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4.1. ERMUSR 05-10-2011Elk River Municipal Utilities 13069 Orono Parkway • P.O. Box 430 Elk River, MN 55330-0430 UTILITIES COMMISSION MEETING Phone: 763.441.2020 Fax: 763.441.8099 TO: FROM: Elk River Municipal Utilities Commission Troy Adams, P.E. -Director of Operations John Dietz, Chair Daryl Thompson, Vice Chair Al Nadeau, Trustee MEETING DATE: AGENDA ITEM NUMBER: May 10, 2011 4.1 SUBJECT: Power Supply O lions /Resource Planning Update BACKGROUND: In September 2008, Connexus Energy terminated the 10-year rolling "all requirements" power contract with Elk River Municipal Utilities. In April 2010, the Utilities Commission authorized entering into "Phase 1" of a resource planning study with a coalition which includes Central Minnesota Municipal Power Agency (CMMPA) as a participant. [n September 2010, the Utilities Commission authorized entering into "Phase 2" of a resource planning study which includes the release of a Request For Proposal (RFP). The RFP was issued on November 15, 2010. DISCUSSION: Utilities counsel worked through review and revision of the bidder's confidentiality contracts and they have been completed for execution. CMMPA hosted a meeting in Blue Earth, MN on Friday April 15`n at which the Resource Planning Coalition narrowed the list of bidders to a short list. From this short list, CMMPA will be developing portfolio options for each of the Coalition participants. In addition to this, CMMPA will begin the "Phase 2B -Portfolio Risk Analysis for Evaluation". This process will help to quantify risks to make comparisons between portfolio options easier for the governing bodies the making decisions. Phase 2B had been identified as a separate process back in September 2010 when the Utilities Commission authorized entering into Phase 2. Phase 2B estimated to cost $75,000. If all existing Resource Planning Coalition participants enter into Phase 2B, ERMU's cost share would be $10,714. The costs associated with the Resource Planning Coalition are budgeted through our Associate Membership in CMMPA. Attached is the Attachment 2B to the Resource Planning Coalition Participation Agreement as well as a document prepared by CMMPA to highlight why the participants might consider entering into Phase 2B. ACTION REQUESTED: Staff recommends the Commission continuing participation with the Resource Planning Coalition and authorizing entering into Phase 2B for $10,714. ~_ ,~ V ^^O ~..L O ^^L 1..~ L~ O O N N V .~ _~ Q~ ~l3 ' l;/ ~~~ C~) ~. -~ ,~~ry >: ~'S~ ?n-~ 1 .s is 4 L,1- , \,~~~ r ~;~.~ ~ ~ w- N O 3 ~ O a- i _ •r ~~ V L1 v~ c Z w a ~ ro ~ ~ -m ~ ,~a ° ~o rv m ' rv '_' qq',"^ S o~~T S~OZ ~~~~ ' ~ ~~ EIOZ ~+ " X', .III ~: 1102 ~L ~ ~ I~ ' ~ I j o ~; ~ ` ' ~ I'' `~°~ - u O ~ ,~ ~ ~ ~' ~ ~ eooz 3 ~ W ' ~ ~ h~ `- S O ~ t . 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X Q1 N 0 N f0 ~U N a N N .~ a~ 3 v N O 2 C .~ Q N •~ ~ +~+ Y_ ~ •N N ~ v o i U Q ~ L ~ O N {.+ N N O ~L ~ ~ Abp C ~ (0 ~ N C oY 'i ~ c ~ _ °' o ~ 3 v ~ 4J U ~~ o~~ ~ o ~ hA v +' V ~-' ~ ~ _ ~ H CD • T N O ~ ~ L ~ ~0 v cL ~ G ~ o s N .- (~6 Y +~ N ~ a~-+ ~° L ~ ~~ ~ _ d ~ ~ ~ ~~ .~ r-+ ~' v U ~ o o ~~ •~, ~- °' ~~ ~ Y co ~ ~ O ^L Y..L eN ~--~ U L N v ^~ W 0 .~ L v L .~ ~ ~N ~ ~ !~ • W ,.yam W U Q tU0 .O L Q v Q~ i N 0 N N d~~0 N N O ,-. N }r L Q~ L H C .~ N N ~ H VI U 'a C C f0 (p .Q ;+ E O U C U O ~ U Z ~ ~v Y .N w ~ •L .U L Q O H ~, 7 °0 0 v L ~. v v N ~_ N ~3 Y N v +~ +~ ~o 0 3 `" O ~ ~~ ~ ~ ~~ v ~~ DRAFT Attachment 2 B To the Resource Planning Coalition Participation Agreement dated May 1, 2010 Phase 2 B Proposed Scope, Time Schedule, Estimated Costs and Proposed Allocation of Costs Between the Participants Phase 2 B -Portfolio Risk Analvsis for RFP Evaluation Scone and Intent of Project: Phase 2 B is asub-section of Phase 2 intended to more definitively determine the optimal portfolio and resource plan for the Coalition's needs. Phase 2 B's deliverables are intended to provide documentation towards two purposes. The first is to support the idea that Coalition recommendations followed best practices in developing portfolios from the RFP responses. The second is to support the explanation of the Coalition's technical recommendations by Coalition participants to non-technical stakeholders. Phase 2 B has already been budgeted, per Attachment 2, at $75,000. Attachment 2 B is intended to supply all remaining approvals needed to go ahead with the Portfolio Risk Analysis (PRA). Phase 2 B will result in a PRA which will balance minimizing cost and minimizing risk using the best available information. Both quantitative and qualitative methods will be used to help determine this balance. Qualitative methods will be discussed in relevance to the risks faced by Coalition participants as well as limitations in ostensibly competing quantitative methods. The quantitative methods envisioned for this PRA would use probabilistic methods which allow for more detailed and complete analysis of some risk factors than simple sensitivities. These methods would use portfolio diversification strategies which balance risk exposures to, among other things, the regulatory risk posed by evolving nuclear and emission regulations, as well as the risk of increased prices in natural gas as well as in the MISO market. A result of this analysis would be the precise determination of what the cost premium should be to reduce exposure to high and extreme portfolio costs, as well as provide "tiebreakers" between portfolios that would appear closely comparable without a risk analysis. A further result would be market intelligence useful for evaluating competing portfolio proposals as well as later portfolio modifications. Phase 2 B: Portfolio Risk Analysis A. Evaluate Expected Coalition-Aggregate Costs of Remaining Portfolio Choices i. Use existing base-case forecasts of economic and operation variables B. Develop Concise Statement of Risks for the Coalition-Aggregate Portfolio Page 1 of 8 Attachment 2 to the Resource Planning Coalition Participation Agreement dated May 1, 2010 i. Risks will be categorized by how they can be assessed. In the interest of identifying the scale of possible risks, results will be quantified as much as feasible. To the extent that risk factors facing the Coalition can be understood using quantitative analysis tools, the best possible risk- reward tradeoff will be identified. ii. Risks that cannot be quantified will be noted as a possible reason to prefer one portfolio over another. Risk management methods outside the purview of the RFP will be briefly discussed. iii. The best balances of risk and reward will be determined, and candidate portfolios not meeting these will be eliminated. All remaining portfolios will be ranked in terms of desirability, with the best portfolio being described as Plan A, the second-best as Plan 8, and so on. The strategy represented by each candidate portfolio will be described. iv. If the best choice(s) are not clear after the probabilistic analysis, a scoring system to benchmark the plans will be developed by having the project manager and participants set down a set of desired qualities for the best portfolio, and then each consideration will be given weights commensurate to their importance. Plan A will be chosen by the top- performingscorer under this system. C. Develop individual portfolios based on chosen Plan i. The best plans for each Coalition participant will be developed hand-in- hand with results addressing aggregate Coalition needs. D. Develop report of the evaluation i. Use wholesale cost projections to benchmark to existing power supply arrangements. ii. Methods of analysis will be documented. Further detail underlying the documentation should be available upon request. iii. Advice of presentation for non-technical stakeholders will be provided. Deliverables: Report summarizing the steps in thought of the risk analysis, presentation of results, and updates as needed in the process to Coalition participants. Time Schedule for Completion of Phase 2 B: Assuming a June 1, 2011 start date, the completion date of Phase 2 B and presentation of its deliverables is estimated to be July 15, 2011. Estimated Costs: The total cost, including the labor of both RW Beck and CMMPA, is estimated to be $75,000. Cost Allocation Method: Page 2 of 8 Attachment 2 to the Resource Planning Coalition Participation Agreement dated May 1, 2010 Participants in Phase 2 B agree to allocate costs as follows: Allocation Participant Costs For Approval 1/7 th Elk River $10,714 1/7 th Dahlberg Companies $10,714 1/7 th Willmar $10,714 2/7 the UMMPA $21,429 2/7ths CMMPA $21,429 TOTAL $75,000 Note: Even though the Dahlberg Companies consist of three separate and distinct companies, they are treated as one group for the purpose of cost allocation in this Coalition. (Signatures to follow.] Page 3 of 8 Attachment 2 to the Resource Planning Coalition Participation Agreement dated May 1, 2010 Resource Planning Coalition Participant signature approving the Phase 2 B terms identified in Attachment 2 B. Elk River Municipal Utilities (ERMU) By: Date: Name: Troy Adams, P.E. Title: Director of Operations Page 4 of 8