Form revised November 15, 2007
FISCAL NOTE FOR NON-CAPITAL PROJECTS
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Department: |
Contact Person/Phone: |
DOF Analyst/Phone: |
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City Light |
Robert Cromwell, 684-3856 |
Karl Stickel, 684-8085 |
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Legislation Title: |
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AN ORDINANCE relating to the City Light Department; authorizing the execution of three agreements to provide for the transmission of power from the Summer Falls and Main Canal Hydroelectric Projects to the City of Seattle.
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· Summary of the Legislation:
The Ordinance authorizes the Superintendent of Seattle City Light, or his designee, to execute three agreements which would replace an expired transmission agreement with the Avista Corporation (“Avista”) to allow for the transmission of the output of the Summer Falls and Main Canal Hydroelectric Projects for the remaining term of these power purchase agreements.[1]
These contracts utilize the services of both Avista and Public Utility District No. 2 of Grant County (Grant) and will provide for an efficient and cost-effective substitute for the alternatives of either interconnecting with the Bonneville Power Administration or continuing service under Avista’s tariff rate. Executing these contracts will also resolve litigation with the Grand Coulee Projects Hydroelectric Authority (“GCPHA”) now pending before the Federal Energy Regulatory Commission regarding the Bonneville Power Administration (“BPA”) interconnection option, as well as eliminate the construction and material cost risks associated with that capital project.
These contracts do not require an additional appropriation and will result in a net savings in 2008 of $46,100.
· Background:
Please see Attachment B to the Fiscal Note for the background and summary on this legislation.
· Please check one of the following:
____ This legislation does not have any financial implications. (Stop here and delete the remainder of this document prior to saving and printing.)
_X_ This legislation has financial implications. (Please complete all relevant sections that follow.)
Appropriations: This table should reflect appropriations that are a direct result of this legislation. In the event that the project/ programs associated with this ordinance have appropriations that were, or will be, received because of previous or future legislation or budget actions, please provide details in the Notes section below.
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Fund Name and Number |
Department |
Budget Control Level* |
2008 Appropriation |
2009 Anticipated Appropriation |
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TOTAL |
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*See budget book to obtain the appropriate Budget Control Level for your department.
Notes: The legislation itself does not make any appropriations, but there are indirect financial impacts with approval of the package. City Light had budgeted for a BPA interconnection, a capital project that will not be pursued as a result of these contracts. The financial impact of the three contracts collectively will be the $1,000,000 up-front payment to Grant PUD in 2008 and approximately $30,000 per month during the March through October irrigation season for the period of the contracts for transmission, use of facilities and costs associated with losses (exact figures will be quantity dependant).
Currently budgeted in 2008 is $958,300 for transmission service with Avista, in contemplation of the BPA interconnection being constructed and not yet available. This is represented in the table above as an off-set.
These contracts do not require an additional appropriation and will result in a net savings in 2008 of $46,100.
Anticipated Revenue/Reimbursement: Resulting From This Legislation: This table should reflect revenues/reimbursements that are a direct result of this legislation. In the event that the issues/projects associated with this ordinance/resolution have revenues or reimbursements that were, or will be, received because of previous or future legislation or budget actions, please provide details in the Notes section below the table.
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Fund Name and Number |
Department |
Revenue Source |
2008 Revenue |
2009 Revenue |
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SCL #41000 |
City Light |
BPA - Refund |
$250,000 |
0 |
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TOTAL |
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$250,000 |
0 |
Notes:
A pre-paid deposit made with BPA will be refunded to Seattle City Light upon the formal withdrawal of the interconnection and transmission request associated with the BPA interconnection option. The $250,000 identified above is ½ of the $500,000 deposit made jointly by Seattle City Light and Tacoma Power.
Total Regular Positions Created, Modified, Or Abrogated Through This Legislation, Including FTE Impact: This table should only reflect the actual number of positions created by this legislation In the event that positions have been, or will be, created as a result of previous or future legislation or budget actions, please provide details in the Notes section below the table.
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Position Title and Department* |
Position Number for Existing Positions |
Fund Name and Number |
Part-Time/ Full Time |
2008 Positions |
2008 FTE |
2009 Positions** |
2009 FTE** |
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TOTAL |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
* List each position separately
** 2009 positions and FTE are total 2009 position changes resulting from this legislation, not incremental changes. Therefore, under 2009, please be sure to include any continuing positions from 2008.
Notes:
Not applicable
· Do positions sunset in the future? (If yes, identify sunset date):
Not applicable
Spending/Cash Flow: This table should be completed only in those cases where part or all of the funds authorized by this legislation will be spent in a different year than when they were appropriated (e.g., as in the case of certain grants and capital projects). Details surrounding spending that will occur in future years should be provided in the Notes section below the table.
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Fund Name and Number |
Department |
Budget Control Level* |
2008 Expenditures |
2009 Anticipated Expenditures |
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TOTAL |
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0 |
0 |
* See budget book to obtain the appropriate Budget Control Level for your department.
Notes:
Not applicable
· What is the financial cost of not implementing the legislation? (Estimate the costs to the City of not implementing the legislation, including estimated costs to maintain or expand an existing facility or the cost avoidance due to replacement of an existing facility, potential conflicts with regulatory requirements, or other potential costs if the legislation is not implemented.)
Failing to implement this legislation would require City Light to continue to take transmission service under Avista’s OATT rate for the entire output of the Summer Falls and Main Canal projects, at roughly twice the cost of this set of contracts. The following comparison identifies the forecasted cost differentials over a ten year period:
10 Year Present Value Comparison
$28.9 million - stay with Avista at tariff rates
$10.5 million - 230kV interconnection with BPA
$10.8 million - Grant & Cities 50/50 build option
$11.3 million - non-wires with Avista and Grant
· What are the possible alternatives to the legislation that could achieve the same or similar objectives? (Include any potential alternatives to the proposed legislation, such as reducing fee-supported activities, identifying outside funding sources for fee-supported activities, etc.)
As discussed above, City Light had proposed an interconnection with BPA for the transmission of the GCPHA projects’ output via BPA’s 230kV transmission system. In addition to the transmission agreement BPA would require, the BPA interconnection would require development and construction of transmission lines from the projects to the BPA transmission lines and the construction of a substation.
The other alternative would be to continue to receive transmission service pursuant to Avista’s OATT tariff rate, at roughly twice the cost of these contracts.
The alternative proposed herein eliminates the capital project and the construction and material cost risks associated with the BPA interconnection, resolves the on-going litigation at FERC with GCPHA, and avoids Avista’s OATT tariff rate.
The following comparison identifies the forecasted cost differentials over a ten year period:
10 Year Present Value Comparison
$28.9 million - stay with Avista at tariff rates
$10.5 million - 230kV interconnection with BPA
$10.8 million - Grant & Cities 50/50 build option
$11.3 million - non-wires with Avista and Grant
Given the uncertainty and cost escalations surrounding the options involving capital construction (BPA IC and Grant-Cities build) the non-wires alternative was pursued as virtually certain to be the least cost option for Seattle City Light and Tacoma Power.
· Is the legislation subject to public hearing requirements: (If yes, what public hearings have been held to date, and/or what plans are in place to hold a public hearing(s) in the future.)
No.
· Other Issues (including long-term implications of the legislation):
Extrinsic to the terms of the contracts, this arrangement provides the basis for improved relations with Avista, GCPHA and Grant PUD, an important consideration on a going-forward basis when City Light will need to acquire additional renewable resources.
Please list attachments to the fiscal note below:
Attachment A: Diagram GCPHA Interconnection
Attachment B: Background and Summary
Grand Coulee Project Hydroelectric Authority
Seattle City Light
Background & Summary
The Cities of Seattle and Tacoma (i.e. the Cities) currently purchase the entire electrical output of the Main Canal and Summer Falls hydroelectric projects under a Power Purchase and Sale Contracts (“PPSC”) that extend until October 2026 and October 2024, respectively.[2] The proposed contracts will transmit the power on the Cities’ behalf for the remaining term of the PPSCs.[3] The Cities have spent several years developing an alternative transmission arrangement whereby BPA and the Cities would construct a new 115/230 kV interconnection in the vicinity of the Main Canal and Summer Falls projects.[4] The Grand Coulee Project Hydroelectric Authority (“GCPHA”), as the manager of the Summer Falls and Main Canal Hydroelectric Projects, opposed these efforts, resulting in litigation at the Federal Energy Regulatory Commission (“FERC”). Avista and Grant also intervened as parties in the FERC proceeding. FERC issued an initial ruling in the Cities favor in 2007, prompting GCPHA to enlist Grant County PUD to assist them in seeking a resolution of the litigation. From Seattle City Light’s perspective, a settlement that does not require a FERC license and construction would avoid at least two years of delay in interconnecting with BPA as well as eliminating the construction and material cost risk associated with this type of capital project. The FERC litigation has been stayed pending the settlement reflected in the attached contracts.
The Cities and Grant, in consultation with GCPHA, have developed a plan with Avista for a new transmission arrangement that would be established sooner than the construction of the proposed direct interconnection with BPA at a reasonable present value cost. This cost is also less than half the estimated Avista transmission tariff costs. City Light compared these costs in 2007 when determining which path to pursue.
10 Year Present Value Comparison
$28.9 million - stay with Avista at tariff rates[5]
$10.5 million - 230kV interconnection with BPA[6]
$10.8 million - Grant & Cities 50/50 build option[7]
$11.3 million - non-wires with Avista and Grant
City Light and Tacoma Power staff jointly recommended to their management that the non-wires option be pursued as being reasonably equivalent in cost to the BPA interconnection, while also producing the benefits of avoiding construction risk, eliminating FERC litigation, and improving the relationships with Grant PUD, Avista, and GCPHA.
Near-term cost estimates for the three contracts are as follows:
2008 - $1,162,200
2009 - $131,400
2010 - $131,400
Upon the Seattle City Council’s approval, and the Superintendent’s execution of the three agreements, these contracts would end the proposed direct interconnection with BPA, avoid incurring either Avista’s tariff rate or increases in construction and material costs, and resolve the FERC litigation now pending.
Grant PUD and the Cities:
Grant has developed an exchange agreement with both Cities under which Grant will receive the output of the Main Canal and Summer Falls hydroelectric projects. The Cities will each receive in return comparable amounts of each project’s output, delivered to each City at Grant’s interconnection point with BPA at Mid-Columbia. Grant will be using the energy from Main Canal to serve its loads in Coulee City and Wilson Creek (See diagram below).
The Cities will pay Grant PUD $2 million (Seattle’s share is $1 million) as a capital contribution towards the rebuilding of Grant’s Stratford-Larson line; in compensation for transmitting the project output from Main Canal and Summer Falls, less losses.[8]
Avista and the Cities:
Avista will transmit the output of the Main Canal project to the Stratford Substation where it interconnects with Grant. The actual amount transmitted will be Main Canal’s capacity less the energy used by Grant to serve its loads at Coulee City and Wilson Creek.[9] The initial rate will be $1.40/kW-mo., less losses, scheduled to be returned in-kind or settled financially.
Avista has also developed a facilities use agreement with each City to allow the output of the Summer Falls hydroelectric project to be delivered to Grant’s system at its Stratford Substation for $78,000 per year or less (Seattle’s share is $39,000 or less).
Conclusion
In comparison to the proposed BPA interconnection or renegotiating a long-term transmission arrangement with Avista at tariff rates, this “non-wires” alternative was reasonably equivalent or less than the present value cost of the BPA interconnection and less than half the cost of Avista’s tariff rate. Thus, it is estimated that this “non-wires” alternative will save the Cities approximately $18 million over the remaining term of the power sales agreements for Main Canal and Summer Falls. This non-wires alternative has the least amount of risk associated with it. The BPA alternative would require significant construction and material costs and the substantial uncertainty attendant to the rights-of-way needed to construct the alternative. The proposed direct interconnection with BPA also has significant additional risk involved with completing the necessary processes at FERC and leads to a number of questions about the transition of these facilities once the Cities’ power sales agreements with GCPHA expire.
The non-wires solution provides not only a cost-effective resolution of this specific dispute, but provides substantial intangible benefits regarding the Cities’ relationship with Grant, GCPHA, and Avista. These contracts also resolve the associated FERC litigation.
Related Issues
The Cities, Avista, Grant and GCPHA have discussed the proposed contractual structure and believe it not only minimizes the potential for future disputes, they better serve the region by more efficiently utilizing existing transmission facilities, avoid construction of additional facilities, and better “mirror” the actual flow of energy in that portion of the interconnected system.[10]
In the event of a force-majeure that was more than transitory the parties have discussed alternatives, depending upon where the system failure occurs. Failure of generation or the primarily transmission lines leaving the projects present few options to repairing the damage and placing the facilities back in service. In the event of a failure on either Avista or Grant’s systems, the energy could be routed on different paths, provided reliability requirements and path limits are respected.