Fitch Ratings said Oct. 20 that the city of Pasadena, California, is well along on building a new gas-fired project at an existing power plant site, which is in part needed to help reduce the city’s reliance on coal-fired power.
Fitch affirmed the ‘AA’ rating on $202.7 million of electric revenue bonds issued by the city Pasadena on behalf of Pasadena Water and Power (PWP). The Rating Outlook is Stable.
PWP’s capital plan includes completing the construction of a new gas-powered plant, which is 85% debt funded. While the plant helps diversify PWP’s power supply and moves the utility away from coal reliance, the initial bond issuance increased leverage by almost 50% and additional debt issuances are anticipated in fiscal 2017 and 2018, Fitch noted. Favorably, a three-step rate increase schedule was implemented in fiscal 2015, which should help maintain strong metrics.
PWP’s integrated resource plan (IRP) historically set efficiency and conservation goals at a more ambitious level than earlier state mandates. These proactive targets strongly position the utility to meet the state’s most recent and somewhat ambitious greenhouse gas and renewable goals, Fitch said. PWP’s proactive approach to garner ratepayer support for its environmental program is an additional positive attribute of the IRP.
PWP is a retail electric system serving over 65,000 residential, commercial and industrial customers within the city’s 23-square mile area. A mature community located 10 miles northeast of downtown Los Angeles, the city possesses a diverse employment base with above-average wealth and education levels. Preliminary fiscal 2015 results show a continued decline in energy sales, as a result of the utility’s conservation program and a continued decrease in wholesale sales. PWP has been actively managing its energy resources to avoid oversupply, which has led to less market purchases and a reduction in off-system sales.
In addition to its owned and operated generating units, PWP receives a majority of its total energy needs through ownership participation in various joint power agencies (JPAs). Of its 347 MW of capacity, approximately 6.3% is locally-owned steam and gas generation and 82.4% is from a variety of long-term JPAs, including coal-fired, hydroelectric and nuclear units.
Pasadena still deciding whether to be part of Intermountain repowering
The coal-fired Intermountain Power Project (IPP) in Utah is PWP’s largest source of power, and accounted for approximately 50.4% of PWP’s energy load in 2014, but it is also the utility’s largest source of carbon emissions. The IPP agreement is set to expire in 2027 and California mandate prohibits renewal if the resource continues to be coal based. Discussion is underway to transition from coal to gas-based generation at the IPP site, Fitch noted. PWP is evaluating its options as to how it will participate in the repowering.
The GT5 Repowering Project, in which PWP is building a 71 MW (65 MW net) combined cycle plant to replace the existing Broadway 3 steam plant, is currently underway. The project is on schedule and on budget, with construction expected to be completed in February 2016 and commercial operation to begin in May of next year, Fitch reported.
The IRP calls for PWP to derive 40% of its power supply from renewable resources by 2020 (more conservative than the state’s previous energy mandate of 33%) and 50% by 2030 to stay compliant with recently enacted state goals. PWP achieved several of the IRP’s midway targets in 2010 and has been compliant with the state’s renewable portfolio standard (RPS) targets, achieving 28% RPS in calendar year 2014.
The replacement of traditional, carbon-emitting resources with renewable energy will potentially increase the utility’s costs. This could strain retail rate flexibility. However, ratepayers and the city council are supportive of the IRP and PWP’s environmental goals, Fitch wrote. It is expected that there would be support for timely rate increases in the future.
Said the Pasadena website about this project: “Pasadena Water and Power (PWP) has initiated a major project to replace an aging power generating unit with a more efficient combined cycle unit at the Glenarm Power Plant. Known as the Glenarm Power Plant Repowering Project, the installation of the new unit will allow PWP to reduce fuel consumption and emissions while increasing reliability. The project is a key component of the 2009/2012 Integrated Resource Plan (IRP), and furthers PWP’s commitment to deliver reliable, environmentally responsible electricity service at competitive rates.”
The website added: “The Broadway/Glenarm Power Plant allows PWP to generate electricity as needed and provides a dependable, local electricity generating source by lessening Pasadena’s reliance on outside sources for energy. The upcoming, quick-starting and highly-efficient combined cycle unit, GT-5 will replace the aging conventional boiler/steam turbine-generating unit Broadway 3 (B-3), which has been serving Pasadena since 1965. Of one of the major advantages of GT-5 is its ability to startup within minutes as opposed to B-3’s 72-hour startup time. In addition, operating GT-5 allows the City to integrate more renewable resources, enter into more cost effective electricity contracts and provides a stable, quick-start flexible source. PWP customers will enjoy the benefits of greater reliability and reduced fuel costs while we continue to lower our carbon footprint.”
The site consists of two groups of generating facilities bisected by the Los Angeles County Metropolitan Transportation Authority (Metro) Gold Line tracks: the Glenarm Plant to the west of the Gold Line and the Broadway Plant to the east.