Attachment

UTILITY COMMITTEE AGENDA SEPTEMBER 28, 2015 - 5:00 P.M. CITY HALL COUNCIL CHAMBERS 15 LOOCKERMAN PLAZA DOVER, DELAWARE PUBLIC COMMENTS ARE WELCOMED ON ANY ITEM AND WILL BE PERMITTED AT APPROPRIATE TIMES. WHEN POSSIBLE, PLEASE NOTIFY THE CITY CLERK (736-7008 OR E-MAIL AT CITYCLERK@DOVER.DE.US) SHOULD YOU WISH TO BE RECOGNIZED. AGENDA ADDITIONS/DELETIONS 1. CRITICAL REPAIR - VANSANT EXHAUST PLENUM (DUE TO TIME CONSTRAINTS, THIS ITEM HAS BEEN PLACED ON THE COUNCIL AGENDA FOR THE MEETING BEING HELD LATER IN THE EVENING) (STAFF RECOMMENDS DELAYING INSPECTION AND REPAIRS ON THE UNIT #3 COOLING WATER LINE AND FUNDING THE CRITICAL REPAIRS NEEDED ON THE VANSANT EXHAUST PLENUM, TRANSITION PIECE, AND EXPANSION JOINT IN ACCORDANCE WITH THE COMPLETION DATE OF JUNE 1, 2016) 2. REVIEW OF PJM CAPACITY PERFORMANCE AUCTION (COMMITTEE ACTION NOT REQUIRED) 3. ADJOURNMENT BY 5:50 P.M. /TM S:\AGENDAS-MINUTES-PACKETS-PRESENTATIONS-ATT&EXH\COMMITTEE-AGENDAS\2015\09-28-2015 UTILITY.WPD THE AGENDA ITEMS AS LISTED MAY NOT BE CONSIDERED IN SEQUENCE. THIS AGENDA IS SUBJECT TO CHANGE TO INCLUDE THE ADDITION OR THE DELETION OF ITEMS, INCLUDING EXECUTIVE SESSIONS.

ACTION FORM PROCEEDING: Utility Committee & City Council DEPARTMENT OF ORIGIN: Electric Department - Power Plant (NAES) DATE SUBMITTED: 08/28/15 PREPARED BY: Don Mordus, Plant Manager SUBJECT: Critical Repairs – Van Sant Exhaust Plenum REFERENCE: Braden Manufacturing, LLC Proposal Rev 1 46569 RELATED PROJECT: Project # EG1612 REVIEWED BY: Electric Director, City Manager, Controller/Treasurer EXHIBITS: Exhibit A – Infrared Thermography Inspection Report – Van Sant Generating Station EXPENDITURE REQUIRED: $430,000 (Estimated) AMOUNT BUDGETED: $469,000 FUNDING SOURCE (Dept./Page in CIP & Budget): Public Utilities - Electric Generation, Unit #3 Cooling Water Line Inspection - Repairs, CIP EG1612 TIMETABLE: Engineering and material fabrication to start in the 4th quarter of 2015 with equipment delivery and installation to be performed at the end of the 1st quarter or early in the 2nd quarter of 2016. RECOMMENDED ACTION: Delay inspection and repairs on the Unit #3 cooling water line and fund the critical repairs needed on Van Sant exhaust plenum, transition piece and expansion joint in accordance with the completion date of June 1, 2016. BACKGROUND AND ANALYSIS The Van Sant Frame 6B Combustion Turbine (CT) exhaust plenum, transition piece, and expansion joint have degraded over time and now require replacement. Since beginning commercial operation in 1991, there have been occasional upkeep repairs made to the referenced components with the latest repairs in the fall of 2014 and the summer of 2015. The depleted condition of the plenum wall(s) allows heat infusion into the CT compartment which has started to cause damage to the ignitors, flame scanners, and other associated control wiring instruments. This could affect the unit reliability and availability and we are requesting expedited processing of this request to allow NAES to complete the necessary engineering, obtain contractor quotes and contractor selection to manufacture the new plenum and install the plenum, transition piece and expansion joint before the PJM Capacity Performance operational period for the 2016/2017 operational periods. A Request for Proposal package was advertised by NAES. NAES is currently reviewing the submissions for the advertisement. This work is an Original Equipment Manufacturers specialty item with a limited number of organizations familiar enough with the installation requirements to support our desired replacement schedule. The estimate we have received for the above work is from the original manufacturer of the plenum for Van Sant, Braden Manufacturing, LLC. This preliminary estimate from Braden does not include replacement of the transition piece or expansion joint. In addition to Braden Manufacturing, LLC NAES will obtain at least three (3) proposals from other contractors familiar with this work, Consolidated Fabricators and Universal Acoustics and Emissions Technology. NAES will continue to research additional resources capable of performing this work to ensure we have the best capable contractor and cost estimate(s). NAES would like approval and permission, based on this action form, to proceed with and select the highest evaluated bidder to immediately award the project once the bids are received and reviewed. This request is only to promulgate the expeditious manufacture of the material component parts necessary to perform these repairs, without further review by City Council. The proposals will be evaluated using cost, experience, and completeness of bid to select the contractor who will perform the work. All work must be completed prior to June 1, 2016.

Review of PJM Capacity Performance Auction Prepared for Dover, DE City Council September 28, 2015

Electric System Market Uncertainty • The City’s electric system is exposed to economic uncertainty caused by several risk factors: – Energy Market Price Uncertainty – Capacity Market Price Uncertainty – Fuel cost & availability risks – Generation operational risks – Load growth uncertainty – Etc. September 23, 2015 CONFIDENTIAL & PROPRIETARY 2

Electric System Market Hedging • Dover purchases fixed price energy hedge contracts several years in advance to minimize energy price uncertainty • Dover owns generating plants to hedge Capacity market price risks • Dover has also recently executed a 40 MW, 5- year capacity purchase from Calpine to hedge capacity market price risks September 23, 2015 CONFIDENTIAL & PROPRIETARY 3

PJM Capacity Market Overview • PJM established a mandatory capacity market mechanism – Generators sell capacity (ability to produce energy) and receive capacity payments from PJM – Retail Load Serving Entities (“LSEs” such as Dover) make capacity payments to PJM to insure it has sufficient capacity reserves to serve retail customers • Capacity is generally purchased from generators through a uniform clearing price auction for 3 years into the future – Capacity prices to be paid to generators are known 3 years in advance – Capacity prices to be paid by load to PJM are based on the BRA, subject to adjustment as PJM conducts incremental auctions between the BRA and the Delivery Year (DY) September 23, 2015 CONFIDENTIAL & PROPRIETARY 4

PJM’s New Capacity Performance Product • Implemented for Delivery Year 2018-2019 – Partial implementation with partial-market “transition auctions” for DY 2016/17 & 2017/18 • Potential non-performance penalties substantially larger than legacy RPM market design • Expected to cause capacity prices PJM pays to generation owners to significantly increase • Retail Load Serving Entities (such as Dover) will pay PJM for this cost increase (Locational Reliability Charge) September 23, 2015 CONFIDENTIAL & PROPRIETARY 5

Comparison of Legacy RPM & CP Legacy RPM CP (Capacity Performance) • Non-performance penalty amount • Non-performance penalty amount based on PJM’s peak hour based on actual capacity availability short-fall of generating performance during declared units emergencies • Non-performance penalty price • Non-performance penalty price based on Auction Clearing Price based on Net Cost of New Entry • Dover incurred a penalty of divided by assumed 30 hours/year $562,994 for generation short- of emergencies falls during February 2015 peak • This is substantially higher than hours (11.3 MW short-fall on 175 MW of under legacy RPM UCAP x $136.5/MW-Day x 365 days/year) September 23, 2015 CONFIDENTIAL & PROPRIETARY 6

Dover’s Participation in PJM CP Auctions • DY2016/17 Transition Auction (Aug. 26-27, 2015) • Offered 45 MW (VanSant only) at near-maximum price • Auction Clearing Price of $134/MW-Day • Dover did not clear this auction • Will receive $119.34/MW-Day under legacy RPM construct • Will not be exposed to higher non-performance risks • DY2017/18 Transition Auction (Sept. 3-4, 2015) • Offered 145.9 MW (McKee Run 3 and VanSant) at near-maximum price • Auction cleared at $151.50/MW-Day • Dover did not clear this auction either; will retain $120/MW-Day under RPM • Will not be exposed to higher non-performance risk • DY2018/19 BRA (Aug. 10-15, 2015) – Offered 145.9 MW as Self-supply (price taker) • Received award of $225.42 per MW-Day • Annual revenues = $12.0 million • Dover is exposed to new CP non-performance risks September 23, 2015 CONFIDENTIAL & PROPRIETARY 7

PJM Capacity Price History PJM Auction Price – DPL South Zone $300 Capacity Performance Market Auctions in Aug-Sep 2015 $250 Dollars per Megawatt-Day $200 $150 $100 $50 Enhanced Demand-Side Participation Implemented $0 Delivery Year Legacy RPM Capacity Performance Design September 23, 2015 CONFIDENTIAL & PROPRIETARY 8

Dover’s Economic Risk of Non- Performance of Generating Units • Under PJM’s new CPM: – Penalties are based on the number of hours PJM dispatches Dover’s generating units during PJM emergency events – The Penalty Rate applicable to Dover for DY18/19 is $3,143/MWh of deficiency – Market design includes stop-loss limit • Dover’s Expected CP Revenue: $12.0 million • Max Non-Performance Penalty: $20.6 million • Net CP Revenue after max penalty: (-$8.6 M) September 23, 2015 CONFIDENTIAL & PROPRIETARY 9

Capacity Revenue at Risk for Dover’s 145 MW of Generation (DY2018/19) $15 Millions $10 $5 Net Capacity Revenue after Penalty $0 ($5) Penalty (Risk) ($10) ($15) ($20) ($25) 0 8 16 24 32 Max Non-Performance Penalty Hours September 23, 2015 CONFIDENTIAL & PROPRIETARY 10

Pro-Active Mitigation Measures • Dover has now two years to prepare for the changes and set up safe guards to help insulate customer from any rate shock. • Training the staff on the rules and definition of Peak periods/days. • These period day are limited to when PJM declares emergency operations. There been very few in past two years. • Review of critical spare parts to help reduce any generation outages. • Run the units for shake down before and after each peak periods to finds and repair any found problems. • Review the possibilities of expanding the Rate Stabilization Reserve account to lower the impact to electric customers. • Review with the plant operator if any repairs and overhauls need to be perform sooner than later to make sure the units will perform when call on. This is culture change for everyone including the City and the budget process. • TEA and City staff are currently negotiating firm gas and fuel contracts to guarantee delivery and transmission of fuel requirements. September 23, 2015 CONFIDENTIAL & PROPRIETARY 11