pasadena water & power intermountain power project amend the existing contracts participate in...

Pasadena Water & Power

Intermountain Power Project

Amend the Existing ContractsParticipate in Renewal ProjectPasadena City Council

Item 11July 20, 2015


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Intermountain Power Project (“IPP”)

• 2 Coal generating units @ 900 MW each

• STS and NTS transmission systems

• Owned by IPA , Legal Subdivision of State of Utah established in 1977

• Includes 30 participants in Utah and 6 California municipal utilities (Anaheim, Burbank, Los Angeles, Glendale, Pasadena, and Riverside)


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• Current IPP Contracts> Pasadena share of 1,800 MW… ~ 6% (108 MW)> ~ 50% Pasadena’s energy needs> ~ 90% Pasadena’s carbon emissions> Expire on June 15, 2027> Option to renew coal power prohibited by CA law


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• Resources near or connected to STS/NTS> Milford 1 (Wind) … 5 MW > 300+ MW operating wind

projects > 300+ MW proposed solar

projects> Potential for more wind,

solar and geothermal > Salt caverns ideal for

compressed air energy storage

> Connectivity to Utah and Nevada energy markets


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Regulatory Considerations Impacting Power Sector

• Coal is out of favor• Decabonization of electric sector• More mandated renewables • Regional transmission connectivity• Evolving laws and regulations

• Manage carbon liability• More renewables in the power mix• Manage solar and wind variability • Manage regulatory uncertainty• Inter-regional transmission systems


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Options for Pasadena

Contractual OptionsNet (Cost) /Revenue$ (NPV)

Option to be in the Renewal

Project

Early CarbonReduction

Transmission & Access to

Renewables

1

Do Nothing Existing contracts continue

until June 2027; Renewal Project does not proceed

(5.4 to 82.8 million)

No No No

2 Amend Contracts; Do not

subscribe to Renewal Project; Get the Transmission

27.4 million No Yes Yes

3

Amend Contracts; Subscribe to Renewal Project with option

to exit in 2019; Get the Transmission (Recommended)

27.3 millionYes with Option

to Opt out by 2019

Yes Yes

Note

Costs and revenues estimates are based on assumptions which may significantly change over period of time such as, but not limited to, cost of fuel, energy, capacity, decommissioning, transmission, congestion pricing, pollution control equipment costs, regulatory and legislative requirements.


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Why Change IPP Contracts

• Mandated and voluntary carbon reduction policies for California Purchaser Cities• Preserve value of present investments in IPP beyond 2027 for Purchasers• LADWP’s desire for early exit from coal and a replacement project beyond 2027• Regulatory certainty for IPA and Purchasers until 2027 and beyond• Certainty for jobs and revenues for IPA (and Utah) beyond 2027

Drivers

• Diverse needs of 36 Purchasers and IPA• Different regulatory policies between California and Utah• Not all Purchasers ready to commit for 50 years beyond 2027• Practical constraints ….future transmission rights tied to future generation• One Purchaser willing to take on the entire project

Challenges

Early Carbon Reduction and Flexibility for Future Planning


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New Project...Major Deal Points

• All 36 participants must approve amendment to the existing contracts

• 600 - 1,200 MW natural gas plant, may include renewables

• Commissioning of new power plant by 2025• Transmission entitlement tied to generation

subscription • New project term for 50 years starting June 16, 2027• Development cost to be paid by new power plant

particpants• Decommissioning cost of coal units to be a part of

new power plant financing


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Renewal Project...Major Deal Points

• Between commissioning of new power plant & June 2027> Existing participants get current percentage of capacity

entitlement> Existing participants’ transmission entitlements remain

unchanged> Existing participants pay prorated share for

decommissioning of coal plants • Option for California participants (except LADWP)

to opt out by Aug 2019• If opted out by Aug 2019, California participants

get 50% of current transmission entitlement from LADWP….a good faith non-binding agreement

• California participants can opt to take power on behalf of Utah participants and therefore, get rights to NTS transmission system.


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Good Faith Agreement with LADWP

• If Pasadena executes 2nd APSC but does not subscribe to new Power Sales Contracts initially or opt out by Nov 2019, LADWP will provide STS, NTS and Adelanto-Sylmar transmission service equal to 50% of PWP’s present entitlement in IPP:

» STS IPP to Adelanto = 71 MW» STS Adelanto to IPP = 41 MW» NTS IPP to Mona = 52 MW» NTS Mona to IPP = 18/45 MW» NTS IPP to Gonder = 8 MW» NTS Gonder to IPP = 5 MW

• Rates & other contract terms to be finalized by May 2018


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Staff & MSC Recommendation

• Pros…Greater Flexibility> Early reduction in carbon and other air emissions> Option to stay-in or opt-out by 2019> Access to renewables connected with IPP transmission beyond 2027> More regulatory certainty… uninterrupted operation> Ability to balance energy portfolio… getting away from the largest

contingency> Access to regional transmission> Potentially reduced coal plant decommission cost> Geographic and resource diversity

• Cons> Estimated $25 million (NPV) cost compared to continuing current

operations through 2027

Recommendation: • Amend the existing contracts; and • Subscribe to New Project up to 40 MW with option to opt out by 2019


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Back Up Slides

BACK UP SLIDES


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Pasadena’s Share of costs

Activities Costs,NPV

Revenue,NPV

2025 to 6/2027 Renewal Project impact

$ 24,841,044

Decommissioning if no Renewal Project

$ 5,405,167

SCR retrofits $ 77,475,868

Transmission value 2027-2077

$ 52,273,633

Development cost until 8/2019

$ 170,152

Notes: (1) The actual cost may vary significantly depending upon new plant start up date; capacity, energy and emissions costs; and regulatory requirements(2) NOx SCR retrofit may be enforced by USEPA. .


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Contractual Options….MSC

Contractual options

Loss of economic

value between 2025 and

2027

Regulatory Certainty

Early Carbon reduction beginning

2025

Option to extend

generation contract

beyond 2027

Option to extend

transmission contract

beyond 2027

Access to Renewables in Utah and

Nevada

Option to opt out of Renewal

Project by 8/2019

Geographic diversity beyond

2025

Do NothingNot amend the existing contracts

None to potentially very high impact*

Very Low No No No No N/A No

Amend the Existing Contracts but not subscribe to Renewal Project

$25 million** (NPV) High Yes No Not from IPA;

Yes from LADWPYes from LADWP No No in IPP

Yes for others

(Recommended)Amend the Existing Contracts and subscribe to Renewal Project

$25 million** (NPV) High Yes Yes

Yes OR

If opted out: Not from IPA;

Yes from LADWP

Yes Yes Yes

* Depending on the impact of US EPA regulations. ** The actual cost may vary significantly depending upon new plant start up date; capacity, energy and emissions costs; and regulatory requirements.


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Three New Contracts

1. 2nd Amendatory Power Sales Contract (APSC)…All Purchasers (including Pasadena) must sign and IPA approve for it to be effective

• Renewal beyond 2027 with natural gas plant• Allows including renewables and other resources in the Renewal

Project• IPA to offer Renewal Power Sales Contract within 45 days • Allocation of energy, capacity & costs during transition period• Allocation for coal plant decommissioning cost • IPA’s commitment to offer Renewal Power Sales Contracts• Renewal project construction start by 2020 & commissioning by

2025• If Renewal Project does not materialize

The existing project extends to 2032; No coal generation after 6/2027

Decommissioning to be completed by 2032 Purchasers pay in proportion to energy received over the

contract term Transmission contracts extended for next 50 years


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Three New Contracts …continued

2. Renewal Power Sales Contract …Optional or opt out by 11/2019 for PWP• 2 natural gas units each @600 MW or less• Subscription by percentage in generation• Formula based STS (CA) & NTS (UT) entitlements linked to % in

generation • LADWP to provide STS equivalent Adelanto to Sylmar transmission

to PWP• Renewal project construction start by 2020 & commissioning by

2025• Coal plant decommissioning cost paid by Renewal Purchasers after

2027• Subscription increased if Renewal Project subscribed ≥ 85% but

<100%.• Californians, except LADWP, can reduce subscription by 20% or

terminate contract by providing a notice by 8/2019. • LADWP’s subscription will increase by the amount the subscription

is reduced by other CA Purchases


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Three New Contracts …continued

3. Excess Renewal Power Sales Contract …Optional or opt out by 2019 for PWP

• Contract with Utah Purchasers and IPA… allows entitlement to NTS.

• Utah Purchasers assign their entitlements and costs in generation and NTS to California Purchasers.

• LADWP obligated to assume entire Utah Purchasers entitlements if no other California Purchaser willing to assume .

• Utah Purchasers can recall their entitlements in parts on annual basis.

• If Utah Purchasers recall all of their entitlement, California Purchasers will retain some of the NTS based on a formula.

pasadena water & power intermountain power project amend the existing contracts participate in...

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