Three years on, uranium fuel transaction continues to yield Northwest ratepayer savings

Three years after the conclusion of a $687 million nuclear fuel transaction, Northwest ratepayers are reaping the rewards. Energy Northwest’s 2012 low-cost, below-market nuclear fuel purchase – enough unenriched fuel to last through 2028 – generated more than $40 million of dollars in current Bonneville Power Administration rate case savings, and will save tens of millions more through 2028.

The fuel will be used in Columbia Generating Station, the Northwest’s only commercial nuclear energy facility, generating 1,170 megawatts of electricity, which is sold at-cost to BPA. Ninety-two Northwest utilities receive a percentage of its output. In December, Columbia marked 30 years of commercial operation, and broke its third consecutive generation record.

Background

EN Uranium Product

Cylinder yard at DOE facility in Paducah, KY.

Contracts were signed in May 2012 between Energy Northwest, the Tennessee Valley Authority, the U.S. Enrichment Corporation, and the Department of Energy that began the process of turning depleted uranium into low-cost nuclear fuel. The depleted uranium, also called uranium tails, was enriched and a portion (about 10 percent) will be delivered to Energy Northwest’s fuel fabrication vendor in North Carolina next month. Energy Northwest is selling the bulk of the enriched uranium to TVA for use in nuclear plants, which will defray a large portion of Energy Northwest’s costs.

The uranium tails program was similar to a 2005 pilot project that reduced fuel costs for Columbia Generating Station by more than $100 million. The 2012 transaction is showing even more savings based on current spot market and forward market pricing.

Energy Northwest has a long, successful history of transacting in commodities to obtain the nuclear fuel needed to operate Columbia, and our fuel costs are among the lowest of all U.S. nuclear plants.

Columbia is licensed to operate through 2043, so we will need a continuing inflow of nuclear fuel for nearly 30 years. The price for most of that future fuel supply is unknown, and represents a source of financial uncertainty, or financial risk. We have extensive experience and capability in understanding the various markets in which we transact to ensure a stable and reasonably-priced fuel supply. Energy Northwest typically enters into contracts for components of nuclear fuel many years before fuel is needed to reduce the price risk of the fuel, to capitalize on advantageously priced opportunities, and to ensure that all necessary fuel processing is complete before the fuel needs to be loaded into the reactor.

Inside the nuclear fuel cycle

Taking a closer look at the nuclear fuel cycle helps to understand the benefits of our uranium tails fuel transaction.

Fuel Cycle v2

While the enrichment cost (listed in $/SWU, or separative work units) is a large part of nuclear fuel costs, the cost of uranium cannot be ignored while evaluating the benefits of fuel contracting. Unlike enrichment costs, uranium costs are projected to rise in the future, and are up 35 percent since last summer, increasing the value of contracted fuel. Any analysis of the transaction that doesn’t look at the whole is incomplete, at best.

Seeing the benefits

In the latest transaction, Energy Northwest kept both feed (UF6) and enrichment services (SWU).

The remaining material will be sold to TVA under a fixed price, long-term contract (2015-2022) for a net present value of approximately $622 million.

The cost to Energy Northwest for the material retained for our own consumption (feed + SWU) was about $65 million.

SWU1v2

The spot market value of this material, based on March 20 prices, was $256 million, a difference of $191 million.

SWU2

In the forward market, that same material was valued at $332 million, as of Feb. 28, a difference of $267 million.

SWU3

In both cases, just looking at the SWU row would lead one to believe Energy Northwest entered into a bad deal. But because of the well-below market price purchase of feed, the benefit of the total transaction becomes very apparent.

As mentioned above, Energy Northwest avoids purchasing nuclear fuel through the spot market because of the volatility and price risk involved.

Prior to the uranium tails program, Energy Northwest had enough fuel in inventory or under contract to meet its fuel reloading requirements through 2019. With the additional fuel, Columbia’s fuel costs will be reduced and predictable through 2028.

Benefit to ratepayers

Bonneville Power Administration markets more than one-third of the electricity consumed in the Pacific Northwest. The power produced at 31 Northwest federal dams and Columbia Generating Station is sold to more than 140 Northwest utilities. Every other year, BPA establishes a rate case that covers a two-year period; currently we are in the 2014/2015 rate case. During the formal rate proceeding, expected increases are outlined as well as mitigating factors that can slow the rate of increase.

Because of this strategic fuel transaction, Northwest ratepayers are seeing a $40 million savings in the current rate case. Not bad. Every approximately $20 million in savings lowers rate case increases by one percentage point.

Successful risk management

The benefits EN and BPA sought – less financial risk due to future fuel cost uncertainty, and lower fuel costs on an expected-value basis – are still being achieved.

The transaction increased rate stability by removing eight years of cost risk from Columbia’s fuel budget, and the transaction continues to have positive value, resulting in lower rates. BPA’s ratepayers will benefit from this transaction for many years, as shown above.

Managing risks in power production is important, though not generally talked about, perhaps as being too “inside baseball.” But by managing risk effectively, the result can be stable, predictable and affordable electricity rates. In evaluating this uranium tails nuclear fuel transaction, Energy Northwest and BPA successfully turned uncertain fuel prices into current and future savings for Northwest electric customers through 2028.

(Posted by John Dobken)

Update on EN, BPA Demand Response Project

Energy Northwest and the Bonneville Power Administration integrated an additional demand response resource into the Energy Northwest Aggregation Demonstration project that first went live Feb. 9. This project is the first-of-its-kind for the region. The system will help BPA test balancing loads on its Northwest transmission grid through industrial resource partners.

Over the long run, demand-side resources have the potential to defer or displace the need for new generation in the region and make the most efficient use of existing generation − resulting in overall cost savings for Northwest ratepayers. Since the launch of the pilot program in February, BPA has called for 11 tests lasting up to 90 minutes; each was a success.

Mark Reddemann, Energy Northwest CEO

Mark Reddemann, Energy Northwest CEO

“This is a testament to Energy Northwest’s mission to provide our public power members and regional ratepayers with safe, reliable, cost-effective, responsible power generation and energy solutions,” said Energy Northwest CEO Mark Reddemann.

In the past, BPA provided balancing services such as this solely with capacity from the federal hydropower system. However, growing demands on the hydro system along with the dramatic increase of wind generation have limited its flexibility to provide enough balancing reserves to meet reliability standards. This has necessitated that BPA explorethird-party capacity sources.

“The hydro system provides many benefits to the Northwest, but it has been stretched to its limit,” said BPA Administrator Elliot Mainzer.

Elliot Mainzer, BPA Administrator

Elliot Mainzer, BPA Administrator

“Moving forward we will need smart, sound measures, including demand response to cost-effectively maintain hydro and transmission system flexibility and deliver value and reliable service to our customers and the region.”

Following the agreement to start a pilot program, Energy Northwest assembled the demand response resource from asset loads served by regional public utility partners and took the role of the resource aggregator. The contract currently provides up to 35 megawatts of reliable “fast reaction” demand response-capacity resource.

Conceptually, demand response builds on the idea that while individual electricity loads are relatively minor compared to the scale of a regional transmission grid, many loads lowered and raised at once may serve as a cost effective alternative to building or purchasing the output of additional electric generating stations.

Demand Response

Energy Northwest has developed its Demand Response Aggregation Control System, a comprehensive data gathering, monitoring, control and communications infrastructure system, for the project. Communications devices are installed by each participating utility to report to and receive direction from the DRACS via secure cloud-based data paths. DRACS is hosted within Pacific Northwest National Laboratory’s Electricity Infrastructure Operations Center, a U.S. Department of Energy funded incubator facility built and operated for such roles.

Energy Northwest and its public utility partners continue to look for diverse electric loads from customers willing and able to reduce their electric demand on short notice. The participating public utilities that provide the customer loads for the demand response resource are expected to include utility participants in Idaho, Oregon and Washington.

How it works

BPA meets balancing obligations in real-time. When Balancing Authority conditions require BPA system operators to activate reserve system balancing resources – including demand response – BPA operations generates a signal calling on demand response assets for an event.

Energy Northwest’s Demand Response Aggregated Control System (DRACS) picks up BPA’s signal, acknowledges its receipt, and forwards the signal to multiple demand response assets. Upon receipt of the forwarded signal, each asset begins automatically to reduce its loads. The load changes must be complete within 10 minutes and sustained through the event, which can be up to 90 minutes in duration.

During events, DRACS collects detailed metering information from each of the assets and reports total capacity response delivered to BPA. Once an event ends, DRACS sends terminating signals to the assets which can then resume normal operations.

(posted by John Dobken)

Energy Northwest and Columbia Generating Station– Three Decades of Value

Dec. 13, 2014 marks 30 years of operation for the Northwest’s only nuclear power plant – Columbia Generating Station. In that time, this facility has proven its value to the region and its citizens in providing reliable, clean energy, as well as many other benefits such as good paying jobs – and what’s more, Columbia Generating Station is on track to continue to provide these benefits to more than 9 million people for another two decades.

Columbia Generating Station’s history began in the late 1960’s with predictions of increasing energy demand; ideas moved to action when a nuclear plant, originally called Hanford 2, was ordered in 1971. General Electric would provide a BWR-5 boiling water reactor, while Burns & Roe would design, and Bechtel Corporation would build, the nuclear plant. Ground was broken to build the plant August 14, 1972; the plant, delayed as were so many in those years by both inside and outside factors, and eventually renamed Columbia Generating Station, was given its NRC operating license in December 1983 and was declared to be in commercial operation one year later, on Dec. 13, 1984.

A concept drawing of Columbia Generating Station from 1976. (Courtesy: Will Davis)

A concept drawing of Columbia Generating Station from 1976. (Courtesy: Will Davis)

Nuclear Value

Nuclear power plants are large, complicated projects that cost large amounts of money and take a long time to build. The value of nuclear as a generating source, though, isn’t all told by these facts; for example, General Electric, the reactor vendor for Columbia, found in 1977 that, on average, all of the energy required to fabricate all of the parts of a nuclear plant, including the fuel, and all the energy required to build it is returned by the nuclear plant in an average of one year’s worth of operation. Considering the lifespan of Columbia will be 60 years (for now), the return on energy investment is enormous. At that same time, GE found that a contemporary nuclear plant paid for itself (capital cost) in terms of fuel cost savings compared to fossil fuel in just four years. Considering today that we face ever tightening EPA carbon regulations that will further drive up the total cost of using fossil fuels, and also considering the widespread gridlock of today’s crowded and undersized railroad infrastructure (that is required to ship all coal, and most oil used for power generation) the advantages of nuclear continue to climb.

And how much energy does Columbia Generating Station produce? Well, the output of the plant is 1,170 Megawatts – enough to power the city of Seattle, including not just residential but commercial and industrial loads. That might be hard to grasp, but it is easier to grasp that just one of the many thousands of small, cylindrical fuel pellets in the reactor at any one time (about the size of the end of your pinkie finger) is equivalent in energy to almost 1,800 pounds of coal, or almost 150 gallons of oil.

And the fuel cost itself is both low, and reliable. Because Energy Northwest makes long-term strategic deals for uranium to be made into fuel (and refuels every two years, replacing a portion of the fuel only) it has been predicted by the Energy Information Administration that the levelized cost of power from Columbia through 2043 will be lower, even at its highest cost, than the lowest cost of natural gas or wind – and will be significantly lower than any projected solar power.

Speaking of long term – Columbia Generating Station made news in November when it set a new plant record by generating power continuously for 506 days without interruption, at a capacity factor of almost 97%. (They’re still going).

This reliable, around the clock power – not hindered by weather or time of day – has real future benefits when compared with alternatives. For example, a 2012 study conducted by the Bonneville Power Administration found (among many things) that if Columbia Generating Station were to shut down, energy costs in the area would go up overall through 2043 by $2.5 billion; worse, if the new added costs/taxes on carbon are added in, the figure goes up to an increase of $5.4 billion. Put the other way, Columbia Generating Station is saving somewhere between two and five billion dollars over the next two decades compared with a fossil powered alternate scenario – and this is just money, not environmental impact. These findings were bolstered by a 2013 study by IHS Cambridge Energy Research Associates showing Columbia as the best of all options available to ratepayers when compared with all alternatives.

A Good Neighbor

Columbia Generating Station provides other benefits to the Northwest beyond providing reliable, affordable electric power. Columbia employs hundreds of dedicated, highly educated employees who live right in the region and participate in the economy – it’s estimated that Energy Northwest generates about $440 million in economic activity right in the Mid-Columbia. We mentioned refueling every two years; when that happens, the on-site work force swells by over 1,200 as temporary workers (many from the area) are brought in to not only refuel the reactor but to perform other work that must be done only when the plant is shut down. Certainly, this is another significant boost to the local economy. In addition to direct employment, Energy Northwest pays a “privilege tax” for being able to generate power ($4.5 million per year) and itself directly spends over $10 million per year to local businesses for a variety of goods and services. Columbia Generating Station is an integral part of the community in more ways than one.

The Future

America now sees the future of energy as something more complicated than it was when Columbia Generating Station was conceived. Renewable sources like wind and solar, only a distant dream in the early 70’s, are now coming on line. What’s more, fossil-fired stations – especially those burning coal – are now going to face ever tighter EPA restriction and penalty as a result of the Clean Energy Rule. Even home and business energy meters stand to be changed from simple recording devices to interactive, connected parts of a system; yet, the outcome of any of these changes or policies remains generally uncertain. Standing in the gap of these developments is Columbia Generating Station, which has received NRC approval to operate through almost the end of the year 2043 after two and a half years’ worth of review and over $17 million dollars of expenditure to ensure safety and reliability over the extension period. All of the benefits to the community detailed above will continue, year after year; all of the reliable and steady-cost energy the station provides will also continue, every day for three more decades.

As Energy Northwest looks back on thirty years’ worth of operation of Columbia Generating Station, it’s important to realize the accomplishments of the past are poised to continue into the future, almost half-way through the present century. With the state of change in other generating sources including availability, price and transport, it’s reassuring to know that this good neighbor will be there, rain or shine, for decades to come.

Will Davis for Energy Northwest, Dec. 11, 2014

Energy Northwest, BPA Launch Demand Response Pilot Project

Energy Northwest and Bonneville Power Administration announced a regional demand response program expected to come online in January 2015. Under the contract, EN will develop a 19-megawatt demand response pilot project with the option of bringing online additional demand response resources up to a total of 25 megawatts.

Energy Northwest expects up to $2 million in gross revenue value from the pilot project; much of this funding will support the comprehensive data gathering, monitoring, control and communications infrastructure and processes necessary to implement the regional program.

“This agreement furthers the Energy Northwest vision to be the region’s leader in power generation and energy solutions through sustained excellence in performance and innovation,” said Energy Northwest CEO Mark Reddemann.

Generation imbalance and reliability on the transmission grid is a challenge for balancing authorities such as BPA to manage. This agreement will explore the potential for energy end-users to lower within-hour consumption as a balancing management resource. Energy Northwest will lead the effort to assemble and operate an aggregated “fast reaction” demand response-capacity resource and BPA will evaluate the project’s ability to supply electricity reserves and other regional transmission system needs.

In the past, BPA provided balancing services such as these being tested solely with capacity from its hydro system. However, growing demands on the hydro system have limited its flexibility to provide this capacity so BPA is exploring third-party capacity sources.

Conceptually, demand response builds on the idea that while individual electricity loads are relatively minor compared to the scale of a regional transmission grid, many loads lowered and raised at once may serve as a cost effective alternative to building – or purchasing – the output of additional electric generating stations.

Energy Northwest will develop the Demand Response Aggregation Control System, a comprehensive data gathering, monitoring, control and communications infrastructure. Communication devices will be installed by each participating utility to report to and receive direction from the DRACS via secure cloud-based data paths. DRACS will be hosted within Pacific Northwest National Laboratory’s Electricity Infrastructure Operations Center, a U.S. Department of Energy-funded incubator facility built and operated for such roles.

DRACS

The DRACS infrastructure will support the demand response initiative. (Click to Enlarge)

“This regional demand response program will be the first-of-its-kind program in the Northwest led by public power, for public power,” said Jim Gaston, General Manager of Energy Services and Development.

Energy Northwest and its public utility partners will assemble diverse electric loads from customers willing and able to reduce their electric demand on short notice. The participating public utilities that provide the customer loads for the demand response resource are expected to include utility participants in Idaho, Oregon and Washington.

“The Demand Response project team remains open for participation from additional regional public utilities,” said John Steigers, Generation Project Developer and project manager for Energy Northwest’s demand response program. “We anticipate the demand response program will be a regional resource that will grow in value as additional utilities, load assets, and products are added to the resource.”

–By Laura Scheele, Energy Northwest