bringing project planning, design
and financial evaluation together
Stanhope Municipal Utilities Constructs Substation
Stanhope Municipal Utilties
- Responsibility and involvement in all phases of the project, from project feasibility to final testing and checkout
- High-level of coordination among multiple entities
- Construction of a new 69-12.47 kV Substation
- Delta to Wye distribution system conversion
- Detailed financial modeling of alternatives
- Electric retail rate development
In 2015, Stanhope Municipal Utilities (SMU), located in the small central Iowa community of Stanhope, faced some difficult decisions. The regional electric transmission system operator in the area was planning to upgrade the voltage of its lines. This process would eliminate the distribution substation, which at that time was located on the outskirts of Stanhope. SMU received service at distribution voltage from the substation. DGR Engineering (DGR) was engaged to assist SMU with evaluation of alternatives, as well as to determine how any resulting facilities could be financed.
Following initial evaluation, the two most-promising options were recommended. Option 1 included taking service at distribution voltage from the regional transmission system via a radial line of approximately 10 miles in length. Option 2 involved SMU constructing its own substation in Stanhope, connecting to the recently-upgraded transmission system. In both cases, the operating voltage of the distribution system in the community would need to be changed from 7.2kV delta to 12.47/7.2kV grounded wye.
In addition to developing an initial electrical plan for each option, cost estimates for both were also developed. For Option 1, a monthly charge representing “rental” of the facilities would have been required. For Option 2, SMU would need to arrange for and ultimately re-pay the loan needed to finance the construction of the new substation and conversion of the distribution system.
To allow SMU staff and the City Council to make a detailed evaluation of the recommended alternatives, a financial model was developed for the electric utility. This model provided a multi-year review of the impact on electric rate revenue needed to support both alternatives. Throughout the process, DGR coordinated closely with SMU’s financial advisor, Michael Maloney with the D. A. Davidson Company, to ensure the most advantageous structure for payment of debt service.
After careful consideration of the alternatives and rate impacts on its customer base, SMU approved proceeding with Option 2: construction of its own substation and “wye-ing out” its distribution system.
Following the decision, a full cost-of-service rate study was completed for SMU’s customers. The study evaluated the best alternatives for defining customer rate classes and developed appropriate structures for the retail rates paid by all customers.
This study also allocated the costs of providing service to the proposed rate classes, with the goal of having each rate class pay its fair share of the costs of operating the electric system (including covering its share of the cost of the proposed facilities).
The proposed rate changes were adopted, which led to SMU successfully issuing electric revenue bonds, with an overall interest rate averaging less than 3%, covering maturities of up to 20 years.
The project construction process involved a high level of coordination among many parties. The Stanhope City Clerk, Jessica Murray, coordinated activities at the local level. Public bidding processes were used to acquire major materials and contractors to build the new substation and convert the distribution system. Adam Dickinson from the neighboring Webster City Municipal Utilities (SMU’s electric system operations & maintenance provider) directed much of the complicated process of cutting over to the new facilities, aided by DGR engineers and field technicians.
Not only was the project completed in time to coordinate with the regional transmission system voltage upgrade, but the overall cost of the project was significantly under the original project estimate. Costs were reduced due to some of the unique ways the materials acquisition and construction processes were executed.
Funds for the work were obtained at reasonable long-term cost to SMU, and the new retail rates necessary to support the debt service were implemented. Overall, DGR was able to assist SMU in all aspects of the project, from initial evaluation,to design and financing, through final construction.
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