6.1. SR 04-18-2005
Item 6.1 .
MEMORANDUM
FROM:
Mayor and City Council
Pat Klaers, City Admirl~tor
April 18, 2005 t:a
TO:
DATE:
SUBJECT:
Electric Generation Facility at Elk River Landfill
Elk River Municipal Utilities General Manager Bryan Adams has requested to be on the City
Council agenda to discuss a fourth engine/generator for the Landfill Gas to Energy Generation
Facility at the Elk River Landfill. The Elk River Municipal Utilities supports this project and has
adopted the attached resolution at its March 8, 2005 meeting.
In the attached memo from Mr. Adams, there is a statement about whether or not the city desires to
participate fmancially in this project instead of Sherburne County financing the entire amount. I
support the project moving forward as it has in the past with Sherburne County fmancing the entire
amount. In terms of the city fmancially participating in the project, the Elk River Municipal Utilities
is part of the city and they represent our contribution to the project.
s: \Council\Pat\2005\Electric Generation Facility.doc
Elk River -...-
Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
phone: 763.441.2020
Fax: 763.441.8099
March 28, 2005
To: Elk River City Council
From: Bryan Adams f) A f
General Manager, Elk River Municipal Utilities ~..
Subject:
4th Engine at Elk River Landfill
The landfill gas to electric generation facility at the Elk River Landfill was constructed in
2002. At that time, this facility was constructed with accommodations for four
engine/generators. Three engine/generators were installed initially and the 4th
engine/generator installed when sufficient landfill gas became available. Sufficient
landfill gas is now present to support the 4th engine/generator.
There are four contractual parties involved to ensure the successful operation of this
facility and they are as follows.
Elk River Municipal Utilities - owners
Elk River Landfill- Operate and maintain the facility, supply landfill gas
as fuel, and provide land easement for the facility.
Sherburne County - Furnish financing at 0% interest.
Great River Energy - Purchase the energy out from this facility.
These agreements have worked well to date. This facility has exceeded the financial and
operational objectives during the first 2 years of operation. In 2004, the Environmental
Learning Center was utilized to host approximately 70 tours/presentation of the
landfilllLFG facility. This exposure provides a very positive light for Elk River.
Attached is a copy of a letter dated February 18, 2005 to the 4 contractual parties
involved with this facility asking for interest in installing the 4th engine/generator. All 4
parties have executed the memorandum of intent. The necessary contracts have been
initiated to secure the necessary air permit for the facility expansion. Sherburne County
staff has asked ifthe City desires to participate financially in the 4th engine/generator
instead of Sherburne County financing the entire amount.
Also attached to this memo is a proposed resolution approving the exercising of powers
under Minnesota Statues, Chapter 453, respecting a certain electric power generation
project. This resolution was approved by the Elk River Municipal Utilities Commission
at the March 8, 2005 meeting. The city council has adopted similar resolutions in the
past for other electric generation projects and I recommend adopting this resolution as
well.
Elk River ~
Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
phone: 763.441.2020
Fax 763.4418099
February 18, 2005
Deb Walters
Elk River Landfill
22460 Hwy 169 NW
Elk River, MN 55330
Subject:
4 th Engine/Generator at Elk River Landfill
Dear Deb;
We have been informally discussing adding a 4th engine/generator at the LFG facility, I
understand that there is adequate gas to operate a fourth unit from now to the end of the
contracts in 2022, Now is a good time to decide if we desire to move ahead with the
fourth unit.
The enclosed spreadsheet is the financial analysis which I prepared based on a project
cost of$661,000.00 spread over 20 years. The current contract expires in 2022 or
approximately 16 years from now.
The additional fourth unit appears to cash flow over a 16-year term. I believe the existing
agreements need to be addressed as follows:
a) Grant of Easement between Elk River Municipal Utilities and Elk River
Landfill, Inc. with term when electric generating facility ceases commercial
operation. Addition of a 4th unit will have no effect on this agreement.
b) Gas Purchase contract between Elk River Municipal Utilities and Elk River
Landfill with existing term of 16 years and a fixed price. Review fixed gas
pncll1g.
c) Service Agreement between Elk River Municipal Utilities and Elk River
Landfill with existing term of 16 years and varying pricing over 16 years for
3 units. Section 2.11 Clean Air Permit will need revising to reflect who is
paying for facility air permit revisions and section 6.1. Compensation will
need to be adjusted by 4/3 to reflect addition of the 4th unit. Exhibit B
should be revised to reflect the 4th unit.
d) Promissory Note between Elk River Municipal Utilities and Sherburne
County revised to reflect the required additional loan amounts.
e) Security Agreement and Financing Statement between Elk River Municipal
Utilities and Sherburne County. Restated document with cost of 4th unit and
using same terms and conditions.
f) Power Purchase Agreement between Elk River Municipal Utilities and Great
River Energy with 16 year term, pricing for 4th unit.
It is my desire to amend these contracts using the same terms and conditions as the
original agreements with the modifications outlined above. The critical issues from my
perspective are:
1) Term of agreement remain 16 years. The 4th unit cash flows with the
existing term.
2) Air Permits, process and costs
3) Gas Costs
4) Service Agreement Costs
5) Purchase Power revenue
The preliminary contract schedule is as follows:
Initiate project and EA W Air Permit process
Secure Air Permit (6 months)
Order Engine/Generator
Delivery of Engine/Generator (12 weeks)
Install equipment-installation (6 weeks)
Start-up
4-1-05
10-1-05
10-1-05
2-1-06
3-15-06
4-1-06
In order to move forward with the 41h engine/generator I need to know if you are
interested. In light of the number of parties required to be involved in the addition of the
fourth unit, I ask that each party express their intent by joining in on a memorandum of
intent.
Please execute and return to me by March 1,2005. If you have any questions, do not
hesitate to call.
cc: File
Dave Lucas
Stan Selander
MEMORANDUM OF INTENT
Elk River Landfill, Sherburne County, Great River Energy and Elk River Municipal
Utilities all have agreements to support the existing 3 unit LFG electric generation
facility at the Elk River Landfill and desire to encourage the addition of the 4th unit at this
facility. It is our intent to amend the existing agreement using the terms and conditions
as outlined in items "a" thru "f' above.
Signature:
Date:
Elk River Landfill
Sherburne County
Great River Energy
Elk River Municipal Utilities
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RESOLUTION NO. - 05-
A RESOLUTION OF THE CITY OF ELK RIVER
RESOLUTION APPROVING THE EXERCISE OF POWERS UNDER
MINNESOTA STATUTES, CHAPTER 453, RESPECTING A CERTAIN
ELECTRIC POWER GENERATION PROJECT
Be It Resolved as Follows:
1. Recitals.
(a) The City of Elk River, Minnesota, in cooperation and conjunction with the
Elk River Municipal Utilities Commission (collectively, the "City") proposes to enter
into contract(s) with Sherburne County, Minnesota (the "County") and Waste
Management, Inc., its successor, assigns and/or other persons (collectively "WM") to
facilitate the addition of a certain electric power generation project (the "Project").
(b) The Project would consist of the addition and completion of an 800
kilowatt hour landfill gas-to-energy electric generator located in the City at the Elk River
Landfill. The cost of the Project is currently estimated to be $670,000.00.
(c) The Project will be a base load generator owned by the City.
(d) It is proposed that WM, in conjunction with the City, would plan,
complete and operate the Project. The Project is expected to be operational on a full-time
basis to provide electric energy to the customers of the City. The City expects to benefit
from the Project by enhancing its capacity against the growing electricity needs of the
City and against uncertainty of national electric capacity as a whole.
(e) It is proposed that the County loan the sum of approximately $670,000.00
from its Solid Waste Surcharge fund to the City for the purchase of the generators and
related equipment, with zero interest over a sixteen year repayment period.
(f) The City, the County and WM would enter into agreements (collectively,
the "Agreements") specifying the respective rights and obligation of the City, the County
and WM.
(g) The City would issue a note(s) to finance the Project. These Notes would
be payable from revenues derived from the operation ofthe Project and would be secured
by a mortgage or other suitable security interest in the Project. The Note(s) would not be
a general or moral obligation of the City, would not be secured by any of the City's
existing municipal electric utility assets, and would not be payable from or a lien against
the rates and charges imposed by the City on its municipal electric customers.
1
2. Authorization. It is hereby resolved and determined pursuant to Minnesota
Statutes, Section 453.58, that the City may exercise such powers and enjoy such
privileges provided in Minnesota Statutes, Chapter 453, as may be desirable or necessary
in connection with the City's participation in the Project, as generally described
hereinabove, the entering into the Agreements, and the issuance of the Note(s) in aid of
financing and completing the Project.
3. Approvals and Publication. This Resolution has been duly adopted by the City
Council of the City of Elk River, Minnesota, and by the Elk River Municipal Utilities
Commission, respectively, at duly called and regularly held meetings on April 18, 2005
and March 8, 2005, and shall be published once in the official newspaper of the City as
soon as conveniently possible pursuant to Minnesota Statutes, Section 453.58,
Subdivision 2. This Resolution in itself is not intended and shall not be interpreted as a
commitment of the City to the Project, which shall be contingent upon the execution of
the mutually acceptable Agreements.
Passed and adopted by the Elk River Municipal Utilities Commission of the City
of Elk River this 8th day of March, 2005.
Passed and adopted by the City Council of the City of Elk River this 18th day of
April, 2005.
ELK RIVER MUNICIPAL
UTILITIES COMMISSION
By:
Jerry Takle
Its: President
ATTEST:
Bryan Adams
ELK RIVER CITY COUNCIL
By:
Stephanie Klinzing, Mayor
ATTEST:
Joan Schmidt, City Clerk
2