2.5. ERMUSR 11-13-2012 44h
Elk River et
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Troy Adams, P.E. —General Manager
John Dietz—Chair
Daryl Thompson— Vice Chair
Al Nadeau—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
November 13, 2012 2.5
SUBJECT:
Diesel Power Plant Capacity Credit Agreement
BACKGROUND:
Included in our current interconnection agreement with United Power Association (UPA), now
Great River Energy (GRE), is a power transaction agreement to purchase the generating capacity
from ERMU's Diesel Power Plant. This power transaction agreement has been modified since
the original agreement, most recently in 2003. The revisions to the agreement occurred on
October 31, 2003. These revisions established the agreement to be on an "evergreen" basis with
an October 31 termination date and an April 1 termination notice date. The agreement
established the capacity credit at $2.75/kW month. Typically our agreement with GRE results in
capacity credit payments of approximately$350,000 annually. On March 28, ERMU received
notice that GRE wanted to reevaluate the current agreement's fixed capacity credit.
DISCUSSION:
At the October Utilities Commission meeting, staff was directed to allow the existing contract to
expire and start exploring other options. Due to some positive last minute discussions with GRE,
an understanding was reached in regards to concerns that ERMU has about yet unknown
environmental regulations and that GRE has about changes to the Midwest Independent
Transmission System Operator (MISO) planning calendar. In respect to these issues, both
parties agreed to and have executed an additional extension establishing a new termination date
of May 31, 2013. The new provisions are effective January 1, 2013.
With this amendment to the existing contract, ERMU would now be required to submit in
writing the estimated production cost per kilowatt-hour prior to the 1 s`of each month. The
capacity payment would be at$0.20/kW-month, substantially lower than the existing contract.
This amendment would allow for termination by either party effective the first of any month with
written notice of termination given at least 31 days prior.
By executing this contract, ERMU will have a few more months to consider the EPA required
exhaust retrofits while preserving the generations status with MISO.
® 11, 01111111 IT
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Reliable Public
Power Provider POWERED To SERVE
ACTION REQUESTED:
Staff recommends the Commission receive the executed Capacity Credit Agreement Amendment
Letter.
ATTACHMENTS:
• Capacity Credit Agreement Amendment Letter—dated October 29, 2012
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Reliable Public
Power Provider POWERED To SERVE
GREAT RIVER
ENERGY"
12300 Elm Creek Blvd•Maple Grove,Minnesota 55369-4718•763-445-5000•Fax 763-445-5050•www.GreatRiverEnergy.com
October 29, 2012
Mr. Troy Adams
Utilities Director
Elk River Municipal Utilities
13069 Orono Parkway, P.O. Box 430
Elk River, MN 55330-0430
Dear Troy:
The purpose of this letter is to amend the current contract for the sale of capacity and energy by
Elk River Municipal Utilities (ERMU) to Great River Energy (GRE). The contract was originally
dated May 1, 1988, and has been supplemented and amended a number of times, most
recently on July 30, 2012. This amendment is intended to enable GRE to continue registering
the active units as capacity resources utilized by GRE within the Midwest Independent
Transmission System Operator's (MISO) Module E for resource adequacy ("Module E").
By returning one copy of this letter, signed by you and Jon Brekke, the following amendments to
the existing contract will take effect immediately.
1. Term: The initial term of this amendment will begin on January 1, 2013 and end May 31,
2013, for a total of five (5) consecutive months, unless terminated early in accordance with
Section 8 below.
2. ERMU generation: The contract applies to the following diesel-fueled peaking generation
units located in Elk River, Minnesota and owned and operated by ERMU:
Unit Status Installed Capacity Unforced Capacity
(ICAP) (UCAP)
1 Active 550 kW 550 kW
2 Active 500 kW 500 kW
3 Active 3,000 kW 3,000 kW
4 Active 5,400 kW 5,400 kW
3. Operations, Testing, Reporting and Environmental Compliance:
GRE will have the right to report and utilize the Unforced Capacity (UCAP) rating for the
active units in MISO's Module E. The UCAP ratings will be updated by GRE as needed to
reflect all MISO rules and adjustments applicable to the active units including quarterly
results of the Generating Availability Data System (GADS) report as provided by ERMU to
GRE, which must also satisfy MISO reporting requirements.
ERMU/GRE
October 29, 2012
Page 2
ERMU is solely responsible for the operation, maintenance, testing and environmental
compliance of all four generation units and shall have the right to operate the units at any
time provided that such operation:
a. Shall not conflict with any provision of any electric supply contract between Connexus
Energy and ERMU; and
b. Shall not be used to reduce ERMU's electric load during GRE's monthly capacity billing
peak hour.
4. Capacity payment: For the active units that GRE is able to register as capacity resources in
MISO's Module E, GRE will pay ERMU a monthly capacity payment equal to the sum of the
then effective UCAP ratings multiplied by$0.20/kW-month.
5. Energy payment: Prior to the start of each month, ERMU will provide written notice to GRE
of the energy price for the estimated production cost per kilowatt-hour ($/kWh) for the active
units during the month ("Energy Price"). ERMU may revise such Energy Price any time
within the month upon written notice to GRE, provided such revision shall only apply to
energy production occurring more than two (2) days after such notice is received by GRE.
a. GRE shall pay ERMU 110% of the effective Energy Price multiplied by the actual energy
(kWh) produced by the active units during times when operation is requested by GRE.
b. ERMU shall be responsible for and pay all costs associated with owning and maintaining
the units, including the cost of other testing and operation not required for testing.
6. MISO capacity markets: GRE shall have the right to offer the active units into any current or
future MISO capacity markets and retain any revenue received from MISO related to the
participation of the active units in such capacity markets.
7. MISO energy and ancillary services markets: None of the units are currently eligible to
participate in MISO's energy markets or ancillary services markets. The parties agree to
discuss additional amendments to the contract in the event that any units become eligible to
participate in these MISO markets.
8. Termination provisions: Either ERMU or GRE may terminate the contract effective on the lst
of any month by providing the other party with a written notice of termination at least 31 days
prior to the termination date (i.e. March 31st termination notice would be effective May 1st).
9. All other terms and conditions of the contract, as amended, will remain in effect as currently
written.
Sincerely,
GREAT RIVER ENERGY ELK RIVER MUNICIPAL UTILITIES
Jo
Troy Adams
Vice President, Member Services Utilities Director