ARPA to Decide on Future of the Lamar Repowering Project

Coal Domes

Arkansas River Power Authority General Manager, Rick Rigel, briefed members of the Lamar Utility Board regarding what may become of the Lamar Repowering Project.  There are basically two alternatives to consider.  One would be to place the plant in cold standby until approximately 2024 with no guarantee that it will perform up to expectations at that point and the other is to decommission the plant, selling off hardware to any interested buyers.  Detailed studies of the alternatives were conducted by ARPA members as well as several consulting firms which studied costs of cold standby until 2022, costs to modify and repair the coal fired plant at ARPA’s expense, identify the rate impact of decommissioning the plant, cost options to liquidate almost 50 pieces of essential equipment and costs of readying the plant for operation in 2024, were some of the alternatives listed by Rigel.

The coal fired plant has not been in operation since 2011 when it was determined the boiler could not reach accepted power output without exceeding air quality emissions.  Last year’s district court ruling, in a lawsuit brought by environment group WildEarth Guardians, will keep the plant idle until 2023.  ARPA has been supplying its southeast Colorado member communities with power purchased off the grid.  A host of customers have complained of having to pay down the debt service on the plant, even though it’s not functioning and will be idle for the next nine years.

Rigel recapped the most recent developments with the boiler manufacturer, Babcock & Wilcox, stating that negotiations over who should bear the costs of studies, modifications and testing of the remodeled boiler have reached an impasse.  ARPA filed suit against Babcock & Wilcox this past February.

The ARPA board has been reviewing its options regarding the future of the Repowering Project.  Rigel said several studies were commissioned for consulting firms on how the costs of various scenarios would play out.  He explained that a power contract with Twin Eagles Resource Management will continue until 2022, purchasing power from the grid at lower rates than the coal fired operation would cost.  The plant would still need to achieve operation under compliance guidelines and receive an operating permit after which it would be on cold standby status.  He said there were still no guarantees from Babcock & Wilcox that they could fix the boiler to operate as needed.  One study broke down the costs if ARPA conducted all the work required to bring the boiler performance up to expectations.  Some of those included compliance with mercury emission controls, ammonia injection equipment and a new emissions monitoring system.  Those upgrades would have to be made in light of developing regulations on coal plants and anticipated regulations for greenhouse gas impact.  The other side of the coin entailed a consumer rate impact study and equipment appraisal if ARPA decided to decommission the plant.

The cost study of cold standby showed annual operating costs for the plant would be estimated at about $1.23M in 2015, rising to $1.67M by 2024, based on current cost estimates and incorporating an annual inflation rate of 3.4%.   Rigel said that over ten years, the costs of cold standby would be $14.4M if you still were able to open the plant for future operation.  Consumers would still continue to pay for the debt service of the Repowering Project.  He projected the costs at $16.3M in 2024 for compliance testing, boiler modification and other factors which would push the estimated total cost to $23M if ARPA decided to go with cold standby with a future start up, based on present net value.

If the plant were decommissioned, according to a financial projection, a high end price for salvage equipment would be $8.8M with $5.1M at the low end.  Rigel said it would be sold as is with the buyer obligated for the take down and equipment removal.  However, another firm’s study suggested those were high estimates and ARPA could expect a lower value as more plants are being retired in light of additional environmental regulations.  He said the market for such equipment would be swamped.  Selling the plant for scrap metals would be under a million dollars, either loss or gain, depending on market value.  Rigel, answering a question about potential impact on consumer rates from Mayor Roger Stagner, said rates would still go up if the plant were in cold standby by about 9% per year, but rates would not increase if the plant were decommissioned.

Rigel also updated the Utilities Board in the pending lawsuit involving ARPA, the City of Trinidad and Syncora, a bond insurer.  Trinidad has a suit against ARPA and Syncora has a breach of contract suit against Trinidad.  A pending settlement requires Syncora to pay Trinidad $2.3M in outstanding ARPA bonds which he said would reduce that debt service by $250,000 annually to ARPA.  But he said, that’s against their annual debt service of $10M a year.  Syncora would also pay some legal fees to the city.  He said  ARPA expects a ten day trial in September in Las Animas County Court and legal fees will mount in preparation for the hearing and there’s no predicting the outcome.  Rigel did say he’s noted that ARPA has not won very many rulings in the Trinidad court.  He believes the venue should have been moved to Prowers County Court and if an appeal on the settlement is approved, ARPA will ask for a change of venue and the hearings will begin all over again.

ARPA is also making the case that the statute of limitations has expired on the bond indebtedness, but the judge denied that motion with no explanation.  He said at present, the settlement comes with constraints, requiring ARPA members to take no action or join in any action against Syncora or ARPA in the future regarding the validity of the contract on power sales, as well as investigate the validity of the decommission process.  Rigel said a review of the alternatives are underway and public meetings have been set for June 25 and the 30^th in Lamar at 7pm, planned for the Community Building, to explain how these matters have transpired and the options ARPA faces.  Additional meetings are being set with PCDI, Prowers County Commissioners and the state health department as well as a credit rating agency and the Power Plant staff, which will be handled by Light Plant Superintendent, Houssin Hourieh.  Meetings are also being planned with ARPA communities on the potential impact of the settlement and decommissioning process.

By Russ Baldwin

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