Part 1 of 5 in a series
New power responsibilities will be shouldered by the Hannibal Board of Public Works beginning next June, after its current power supply contract expires with Dynegy, a Texas utility doing business through a subsidiary called Illinois Power Marketing.
Starting on June 1, 2017, the BPW will begin to self-manage the city’s energy plan. Previously it operated under the terms of a full requirements electric contract, which meant the BPW was obligated to purchase all its power from Ameren Energy Marketing (AEM) and then Illinois Power Marketing. Moving forward the BPW will be free to explore the power market for the best buy.
The city is currently paying AEM $41.69 per megawatt hour (MWh). The current power supply contact started with AEM on Jan. 1, 2015.
The BPW is not waiting until the last minute to put together its new power portfolio. The first power purchase under the self-managed format was finalized in February of this year when an agreement was reached with NextEra, previously Florida Power and Light. The lowest of four bids, NextEra’s proposal averages out at $36.86 over three years.
The power from NextEra will meet roughly 1/12th of the city’s peak demand needs during daytime hours from June through August.
After decades of life under a full requirement commitment, why change the game plan now?
“The (BPW) Board’s motive for this change is to save money in our power purchases,” wrote Bob Stevenson, general manager of the BPW, in a memo explaining the upcoming changes earlier this year.
During the Nov. 15 City Council meeting it was estimated that making the switch to a self-managed plan could result in a savings of $500,000 in 2017 alone.
Previously under full requirement electric contracts with AEM and then Illinois Power Marketing the BPW was able to buy both electric energy and capacity at the same time. In addition to now needing to purchase the energy necessary to keep the lights on, the BPW must also buy “capacity.”
Capacity, among other things, represents a community’s potential energy reserves. In Hannibal’s case, under its Midwest Independent Transmission System Operator (MISO) obligation, the BPW must own or control enough capacity to cover its own peak load, plus 7.5 percent, which next year will amount to about 63 MW (megawatts).
The cost of capacity takes into consideration a number of factors.
“Capacity costs are related to the capital investment required to deliver energy to an end user. Capacity costs include the cost of generators, transformers, wires and poles. Investment in capacity is a fixed cost and does not vary depending on how much energy is delivered,” Stevenson said.
According to the BPW’s GM, the city’s capacity needs will be met through commitments from sources that will not be expected to produce any energy for Hannibal. One example of just such a deal was struck earlier this fall between the BPW and Big Rivers Electric Coop, a coal-fired facility that has excess capacity.
Under terms of the agreement, which Stevenson described as the “only attractive offer we have found,” the capacity comes at a price of $2.50/kw-mo. It will provide a capacity amount of 25 MW for three years. A second contract with Big Rivers for an additional 10 MW for one year has also been approved.
Any shortage of capacity will be purchased by the BPW during MISO’s annual capacity auction in March.
Reach reporter Danny Henley at firstname.lastname@example.org