5.6. ERMUSR 05-10-2016 Elk River
Municipal Utilities UTILITIES COMMISSION MEETING
TO: FROM:
Elk River Municipal Utilities Commission Tom Sagstetter—Conservation and Key Accounts
John Dietz—Chair Manager
Al Nadeau—Vice Chair
Daryl Thompson—Trustee
MEETING DATE: AGENDA ITEM NUMBER:
MaylOth, 2016 5.6
SUBJECT:
Landfill Gas Plant Engine Repair and Plant Operational Cost Update
BACKGROUND:
The landfill gas facility was constructed 2002 as a partnership between the City of Elk River, Sherburne
County,Waste Management(WM),and ERMU. The operational expenses of the plant have been an area
of concern in recent years due to a drastic increase in maintenance costs above and beyond these covered
under the maintenance contract with WM. For their plants,WM is implementing new standard
maintenance schedules that involve installing new piston rings and main bearings on a scheduled basis.
The new maintenance schedule is intended to decrease the likelihood of catastrophic failures. ERMU has
experienced two catastrophic failures in the last 3 years; one in 4th quarter 2013,and the second was in
March 2016. This proposed new maintenance schedule would be above and beyond what is included
under the maintenance contract and would come with additional costs.
The landfill gas plant received the repaired engine#4 on April 25th and was running at full production on
April 26th. We have not received final costs or progress on any warranty reimbursement as of yet.
ERMU staff has also been in contact with the League of Minnesota Cities on the third party coverage for
equipment breakdown insurance policy for landfill gas plant equipment. As previously presented to the
Commission the cost estimate was $112,000 for the repair of engine#4. The work included in this repair
included; new crank shaft,re-ring parts and labor,new pistons,new heads,block machining,
transportation, and crane services.
DISCUSSION:
ERMU receives the revenue for the energy sales and all incremental expenses over contracted amounts.
WM is under contract to perform standard maintenance as outlined in the service agreement and for
services above contracted work they charge ERMU cost for the additional parts and labor. The proposed
changes in the operation and additional costs would be the sole responsibility of ERMU. The drastic
changes in the maintenance schedule, cost of parts being replaced, and labor are significant. Staff has
expressed great concern over the increase in the standard maintenance and the impacts to the financial
viability of the facility with Waste Management and Sherburne County. Under the current operating
structure of the plant and the contracts associated with it, ERMU is solely responsible for the incremental
charges.
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Waste Management is experiencing the decreased life expectancy of replacement parts over their fleet of
Caterpillar 3516 engines.Waste Management is recommending that the engines get new rings at 20,000
hours of operation,and new rings in addition to new main bearings at 40,000 hours of operation. The
addition of the re-ring and bearing replacement will add an additional $23,000 to$26,000 per engine at
the prescribed hours of operation. The re-ring is done at the same time as the top-end maintenance that
includes;heads,valves,and gaskets. By adopting the new maintenance schedule the projected hours of
operation will increase from 50,000 hours to 60,000 hours.
Currently ERMU staff is evaluating historical and future projections of costs and revenue to determine
next steps. There has been communication with Waste Management and Sherburne County about the
drastically increasing costs,relatively flat revenue,and the viability of the facility. At this time ERMU
staff is evaluating options to increase the viability of the landfill gas to electric plant.
Staff is exploring the following options;
1. Construct a pipeline to bring natural gas to the facility to allow for a blending of natural gas and
landfill gas. The theory is to increase the efficiency of the engines and reduce the maintenance
cost by burning the cleaner less corrosive natural gas.
2. Install a scrubber to clean the gas for the existing plant and the additional engines if the plant is
expanded in the future to utilize the existing excess landfill gas that is being flared at this point.
3. Research options for selling the electric production into the market. Currently ERMU is under
contract to sell all production to GRE,but there is the potential to sell directly into the market.
ERMU staff is exploring this option with other power providers to determine if this is viable
option.
4. Continue to operate the plant with restrictions on maintenance costs. ERMU would set an annual
level of additional costs over the contracted amounts and then prioritize maintenace to keep the
plant producing as much energy as possible. This could have negative effects on the total
production and would impact the revenue from decreased sales. The overall goal would be to
maintain production levels to meet the required payments to Sherburne County for loan
repayment and cover the costs of the maintenance contract with WM.
5. Evaluate existing maintenance contract with WM and loan repayment options with Sherburne
County to look for ways to improve the viability of the plant operations.
6. Evaluate options for the sale of the plant.
ACTIONS REQUESTED:
No action is required at this time. ERMU staff will provide updates as information is gathered and
different options are considered.
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