Joshua Dill: Please tell us about your background and how you came to be in your current position.
Darrin Francom: I’ve been at CAP for almost 18 years. Before that, I was an officer in the Navy Civil Engineer Corps. I was lucky enough to find a job at CAP as a civil engineer/project manager. I have been really lucky at CAP in that I’ve been able to move through a number of the different organizational pieces of our organization. I supervised our design engineering team and our project management team, moved on to be a manager within our centralized maintenance team, and then moved back into engineering as the manager of engineering. Most recently, I’ve taken on the role of director of operations, power, and engineering. I’d say my background is primarily in engineering, project management, and maintenance, and now I’ve taken on this fun role within our operations team and our power group.
Joshua Dill: Would you give us an overview of CAP and what it consists of ?
Darrin Francom: CAP’s mission is to move Arizona’s allotment of Colorado River water from the river itself into the three counties that we serve: Maricopa, Pinal, and Pima Counties. We do that through a series of aqueducts, pipelines, and pumping plants. There are 15 pumping plants, 336 miles of canal, and 1 pump storage reservoir. The canal is quite linear. We move water off the Colorado River, and if it is not needed immediately, we pump it into our storage reservoir, Lake Pleasant, and release it as our customers need it. That allows us to shift the timing of our deliveries and helps us shape our power usage. When power is costly, we can make deliveries from our reservoir instead of pumping water from the river. We target our main pumping for periods when power costs are lower, since power costs are a large component of our water rate. Our use of the storage reservoir means that our deliveries of water to our customers and our diversions of water from the Colorado River don’t have to match each other.
Joshua Dill: How many customers do you have?
Darrin Francom: CAP has more than 80 long-term water users, who fall into three groups: municipal/industrial users, agricultural users, and Native American tribes. We serve about 5 million people, which is 80 percent of the state’s population, since the three counties we serve contain the state’s largest cities, Phoenix and Tucson.
Joshua Dill: Please tell us about the power demands of moving all that water.
Darrin Francom: On an average year, CAP uses 2.8 gigawatt- hours of energy, which makes us, to my understanding, the largest energy user in the state of Arizona. Our diversion from the Colorado River is around 1.6 million acre-feet of water a year. That’s a significant weight that needs to
be moved. Over the course of the canal system, it’s lifted vertically about 3,000 feet. The majority of our power— about 80 percent—is used at the first pumping plant, the Mark Wilmer Pumping Plant, which diverts water off of Lake Havasu near the city of Parker, Arizona, and lifts it over 800 feet vertically. Then it goes through a 7-mile tunnel. That initial vertical lift takes a tremendous amount of power.
The next few pumping plants downstream are quite a bit smaller in size. They still move the same volume of water, but it’s a much smaller vertical lift. Then that water
is moved by gravity across the desert in an open canal. The CAP Transmission System, which was built by the Bureau of Reclamation, brings power to this system of pumping plants. We also contract for and use the federal government’s Intertie Transmission System and some local transmission systems. Through this interconnected transmission system, we move our power across the state from the point where it is generated to the location of use.
Joshua Dill: Could you tell me about CAP’s relationship with the Navajo Generating Station and how it has changed over time?
Darrin Francom: The Navajo Generating Station was built by the federal government and started operating commercially in 1974, in part to help serve the power needs of CAP.
CAP had a contract to be able to purchase 24 percent of the output of the Navajo Generating Station. The federal government retains partial ownership of the station; CAP simply has a contract to be able to purchase the power from that plant. The Navajo Generating Station has typically provided 50–60 percent of CAP’s overall power. As the cost to produce energy at Navajo started to increase beyond the levels in the rest of the energy market, the owners made the decision to move toward closure. That in some ways is difficult for CAP, but because the power costs at Navajo were escalating beyond the market price, the closure isn’t going to be detrimental from a pure cost standpoint, although we do empathize with those who will be affected by the plant’s closure. From a business perspective, we will be able to engage on the open market or in power purchase agreements with others and offset that lost power at an equal or lower price. These power contracts feed into our overall water rate. We’ve been able to show in our forecast and in our 2020 water rates that our energy costs are coming down.
Joshua Dill: Considering that you’re such a major energy user, was it difficult to figure out how to replace that source of power?
Darrin Francom: Back in 2018, we put out two requests for proposals. One asked companies that were utilizing their existing suites of energy resources to give us a cost proposal for power. We also accepted some proposals for renewable energy. The contract that we ended up executing was a 5-year, 35-megawatt contract with the Salt River Project (SRP), a significant local energy provider. The cost of the energy is related to the price of natural gas, so it has some potential to fluctuate. The other project that we executed was a power purchase agreement with a company called Origis, which is building a 30-megawatt solar plant in a western Arizona town called Salome. It will own the solar project, and we have a 20-year agreement to buy its energy output. The negotiated flat 20-year rate is just under $24 a megawatt-hour, which is a fantastic rate for us.
We’ve also recently executed an online auction accessible to all energy providers. We’ve defined the amount of energy we need to purchase, the months when we need that energy, the exact hours when we need to use the energy, and the delivery location. We’ve created 16 different products like that. We had a starting bid price, and companies could bid and offer lower energy prices for each one of those products. At the end, we felt that the offered prices for 15 of those 16 energy products were good and we executed those. We’ve secured a bit over 55 percent of CAP’s total energy needs for 2020. The rest of our energy needs will primarily be bought on the month-ahead and day-ahead energy markets. We’ll watch what is happening in the energy markets closely. It is difficult for us to define our exact energy needs a year ahead, because our customers—including irrigation providers, local municipalities, and farmers—schedule their water use based on the needs of their crops or their city; as a result, we don’t prepurchase everything.
Joshua Dill: By how much will your energy expenses go down due to your new power arrangements?
Darrin Francom: We issue a current year and future year forecast for our water, and there’s an energy component within the overall rate. In 2017, we forecasted the pumping energy components of our rates for 2020 and 2021 to be $101 and $115 per acre-foot of water, respectively. When we did this again in 2019, the same pumping energy components for 2020 and 2021 were forecasted to be $56 and $57 per acre- foot. This shows some of the overall rate decreases that we have been experiencing.
Joshua Dill: What are the difficulties of buying power at such a large scale?
Darrin Francom: The capacity to provide the energy we need is in place with existing facilities within Arizona, including the Arizona Public Service and the Salt River Project (SRP), and other providers outside the state. One thing that we do worry about is volatility in the energy market. For example, if there
was a problem on a regional natural gas line, it could create a localized spike in power prices, which would affect us. When you’re a large purchaser of power, minor fluctuations in price add up.
We strive to divert our water from the Colorado River during the times when energy is cheapest. As I mentioned, we have a certain amount of water that we have to move off the river every year. To do that, we could use a few pumps and leave them running all year long, or we could use twice as many pumps and only pump for half the day, when energy prices are lowest. We need to use all our pumps to take full advantage of these localized low energy prices. When we have issues with those pumps and need to purchase more power during the higher-cost times, that drives our costs up.
Going back to the idea of volatility in the open market, we have to navigate a unique tradeoff. If we want a stable water rate, we can pre-purchase all our power. However, as with anything that is purchased years in advance, the providers sell it at a bit of a higher cost because there’s some risk to them. We try to buy a certain amount of power at a predefined rate and then make good market decisions when the market has a lower-cost power offering. We have a group that monitors the daily and forward purchase prices of power. As we see advantageous prices, we execute on them, as we did at our auctions.
Joshua Dill: What is your vision for the future?
Darrin Francom: On the power side, we are just starting to move away from the Navajo Generating Station as our primary power source. Purchasing more directly from the energy market is relatively new to us. My vision is for us to become skilled at understanding the power market so that we are able to achieve a stable, low power cost for our customers. Gaining experience will help us make even better decisions. When it comes to our operations team, one of the things that I’m watching for is our capacity to respond to drought conditions. As you may know, the Colorado River has been experiencing a drought for nearly two decades. When Arizona experiences significant cuts in our allocation of Colorado River water, I want to make sure that we can rapidly adjust and that we can communicate to our customers what those reductions mean for them and how the new system of drought contingency planning works. Drought conditions and reductions in our diversion will also affect our energy use. There’s a dynamic interplay between the two.
When it comes to our engineering team, the system that the Bureau of Reclamation built for us is fantastic, but it dates back to the 1980s. Some of it is obsolete or nearing the end of its useful life. We need to replace aging or obsolete systems within our pumping plans and canal. I am leaning on our engineering team to help manage our overall capital replacement budget in a smart and efficient way, with a mind toward our water rates.
Those are the big three areas that I’m looking at: to gain further expertise and experience within the power market, to plan for potential shortages on the river, and to continue to look at a long-range plan for capital replacement and capital improvement projects.