January 15, 2011 - Bend Bulletin - Bend may put off hydro plant if it must pay

Jan 20, 2011

January 15, 2011 - Bend Bulletin - Bend may put off hydro plant if it must pay

Bend may put off hydro plant if it must pay

City says it wants help footing the bill

By Nick Grube / The Bulletin
Published: January 15. 2011 4:00AM PST

Unless someone else pays for it, the city of Bend seems poised to delay adding a $13 million hydropower plant to a $58 million reconstruction of its Bridge Creek water system that aims to replace aging infrastructure and meet federal mandates.

City officials say the reason they’re considering putting off the hydropower component is that the cost, combined with the rest of the surface water improvements, might be too much of a burden for current ratepayers considering they might not actually experience the benefits of long-term revenue generation.

That doesn’t mean the city intends to abandon hydropower all together. It still believes the project can limit rate increases for future customers, and engineers are still including the hydropower plant in their initial designs of the Bridge Creek system overhaul.

“We don’t want to eliminate the hydro project because the hydro project ultimately saves the ratepayers money because the hydro generates revenue,” Finance Director Sonia Andrews said. “Without any grants or tax credits or any kind of partnership with the private sector, we think it is too expensive to pile it on top of the ratepayers. However, we’re not going to stop exploring any grants or credits that would help with the hydro.”

With the hydropower plant, water rates for the city’s customers are expected to increase by 9.1 percent over the next five years, according to the most recent estimates. Without it, that increase is expected to be 8.5 percent over the same time. Those figures, however, are currently being updated and will spread out the increases over 10 years.

When the city first considered an upgrade to its water infrastructure in 2009, the hydropower plant played a significant role in the City Council’s decision to reconstruct the Bridge Creek system. That overhaul also includes replacing a 10-mile-long pipeline and adding a treatment facility to meet U.S. Environmental Protection Agency standards to treat for Cryptosporidium, a microorganism that when ingested can cause human illness.

Even though the hydropower plant added to the cost of the overall upgrade and was more expensive than some of the other alternatives that were considered, such as moving to an all-groundwater system, the long-term revenue-generating capacity made the project more attractive.

There was also a chance the city could get about $25 million in green energy tax credits, grants and loans to offset the costs of the entire upgrade and further reduce the costs to ratepayers, practically making the hydropower component a no-brainer.

But in August, city officials found many of these assumptions either didn’t come true or were greatly exaggerated.

The original hydropower revenue estimates were overstated by about $1 million a year, dropping from $1.7 million to $700,000, and almost all of the tax incentives or grants the city had hoped for had disappeared or were unavailable.

On top of that, the cost estimates for the entire surface water upgrade increased by about $2 million, making a $71 million project that would have received millions of dollars in subsidies into a $73 million endeavor that would be paid for completely by ratepayers.

City Manager Eric King said this shift in the financial landscape forced officials to pause and re-evaluate the feasibility of the entire hydropower option.

He added that even without hydropower in the original engineering analysis, it probably wouldn’t have changed the decision to move forward with the Bridge Creek reconstruction, which is now drawing criticism from some who believe the project is too expensive and detrimental to flows on Tumalo Creek.

“Hydro wasn’t driving the decision on upgrading the surface water versus taking water from the Deschutes River or going to all groundwater,” King said, referring to some of the other alternatives city officials considered. “I think that we looked at hydro as sort of an added bonus, but it wasn’t a driver.”

While the city hasn’t received any grants or qualified for incentives through Oregon’s Business Energy Tax Credit program, King said there are other options to pursue to pay for the hydropower plant.

There’s still some potential the city could qualify for federal tax credits that would be similar to Oregon’s BETC program. Bend could also partner with a private investor, such as a utility company, that would pay for the construction of the hydropower plant in exchange for some sort of revenue-sharing agreement.

King said it’s too early to know if either of those options are viable right now, and there are other factors that could play a role in determining the short-term fate of the hydropower plant.

The city still needs to go through some additional permitting processes before it can build the hydropower plant. Depending on how long this takes, it could potentially conflict with other deadlines the city is trying to meet, including one potential cost-saving measure that would allow Bend to perform the 10-mile pipeline installation in conjunction with the U.S. Forest Service’s reconstruction of Skyliners Road.

“It’s not off the table, and I don’t want to give that impression,” King said of the hydropower plant. “But I think that we really are trying to manage the financial piece of the project in a reasonable way that is acceptable to ratepayers.”

City councilors likely won’t make a final decision on whether to pursue hydropower until February or March, and they’ve already approved the $58 million for the pipeline and new treatment facility.

Mayor Jeff Eager said that for him a decision on hydropower is going to come down to the numbers. When the hydropower revenues were found to be lower than previously believed, he was the councilor who asked for the city’s consulting firm, HDR Engineering Inc., to re-evaluate the costs when compared to a groundwater alternative.

Even though the city and HDR are further refining the hydropower projections, Eager said the fact that those numbers changed so much from one year to the next still gives him cause for concern.

“I want to look at the numbers and see where we end up,” he said. “It seems to me that at this point it’s at least enough of a possibility that the city should engineer it so it remains a possibility.”

Nick Grube can be reached at 541-633-2160 or at ngrube@bendbulletin.com.

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