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Commission recap 11-26-2019: Grant PUD to launch $58 million electric system upgrade in 2020

The Grant PUD electric system from Royal City north to Quincy and Ephrata will become more resilient to power outages and gain capacity for new customers following a 2-year, approximately $58 million package of upgrades slated to begin construction in mid-2020.

Total project cost will be refined in the coming months.

Grant PUD project managers David Klinkenberg and Russ Seiler shared details with commissioners about a second round of "Design-Build" projects that include:

  • A new "Red Rock" 115-kilovolt transmission line and rebuilt and expanded Red Rock Substation south of Royal City.
  • Rebuild of the Royal City Substation
  • A new breaker to protect the Frenchman Hills Substation from outage-caused damage.
  • A rebuild and expansion of the Burke Substation near George.
  • An additional transformer to the new Quincy Plains Substation in Quincy
  • Addition of a "230-kilovolt capacitor bank" to the large Mt. View substation in Quincy to help regulate voltage as load increases.
  • A new Baird Springs Substation in Quincy to serve data center customers.
  • A new South Ephrata Substation off Dodson Road with a "ring bus" installed across the road to increase reliability by allowing crews to isolate outages and keep power on to more customers.

"This is a huge project that could involve 75,000 man hours and hundreds of drawings," Seiler told commissioners.

The "Design-Build" system requires state approval. It allows Grant PUD and other qualifying "project owners" to bundle projects together and carry them out simultaneously using the same consulting firm, project designer, electrical contractor and civil contractor.

A request for proposals attracted 11 highly competitive bidders, Seiler and Klinkenberg said. Of those HDR consultants was chosen as designer, Potelco as electrical contractor and Tommer Construction as the civil contractor. Their proposed initial contract will be up for commission vote next month.

Design Build is fast. Seiler said construction is expected to begin in May 2020 and be finished sometime during the summer of 2022. That's about half the expected completion time of a package of projects carried out in the traditional design-bid-build method. 

This will be Grant PUD's second experience with Design Build. The first, completed in 2017, produced successful builds, rebuilds and improvements to eight substations within 18 months.

See the full presentation on this round of projects here, pages 1-19. This portion of the recording isn't available due to equipment malfunction.

Third-quarter financial review

Strong market prices drive results in the latest financial forecast

The third-quarter financial forecast continues to show the district in a strong financial position, driven by prices on the wholesale energy market more than $13 per megawatt higher than Grant PUD's original 2019 budget.

The higher prices have driven the year-end revenue projection from net wholesale power sales up by $23.7 million versus the 2019 budget. Current net income estimates for 2019 are up $21.2 million overall versus the 2019 budget, John Mertlich, Grant PUD's Senior Manager of Financial Planning and Analysis told commissioners.

Wholesale sales were a highlight in a third-quarter review that otherwise reflected little change from the year's second quarter financial forecast.

Long-term financial targets for liquidity, the debt-to-net-plant ratio, and debt-service coverage all remain on target and forecasted to meet targets through 2024.

Two profitability-focused metrics are not expected to meet their targets in 2019, but have improvedand are expected to meet their respective targets from 2022 through 2024.

Forecasts show the financial position remains strong under nearly all scenarios for volatile market prices, lower load growth and combinations, except under extremely low — 15% probability — water conditions.

See the full Third-quarter financial update here, pages 32-42. Listen to the discussion at 15:00 on the commission audio.

Higher interest earnings and plans to reduce debt service

Earnings on Grant PUD's $525.3 million investment portfolio is expected to end the year with a $14.9 million return, up from $12.6 million in 2018, Grant PUD Treasurer Bonnie Overfield told commissioners.

Total debt remains at $1.3 billion. Some debt reduction is planned for 2020.

A risk analysis in 2018 revealed that Grant PUD could reduce its liquid cash reserves by $50 million without increasing financial or business risk. Through the end of 2019 Grant PUD is projected to have accumulated approximately $95 million in liquid cash reserves in excess of the $105 million target.

Grant PUD staff has recommended that the excess cash be used to pay for an increased portion of capital spending and pay down higher priced debt within the district's portfolio.

In January the Finance team plans to take advantage of low interest rates to refinance some long-term debt. The plan would reduce debt service by $56 million over the next five years, if interest rates continue as forecast.

View the third-quarter Treasury update here, pages 43-54. Hear the discussion beginning 27:28 on the commission audio.

Commissioners also:

— Approved Grant PUD's 2020 budget hear the discussion beginning at 02:08:10 and see the news release here

— Heard from Louis Szablya, team leader of Large Power Solutions, as he provided a preliminary overview of staff's assessment and update for Rate Schedule 17 and reviewing the Evolving Industry class. Resolution 8891, which established Rate Schedule 17, requires at least a yearly review of the evolving industry class to determine if certain customers uses or industries should move into or out of the rate class.

Szablya told commissioners that the results of the preliminary review show that cryptocurrency operations continue to meet the criteria for inclusion within the evolving industry rate class, and that it is the only industry in Grant County that meets the conditions to be included part of Rate Schedule 17.

However, he said the potential impact of cryptocurrency operations to Grant PUD's electrical system is slightly lower than previously estimated. Mainly due to the decrease of interest in new power requests from cryptocurrency customers.

The Evolving Industry customer class includes only industries and/or activities that pose either regulatory or business risks and their concentration risk is at least 5% of Grant PUD's total system, which includes actual load plus requests for new electrical service in the queue.

Commissioners will determine early in 2020 if any modifications will be made to the existing billing rates in Rate Schedule 17.

During open public comment to the commission Ryan Reed, cryptocurrency consultant from Moses Lake, complimented staff on their efforts regarding the annual review Rate Schedule 17. However, he did say the current rate would make it difficult for cryptocurrency operations to continue.

"We've told our customers we are shutting down as of April 1 unless something changes. The economics of the industry are such that we simply can't be profitable with the rate," said Reed.

2017 proved to be the tipping point for Grant PUD as the utility received an historic number of new power requests. This led to a revamped process to manage new customer-connections consisting of instituting application fees and two service queues, one for traditional businesses and one for evolving industry.

(Hear Szablya's presentation which begins at 48:20 of the commission audio. See the presentation on pages 65-103 of presentation materials for additional details regarding the preliminary review)

— Heard from Rich Cole, energy services specialist regarding Grant PUD's energy conservation plan per the Energy Independence Act. See the details of the presentation on pages 104 to 114 of presentation materials and pages 29 to 33 of the commission packet hear the discussion beginning at 2:35:50 of the commission audio.

— Learned that the Energy Services Department has proposed working with Energy Northwest on the installation of electric vehicle charging stations at Grant PUD's Moses Lake Local office. Pending commission approval of the interlocal agreement between the two organizations, a total of four charging stations will be installed. Two of the stations will be designated for public use. While the other two charging stations will be utilized by Grant PUD for two electric vehicles that will soon be part of its fleet. Additional details are available on pages 139 to 149 of the commission packet.