Water Authority Board Authorizes Purchase of Power from Hoover Dam
July 28, 2016
The San Diego County Water Authority is seeking to reduce energy costs for water projects in the region following a…
The San Diego County Water Authority is seeking to reduce energy costs for water projects in the region following a decision today by the Board of Directors to pursue a contract with the Western Area Power Administration for buying power directly from Hoover Dam at wholesale rates.
Under the Water Authority’s allocation of power from Western, it could save up to $300,000 a year compared to retail energy prices, helping control costs for the region’s water ratepayers. Before that can happen, the Water Authority needs to secure a way for the power to be delivered to water facilities in the region.
San Diego County water ratepayers could benefit from the power purchase agreement another way, as well. As a Western customer, the Water Authority could generate even more savings by buying additional energy from the wholesale market using Western’s at-cost services for energy procurement. This would further offset current retail energy market purchases at Water Authority facilities, the Claude “Bud” Lewis Carlsbad Desalination Plant, and member agency facilities.
While the Water Authority is best known as the San Diego region’s water wholesaler, the California Legislature in 2000 authorized the Water Authority to enter the energy market and engage in certain energy-related activities under section 5.1 of the County Water Authority Act (Senate Bill 552). The bill authorized the Water Authority to purchase federal power; to construct, own, and operate electric power generation facilities to service its or its member agencies’ needs; and to purchase and transport natural gas.
In 2007, the Water Authority finished construction of the Rancho Peñasquitos Hydroelectric Facility, a 4.5-megawatt turbine generator inside a high-pressure water pipeline in Mira Mesa that reduces the Water Authority’s energy costs and supplies surplus power to the region. The agency also generates up to 40 megawatts of on-demand power to meet peak regional demands at a pumped storage project at Lake Hodges. Since its start-up in 2012, the Lake Hodges Pumped Storage Facility has produced $10.6 million in revenue to help offset operational costs, including $2.9 million in fiscal year 2016.
“The nexus between water and energy is increasingly important as the cost of power continues to increase,” said Mark Weston, chair of the Water Authority’s Board of Directors. “We have a responsibility to the region’s water ratepayers to continue exploring energy solutions and executing strategic agreements that will help control energy costs to serve the region’s long-term interests.”
Today’s Board action authorized staff to execute a contract with Western, which markets and delivers power from Hoover Dam in Boulder Canyon on the Colorado River as part of the Boulder Canyon Project. Western is part of the U.S. Department of Energy that markets and delivers clean, renewable energy from hydroelectric facilities.
As part of the Hoover Power Allocation Act of 2011, Congress directed Western to allocate a portion of Boulder Canyon power to new contractors. The Water Authority applied for Boulder Canyon power in March 2014 based on energy demand at the agency’s Twin Oaks Valley Water Treatment Plant north of San Marcos. In December 2014, Western granted the Water Authority up to approximately 1.6 megawatts of capacity and 3.5 million kilowatt-hours per year of energy. The actual amounts will fluctuate based on power production at Hoover Dam, which changes due to reservoir fluctuations and other factors.
Since the Water Authority does not own or operate electricity transmission systems, the agency has negotiated an interim arrangement to make sure it can secure wholesale power before Western’s Oct. 1, 2016, deadline for being ready, willing and able to receive Boulder Canyon power. (Note: Power deliveries are not expected to start until October 2017, however, Western requires purchasers to be prepared one year beforehand.)
Under that interim arrangement, the Water Authority plans to sell its Boulder Canyon power to the California Independent System Operator, which manages most of California’s large-scale power grid. In the short term, this strategy will have little financial impact because Water Authority revenues for selling the power from Western are expected to approximate the costs of purchasing the power from Western.
Over time, however, the Water Authority aims to develop a way for Boulder Canyon power to be delivered directly to agency facilities or the Carlsbad desalination plant. That could reduce power costs by up to $300,000 a year through 2067, the end date for the Boulder Canyon agreement. In addition, being a Western customer would give the Water Authority other opportunities to tap the wholesale energy market and further offset retail power prices.
To read the Board memo about the Boulder Canyon Power Agreement, go to page 83 of the Board packet at www.sdcwa.org/monthly-board-meeting-62.