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HomeMy WebLinkAbout6 - Recommendation on Financing City Matching Funds for a Grant to Modernize the Boulder Canyon Hydroelectric Facility CITY OF BOULDER WATER RESOURCES ADVISORY BOARD AGENDA ITEM MEETING DATE: December 21, 2009 AGENDA TITLE: Recommendation on Financing City Matching Funds for a Grant to Modernize the Boulder Canyon Hydroelectric Facility PRESENTERS: Ned Williams, Director of Public Works for Utilities Carol Ellinghouse, Water Resources Coordinator Carol Linn, Utilities Finance Manager EXECUTIVE SUMMARY: In Aug. 2009, city staff submitted an application for rehabilitation of the city's Boulder Canyon Hydro (BCH) facility to the Department of Energy (DOE) under a grant offering for modernization of hydroelectric facilities through the Recovery Act stimulus funding program. On Nov. 4, 2009, the city received notice that its application had been accepted for negotiation of an award of $1,180,000 toward the total project cost of $5,155,000. Therefore, the amount to be paid by the city if the grant is accepted is $3,975,000. A decision regarding the city's acceptance of the grant and the funding source for the city's portion of project costs must be made soon because of a grant requirement that the rehabilitated hydro project be on-line by Dec. 2011. This drives a very tight schedule that requires design of the project to begin in Jan. 2010 so that construction can be completed in two years. STAFF RECOMMENDATION: Suggested Motion Language: Staff requests WRAB consideration of this matter and action in the form of the following motion: Motion to recommend to City Council acceptance of DOE grant funding for Boulder Canyon Hydro modernization and use of Lakewood Pipeline Remediation Reserve funds, to be repaid with 3% interest, for funding of Boulder's share of the modernization proj ect. COMMUNITY SUSTAINABILITY ASSESSMENTS AND IMPACTS: • Economic: Over the fifty-year life of the new BCH generating equipment, sale of the electricity will provide a net increase in present worth revenue for the city of $6.1 AGENDA ITEM 9 6 PAGE 1 • Environmental: Rehabilitating BCH will offset the need to burn 278,000 tons of coal over the 50-year life of the new equipment, resulting in a reduction of 281,000 tons of COz emissions. • Social: BCH is considered eligible for listing on the National Register of Historic Places. Retaining original function is commonly recognized as one of the most effective means of historic preservation. While modernization will affect the interior/equipment of the historic power plant, the city has included provisions to mitigate adverse effects in the modernization project scope. OTHER IMPACTS: • Fiscal: The present worth of the revenues from rehabilitating BCH over a twenty-year period is $6,554,000. With the grant, the present worth of the construction and O&M costs is $3,970,000, which puts the present worth of net revenues for the water utility over twenty years at $2,584,000 with a benefit/cost ratio for the project of 1.65. One financing option is to borrow $5.155 million from the Lakewood Pipeline Remediation Reserve to fully appropriate the funds for the project. The grant funds would replenish the reserve by $1.18 million as they are received. The water utility would repay the reserve the remaining $3.975 million at a 3% annual interest rate. Another option is to reprioritize the water utility capital improvement program (CIP) while acknowledging the short-term implications for the utilities bond rating and longer-term implications for costs of postponed maintenance projects. • Staff time: Staff time for the BCH modernization project can be accommodated with existing staff levels, but with some reprioritization of work assignments required. BACKGROUND: The existing BCH turbine-generator was installed in 1936 and is not expected to remain operational for more than five years. Rehabilitation of BCH with a new generation unit was included as a recommended project in the Source Water Master Plan and in the 20- year water utility CIP. If a new turbine-generator unit is not installed, BCH could be decommissioned when the existing unit fails. Decommissioning would involve costs and would cause a loss of future revenue potential at BCH, as well as a decrease in generation of electricity with the city water system. As part of the 2010 recommended budget submitted to Council, it was noted that the Utilities division was pursuing federal stimulus funds through the American Recovery and Reinvestment Act of 2009 (ARRA) on a case by case basis as opportunities arise. It was also noted that some of the funding programs require a city match and, should the city be successful in an award, Utilities may need to re-prioritize its capital improvement program, use financial reserves or a combination of both in order to accept the award and fund the city's share of the project. In Aug. 2009, city staff submitted an application for rehabilitation of BCH to the Department of Energy (DOE) under a grant offering for modernization of hydroelectric facilities through the Recovery Act stimulus funding program (Attachment A: Grant AGENDA ITEM 9 6 PAGE 2 Application Summary). On Nov. 4, 2009, the city received notice that its application had been accepted for negotiation of an award of $1.18 million. The grant offering had stated that up to 50% matching funds were available from DOE for selected projects, and this was the basis of the city's application. The city had submitted a proposed project cost of $5,155,000, had requested a matching grant of at least $2.5 million from DOE and anticipated that the city's share of project costs would be $2,655,000. With the actual grant award being $1,180,000, the city's share of funding will be $3,975,000 if the DOE grant is accepted. This is $1,320,000 more than reflected in the grant application. The electricity generated at BCH is sold by the city to Xcel Energy and is renewable energy that can be sold for a premium. The financial benefits of rehabilitating BCH exceed the costs with or without the grant, but the grant funding makes the project even more attractive. The investment in construction of the rehabilitated BCH with the grant would be recovered after ten years (ten year pay-back period) of operation and would be recovered in 14 years without the grant. The grant requires that the rehabilitated hydro project be on-line by Dec. 2011. This drives a very tight schedule that requires design of the project to begin in Jan. 2010 so that construction can be completed in two years. Information obtained as the grant application was being developed indicated that manufacturing the new turbine-generator will require approximately 16 months, so the order for this equipment would be made in Mar. 2010 to allow sufficient time for installation in 2011. ANALYSIS: Hydroelectric production at BCH provides revenue for the water utility from sale of the power to Xcel Energy. It also provides green renewable energy with environmental benefits due to offsetting the need to burn coal for electricity production. The amount of energy production and environmental benefits for the existing BCH unit and the proposed replacement unit are shown in Attachment B: Technical Memorandum regarding BCH Grant. This memo also provides a technical analysis of the project economics and a detailed discussion of the city's funding options for the project. Rehabilitation of BCH was not planned for or budgeted in 2009 or 2010. However, when Recovery Act funds/grants became available in 2009, staff applied for a DOE grant to replace the turbine-generator at the BCH facility. This project was not in the 6-year CIP because there are higher priority Water Utility projects. Staff has evaluated the following four options for funding the city's share of the BCH rehabilitation project: 1. Borrow from the Lakewood Pipeline Remediation Reserve and repay with 3% interest 2. Reprioritize the existing 2009-2015 CIP 3. Combination of borrowing from the Lakewood Pipeline Remediation Reserve and reprioritizing the existing CIP 4. Decline the grant money AGENDA ITEM 9 6 PAGE 3 Temporary use of a limited portion of the funds in the Lakewood Pipeline Remediation Reserve would allow the city to take advantage of the awarded grant funds and support the city's Climate Action Plan goals while providing some long term revenue benefits to the Water Utility. Use of this fund would not have a negative impact on water system infrastructure by diverting funds from maintenance projects in the CIP. Staff believes that reprioritization of CIP projects would create an undesirable increase in risk for the city's ability to provide safe, reliable water service. Use of the Lakewood Pipeline Remediation Reserve also would not negatively affect the utilities bond rating in 2010 when utilities is planning to issue a Water & Sewer revenue bond to fund ultraviolet light disinfection, headworks rehabilitation and digester improvements at the Wastewater Treatment Facility. Staff and consultants have performed six internal inspections of Lakewood Pipeline since it began operating in May of 2004. One of the primary objectives of the inspections has been to monitor steel corrosion that has formed underneath cracks in the cement mortar lining. Observations made during the sixth internal inspection, which was completed in Dec. 2009, indicate that the corrosion issue has stabilized and extensive remediation measures will not be necessary in the next five to ten years. Therefore, the risk of borrowing some of the funds in the Lakewood Pipeline Remediation Reserve for a ten- year period is low. Rehabilitation of BCH will not affect current streamflows in Middle Boulder Creek and main Boulder Creek. Following the purchase of the BCH facilities from Public Service Company of Colorado (PSCO) in 2001, the city established minimum instream flow levels for Middle Boulder Creek below Barker Dam. The city also discontinued the PSCo practice of ramping up generation during peak demand periods on winter evenings because this produced extremely high surges of water flow in Boulder Creek that were harmful to aquatic habitat. The city is in the process of negotiating a new power purchase agreement (PPA) with PSCo/Xcel Energy for sale of the electricity generated at BCH. Under this new twenty- year agreement, the city may be paid a flat generation fee of $40/ MW-hr, which would result in about $465,000 of annual revenue for the water utility beginning in 2012. This is more than the previous agreement for BCH, which paid an average of $24/1\4W-hr. Under the new PPA, PSCo/Xcel would be allowed to use the Renewable Energy Credits (RECs) associated with the BCH project. Negotiation of the PPA is expected to be completed and presented in the first quarter of 2010. The city has applied for and is awaiting issuance of a conduit exemption from licensing from the Federal Energy Regulatory Commission for BCH. If approved, the exemption would be issued in perpetuity, thus avoiding costly project relicensing efforts in the future. The exemption would be amended to reflect the new generation capacity once the modernization project is completed. ATTACHMENTS: Attachment A: Grant Application Summary Attachment B: Technical Memorandum regarding BCH Grant AGENDA ITEM 9 6 PAGE 4 Attachment A Grant Application .Summary for Modernization of the Boulder Canyon Hydroelectric Project DE-FOA-0000120 .ifA .,rr J 1 : k K 4 Y I ~ Y-1 XMLNI'71-7 -.4 4ff~ t Project Narrative DenrerPnblic Libram, Mestern History Collec rio!r ~ee ra F~ City of Boulder, Colorado Department of Public Works, DenrerPnblic Librarn Wfestern History Collection J Utilities Division 7 P. O. Box 791 Boulder, CO. 80305 F 3! - _L Jr9 August 2009 sY ~ F Y ■ - J 1 Project Overview and Objectives The City of Boulder, Colorado ("the city' or "Boulder") is proposing to modernize its existing Boulder Canyon Hydroelectric facility. Boulder Canyon Hydro was originally constructed in 1910 and has continuously produced electricity since that time. Some equipment in the facility has been replaced, but much of it is decades old. The existing turbine and generator are more than seventy years old and should be replaced soon if Boulder Canyon Hydro is to continue operating. The facility is unique due to its history, the very high pressure of its water supply, its construction, and its incorporation into the city's municipal water supply system. Rehabilitating Boulder Canyon Hydro could provide a useful example for owners of other older projects of how to deal with modernizing equipment within an existing building with existing connections to the electrical grid and could also highlight the potential for power generation that might exist within other municipal water supply systems. Boulder is located on the Front Range of the Rocky Mountains and provides water service to approximately 29,000 residential, commercial and industrial accounts with an annual treated water demand of approximately 19,000 acre-feet or 6.2 billion gallons. The Boulder Creek watershed is the city's primary municipal water supply source. The Boulder Creek watershed water supply system also provides clean, renewable energy from generation of electricity at hydroelectric plants installed on municipal water supply pipelines. Beginning in the early 1980s, Boulder recognized the potential for hydroelectric energy generation within its water system and began developing facilities to produce electricity as a by- product of its water utility operations. Today, Boulder owns and operates eight hydroelectric facilities on its raw water transmission and treated water distribution systems. These hydroelectric plants produce environmentally-friendly hydroelectricity by making use of pressure developed in municipal water supply pipelines due to the large elevation drop between the city's diversion points in the mountains and delivery points on the plains. This pressure must be reduced to treat and deliver the water for municipal purposes and would otherwise be wasted through pressure-reducing valves. The city's hydro plants are operated in a manner that does not diminish the primary purpose of supplying municipal water. Revenue from the sale of the electricity allows the city's Water Utility to maintain lower water rates for its customers. At the end of 2008, the city had generated 468,550,000 kilowatt-hours (kWh) of electricity since its first hydroelectric project went into operation in 1985. Sale of this power has generated $22,674,000 of revenue for the Water Utility, while providing environmental benefits through displacing the need to burn over 241,300 tons of coal and avoiding air emissions resulting from traditional coal-fired generation facilities. The city's hydro facilities have frequently been cited in industry literature as an example of how electricity can be derived with no additional environmental effects from water facilities that are in existence and required for other purposes. The existing Boulder Canyon Hydroelectric facility is located on Boulder Creek west of the city. The power plant generates using untreated water diverted at Barker Reservoir located near the town of Nederland at an elevation of about 8500 feet. The water is transported approximately 2 11.5 miles in the Barker Gravity Pipeline to a small regulating reservoir and then through Boulder Canyon Penstock to the Boulder Canyon Hydro building at an elevation that is 1800 feet lower, thereby producing 840 psi of pressure. Although the hydro plant originally operated with two 10 megawatt (MW) turbine/generators, one of the generators failed in 2000. The remaining operational turbine and generator date to 1936 and are at the end of their expected lives. Without a new turbine and generator, operation of the hydro is expected to cease within 5 years or less. Originally constructed in 1910 by the Central Colorado Power Company for the sole purpose of hydroelectric power production, Objective: the project began delivering water for Boulder's municipal water supply in the 1950s. Almost all of the Barker Reservoir storage Increase generation and has been converted to municipal water supply storage over efficiency of the 100-year- space the course of the past few decades, so Boulder Canyon Hydro old Boulder Canyon now operates almost exclusively using direct streamflows Hydroelectric facility diverted from Middle Boulder Creek at Barker Reservoir. The city purchased the hydro facilities from Public Service Company of Colorado in 2001 and immediately established a minimum instream flow level below Barker Dam. Most of the water for Boulder Canyon Hydro is now available from April to October when streamflows are higher due to melting of the annual high mountain snowpack. The redirection of much of the historic water flow to meet the city's municipal and minimum instream flow uses means that the existing Boulder Canyon Hydro turbine is too large to operate efficiently. The city is proposing to install a new turbine/generator unit approximately 5 MW in size that is appropriately sized for the available water flow. This unit could generate about 580,000 MW-hours (MW-hr) over its fifty- year life that would not otherwise occur. Even at a smaller capacity, actual annual generation can increase in the future as compared to the past because of increased turbine efficiency with proper sizing and decreased operational downtime compared to that presently experienced with the old equipment. Average annual Boulder Canyon Hydro generation from 2002 through 2008 has been about 8500 MW-hr, whereas annual generation with the proposed project could average about 11,000 to 12,000 MW-hr. The incremental change in annual generation is an additional 2500 to 2600 MW-hr per year, which is a 30% increase in generation over current conditions. However, generation at Boulder Canyon Hydro will soon drop to zero without replacement of the existing turbine and generator because they are beyond their expected life. The one currently operational turbine/generator is a single nozzle Pelton turbine with a 5-to-1 flow turndown and a maximum turbine/generator efficiency of 81.8%. The proposed turbine would be a double nozzle Pelton turbine with a 10-to-1 flow turndown and a maximum turbine/generator efficiency of 88%. This alone represents a more than 6% increase in overall efficiency. The existing operational turbine is estimated to operate with actual efficiencies in the range of 40 to 70% due to age and non-optimal sizing of the turbine for the water flow available to the unit. The turbine currently must be shut down whenever water flow drops to less than about 8 cfs. An appropriately sized new turbine could likely operate in the range of 70 to 88% through a large portion of the existing flow range and would not have to be shut down at low flow rates. 3 In addition to turbine/generator replacement, upgrades to wiring, improved lightning protection and installation of a remotely Objective: operated turbine isolation valve is proposed to address safety and operational efficiency issues with the aging power plant. Increase safety at Boulder Deteriorated wiring insulation throughout the plant may cause Canyon Hydro electrical shorts that can harm both personnel and equipment. The city has purchased a thermal imaging camera to monitor rising temperatures of the high voltage wiring in anticipation of risk increasing to the point that the equipment must be retired. Asbestos testing on existing wiring has been positive, constituting an additional safety hazard. New electrical and control systems associated with the new turbine/generator installation would address this issue. Aging transformers with minimal protection from lightning strikes at Boulder Canyon Hydro represent a safety hazard, an Objective: environmental threat, and a source of decreased generation. For example, lightning damage caused a two-month outage of the Increase protection of the power plant in 2008, resulting in the loss of approximately 5225 Boulder Creek environment MWh of generation. Two of the aging transformers are located immediately adjacent to Boulder Creek. If lightning were to strike these transformers directly, it could result in an oil spill into the creek and cause significant environmental damage. An old on-site single-walled hydraulic oil storage tank is another potential environment hazard. In conjunction with installation of a new turbine/generator, the city proposes to install additional protection from lightning-caused surges, remove the two transformers adjacent to the creek, and replace the on-site hydraulic oil storage tank. The existing turbine isolation valve (TIV), which was installed in 1910, cannot be remotely operated, nor does the valve close Objective: automatically upon an emergency turbine stop. The existing TIV would be prohibitively expensive to modify. Without remote TIV Modernize and integrate operation, a runaway turbine condition could occur and cause control equipment into the considerable damage to the turbine or possibly a penstock rupture. municipal water system The environmental damage to Boulder Creek from rupture of the 840 psi penstock might take decades to mitigate. The only cost effective way to rectify this situation is to install a state-of-the-art TIV at the time the turbine is replaced. When Boulder Canyon Hydro was constructed in 1910, it was the highest head hydro plant west of the Mississippi River and Objective: possibly in the United States. The project, backed by several investors of historic importance both nationally and within the Preserve significant state of Colorado, was notable in terms of construction difficulty historical engineering and technological challenges. Due in part to its unique information prior to plant engineering features and innovative construction techniques, modernization 4 Boulder Canyon Hydro is considered eligible for listing on the National Register of Historic Places.' The power plant today exists in close to original condition. Prior to modernization, Boulder proposes to document and preserve technical engineering data in accordance with Historic American Engineering Record standards. This effort would include collection, review and organization of the abundant historic documentation that exists for Boulder Canyon Hydro. Completion of the modernization effort would have a long-term beneficial effect on the historically significant Boulder Canyon Project. Modernization will allow for continued operation of the hydroelectric plant, which will preserve the original function and use of the power plant. Retaining original function is commonly recognized as one of the most effective means of historic preservation. Boulder has anticipated the need to upgrade and modernize the Boulder Canyon Hydroelectric facility since the city's purchase in 2001 and, as a result, is in a position to move this project forward Objective: to completion within two years of grant award. Boulder Canyon Complete modernization Hydro currently operates under a license (P-1005) from the with minimal regulatory Federal Energy Regulatory Commission (FERC) which expires on delay August 31, 2009. The city began discussing options for relicensing the project with the FERC in 2003. Recognizing both capacity reduction and conversion of project facilities from primarily hydroelectric power generation purposes to municipal water supply objectives, the city completed its consultation process for project reauthorization in 2007 and 2008 and on March 9, 2009 filed its final application for exemption of the Boulder Canyon facilities from licensing as a small conduit hydroelectric facility. The city anticipates issuance of the order granting exemption of the facilities by August 31, 2009. Conduit exemptions from licensing are issued in perpetuity, eliminating the need for time-consuming and costly relicensing efforts in the future. The conduit exemption order will reflect the continuing operation of a single 10 MW turbine/generator as the project nameplate capacity. While the city is prepared to submit an application to FERC for amendment of the exemption at such time that it replaces the existing turbine unit, the city believes it meets the criteria for implementing the proposed changes without prior FERC review and approval (as provided for in FERC regulations at 18 CFR §4.96). Specifically, the city can provide assurances from fish and wildlife agencies that the proposed change would be consistent with their understanding and expectations for the project. In addition, installation of a new, appropriately sized turbine would not materially alter the design, location or operation of the project. In 2005, a feasibility study was completed to integrate municipal water supply reliability and hydropower generation which showed that a 4.9 MW unit at Boulder Canyon Hydro would be an appropriately sized replacement for the two 10 MW units currently installed. Modernization of Boulder Canyon Hydro has a positive benefit-cost ratio and would allow the City of Boulder to ' In 1994, the Boulder Canyon Hydroelectric Facility Penstock was awarded the Historical Welded Structure Award by the American Welding Society as it was the first structure to use acetylene welding in conjunction with the ballpeen welding procedure and significantly advanced penstock technology when constructed in 1910. 5 maintain municipal water supply as a priority, improve reliability and flexibility of the water supply system, reduce production of greenhouse gases in furtherance of the city's climate action goals, and fully utilize hydroelectric potential while maintaining its existing instream flow commitments for Boulder Creek. The city has been a leader in development of hydroelectric potential in municipal water supply systems. Through viewing the city water The project is part of a system and its energy potential comprehensively as complementary comprehensive program to resources, the city has developed innovations in methods for proper develop the energy potential sizing of turbines when using consistent municipal water flows versus within the municipal water more variable river flows and in use of pump/turbine units to maintain supply system. proper pressures between water system pressure zones without wasting the energy. BCH modernization is just one component of the city's overall comprehensive plan to develop the hydroelectric potential of its municipal water supplies. Boulder has identified at least three other potential hydro plant sites within its water system that could be developed if funding can be accommodated within the Water Utility budget. If the city could reduce its costs for BCH modernization, capital improvement budgets for other hydro improvements in the system could be available sooner. In general, the city policy for hydro potential development relies on economic as well as environmental feasibility. Economic feasibility relies upon a project being able to pay for itself during its expected lifetime. The Boulder Canyon Hydro turbine/generator is at the end of its useful life and is expected to fail in the next 5 years. Table 1, below, summarizes the incremental increase in energy production and environmental benefits that would result from power plant modernization at the current time. Modernization of the Boulder Canyon Hydro equipment was included in the city's master plans for both the Middle Boulder Creek Watershed and the source water system. The Boulder City Council adopted these plans in 2002 and 2009, respectively. Required lead time for delivery of a turbine generator in the U.S. is currently approximately 16 months. Notwithstanding, the city Boulder believes this project believes project completion within 2 years of award is very possible will be operational within 2 for the following reasons: years of grant award. ■ Feasibility studies, including turbine sizing, have been completed. This will allow the city to order the turbine/generator as owner-procured materials shortly after grant award. ■ The city has completed the necessary consultation and application processes for the FERC authorization of this project and expects to have a conduit exemption from licensing in hand in the next several weeks. ■ AECOM will be the design engineer for this project. AECOM completed the feasibility study for turbine replacement, has designed and constructed two of the city's other hydroelectric plants and is very familiar with the existing and proposed facilities. AECOM has extensive experience in planning designing and execution of hydroelectric projects. AECOM has an extensive history of engineering consultation for the City of Boulder and prepared the analysis of hydroelectric potential for the Boulder Canyon 6 Hydroelectric facility. ■ Final design, contracting, remaining minor permitting efforts, and other aspects of the project (historic documentation, surge protection, transformer removal and oil storage tank replacement) can be completed in advance of turbine delivery. ■ The power house is an existing structure. Therefore, modernization of the interior equipment can be undertaken with no seasonal restrictions or weather-related delays. The City of Boulder has successfully completed seven hydroelectric installations on its municipal water supply system and has contracted The city/AECOMproject with AECOM on its two most recent hydroelectric projects. Past team has a proven approach experience has resulted in a proven, successful approach which will be to successful completion of of immeasurable value in the completion of Boulder Canyon Hydro hydroelectric project design modernization. and construction. 1. Equipment Procurement The projected lead time for the turbine and generator package is estimated at 490 calendar days (approximately 16 months) from receipt of Purchase Order. In order to assure construction is completed by the end of the second year, issuance of the Purchase Order for the turbine and generator package will be the first priority. Initial engineering design efforts will consist of preparing technical specifications and drawings for the 4.9 MW turbine generator procurement package by mid-February 2010. It is anticipated that the Request for Proposal (RFP) document will be issued by the beginning of March 2010. The bid review process is anticipated to be complete within two months, and a purchase order will be issued to a vendor in mid-May 2010. 2. Engineering Design Services - Submittal coordination with turbine vendor The technical specifications provided in the RFP document will include requirements for equipment design submittals. It is anticipated that the following submittals will be reviewed for conformity to the contract drawings and specifications: • Manufacturer's design calculations including inertia calculations • Manufacturer's design drawings of the turbine, generator, tailrace, hydraulic power unit, and turbine inlet valve. • Product data sheets of specific instrumentation. 3. Engineering Design Services - Preparation of final construction specifications and drawings Final design and preparation of a complete specification and drawing bid package for replacing the existing 10 MW Pelton unit at Boulder Canyon Hydroelectric facility with a modern, more efficient 4.9 MW Pelton unit will be performed. The following technical components will be included in final design activities: • Geotechnical review - a review of the existing geotechnical data will be performed to analyze the impact of the proposed modifications described below. • Structural design - the existing unit is embedded in concrete. This concrete will be removed and new concrete supports will be installed for the new unit. 7 • Civil design - minor modifications may be required in the tailrace area depending on the new unit orientation. Piping modifications will be required upstream of the new turbine to accommodate the smaller size and possibly a lower turbine setting. • Hydro-mechanical - the design of the hydro-mechanical equipment will be in close consultation with the turbine generator manufacturer. The equipment includes the turbine, generator, hydraulic power unit, controls and switchgear and inlet valve. • Tie-in locations - two tie-in locations will be required. One will be for the new turbine and one will be for the by-pass to the Betasso Hydro unit and the Water Treatment Plant. • Electrical and Controls - electrical and controls design will be based on upgrading the existing equipment to meet the requirements of the new unit. The new unit will be fully operational on the City's SCADA system. • Operations and Maintenance Access - existing access to the facility will be maintained for use with the new unit. • Historic preservation considerations - the design will consider the requirements for historic preservation of the existing facility. Existing specifications used on previous City of Boulder projects will be used as a basis for the Boulder Canyon Hydro specifications. Utilization of the existing technical specifications will result in efficient use of the time and budget. AECOM understands the need to be efficient and will thoughtfully implement measures to maximize the use of existing information for this project. The specifications and drawings will be prepared in consultation with the City and issued for bid. Final design efforts will occur during the second, third and fourth quarters of the first calendar year (2010). The final design package and construction bid documents will be completed and ready for bid by the end of the first year (2010). 8 ATTACHMENT B TECHNICAL MEMORANDUM BY: Ned Williams Carol Ellinghouse Carol Linn SUBJ: Boulder Canyon Hydro Modernization Grant and Possible Funding Sources for City share DATE: December 16, 2009 Summary In October 2009, city staff submitted an application for rehabilitation of the city's Boulder Canyon Hydro (BCH) facility to the Department of Energy (DOE) under a grant offering for modernization of hydroelectric facilities through the Recovery Act stimulus funding program. On November 4, 2009, the city received notice that its application had been accepted for negotiation of an award of $1,180,000. The grant offering had stated that up to 50% matching funds were available from DOE for selected projects and this was the basis of the city's application. The city had submitted a proposed project cost of $5,155,000, had requested a matching grant of at least $2.5 million from DOE and anticipated that the city's share would be $2,655,000. With the actual grant award being $1,180,000, the city's share of funding will be $3,975,000 if the DOE grant is accepted, which is $1,320,000 more than the submittal forms indicated. A decision regarding the city's acceptance of the grant must be made soon because of the grant requirement that the rehabilitated hydro project be on-line by December 2011. This drives a very tight schedule that requires design of the project to begin in January 2010 so that construction can be completed in two years. In particular, information obtained as the grant application was being developed indicated the required lead time for manufacture and delivery of a turbine- generator is currently approximately 16 months, so the specifications must be completed and the order placed in March 2010 to achieve the required completion date for the project. This memo discusses the benefits and costs of rehabilitating the BCH facility and reviews options for the city's portion of the project funding. BCH Background The city purchased BCH from Public Service Company (PSCo) of Colorado in 2001. The hydro project was originally constructed in 1910. It had two 10 megawatt (MW) turbine-generators, but one of the units failed just prior to the city's purchase. The remaining operational unit was installed in 1936 and is not expected to last longer than another 5 years. Most of the water that once ran through BCH before the city's use of the Barker facilities began in the 1950s is now carried to Betasso Hydro and the Betasso Water Treatment Facility, thereby Page 1 reducing the amount of power generation when compared to PSCo's operating practice. The city completed preliminary studies of turbine-generator replacement options and concluded that a new 5 MW unit would be appropriately sized for the amount of water remaining to be run through BCH. If a new unit is installed, it could be expected to have a fifty-year life. Rehabilitation of BCH with a new 5 MW unit was included as a recommended project in the Source Water Master Plan and in the 20-year CIP. Public comment and WRAB review during the Source Water Master Plan process supported the development of the hydroelectric potential within the municipal water system to the extent reasonably possible and advocated payback periods of as much as twenty years using hydro revenues from the project to offset the costs. If a new turbine-generator unit is not installed, BCH could be decommissioned when the existing unit fails. This would require completing a Federal Energy Regulatory Commission (FERC) process since it is a licensed hydro project. Decommissioning would involve costs and would include loss of future revenue potential at BCH. During some months, a portion of the water that had been run through BCH could be run through Betasso Hydro and then returned to Boulder Creek through the new discharge line from Betasso as shown in Figure 1 below. Figure 1 Increased Betasso Hydro Flows with No BCH Generation &0 7.0 0.0 N 5.0 3 0 ~y 4.0 d R `y 3.0 a 2.0 1.0 0.0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Month Not all of the BCH water can be used in this manner because most of the pipeline capacity in the Betasso penstock is filled with municipal water during much of the year. The portion of BCH water that could be run through Betasso Hydro would generate less electricity than if it were run through the BCH because the pressure at Betasso Hydro is about 600 psi and the pressure at BCH is about 800 psi. Using the Betasso Hydro in this manner will cause increased wear and tear and could cause the need for a major rehabilitation of Betasso Hydro to be required in Page 2 twenty years instead of twenty-five years as is currently expected. Nevertheless, running more water through Betasso Hydro is an option to recover some of the generation potential and revenue that would be lost should the city choose to pursue decommissioning of BCH. BCH Benefits and Costs Hydroelectric production at BCH provides revenue for the water utility from sale of the power to Xcel Energy. It also provides green energy with environmental benefits due to offsetting the need to burn coal for electricity production. Over the past five years, BCH has provided 20% of the city's total hydropower production and has produced enough electricity to power about 1,500 Boulder homes each year. The amount of electricity produced by a new 5 MW unit will be more than the existing 10 MW unit because the new unit will be more efficient and will be appropriately sized for the available water flows so that it can continue generating at low flow levels. The amount of energy production and environmental benefits for the existing BCH unit and the proposed replacement unit are shown in Table 1. Table 1: Energy Production and Environmental Benefits of the Existing and Proposed BCH Turbine-Generators Existing 10 MW Proposed 5 MW Change from Unit Unit Existing Expected Life <5 years 50 years >45 years Average Annual MW-hr 8,500 11,660 3,160 Total lifetime MW-hr 42,500 583,000 540,500 Offset in Coal Consumption (tons) 22,000 300,000 278,000 Offset in SOz Emissions (tons) 30 450 420 Offset in NOx Emissions (tons) 70 900 830 Offset in CO2 Emissions (tons) 22,000 303,000 281,000 If the existing BCH turbine-generator failed in five years and was not replaced, the portion of BCH water that could be run up to Betasso Hydro could generate an additional 850 MW-hrs at that facility every year. Therefore, only about 90% of the generation and environmental benefits associated with BCH would be lost as long as investments were made in the Betasso Hydro facilities to address its rehabilitation needs as the equipment aged. This means that an investment of about $5 million would need to be made for the Betasso Hydro rehabilitation in twenty years instead of in twenty-five years. The city is completing negotiations with PSCo/Xcel for a new Power Purchase Agreement (PPA) for sale of the electricity generated at BCH. Under this new twenty-year agreement, the city may be paid a flat generation fee of $40/ MW-hr. This is more than the previous agreement for BCH, which paid an average of $24/MW-hr, but less than the favorable contract for Betasso Hydro, which pays an average of about $55/MW-hr. Under the new PPA, PSCo/Xcel would be allowed to use the Renewable Energy Credits (RECs) associated with the BCH project. It is expected that the PPA will be ready for consideration in the first quarter of 2010. Page 3 The current turbine-generator at BCH has very high operating and maintenance costs due to its age and its configuration. It is projected that $13,700 will be spent in each of the years that this unit remains operational. Annual O&M costs for a new 5 MW unit are expected to be less than $4,000. If the existing BCH unit were not replaced and a portion of the BCH water were run through Betasso Hydro, it is projected that O&M costs for Betasso Hydro and for the discharge pipeline would increase by $1,000 per year. The present worth of the revenues from rehabilitating BCH, less the construction cost over two years and the O&M costs of the new unit over the next 50 years of its expected life, is equal to $8,074,000 at a discount rate of 3%. The revenues less the cost of operating the existing turbine for its expected remaining 5 years of life expressed as present worth equals $1,539,000. If it is assumed that the portion of the BCH water that can be run through Betasso Hydro is delivered there following the demise of the existing BCH unit, the present worth of the revenues less the costs over a comparable 52 year period is $1,975,000. Table 2 shows that if a twenty year period is examined, the present worth of the revenues from rehabilitating BCH is $6,554,000. The present worth of the construction and O&M costs is $3,970,000, which puts net revenues at $2,584,000 with a benefit/cost ratio for the project of 1.65. This is $695,000 more in net revenues over twenty years than produced by running the existing turbine for five years before delivering a portion of the water through Betasso Hydro, which has net revenues of $1,889,000. Looked at from a different perspective, the investment in construction of the rehabilitated BCH would be recovered after ten years (ten year pay-back period) of operation, or by 2021. Table 2: Revenues and Costs of Existing and Proposed BCH Turbine-Generators Existing 10 MW Present Worth BCH Unit plus Proposed 5 MW Change from Increase at Betasso Unit at BCH Existing Hydro after 5 ears Construction Costs for City with Grant (split between 2010 n/a $3,975,000 and 2011) Average Annual Revenues $340,000 for 5 years; $466,400 beginning $34,000 thereafter in 2012 $13,700 for 5 years; $1000 thereafter with $4,000 beginning Average Annual Costs $557,500 to rehab in 2013 Betasso Hydro earlier in 2030 PW of Revenues for 20 years $1,964,000 $6,554,000 $4,590,000 PW of Costs for 20 years $75,000 $3,970,000 $3,895,000 PW of Net Revenues (Revenues minus Construction and O&M $1,889,000 $2,584,000 $695,000 Costs) for 20 years PW of Net Revenues for 50 $1,975,000 $8,074,000 $6,101,000 years Page 4 Financing Options As part of the 2010 recommended budget submitted to Council, it was noted that the Utilities division was pursuing federal stimulus funds through the American Recovery and Reinvestment Act of 2009 (ARRA) on a case by case basis as opportunities arise. It was also noted that some of the funding programs require a city match and, should the city be successful in an award, Utilities may need to re-prioritize its capital improvement program, use financial reserves or a combination of both in order to accept the award and fund the city's share of the project. Staff has evaluated the following four options for funding the city's share of the BCH rehabilitation project: 1. Borrow from the Lakewood Pipeline Remediation Reserve and repay with 3% interest 2. Reprioritize the existing 2009-2015 capital improvement program (CIP) 3. Combination of borrowing from the Lakewood Pipeline Remediation Reserve and reprioritizing the existing CIP 4. Decline the grant money Each of these options is explained in more detail below. Each option assumes that the city would appropriate the total costs of the project, $5.155 million, and that the grant money would come in as revenue to offset project costs as the grant reimbursements occur. Staff also considered whether or not to use any of the water fund capital reserve ($2,000,000) or unappropriated fund balance to fund some or part of the project costs. Because of the 2009 shortfall in water sale revenues and an anticipated Water & Sewer revenue bond issuance in 2010, Utility staff recommends maintaining the capital reserve and fund balance as much as possible as the four options mentioned above are evaluated. 1. Borrow from the Lakewood Pipeline Remediation Reserve and repay with interest This option is to borrow the $5.155 million from the Lakewood Pipeline Remediation Reserve. This reserve currently has a balance of approximately $16.4 million. In 2006, the city received a $15 million settlement for work associated with the monitoring, testing, repair and/or replacement of the Lakewood Pipeline. To date this reserve has earned approximately $2,000,000 in interest and approximately $750,000 has been spent on pipeline inspections. Staff and consultants have performed six internal inspections of Lakewood Pipeline since it began operating in May of 2004, with the most recent occurring in December 2009. One of the primary objectives of the inspections has been to monitor steel corrosion that has formed underneath cracks in the cement mortar lining. Observations made during the sixth internal inspection of the Lakewood Pipeline indicate that the corrosion issue has stabilized and extensive remediation measures will not be necessary in the next five to ten years. This option would borrow $5.155 million from the Lakewood Reserve to fully appropriate the funds for the project. The grant funds would replenish the reserve by $1.18 million as they are received. The water utility would repay the reserve the remaining $3.975 million at a 3% annual interest rate (to compensate for lost interest earnings) using revenues generated from the reconstructed BCH Facility. Beginning in 2012, projected net revenues of about $462,400 annually would be used to repay the $3.975 million, with interest, over ten years. Page 5 This option does not require the city to defer capital projects in order to fund the matching portion of the grant. This is favorable for the water utility and its customers because it provides for maintaining the water delivery and treatment infrastructure. It is also favorable because the city is anticipating issuing a Water & Sewer revenue bond in 2010 that will have a bond rating partially based upon the city's commitment to maintain its infrastructure. 2. Reprioritize the existing 2009-2015 capital improvement program (CIP) In order to appropriate $5.155 million, the capital projects shown in Table 3, which are currently reflected in the CIP, would be delayed to a future date. Table 3: Proposed Delayed Capital Projects under Option 2 Year Capital Project Budget 2009 Source Water Transmission Pipe Inspections $ 80,000 2009 Barker Relicensing $1,000,000 2009 Subtotal $1,080,000 2010 Chautauqua Storage Tank $ 85,000 2010 Betasso Storage Tank $ 265,000 2010 Barker Gravity Pipeline Repair $ 200,000 2010 Boulder Reservoir WTP $ 100,000 2010 Waterline Replacement $ 460,000 2010 Subtotal $1,110,000 2011 Chautauqua Storage Tank $ 858,000 2011 Barker Gravity Pipeline Repair $ 382,000 2011 Waterline Replacement $1,030,000 2011 Watershed Improvements $ 317,000 2011 Subtotal $Z587,000 Total CIP $4,777,000 Additional funds $ 378,000 Total Project Cost $5,155,000 The additional $378,000 would come from unappropriated fund balance. This option would require a significant reprioritization of the CIP and would expose the water utility to greater risk of a possible equipment or infrastructure failure by not keeping up with infrastructure rehabilitation and improvements in a preventative or timely fashion. This reprioritization represents an 11% reduction to the 2009 adopted CIP, a 25% reduction to the current 2010 CIP and a 40% reduction to the 2011 CIP. 3. Combination of borrowing from the Lakewood Pipeline Remediation Reserve and reprioritizing the existing CIP This option would be funded by both borrowing from the Lakewood Pipeline Remediation Reserve and reprioritizing the existing CIP. It is summarized in Table 4. Page 6 Table 4: Proposed Delayed Capital Projects under Option 3 Year Capital Project Budget Grant Funds $1,180,000 2009 Source Water Transmission Pipe Inspections $ 80,000 2009 Barker Relicensin $1,000,000 2009 Subtotal $1,080,000 2010 Betasso Storage Tank $ 265,000 2010 Boulder Reservoir WTP $ 100,000 2010 Waterline Replacement $ 250,000 2010 Barker Gravity Pipeline Repair $ 200,000 2010 Subtotal $ 81 5, 000 2011 Barker Gravity Pipeline Repair $ 180,000 2011 Waterline Replacement $ 263,000 2011 Watershed Improvements $ 317,000 2011 Subtotal $ 760,000 Total CIP $2,655,000 Borrowing from the Lakewood Reserve $1,320,000 Total Project Cost $5,155,000 The CIP reprioritization is equal to what the city's share of the project would have been if the initial grant request of $2.5 million been granted. The $1,320,000 borrowed from the Lakewood Reserve would be repaid from revenues generated by the BCH Facility over three years beginning in 2012. This also assumes a 3% interest rate on funds borrowed from the reserve. This option requires somewhat less of a reprioritization of the CIP than in Option 2 but also exposes the water utility to greater risk of possible equipment or infrastructure failure by not keeping up with the infrastructure rehabilitation and improvements in a preventative or timely fashion. This reprioritization represents an 11% reduction to the 2009 adopted CIP, an 18% reduction to the current 2010 CIP and a 12% reduction to the 2011 CIP. 4. Decline the grant money With this option, based on the payback period of the project and the risk to the utility by reprioritizing the CIP and/or borrowing funds from the Lakewood Pipeline Reserve, the city decides it is not in its best interest to rehabilitate the BCH facility at this time. The reprioritization of CIP projects required for Options 2 and 3 is extensive and Utility staff believes it would create a very undesirable increase in risk for the city's ability to provide safe, reliable water service. Staff recommends that if Option 1 is not selected, then Option 4, declining the grant money, should be selected in preference to Options 2 or 3. Page 7