Alan Mitchell, Analysis North, A Review of "Economic Feasibility of the Proposed 138 kV Transmission Lines in the Railbelt". Funded by Department of Commerce and Economic Development. Contract ASPS 90-028: Utility Consumer Representation. Report AN-90-1 February 14, 1990
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PDF's of complete report: Main (p 1-35) Appendices
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1. Introduction and Executive Summary (partial)
This report reviews the "Economic Feasibility of the Proposed 138 kV
Transmission Lines in the Railbelt" prepared by Decision Focus Inc. (DFI)
for the Railbelt utilities. A review was done of most, but not all, of the
benefit categories for the proposed 138 kV line between Anchorage and Kenai.
Because of time constraints and the large number of areas of dispute with the
Kenai-Anchorage analysis, a less thorough review of the Healy-Fairbanks line was
completed. A summary of the conclusions of the Healy-Fairbanks line review is
presented here, but detailed support for the conclusions is not provided.
We appreciate the promptness with which our data requests and questions were responded to by DFI. This facilitated the completion of our review.
Kenai-Anchorage 138 kV Intertie
The DFI analysis presents the costs and benefits of an additional transmission line between Anchorage and Kenai.1 We identified 4 major errors in the methods and computations used in the analysis. These are not disputes concerning the input assumptions used in the analysis, which will always differ between analysts. These axe errors in how the input assumptions were used to calculate the final estimate of intertie benefits. Correcting these errors lowers the present value benefits of the new intertie from DFI's estimate of $123 million (1990 dollars) to $65 million.
In addition, we dispute a number of the input assumptions used in the analysis. Although not all of our disputes argue for lower benefits, we believe that more reasonable input assumptions would lower the estimated benefits of the 138 kV intertie further. The Alaska Energy Authority analysis of a more capable 230 kV intertie between Anchorage and Kenai showed benefits of $51 million, present value.2 This analysis was also performed by DFI. We believe that a more accurate analysis of the 138 kV option would show its benefits to be equal to or less than this value.
The benefit estimates for the 138 kV intertie need to be compared to the
costs of the intertie. Two cost estimates were presented in the 138 kV analysis,
both assuming use of the Enstar route through the Kenai Moose Range.3 One
estimate assumed a 40 year life of the proposed submarine cable under Turnagain
Arm. The present value cost of this estimate is $74 million. A second cost
estimate assumes a 20 year life for the submarine cable (slightly more than the
15 year life actually experienced by Chugach Electric's Cook Inlet submarine
cables). This cost estimate is $86 million, present value.
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1 The existing line will remain operational even if the new line is built. It is necessary to serve customers along its route.
2 Railbelt Intertie Reconnaissance Study, Benefit/Cost Analysis", prepared by Decision Focus Inc. for the Alaska Energy Authority, June 1989.
3 In the Alaska Energy Authority analysis of the 230 kV alternative, a more expensive alternate route along the Tesoro right of way was also costed.
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Benefits of 138 kV Kenai-Anchorage Line are Less than Costs
If the benefits of the 138 kV Kenai-Anchorage intertie are $51 million or less, as we expect, the benefit to cost ratio of project will be less than 0.69 ($51 million divided by low cost estimate of $74 million). Even using the $65 million benefit estimate, derived from correcting only 4 major method errors in the 138 kV analysis, the benefit to cost ratio of the project will be 0.88 or 0.76, depending on the cost estimate used.
4 Major Errors Quantified
Figure 1 summarizes the magnitudes of 4 major method errors that were found in the DFI Kenai-Anchorage Intertie analysis:
• A computation error was found in the calculation of the hydro-thermal
coordination
benefits of the new intertie.4 DFI has agreed to the existence of the error. The
error
overstates the Energy Transfer benefits of the new intertie by $25 million,
present value.
• The existing intertie causes power outages when it fails while
transferring energy between
Anchorage and Kenai. The study claims that these power outages cost customers
$32 -
$50 million, which will be avoided if a new intertie is built. However, the
analysis fails
to recognize that these outage costs can also be avoided without the
construction of a new
intertie by giving up the energy transfers that cause the outages. These
transfers are only
worth $17 million according to DFI's analysis. The $17 million transfer benefit
sets a
logical cap on the reliability benefits of the new intertie. This cap lowers the
reliability
benefit estimate of the new intertie by $24 million.
• An incorrect formula for computing the cost of spinning reserve
overstates the benefits
of increased access to Bradley Lake spinning reserve by $5.3 million.
• An unnecessary simplification of the hydro-thermal benefit calculation
overstates the
hydro-thermal benefits of the new intertie by $3.7 million.
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4 Hydro-thermal coordination is a method for coordinating the hydro generation
on the Kenai peninsula with the thermal generation in Anchorage so as to
minimize the excessive part-load
operation of the thermal generation.
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Unquantified Areas of Dispute
In addition to the errors listed above, a number of unreasonable input assumptions tend to bias the project benefits upwards, including:
• The calculation of the increased energy transfer benefits of the new
intertie assumes with
certainty that a system for optimally coordinating generators will exist. Such a
system
does not exist now and may never exist.
• The hydro-thermal coordination regime modeled in the analysis appears is
suboptimal.
A more optimal regime makes better use of the existing intertie and depends far
less on
a new intertie for the creation of economic benefit.
• The capacity benefits provided by the new intertie are valued at the full
cost of new
generation capacity, despite the statement by Railbelt utilities that new
capacity will be
acquired through relatively cheap life-extension of existing plants.