Title
Amendment to the Carbon Free Power Project Budget and Plan of Finance
Recommended Action
I move that the County Council authorize an increase to the Department of Public Utilities' share of the Carbon Free Power Project budget in the amount of $52,500.00, with a 20% contingency of $10,500.00, for the continued participation in the Carbon Free Power Project and authorize the Utilities Manager to execute an amendment to the budget and plan of finance with the Utah Associated Municipal Power Systems (UAMPS).
Utilities Manager Recommendation
The Utilities Manager recommends that Council approve the motion as presented.
Board, Commission or Committee Recommendation
The Board of Public Utilities recommends that Council approve the motion as presented.
Body
Background
March 2019 Update
At the recommendation of a citizen ad hoc committee and the direction of the BPU, the Department of Public Utilities (DPU) was tasked to continue participating in the Carbon Free Power Project (CFPP) as an option for meeting a portion of the County’s power demands. The CFPP is being considered as a potential resource for replacing the County’s coal generation assets and to meet a Board-approved goal for the DPU to be a carbon-neutral electrical energy provider by 2040.
Through DPU’s membership with the Utah Associated Municipal Power Systems (UAMPS), staff has been participating in the development of the CFPP, which is a projected 600MW nuclear generating station to be built in Idaho using small modular reactor (SMR) technology. As it is being designed, the facility would house up to twelve SMRs developed by NuScale Power, currently rated at fifty megawatts of electric power for a total plant capacity of 600MW. The County’s share would be 8MW.
Prior to signing the Power Sales Contract in April 2018, the following had been accomplished:
- The County participated in the CFPP Project Study Phase and Siting Agreement (also referred to as the fatal flaw analysis). Findings - No fatal flaws were discovered in this phase, clearing the path for continued development.
- DPU surveyed customers on Los Alamos County pursuing nuclear generation. Findings - 73% of residential and 60% of commercial customers agree or strongly agree that Los Alamos should pursue nuclear generation.
- DPU hired a third-party independent contractor to develop an Integrated Resource Plan (IRP) that evaluated all of the options to serve the County’s Electric Demand on a Levelized Cost of Energy (LCOE) basis, while meeting our carbon neutral goal. Findings - solar with storage was determined to have the lowest LCOE among the options considered. The CFPP came in second at approximately 3.5% higher cost based on the $65/MWh cap the participants have determined to be the maximum they are willing to pay. DPU is looking at a combination of these resources for a diverse portfolio.
- Several public meetings specific to the technology, project commitments, and IRP findings were held.
On April 10, 2018 the Board of Public Utilities and the County Council approved a resolution authorizing and approving the Power Sales Contract with an Amended and Restated Initial Budget and Plan of Finance for the first phase of the Carbon Free Power Project. The Budget and Plan of Finance has broken the project into phases allowing the project participants an option to exit the project at the end of each phase if they determine the project is no longer the preferred option.
This first phase is the development of the Combined Operating License Application (COLA) to be submitted to the Nuclear Regulatory Commission (NRC) for review and approval in the second phase of the project. The first phase has a decision point and off-ramp at the $6 million spend point which is 100% reimbursable by DOE and NuScale if UAMPS terminates the project for any reason. At the April 2018 meeting it was anticipated that the $6 million would carry the project through March of 2019 at which time the participants would have an option to proceed with the completion of the COLA preparation or exit the project. This off-ramp was at the request of the project participants.
Since April 2018, UAMPS Project Management Committee (PMC) purposefully minimized the activities in the development of the COLA to allow more time to market the unsubscribed capacity of the project and to negotiate with the DOE and NuScale for additional cost sharing through the COLA development and NRC review minimizing the exposure to the participants.
Progress since March 2019
On July 17 the BPU approved the JUMP resolution resulting in Los Alamos County acquiring an additional 3.186 MW above the base subscription of 8 MW.
This JUMP Allocation Resolution is for Los Alamos County to express their interest in their entitlement share of capacity and energy from the Joint Use Module Plant (JUMP) program after DOE has completed their research and development using the power output of the JUMP.
UAMPS and DOE expected to have the terms and conditions of the JUMP Power Sales Layoff agreement completed by October 2019 however DOE funding has been delayed by Congress. At this time the members interested in the JUMP program will have the option to rescind its election to increase their entitlement share in the CFPP.
Due to the federal budget continuing resolution, DOE choose not to complete the JUMP Power Sales Layoff agreement until the money for the JUMP project has been appropriated by congress.
The PMC anticipated exhausting the $6 million by November 2019 at which time the PMC and the individual participants will have another decision point.
At this time UAMPS PMC is recommending increasing the budget for the CFPP participants by $976k, (Approx. $52,500 for LAC, non-reimbursable), to keep the project moving forward from December 2019 through March 31, 2020.
It is Important to note, that the participants are still eligible for 100% reimbursement of the $6M if UAMPS terminates the project in the spring or summer of 2020. If the project terminates in spring 2020, LAC will have a sunk cost of approximately $82k. If LAC unilaterally takes the off-ramp in spring of 2020, the total sunk cost will be approximately $162k not including staff time since 2015.
The inherent risk of any long term resource is predicting industry trends, market conditions, technological breakthroughs, and changing regulations that will have an impact on these long term commitments. It is for this reason the PMC has proceeded with caution while DOE, NuScale and the NRC continue to mitigate the risks through cost sharing, industry partnerships and design reviews.
The project is in alignment with the adopted Future Energy Resource recommendations and Los Alamos County Strategic Leadership Plan, specifically Environmental Stewardship by improving environmental quality and sustainability balancing costs and benefits.
This project also supports the County’s Intergovernmental Relations through coordination and cooperation with Los Alamos National Laboratory. The DOE Nuclear Energy office has made NuScale’s SMR design their highest priority. They continue to work with DOE NNSA on contracting options with the CFPP.
DPU is assuming that the County and LANL will continue partnering with generation assets post 2025 through a new Electric Coordination Agreement. Keeping this project as an option will support the large load increases LANL is forecasting. If the County and DOE-LANL decide not to partner with generation assets, our current 8 MW subscription in the project could replace our Laramie River Station coal fired plant.
Based on what we know today regarding generation resource adequacy in the western interconnect, LAC needs to have 100% of its load covered with owned generation assets or long term power purchase agreements in addition to being carbon free to meet our 2040 carbon neutral goal.
The County's 2017 Integrated Resource Plan (IRP) made the following recommendations:
1. The County needs not to be in any rush to commit to new resources until several uncertainties regarding Small Modular Nuclear Reactors (SMNRs), solar and storage are resolved.
2. A portfolio with SMNRs could be competitive, if risk mitigation measures to protect ratepayers from cost overruns and schedule delays are in place.
Hence, the optimal approach is to preserve optionality by continuing to pursue SMNR risk mitigation measures and preserve the ability to take advantage of declining solar and storage costs. The 2017 IRP assumed a $65 per megawatt hour (MWh) for the CFPP and for the solar with storage option. Currently the CFPP has a price target of $55/MWh to match the next best alternative which is a combined cycle gas plant.
For more background information on the project please refer to the DPU’s website: <https://rebrand.ly/DPU-CFPP>
Alternatives
Exit the project at this time and pursue other carbon free base load resources
Fiscal and Staff Impact
$52,500.00 plus $10,500.00 contingency for a total of $63,000.00, non reimbursable. There is no additional staff impact since resource plannning is part of the job.
Attachments
A - Nov 2019 EPC Development Agreement Update Presentation