Last summer, the Consumer Advocate was invited to comment on a proposal HELCO made to the Public Utilities Commission, asking the PUC for approval of an agreement it had reached with Enserch Development Corp., an independent power producer.
As described elsewhere in this issue, HELCO proposed essentially that the PUC approve both the Enserch facility at Honoka`a as well as the HELCO expansion of its Keahole plant, by means of the addition of two combustion turbines known as CT-4 and CT-5.
The Consumer Advocate’s assessment of this proposal was extremely critical. We reprint portions below:
A Two-Track Plan
HELCO’s motion requests that the commission approve the prudence of HELCO’s newly disclosed plans to continue to pursue immediate installation of the Keahole CT-4 and CT-5 combustion turbines, even if the EDC PPA [power purchase agreement] is executed. EDC filed a ‘joinder’ in HELCO’s motion on the same day that HELCO filed its motion.
In its statement of position [July 18, 1997], the Consumer Advocate stated that, consistent with several qualifying presumptions, the terms of the EDC PPA are below HELCO’s avoided cost. However, the Consumer Advocate noted that HELCO’s avoided cost calculations [i.e., the cost HELCO avoids having to pay for new power generation] in this docket do not, in themselves, support the reasonableness of HELCO’s plans to install the CT-4 and CT-5 units in addition to the EDC PPA. The commission should deny HELCO’s request for approval of the prudence of continuing with the Keahole installations.
HELCO’s motion asks the commission to significantly expand upon the scope of approval previously granted regarding the prudence of the Keahole project. As already argued by the Consumer Advocate, HELCO’s confidential motion and, more generally, the instant docket are not proper contexts for examining or approving the prudence of HELCO’s Keahole project.
Of particular concern is HELCO’s plan to immediately install the CT-5 unit at Keahole in addition to execution of the EDC PPA and in addition to the CT-4 unit. The immediate installation of the CT-5 unit does not appear to be desirable or cost-effective, even taking into consideration HELCO’s sunk costs in the CT-5 project. In light of the new circumstances presented by the execution of the EDC PPA and the lack of economic analysis justifying immediate installation of CT-4 and CT-5 in addition to the EDC PPA, the Commission should not determine the prudence of additional expenditures at Keahole until that course of action is supported by sound analysis.
As to the EDC PPA, the commission should dispose of this matter by determining that the EDC PPA, if approved, would become HELCO’s next generating unit. This would be consistent with the supporting avoided-cost analyses in this docket as well as the commission’s prior decisions and orders. Identifying the EDC PPA as HELCO’s next generating unit is also consistent with HELCO’s existing approved integrated resource plan.
The delays and uncertainty regarding the provision of HELCO’s next generation unit are unfortunate and ultimately expensive to HELCO and its ratepayers. HELCO has substantial costs invested in its Keahole project which should be considered, to the extent they are reasonable, in determining the best course of action based on current circumstances, including the execution of the EDC PPA. It would be unreasonable for HELCO to expend extra capital to complete the Keahole project if its only objective were to recover the investment in the project, especially if there is no real benefit to HELCO’s customers. It appears that there will be no net benefit to HELCO’s customers in completing the CT-5 portion of the Keahole project on the schedule proposed, even taking into consideration potential stranded investments.
Redundant Power
The prudence and need for the CT-5 and ST-7 [steam turbine] units at Keahole were examined and decided in Docket No. 7623. However, in several respects, the approval sought by HELCO in the instant docket exceeds and expands the narrower and conditional approval granted in Docket No. 7623.
First, the commission has never considered or approved the prudence and need for two DTCC [dual train combined cycle] units of similar size to the Keahole project. Moreover, the commission has never considered or approved the prudence or need for the Keahole project in addition to power provided by another party as [now] proposed by HELCO.
In Docket No. 7623, the prudence and need for the Keahole project was examined from the standpoint of ultimately installing one 58 MW DTCC facility. An issue considered in that docket was whether HELCO adequately and reasonable considered options other than its own generation as alternatives to its Keahole project. Although the commission found that HELCO considered only its own project, in light of the acute need for generation, the commission determined that the primary consideration was to have the next generating unit on line as quickly as possible. Therefore, in order to maximize HELCO’s generation options, HELCO was allowed to ‘pursue’ the construction of CT-5 and ST-7 in parallel with good-faith negotiations with other parties.
Second, the commission’s approval to proceed with CT-5 and ST-7 was made subject to specific conditions that clearly presume that only one project would be considered HELCO’s next generating unit.
Third, approval for HELCO to recover costs for its Keahole project was explicitly conditioned upon whether its own project would become the next generating unit: ‘Given this state of affairs, the prudent course of action is to accept as the next generating unit that which can be most expeditiously put in place, whether by HELCO, Enserch, Waimana/KCP, or any other person…. The costs of pursuing HELCO’s own generating unit will be allowed in HELCO’s rate base only if HELCO’s own unit in fact becomes the next generating unit.’
HELCO was left at risk regarding recovery of its costs if another party’s project would become the next generating unit.
HELCO’s Claims
HELCO offers several arguments in support of its proposal to immediately install the CT-4 and CT-5 units in addition to executing the EDC PPA. Pages 13-24 of HELCO’s Memorandum in Support are dedicated to justifying HELCO’s newly disclosed plans and several mitigating measures to defer the costs of the resulting excess capacity that would ble installed on HELCO’s system.
(1) HELCO states that ‘execution of a PPA with EDC will not affect the benefits of HELCO continuing to pursue the installation of generation at Keahole.’ HELCO’s statement is overbroad and inaccurate. Execution of a PPA that itself provides most of all of the benefits considered by the commission in assessing the prudence and need for the generation [facility] at Keahole would certainly affect the benefits of installing Keahole as a redundant facility. Furthermore, HELCO has explained that, due to the installation of the EDC facility, the installation of the ST-7 unit [at Keahole] would be deferred for several years. Extended use of the CT-4 and CT-5 combustion turbines without the efficiency benefits that would otherwise be provided by the timely installation of ST-7 would affect the costs and benefits of the Keahole project. It is not clear whether delays could also affect HELCO’s ability to comply with necessary permits for the Keahole facility.
(2) HELCO argues that additional generation is needed beyond HELCO’s next generating unit in the 1999 timeframe. It may be true that additional generation will be needed in 1999, but not the output of both CT-4 and CT-5. The output of CT-5 would not be required for several additional years. The analyses cited by HELCO indicate that CT-5 output would not be required until 2001. If HELCO installs the CT-5 unit in 1999, CT-5 would not be used or useful for several years. HELCO’s instant request for approval of the prudence of installing CT-5 on the proposed schedule could detrimentally affect rates charged to HELCO’s customers if, as a result, the CT-5 unit is allowed in the rate base prematurely.
(3) HELCO argues that it has been directed by the commission on several occasions to maximize, rather than minimize, its strategies to meet demand for additional generation. The commission’s directives were made prior to HELCO’s successfully reaching agreement with a non-utility generator to provide HELCO’s next generation unit. It would be a mistake to embrace HELCO’s interpretation of the commission’s orders as instructions to ultimately install more generation than is prudently required.
(4) HELCO argues that it is prudent to proceed with the Keahole project, in part, because of uncertainty with the timing of the EDC project.
The timing of HELCO’s Keahole and EDC’s Hamakua projects are both uncertain due to several permitting contingencies. HELCO, however, has instituted a contingency plan that, by its own assessment, is sufficient to account for delays or cancellations of the Keahole project. Thus, HELCO has ostensibly provided for delays or cancellation of the next generation unit. HELCO has not explained why full installation of a baseload generation unit is justified as a contingency measure in addition to HELCO’s existing contingency plan.
The IRP
In this docket, HELCO has demonstrated that the EDC PPA is a cost-effective replacement for the next generating unit identified in HELCO’s approved IRP [integrated resource plan]. The EDC facility is similar in timing, size, and the type compared to HELCO’s identified next generating unit. Thus, the EDC PPA is consistent with HELCO’s approved IRP. However, HELCO’s newly disclosed generation plan includes several changes in resource addition scheduling, retirements and standby status that are not consistent with its approved IRP. HELCO has not provided sound analysis sufficient for the commission to approve the proposed changes to HELCO’s IRP.
Furthermore, HELCO’s revision to its 20-year integrated resource plan is inconsistent with the commission’s IRP framework. An annual evaluation is intended to update the utility five-year program implementation schedule, not to revise its 20-year integrated resource plan.
— Patricia Tummons
Volume 8, Number 11 May 1998
Leave a Reply