2.4. ERMUSR 03-13-2013 Elk River
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:
March 19, 2013 2.4
SUBJECT:
Diesel Power Plant Capacity Agreement Amendment with Great River Energy
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.
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. These new provisions took effective January 1, 2013. The capacity payment
would be at $0.20/kW-month, substantially lower than the previous contract.
This amendment was executed to extend the amended agreement and allow for ERMU analysis
of required emission upgrade requirement until after the Environmental Protection Agency
(EPA) issued their final ruling on the National Emissions Standards for Hazardous Air Pollutants
for Reciprocating Internal Combustion Engines, or the "RICE Rule." This ruling was issued in
the Federal Register on January 30, 2013, and is available for your reference at your request.
There were also concerns with inconsistences in definitions of emergency generation between
the EPA and the MISO that needed to be analyzed.
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DISCUSSION:
The final ruling from the EPA resulted in an expansion in the definition and the qualifications of
emergency generation. In this rule, those engines that meet the emergency qualification are not
required to make the emission upgrades because of their very limited run time per year.
Under this final ruling, ERMU's engines can qualify as emergency generation if they run for
fewer than 100 hours per year. To not conflict with the EPA definition of emergency generation,
ERMU can qualify as emergency generation in MISO through our agreement with GRE by
defining these generation units as Behind the Meter Generation(BTMG) in MISO's Module E
and utilizing the units as Local Resource Zonel Zonal Resource Credits (ZRC) for resource
adequacy compliance.
By extending the agreement with GRE and having ERMU's engines continue to be registered as
BTMG in MISO's Module E allows ERMU to be grandfathered in under the current
interconnection agreement. To cancel this agreement may require ERMU to conduct an
interconnection study with MISO to register at a later day. The execution of this amendment
also allows ERMU to receive some compensation for resource capacity and energy, delay costly
investment in emission upgrades, allow additional time for analysis, and keep the avenues of
communication open with GRE.
Due to filing deadlines with MISO, an amendment to reflect this additional definition has been
drafted and executed by management. This amendment to the agreement extends the capacity
payments as defined in the most recent amendment through the next MISO planning year,June
1, 2013 through May 31, 2014. In addition, this amendment also included provisions for energy
payments and annual Generator Verification Test Capability (GVTC) run costs. This
amendment will shift the "evergreen"renewal provisions of the original agreement to align with
the MISO planning year. This agreement will be reviewed by ERMU and GRE in fall of 2013
prior to the evergreen renewal. This will allow for a reassessment of the agreement provisions.
ACTION REQUESTED:
Staff recommends the Commission receive the executed Capacity Credit Agreement Amendment
Letter.
ATTACHMENTS:
• Capacity Credit Agreement Amendment Letter—dated March 6, 2013
POREREI I1
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ENERGY"
12300 Elm Creek Blvd•Maple Grove,Minnesota 55369-4718.763-445-5000•Fax 763-445-5050•www.GreatRiverEne
rgy.com
March 6, 2013
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 October 29, 2012. This amendment is intended to revise the annual term of the
agreement to align with the MISO Planning Year and 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: This amendment will change the annual term of the agreement to June 1 through the
following May 31 to align with the MISO Planning Year beginning with the term of June 1,
2013 through May 31, 2014. This agreement will continue to renew on an "evergreen" basis
unless either party provides written notice by December 31 to terminate the agreement on
May 31 of the following year.
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 Zonal Resource
(ICAP) (UCAP) Credits(Zone 1)
1 Inactive 550 kW 0 kW 0 kW
2 Inactive 500 kW 0 kW 0 kW
3 Active 3,000 kW 3,000 kW 3,000 kW
4 Active 5,400 kW 5,400 kW 5,400 kW
ERMU/GRE
March 6, 2013
Page 2
3. Operations. Testing. Reporting and Environmental Compliance:
GRE will have the right to report the active units as Behind the Meter Generation (BTMG) in
MISO's Module E and utilize the active units as Local Resource Zone 1 Zonal Resource
Credits (ZRC)for resource adequacy compliance.
a. The UCAP ratings will be updated by GRE as needed to reflect all MISO rules and
adjustments applicable to the active units including the quarterly results of the
Generating Availability Data System (GADS) report as provided by ERMU to GRE,
which must also satisfy MISO reporting requirements.
b. ERMU must also provide GRE with the annual Generator Verification Test Capability
(GVTC) results no later than October 1 of each year.
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:
c. Shall not conflict with any provision of any electric supply contract between Connexus
Energy and ERMU; and
d. Shall not be used to reduce ERMU's electric load during GRE's monthly capacity billing
peak hour.
ERMU shall use prudent utility practice to ensure the active units are available for operation
during the entire MISO Planning Year. ERMU shall be obligated to operate the active units
as directed by MISO to GRE for up to five separate 4-hour periods during the months of
June through September of each Planning Year, or as required by MISO for BTMG
resources used for resource adequacy reporting. The active units must be started as soon
as possible, but no later than four(4) hours, after GRE notifies ERMU to start.
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 capacity payment each month that is equal to the
sum of the then effective ZRC amounts multiplied by $0.20/kW-month.
5. Energy payment: Prior to the start of each month, ERMU will provide written notice to GRE
of the estimated production cost per kilowatt-hour ($/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,
and for one GVTC test each calendar year.
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 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 and will not be offered
into these markets during the term of this agreement. The parties agree to discuss additional
amendments to the contract in the event that any units become eligible to participate in
these MISO markets.
ERMU/GRE
March 6, 2013
Page 3
8. All other terms and conditions of the contract, as amended, will remain in effect as currently
written.
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Sincerely,
GREAT RIVER ENERGY ELK RIVER MUNICIPAL UTILITIES
Jon Brekke Troy dams
Vice President, Member Services Utilities Director