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Owning generation isn’t for everyone, speakers tell APPA conference


From the September 30, 2013 issue of Public Power Daily

Originally published September 30, 2013

By Laura D'Alessandro
Integrated Media Editor
For the right utility, building new generation can provide great benefits for customers and the bottom line while, for others, the benefits may not pan out, said speakers at the annual APPA Business and Financial Conference on Sept. 23.

Utilities today are facing unprecedented market uncertainty, said consultant Joe Mancinelli in a session focusing on the costs and benefits of owning generation assets. Therefore, a decision to purchase or build generation assets is a tough one. "Your decision-making process depends on your perspective or views on where things are headed," he said. "You can come up with very different answers."

Mancinelli said he believes the traditional cost-benefit analysis is much less useful in the existing climate. Many more factors exist, he said, such as fuel commodity, policy, regulatory and technology risks, as well as social and stakeholder concerns. All need to be considered.

Then, "someone has to make the call," he said. "Someone has to say, 'This is my bet on the future.'"

At the Lansing Board of Water & Light in Michigan, a new 114-MW cogeneration plant was that bet on the future. The plant went into operation on July 1, said Marilyn Montgomery, a senior rate analyst at Lansing BWL. It is the first new utility power plant built in Michigan in 25 years and the first power plant built by the BWL in 40 years, she said, as well as one of the first natural gas-fired and cogeneration plants in the state.

The $182 million project gives the utility operational flexibility and 300,000 pounds of steam. Lansing BWL can use that steam to run a 14-MW steam turbine or pump it downtown to the utility’s steam customers. It will allow the utility to avoid burning 351,000 tons of coal per year, Montgomery said. And the greening of its fleet was an important part of the decision.

The Board of Water & Light passed a renewable portfolio standard in 2007. It was the first RPS in the state, Montgomery said. It required 7 percent of retail sales to be renewable by 2016. Later, Michigan passed its own RPS, which Montgomery said required all utilities to diversify their resources and delayed construction on new coal-fired plants. The new cogeneration plant is helping Lansing BWL meet the requirements.

Building new generation to meet an RPS requirement is not always necessary, according to Seattle City Light. When Seattle considered building additional generation in 2010, the lowest cost estimates for new generation were a combined-cycle plant followed by landfill gas and biomass, said Carol Butler, corporate performance director at the utility. But Seattle City Light was not interested in building additional generation when it already had surplus power and did not expect to need more than it has now. 

"We don’t expect we’re going to experience much load growth at all," Butler said of the utility’s 131-square-mile service area. 

"Why would we want to go out and build or buy any additional generation?" she asked. "We’re going to be in surplus for the foreseeable future."

So Seattle decided to buy renewable energy credits to meet its state requirements, which is costing the utility less than even the cheapest option for new generation, Butler said.
 

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