Power play: City studies ways to maximize hydro plant's assets after National Grid contract ends

Jan. 21—WATERTOWN — The 99-year-old hydroelectric power plant on Marble Street is being called one of the city's best assets.

During the past 20 years, the plant has generated about $43.3 million in revenue from a lucrative contract to provide electricity to National Grid. The agreement will continue to be profitable, with nearly $29 million in additional revenue expected before it expires at the end of 2030.

But what about the plant's future after the contract ends? What comes next?

For years, city officials have warned of a fiscal cliff when all those millions of dollars comes to an end.

City officials say it appears that the financial doom and gloom won't be quite as bad as expected.

In recent years, the city has been looking at a series of options of what to do.

Three years ago, Mayor Jeffrey M. Smith assembled the hydroelectric task force, headed by former Mayor Joseph M. Butler Jr., to plan how to offset the losses from the National Grid contract.

It's a complicated issue, Mr. Butler said. "The more you learn, the more you're confused," he said.

"It's a fast moving industry," he added.

The hydro task force worked with consultant John "Skip" Trimble, managing director of AMBER Energy U.S. Inc., based in Maryland, on what the city should do when that time comes.

The first thing that Mr. Trimble told city officials: Don't sell the hydro plant.

There's too much potential for the plant to help the city with the financial issues and recoup the losses from the contract than the $2.2 million to $15.5 million it could get for selling the plant.

"The broad initiatives to generate and consume green power to address climate change sustainability is persuasive in both the public and private sector," according to the task force's report.

"The hydro plant generates arguably the most sustainable and green energy in the market," comparing wind and solar energy, "where hydro can flow 24 hours a day, 365 days a year."

On Tuesday, the City Council directed City Manager Kenneth A. Mix to study how it can sell power to residents and businesses.

The hydro task force and Mr. Trimble are recommending selling electricity to residential consumers through the New York State Energy Research and Development Authority's Community Choice Aggregation program. They determined it's a way to generate revenue, help residential consumers save money and ease the financial crunch of losing the National Grid agreement.

The city would purchase power on the wholesale market and sell it to residents and businesses, earning between $576,000 and nearly $2.8 million in yearly revenues. That can be done now.

After the contract ends, the city will be selling the output from the plant on the whole sale and residential markets under the CCA, resulting in revenues of between about $1 million and $4 million, or with an annual average of about $2.5 million, Mr. Butler said.

"The financial cliff would not be as steep," Mayor Smith said. "There'll still be a cliff, but it wouldn't be as bad. We'd take less of a hit."

In the last year of the contract, the city will receive about $6 million. The power company will pay the city 34.78 cents per kilowatt-hour, much more than what's valued on the open market now.

The city earns 26.94 cents per kilowatt-hour and is projected to receive about $2.9 million in revenue this fiscal year. With a budget of $650,000, the hydro plant remains the city's most profitable asset, according to the task force report.

The city now uses hydroelectricity to power all of its buildings and then sells its excess to National Grid. The city could begin selling electricity to residents and businesses anytime before the end of the National Grid contract, Mr. Butler said.

Residents will still pay the same amount in electricity that National Grid charges in the distribution portion of their bills. However, they could save about 10% in discounts by purchasing the power from the city under the CCA program.

There are two ways that the city could go about doing it, Mr. Butler said.

The city could run the electric company on its own and hire about eight employees. But the city would most likely retain an Energy Service Company (ESCO) to market the program, explain to residents how it works, conduct day-to-day operations and billing.

Mr. Mix said he'll soon start "delving into" the issue and learn more about it. He doesn't have a timeline for that or when the city can start selling power to consumers.

Mayor Smith stressed that he thinks the city should hire an ESCO to run the program.

While Mr. Trimble looked at the revenue side of the issue, another consultant, Steve Wood, of Northeast Energy Services, looked at capital improvements to the plant.

For the past 99 years, the plant has supplied power by creating hydroelectricity through water flow from the Black River with three turbines — Faith, Hope and Charity.

The plant generates approximately 22,600,000 kilowatt-hours annually, with half of it going to city buildings and the excess sold to National Grid.

"It's in excellent shape," Mr. Butler said. "It's going to be 100 years old in 2024."

The city needs to spend about $150,000 to upgrade the site's metering, controls and communications equipment to participate in the New York Independent Service Operators.

Stressing its importance, Jeffrey Fallon, the vice chair of the city's hydro task force, said the city already confirmed the plant is a "qualified facility" with the Federal Energy Regulatory Commission.

"It's also imperative" to determine whether the city or National Grid has jurisdiction over the feeder lines to the substation, he said.

The city also has two other options that cannot happen until after the contract ends.

The task force recommends pursuing Renewable Energy Credits (REC). They are created for each megawatt-hour generated at the plant and then sold for a fixed price to NYSERDA.

It's unclear how much money can be generated by RECs because it would depend on what's happening with the market in 2030.

In today's market, the state deals with RECs mainly through renewable solar and wind energy, not hydro power. But the market could "flip-flop" and change for the better, Mr. Butler said.

The Synchronized Spinning Reserve ancillary service is another revenue maker. Watertown would be paid to keep some of its excess power in a reserve. The city would be required to provide that reserve to the state system at a moment's notice.

The task force recommends pursuing all of its options. It's crucial to review them annually because markets change, Mr. Fallon said.

Councilman Cliff G. Olney III, who has been a proponent of the hydro plant, also is optimistic about its future. He'd like to see the city get the residential component completed within about a year.

"I think it's a win-win, a win for the city and a win for the residents," he said.

The naysayers have been proven wrong about the impact of the hydro plant, he said. Hydro has always been the answer to save the city from that financial cliff, he said.