For Climate Protection Campaign update • Wind Program planning - transition from pilot to regular program • Compact florescent bulbs Adjourned 8:55 p.m. Shannon L. Turner, Board Liaison -7-