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Water & Power Board
Water and Energy Services Board Meeting
January 14, 2009
Water and Energy Board Room
811 E Red Hills Parkway
St. George, UT
3:30 PM
PRESENT:
Chairman Ross Hurst
Board Member Shakespeare
Board Member Hammer
Board Member Rose
Board Member Rich
Energy Services Director Phillip Solomon
Water Services Director Barry Barnum
Conservation Coordinator René Fleming
City of St. George Staff: Scott Taylor, Laurie Mangum
OPENING:
Chairman Hurst called the meeting to order and welcomed everyone in attendance.
APPROVAL OF MINUTES
The minutes were reviewed and a few corrections noted.
Motion:
Board Member Shakespeare made a motion to approve the minutes with corrections.
Second:
Board Member Rich seconded the motion.
Vote:
All voted aye, motion carried.
SUNSMART RIBBON CUTTING
REVIEW OF FINANCIAL STATEMENTS
Water November Financial Statement
Water Services Manager Taylor commented that in the last three months, the amount spent on capital projects was more than anticipated. He explained most of the increase is associated with the new airport water line project. He explained it is possible that the money will be reimbursed from the Federal Aviation Administration (FAA) as part of the outside improvements.
There was discussion concerning the money that may be reimbursed from FAA funds related to costs to bring utility services to the new airport. It is possible that the FAA will reduce the amount of funds allocated for these types of projects.
Mr. Taylor explained funds for the airport project were not in this fiscal year budget. He commented that impact fees are lower than in previous years and that operating revenues and expenditures are in line with expectations. He explained the $1.5 million of cash available on the financial statements doesn’t include the amount of bond capital reserve, so total cash available is roughly $3.8 million.
There was discussion concerning the amount of funds expected to be spent which are associated with completion of projects for new airport.
Mr. Taylor summarized the items yet to complete including upsizing the fire line to accommodate the surrounding areas. The cost for upsizing the line will be borne by the department. He estimated about $1.5 to $2 million has yet to be spent for the new airport projects.
There was discussion regarding what budget cuts have been made to date. So far ten million dollars has been cut and staff expects that another four million dollars will need to be cut due to budget constraints.
Electrical November Financial Statement
Energy Services Director Solomon distributed a cash flow spreadsheet. He highlighted a couple of items on Finance Directors Peterson’s prepared financials. He indicated transmission costs as of November 2008 were about $3 million, He indicated the wholesale power sales for the fiscal year to date (FYD) are about $2.7 million. He explained staff is aggressively trying to sell to the market when it is high and buying when it is low which has reduced the overall cost of power.
There was a discussion regarding energy prices in the current economy. Market prices are generally lower at this time.
Energy Services Director Solomon reviewed operating costs and indicated FYD is a little less due to budget cuts. Operationally the department is doing well. The deficit in the capital costs is due to the approximately $1.3 million in the generation line item, primarily due to the Millcreek Generation Facility (MGF) expansion project. Funding for this project is from a bond issue. There is approximately $10 million in cash reserves.
Energy Services Director Solomon discussed his cash flow projections which compares the forecasts to the actual expenses. He indicated the actual cash reserves are lower than the forecast. This is due to some capital expenditures such as finishing the Green Valley line and substation. The forecast for operating revenues is about two million dollars less than expected.
There was discussion regarding the causes for the lower revenues. It was noted that several commercial customers have closed and that the weather was mild for the month of November.
Energy Services Director Solomon reviewed the wholesale revenues which were forecasted to be about one million dollars and is actually $2.7 million. He indicated operating costs were slightly lower than the forecasted amount. Power purchase costs are also lower, with a forecast at $19.7 million and the actual cost $16.9 million. The line item that is significantly lower than forecasts is the revenue from impact fees, which were conservatively estimated to be $1.2 million, but are actually approximately $600,000 as of the end of November. He indicated the capital budget will most likely be reduced to make up for the impact fee revenue short fall.
There was discussion regarding government entities that do or do not pay impact fees. The school district does pay impact fees but the state does not, it is unknown if entities such as the Washington County Water Conservancy District (WCWCD) pay impact fees.
STAFF REPORTS
Water Services Director Barnum left at approximately 4:45 pm.
Energy Resources Update – summer gas purchases etcetera
Resource Planner Mangum distributed a hand out with forecasts for the summer of 2009. She indicated load growth for the year 2009 is forecasted to be lower than the amount of growth in the year 2008. She commented that issues related to the May 2009 scheduled outage for the Bonanza Power Plant are being addressed. There is a high unit cost of power for that month due to the purchase of replacement power. She indicated actual costs for 2009 should be 10 – 15 dollars less per megawatt hour (MWh) than for 2008.
There was discussion regarding the natural gas price for summer of 2009 as staff has hedged natural gas purchase for that time period.
The group discussed the solar output from the SunSmart facility as well as build out size, which will be two megawatts (MW). The cost of the project and how much of the project is completed was discussed.
Energy Services Director Solomon noted that power purchases for summer 2009 have been made because the market price is low right now.
There was discussion regarding the amount of outside purchases that are committed, which is about $900,000. The resource staff is making purchases to fill the portfolio for the summer months of 2009.
Energy Services Director Solomon commented that beyond the hedges for natural gas purchases, staff wanted to review with the board the actions taken to meet the summer 2009 demand and beyond. Approximately 2,000 dekatherms have been purchased into the year 2011 at $6.50 a dekatherm. Staff is working with BP Energy on a long term purchase. Given the additional capacity at the MGF that will be on line in the year 2010 and daily summer demand approximately 8000 – 11,000 dekatherms a day will be needed. Staff has purchased an additional 2,000 dekatherms at $5.90 per dekatherm for the summer of 2009.
The amount of capacity to transport natural gas to the MGF was discussed. The group discussed working on a purchase of Utah well head gas at $2 per dekatherm, transport to MGF is needed and will be an additional cost.
The group discussed the capacity issue in the natural gas pipeline for operation during the winter months. It was noted that Questar Gas has agreed to provide enough capacity for eight to nine months out of the year. Winter month’s capacity is lacking, with only enough capacity to run one plant in the winter. Demand forecasts indicated a need run the MGF in December.
Brief Project Updates by Water and Energy Department Staff
Water Line and tank to new airport
Mr. Taylor indicated both tank and pump station will go out to bid this month. There is a temporary diesel pump being used currently.
Westside improvement project - blending of water sources
Mr. Taylor explained the blending of Gunlock well field water and Quail Creek Water Treatment Plant (QCWTP) water is being done in partnership with Ivins City and the WCWCD. The project is under design and the environmental work is underway. The deadline for meeting the arsenic ruling is January of 2011. He expects the project to be completed by the deadline.
There was discussion concerning the cost of the project and how costs are being shared. The cost is estimated to be $6.5 million. The WCWCD is contributing $2 million, Ivins City about $1.5 million and the City of St. George is contributing about $3 million. The state has approved a low interest loan of $4.5 million, with an interest rate of approximately 1.77 percent.
Mr. Taylor indicated that a requirement of the low interest loan is that the City review rates and adjust as necessary to meet the loan payment amount.
Proposed biomass generation facility
Energy Services Director Solomon explained staff has worked out an agreement regarding the gas with the county but it is being held up by Faye Reber, the Solid Waste District attorney. Mr. Reber has a few changes to make before returning the contract. The plan to construct test wells and if the wells show promise, to move ahead with the project.
The group discussed possible financing options including traditional bonding or Clean Renewable Energy Bonds (CREB). CREBs generally offer a lower interest rate than traditional bonding. There is also a possibility that the project can be funded as part of a stimulus package if it can be ready to construct in six months.
The group discussed what a biomass facility is, how it works and what the projected capacity. It will be approximately one MW with the potential to increase in capacity as the landfill increases in size.
UAMPS update
Energy Services Director Solomon discussed the Joint Operating Agreement (JOA) with PacifiCorp regarding the transmission system into the county. The council approved the documents for UAMPS to bond the next phase (phase 3) improvements from Central substation to St. George substation. UAMPS members participate 54% PacifiCorp is 46% of the project. The participation rate is based on the load. PacifiCorp is dragging its feet and having problems with joint planning for the next phase of improvements. He discussed possible strategies with entities other than PacifiCorp to see if it can be resolved. He indicated one option is to go before the Public Service Commission and the Federal Energy Regulation Commission (FERC) if PacifiCorp won’t start working on this issue. The transmission capacity will be adequate into the years 2015 – 2016 once phase 3 is completed.
MGF expansion project
Energy Services Director Solomon reviewed the progress on the project; construction will start in February or March of 2009. Staff decided not to do a lump sum contract for the Engineering and Procurement Contract (EPC). Rather a target price was set, anything that comes in under the target price the contractor and the City will share equally in the savings. Any costs over the contract price will also be shared equally. To date, with all equipment that has been bid prices have been significantly lower than the estimate.
There was discussed regarding who is monitoring the project on the city side. Staff has formed a team, with responsibilities divided between members. Buck Oliver with General Electric and Generation Superintendent Rod Carter are the members watching the overall flow of the specifications. Rick Hansen is responsible for the electrical engineering. Energy Services Director Solomon is watching the financial part of the project.
Energy Services Director Solomon indicated the project is moving along smoothly. He reviewed the location of the turbine which has changed to due to the nine million dollars worth of environment pollution control that is required.
2 Elks power plant
Energy Services Director Solomon indicated the negotiating is ongoing regarding a Power Purchase Agreement (PPA) for 30 years with the right to extend the PPA. The only risk involves the possibility of cap and trade or other type of legislation raising the cost which would be passed onto the department. The PPA would be for ten MW during the winter and 30 MW during the summer at a cost to be negotiated.
Cap and Trade Legislation and climate change
Energy Services Director indicated that the selection of cabinet members in the Obama administration includes very environmentally conscious individuals. There is a lot of talk and momentum to push an environmental solution on climate change. Although there may not be new legislation in the first year of the administration due to the economic situation that has to be handled, it appears that environmental legislation related to climate change will move forward. If current proposed legislation is passed it could result in a 350% power cost increase. As a utility, staff is trying to make prudent decisions, staying on top of issues and proactive in countering the possible effects. He commented that his recommendation would be to pass these costs on to the consumer as it is not possible to absorb the costs.
There was discussion concerning the diversification of the energy resource portfolio. In the year 2002 resources was 84% coal generation, currently there is significantly less coal – about 43% with a more renewable resources than in the year 2002.
Energy Services Director Solomon indicated if it were to be mandated to have a certain percentage of renewable resources in the portfolio and staff were not able to acquire enough to meet the mandate, staff would push for a requirement that any new building permit would have to buy into SunSmart.
Chairman Hurst indicated that the American Public Power Association (APPA) has stated that entrepreneurs with the right incentive may be able to solve the renewable resource problems.
Energy Services Director Solomon commented that as power costs continue to increase solar will become more affordable.
Ms. Mangum mentioned a compressed air project in northern Utah that might be part of future renewable energy.
Energy Services Director Solomon noted the council approved the energy efficiency rebate program that the board reviewed at the last meeting.
Energy Services Director Solomon indicated there is a large company that is computer server intense and may bring 16 – 25 MW load into the Tonaquint commercial area. Staff is requesting a pre-pay capacity charge in order to be able to cover this amount of power or that the company pay market price of power.
There was discussion concerning long term contracts tied to coal fired generation and possible costs for these types of projects if carbon limits or renewable energy standards are adopted.
The negotiations regarding the Two Elks power plant and exit strategies available in the event the City decides not to pursue the project were discussed.
Reliability and NERC compliance requirements
Energy Services Director Solomon explained that in the year 2005 the Energy Policy Act new reliability standards set by NERC were applied to utilities. Compliance has turned into a bureaucratic night mare. Every five years a utility is selected for an audit and the Energy Services Department was selected to undergo a table top audit in the fall of 2009.
Other business
The group discussed the outage that occurred on Monday January 12, 2009.
Calendar
Next meeting is scheduled for April 8, 2009 3:00 pm
Motion to adjourn
Motion
A motion to adjourn was made by Board Member Rich
Second
The motion is seconded by Board Member Hammer
Vote
All voted aye, motion carried.
Minutes recorded by:
René Fleming Conservation Coordinator |
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