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RCA backs ML&P Plant 2A development
Commission says that the cost of construction was justified because of an urgent need to replace aging power generation plant
Alan Bailey Petroleum News
On March 23 the Regulatory Commission of Alaska issued an order upholding a decision by Municipal Light & Power to build the Plant 2A power station in Anchorage and to recover the cost of the new facility from the utility’s rates. However, the commission does require some changes in the formulae by which the utility recovers the resulting costs from its customers.
Plant 2A, near the Glenn Highway on the northeast side of Anchorage, is a state-of-the-art, high efficiency, natural gas fueled plant that ML&P brought into service in January 2017. The plant is of a combined cycle design, using excess heat from gas fired turbines to generate steam for a steam turbine.
Is it needed? Criticism of the Plant 2A project has revolved around its high cost and whether ML&P actually needs the plant, especially since the utility owns a 30 percent share in the Southcentral Power Project, another modern combined cycle plant in Anchorage, completed jointly with Chugach Electric Association in early 2013.
Faced with sticker shock after ML&P filed proposed new rates that would recover the cost of Plant 2A, some major consumers in the utility’s service area, including Providence Health & Services and Alaska Native Tribal Health Consortium, appealed to the RCA, claiming that the construction of Plant 2A had been imprudent because the facility was not needed. And, with the cost of the plant being imprudently incurred, the utility cannot recover the cost through the electricity rates, the consumers argued.
Aging plant In evaluating the appeal against Plant 2A, the commission listed all of the other generation facilities that ML&P owned and operated before the Plant 2A construction. Essentially, the utility operated Plant 1 near Ship Creek and Plant 2 on the Glenn Highway, in addition to the utility’s ownership interest in the Southcentral Power Project. Plant 1 holds three simple combustion turbine units ranging in age from 47 to 54 years, and a more modern combustion turbine. Plant 2 contains three combustions turbine units, and one steam turbine running off waste heat from the other units - the ages of these units range from 32 to 41 years.
ML&P is also entitled to its share of output from the Bradley Lake Hydroelectric Project in the southern Kenai Peninsula and to output from the Eklutna Hydroelectric Project, although these facilities do not typically operate at their full capacities.
The commission’s order says that an engineering report prepared for ML&P in 2009 indicated that, although the utility had adequate generating capacity, there were significant reliability and safety risks associated with the age of the utility’s generating units. The report found that ML&P’s margin of reserve power was based on unreliable capacity and that new generating resources would be needed. The report also stated that, because the utility’s units were past their design lives, it would not be feasible to refurbish the equipment in parallel with providing a reliable service. The report also said that ML&P’s share of the Southcentral Power Project’s capacity would be insufficient to address the safety and reliability issues.
Upgrade options ML&P has told the commission that it investigated various ways to address the aging infrastructure problem and concluded that the construction of a new, modern plant was the best option. The installation of a new plant enables the implementation of new and improved technologies, while a major overhaul of the old plant would have created problems in ensuring continuity of services while units were out of operation. ML&P also listed a catalogue of operational failures that had plagued the utility’s aging plant.
The new Plant 2A can now support ML&P’s base power load, with any excess generation available for sale to other utilities. The plant is also becoming part of a new power pooling arrangement being implemented by ML&P, Chugach Electric Association and Matanuska Electric Association. And with the availability of Plant 2A power, ML&P plans to retire the two oldest units in Plant 1, the oldest combustion turbine in Plant 2, together with the old steam turbine in Plant 2.
A prudent decision The commission rejected arguments that ML&P’s Plant 2A decision had been imprudent, saying that the allegations of imprudence had failed to demonstrate that a reasonable utility manager would not take the advice of its engineer of record to replace an aging power generation plant.
The age of ML&P’s plant was such that it would not be practical to defer construction of new plant far into the future, the commission said. Moreover, accusations that the construction of Plant 2A has resulted in ML&P having generating capacity in excess of what the utility needs, with generation reserve margins far above Lower 48 norms and Alaska Railbelt protocols, are unpersuasive - the extreme isolated nature of the Alaska Railbelt electrical system requires a very conservative margin of reserve power, the commission said. And the design of Plant 2A allows greater capacity at lower cost than an alternative design, the commission said.
A heat exchange One interesting issue raised in the challenge to the rates that ML&P wants to charge to recover the cost of power from Plant 2A relates to the use of water that is cycled through the plant’s steam turbine. The steam coming out of the turbine has to be cooled, to generate water that can then be heated back to steam to drive the turbine. Thermodynamics dictate that the cooler the water, the more efficient the turbine operation. But cooling the water involves heat loss, as is evidenced by the cloud of steam often seen emanating from a power station’s cooling tower.
At Plant 2A warm turbine water is cycled through a nearby Municipality of Anchorage facility that heats Anchorage’s water supply, thus reducing residents’ costs for heating their water and reducing the likelihood of frozen pipes in the city. The water from Plant 2A aids with the water supply heating, while the water supply further cools the Plant 2A water, thus improving the efficiency of the power generation plant.
In addition, some potable water from the water supply system is used to cool the air intake for the Plant 2A gas turbines, thus improving the efficiency of these turbines when the weather is warm.
Providence Health & Services had argued that the benefit that ML&P brings to the municipal water system should result in a reduction in the revenue requirement that ML&P needs to recover through its rates. However, the commission rejected this argument, saying that since ML&P and the municipal water supply both benefit financially from this mutually convenient arrangement, ML&P does not have to include this aspect of its operations within its rate filing.
On the other hand, the commission has upheld a challenge to the manner in which ML&P apportions the Plant 2A costs between different classes of customer and has required the utility to change the method for determining its rate structure. The commission has also mandated a lower return on equity than ML&P had proposed. And the commission has declined to approve an ML&P proposal to stabilize rates by deferring the recovery of some of the Plant 2A capital cost.
- ALAN BAILEY
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