Generator breakdowns cost $10.5M

By Collin Gallant on September 18, 2018.

cgallant@medicinehatnews.com @CollinGallant

The breakdown and replacement of a city electric generator during a key power producing and profit-making period this summer cost $4 million more than expected, council heard Monday night.

Administrators said the previously unannounced failure of the city’s Unit 10 generator at the main power plant in July fell on the heals of another unexpected breakdown, and during one of the busiest summers ever seen in the division.

That, and a variety of other factors, led to an emergency purchase of a replacement LM2500 General Electric engine at a cost of $10.5 million — well above a budget of $6.5 million to replace the unit as scheduled this fall.

Councillors endorsed the move, agreeing with staff analysis that, “not having Unit 10 up and running as quickly as possible would have put significant risk on the city’s customers and (city power generating unit) Genco’s ability to optimize revenues.”

Utility division commissioner Cal Lenz told the News the generator, known as Unit 10, broke down shortly after the similarly sized Unit 11. Both work in sequence with the city’s steam turbines and that system accounts for a large portion of the main plant’s generating capacity. Lenz said officials began searching for a replacement in January, but found difficulty securing a rebuilt unit. The model is no longer in production. Eventually the higher-priced engine was bought, and reserve funds will make up the difference.

“It would have been a lost opportunity and, with grid prices that high, it’s not good business sense — you have to maximize the output of the plant for the benefit of the city,” he said.

He said the work means there is no capital maintenance work planned or required in the 2019-2022 budget cycle. The utilities business plan and fees for that period will be presented in December.

The work was completed in July without disruption to service to customers.

“It’s a smart decision and you’ll be very pleased with our profit margins (this year),” utility committee chair Coun. Phil Turnbull told council. He stressed the city power plant must meet its obligations to meet power needs of its customers, and the purchase was “a cost of doing business.”

“You can’t run a business, any business, without reinvesting in your machinery.”

Earlier this year, administrators tripled profit forecasts to more than $33 million in light of new power contracts and higher export and local prices.

Local power production hit new highs during the summer and remained generally high, according to administrators, as the city met requirements of the Hut 8 data processing facility — along adding one-third to the local demand. Officials have also been selling heavily on to the Alberta grid to capture higher prices.

Delaying the purchase was also ill-advised, said administrators, because of planned maintenance of other units in the fall as well as maintenance turnaround at Cancarb, which supplies the city with power under contract.

The additional money comes out of the city’s electric equipment reserve, which has more recently been delineating to backstop a program to fill a budget void while taxes are raised and expenses cut. Administrators weren’t immediately sure of the effect on that plan.

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