Financing: Partnering to Rehabilitate Federal Hydro Plants using Non-Federal Funding

Teaming with the Southeastern Power Administration and its customers has allowed the U.S. Army Corps of Engineers to receive $45 million in non-federal funds to perform rehabilitation and upgrade work at its nine hydroelectric facilities on the Cumberland River. In addition, a long-term agreement to provide an additional $25 million annually was executed in August 2011.

By James F. Sadler

The U.S. Army Corps of Engineers has nine hydroelectric plants on the Cumberland River System in Kentucky and Tennessee. Design life for this type of equipment is 30 to 50 years, but these units began operating as early as 1948, with the newest of the units on line in 1977. Evaluations conducted by the Corps from 2007 to 2011 indicated that the condition of the turbines ranges from “fair” in the older plants to “good” in the newer plants. However, many of the older generators are in “extremely poor” to even “critical” condition.

Reliability concerns, combined with a loss of efficiency and output capacity at the power plants over time, dictate the urgent need to replace critical components as well as peripheral equipment. The overall goals of this work are to prevent catastrophic forced outages and to restore and improve facility reliability, capacity and efficiency.

However, shrinking federal budgets have affected all federal infrastructure projects. As a result of the Water Resources Development Act 200, Section 212, the Corps, Southeastern Power Administration (SEPA) and certain preference customers of SEPA’s Cumberland System entered into negotiations in 2004 that would allow non-federal funding for rehabilitation of the above-mentioned critical work items. SEPA markets electric power and energy generated at hydroelectric plants operated by the Corps in the southeastern U.S.

These negotiations led to three short-term memoranda of agreement, with the ultimate goal of establishing a long-term funding stream.

Understanding the system

The nine Cumberland River hydro plants contain a total of 28 units that generate 3,400 GWh annually. The powerhouses are:

  • Barkley, on the Cumberland River about 22 miles southeast of Paducah, Ky., contains four 32.5-MW units with a total rated “overload” capacity of 149.5 MW. The units became operational in 1966.
  • Center Hill, on the Caney Fork River in Dekalb County, Tenn., 55 miles east of Nashville, contains three 45-MW generating units with a total rated overload capacity of 155 MW. The units became operational in 1950 and 1951.
  • Cheatham, on the Cumberland River about 15 miles southeast of Clarksville, Tenn., contains three 12-MW units with a total rated overload capacity of 41.4 MW. The units became operational between 1958 and 1960.
  • Cordell Hull, on the Cumberland River about 48 miles east of Nashville, contains three 33.333-MW units with a total rated overload capacity of 115 MW. The units became operational in 1973 and 1974.
  • Dale Hollow, on the Obey River in Clay County, Tenn., contains three 18-MW units with a total rated overload capacity of 62.1 MW. The units became operable in 1948, 1949 and 1953.
  • J. Percy Priest, on the Stones River about 10 miles east of Nashville, contains one 28-MW unit with a rated overload capacity of 32.2 MW. The unit became operational in 1970.
  • Laurel, on the Laurel River in Laurel and Whitley Counties, Ky., has one 61-MW unit with a rated overload capacity of 70.15 MW. The unit became operational in 1977.
  • Old Hickory, on the Cumberland River about 14 miles southwest of Gallatin, Tenn., contains four 25-MW units with a rated overload capacity of 115 MW. The units became operational in 1957.
  • Wolf Creek, on the Cumberland River about 10 miles south of Jamestown, Ky., contains six 45-MW units with a total rated overload capacity of 310 MW. The units became operational in 1951 and 1952.

Problem equipment needing repair/replacement at these nine facilities includes, but is not necessarily limited to: generator winding and stator iron, generator-transformer cable systems, indoor switchgear, powerhouse cranes, generator cooling systems, turbine runners, peripheral mechanical and electrical support equipment, switchyard equipment and protective relay systems.

In addition, several of the powerhouses need new roofing and heating, ventilation and air conditioning systems.

Team development

Over the years, the Corps experienced a trend of increasing generation unavailability at the Cumberland River hydro facilities because of aging plant machinery (see Figure 1). Although the Nashville District of the Corps has an excellent maintenance workforce, the sheer age combined with lack of funding means the machinery is operating near the end of its useful life, with decreasing reliability.

SEPA and its customers rely on the power produced by these hydro facilities. Thus, the Corps, SEPA and certain of SEPA’s preference customers formed Team Cumberland. The preference customers on this team are the Tennessee Valley Authority; Tennessee Valley Public Power Authority; East Kentucky Power Cooperative; South Mississippi Electric Power Association; Big Rivers Electric Corp.; Municipal Energy Agency of Mississippi; Barbourville Utility Commission; Benham Power Board; Corbin Utilities Commission; Frankfort Plant Board; Owensboro Municipal Utilities; French Broad Electric Membership Corp.; Southern Illinois Power Cooperative; and cities of Bardstown, Bardwell, Falmouth, Madisonville, Nicholasville, Paris, Providence, and Henderson in Kentucky. Tennessee Valley Public Power Authority represents many of the preference customers across this region.

Team Cumberland is a partnership that seeks innovative means to increase generation availability of the nine Cumberland River projects. The Water Resources Development Act (WRDA) of 1996 gave the Corps the authority to receive nonfederal funds for the rehabilitation of power plants. To coordinate the responsibilities of the involved parties regarding funding of non-routine maintenance and rehabilitation or modernization activities, a memorandum of agreement was formed in 2004 according to the Flood Control Act of 1944, Department of Energy Organization Act of 1977 and Water Resources Development Acts of 1996 and 2000. Team Cumberland then developed and negotiated additional memoranda of agreement that resulted in the receipt of $28 million over four fiscal years to rehabilitate and repair high-priority equipment at various Cumberland River hydro projects.

Determining funding

The memoranda of agreement serve as the authorizing documents, and the sub-agreements serve as the funding documents. As specified in each sub-agreement for individual work items, each sponsor’s share of the total funding requirements for approved sub-agreements is determined. Through credits applied against the amounts that are otherwise payable to SEPA under their power supply contracts, the sponsors pay 100 percent of the total funding requirements. The sponsors are not required to pay any amount until a work item is approved by all parties. The Corps is not required to begin performing any work item until a sub-agreement is approved and the funding requirement is received from the sponsors.

A sub-agreement is negotiated and executed by the sponsors, SEPA and the Corps for one or more work items. This agreement identifies specific maintenance and rehabilitation or modernization work to be performed and includes: the funding requirement for each work item, a funding schedule with an estimated timetable for transferring funds to the Corps, and each sponsor’s percentage share of the total funding requirement.

Costs include planning, engineering, design, material procurement and construction, as well as the supervision and administrative costs and overhead costs associated with the non-routine maintenance, rehabilitation or modernization work being performed. To promote efficiency, work items may be combined with other work that is being funded through other sources, such as federal appropriations.

Table 1 — Cumberland River Rehabilitation Activities Funded by Customers

Project identification and selection

Needs were identified for each hydro plant through Phase I of a Basin-Wide Study of Cumberland River Hydropower Rehabilitations, which was completed in 2007. The study inventoried the condition of the primary powertrain and some ancillary components of the nine Cumberland River powerhouses and identified opportunities for project improvements at each. The project coordination committee of Team Cumberland, working with engineering company MWH, the contractor that developed the Phase I report, also identified criteria for optimal selection of future work orders within available funding.

Phase II further refined the needs and opportunities into more defined work items. These needs were developed into executable work orders. A total of 242 works orders were developed and were evaluated and scored based on each criterion using a weighted score. The final scores show that certain systems — including generators, generator circuit breakers and main power transformers — rank high and comprise the majority of the top 25 percent of work orders. These systems have the greatest potential for long outages. The common systems with some of the highest weighted scores are the intake gantry cranes. If the intake gantry crane is not functioning and cannot be used to lower an intake gate, the plant cannot operate.

The method used to rank needs also provided additional value for systems in plants that have a higher annual energy production. Thus, the same equipment found in the same physical condition at different plants will be ranked differently. Criteria used to evaluate the needs were based on condition, consequence, criticality and safety.

Phase II also evaluated and ranked opportunities and identified and costed the resulting work orders. Opportunities were ranked based on their return on investment. This considered the cost of the work orders required to generate the opportunities and the increase in revenues or reduced maintenance cost. A workshop with Team Cumberland was conducted to discuss the opportunity list and preliminary results. Work orders were identified to address opportunities, which resulted in benefit and cost estimates.

The project coordination committee, a working group within Team Cumberland, meets periodically to discuss the program status. New projects are proposed and discussed in detail. Upon positive feedback from the committee, the Corps project manager develops a ballot and submits it to the membership for approval/disapproval. Under the terms of the current memoranda of agreement, unanimous committee approval is required to authorize new projects or modify existing projects. Table 1 shows the projects that have been approved to date.

Lessons learned

Team Cumberland has provided a number of priorities, with a need to also balance priorities within the team. It has afforded a team approach through meetings that has defined the business rules of the program. For example, the team has determined that it is not time-effective to formulate a memorandum of agreement each year. A primary business rule is that major turbine-generator rehabilitations will focus on four plants at a time, one unit at a time because of limitations within the powerhouse. Physical limitations, contractor capabilities and the minimum required system availability were the reasons for this rule.

Path forward

The stakeholders executed the long-term memorandum of agreement on August 1, 2011. Funding considerations will be based on revenues. The amount funded is directly related to generation each year and is scheduled according to annual hydropower revenues. This is estimated to be 15- to 20-year program, executing $20 to $40 million of work per year at Cumberland River hydro plants after the long-term memorandum of agreement has been executed.

Jay Sadler, a senior mechanical engineer with the Nashville District of the U.S. Army Corps of Engineers, managed the negotiation of the non-federal funding authorization documents based on a 20-year, $1 billion work plan.


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