By VERNON ROBISON
The Progress
For the first time since the days when water wheels and windmills powered electric light bulbs for local ranch houses, area residents may soon be using renewable energy that is generated locally.
At a meeting held on Wednesday, May 18, the Overton Power District #5 (OPD5) board of directors approved a contract to purchase power which is to be generated at a proposed utility-scale solar power plant on the northeast corner of the Moapa River Indian Reservation.
A good deal for OPD5
The 60 megawatt solar plant, proposing to use photovoltaic panel technology, is being planned on 480 acres of tribal land immediately east of State Highway 168 and just west of the town of Moapa.
The project, being called Tamarack, LLC, is expected to begin construction in the third quarter of this year and to reach completion by summer of 2023.
According to the power purchase agreement, OPD5 would purchase a third share of the plant’s generation, or roughly 20 megawatts from the facility. The other two-thirds of the power are being purchased by large-scale gaming properties in the NV Energy territory in Las Vegas.
The project also includes a transmission line bringing power a distance of about 1.5 miles from the plant to the Tortoise substation in Moapa, OPD5’s main hub for energy delivery to its system.
The agreement term is locked in for 25 years at a rate of around $35 per megawatt hour for OPD5.
Jill Daniel, owner of Estuary Capital Partners, the developer of the project, told board members that there were a number of key factors in this particular project that had helped in reducing the cost of power for the district.
One of these factors is that the plant has already gone through the permitting process. “The project was actually permitted by a previous solar developer who failed to make an option payment to the Moapa Band of Paiutes,” said Daniel. “So luckily for OPD5 and our other customers, we were able to step into a fully permitted site which probably saved the project about $3 million.”
In addition, the developer also received a $250,000 grant from the Governor’s Office of Energy which will be applied to reduce cost on the transmission line, Daniel said.
As OPD5 infrastructure will be the point of entry for the plant onto the regional grid, the district will also benefit from wheeling fees through its system. Those were factored into the agreement, bringing down the cost of power slightly as well.
OPD5 General Manager Mendis Cooper pointed out that district staff had been seeking opportunities for renewable energy partnerships for several years now.
“I think that this is our best hope to get a solar project contract,” Cooper said. “It is right here in our own service territory. The price is right. And it is as close to perfect as we are going to get.”
Rising costs ahead
Cooper pointed out that the agreement comes at a particularly fortuitous point in time for the district. In a discussion item on the agenda just before the solar contract came up, Cooper gave the board some projections on changes to energy rates in the near future. All indications seem to point to the idea that those rates will drastically increase.
The district is currently in the latter half of an 8 year power purchase contract with Morgan Stanley which was signed in 2016. That agreement was a great deal for the district, Cooper said.
“When we signed that contract, the cost of natural gas was at about $2.50 per thermal unit,” Cooper said. “Just to compare: a couple of weeks ago, natural gas prices peaked at about $9. That trend in the market is very concerning.”
Cooper said that the Morgan Stanley contract had started with a cost of $50.90 per megawatt hour. But that price had factored in that Morgan Stanley had bought the district out of its previous power contracts back in 2016. Those obligations are on track to be paid off in May of 2024 at which time the district’s contract rate will drop to $44.35 per megawatt hour, Cooper said. This results in a savings of $1.7 million per year in power costs to the district, he said.
However, the Morgan Stanley contract is set to expire at the end of 2024. And all of the indicators point to a much higher renewal rate, Cooper said.
“If we look to renegotiate our contract at the start of 2025, we will see our prices up in the $80 per megawatt range,” Cooper said.
Tempering the increase
Cooper has been looking at ways to mitigate that huge jump in energy costs, however. One of these was to enter into the Tamarack, LLC contract, he said.
Morgan Stanley currently supplies about 74 percent of the OPD5 energy portfolio. The other 26 percent has been supplied by hydropower sources at Hoover and Parker/Davis dams.
“In years past we have hesitated on solar because of the higher cost,” Cooper said. “But with this project, the rates stand to be possibly even lower than our hydro-power costs. So that definitely helps.”
The solar project would both reduce the amount of power needed from the open market from Morgan Stanley, and also would fill in some of the hydro-power reductions being experienced due to drought conditions and the low water levels at the dams, Cooper said.
In addition, Cooper had been in conversation with Morgan Stanley on ways to transition into a new contract. He said that they had brought up an opportunity to “blend and extend” the rates.
“When our power cost goes down next year in May, we could renegotiate it early and Morgan Stanley will extend the contract for a few more years,” Cooper said. “But they would blend our current savings in so that it would bring the new contract rate down to a more moderate level.”
Because of the volatility in the market, though, Morgan Stanley is advising that the contract extension only go out 2-3 years past the 2025 expiration, rather than 8 years like the current contract was, Cooper said.
The “blend and extend” option would also factor in the Tamarack, LLC project to further temper the rate increase, Cooper said.
The other alternative would be to just take the $1.7 million in savings next year and then face whatever comes in 2025, Cooper said.
“But that gives us a pretty big leap to get from where we are at to the new contract,” Cooper said. “There will be some significant rate shock if gas prices stay where they are or, even worse, go up.”
Moving forward
At the end of the discussion, Cooper said that a board decision was not needed immediately on these things. But if the board decided to take the “blend and extend” option, the arrangements would need to start rolling to be ready for that by next year, he said.
Board Chairwoman Judy Metz asked Cooper if he would bring details of three or four different scenarios on how to face this challenge. She also said that discussions should start right away on how this would affect rates to customers.
“I think we need to proceed with looking at the energy rates that we are charging and the possible impacts that all this will have,” Metz said. “Because last time it was about 6-8 months before we could even get started on implementating an increase.”
Talk of base rate hike
Mesquite board member Mike Young suggested that this discussion should also include a look at increasing the monthly base rate which is currently set at $30 per residential customer. He noted that a rate study done some time ago had recommended that the base charge should actually be $48.
The base rate was meant to pay for overhead and infrastructure expenses, Young observed. But keeping the base rate low causes a larger portion of those overhead costs to be bourne by the regular users as part of their power charge, rather than by all the ratepayers in the base rate, he said.
“Some people live here year round, and pay for this overhead all year,” Young said. “But many people leave and their energy use drops to next to nothing. So they are not paying for that necessary maintenance to the system. It has to be passed on to the other customers who are here year round. That is not very equitable.”
Young felt that the board ought to look at raising the monthly base rate by $1 to start. He asked that this item be placed on next month’s agenda.
Outside factors raise costs
In the end, Cooper expressed frustration that market conditions might force such a significant increase despite all of the careful planning by the OPD5 board and staff over the recent years.
“Over the past 8-9 years we have been able to keep our costs low,” Cooper said. “That has allowed us to save here and there, to refinance our debt and put ourselves in a better position. One of the frustrating things in this is that it is totally out of our control and is being completely driven by larger market forces right now. That is frustrating.”
In the end, Young made the motion to approve the Tamarack, LLC purchase agreement and move forward. The motion was accepted with a unanimous vote of the board.
The next meeting of the board will be held on Wednesday, June 15 in the OPD5 Mesquite board room.
