5.4. ERMUSR 10-14-2008~i
Elk River
Municipal Utilities
13069 Orono Parkway • P.O. Box 430
Elk River, MN 55330-0430
September 29, 2008
To: Elk River Municipal Utilities Commission
Jerry Takle
John Dietz
Jerry Gumphrey
From: Bryan Adams
Subject: All Requirements Power Purchase Agreement
Phone: 763.441.2020
Fax: 763.441.8099
Since 1990, Elk River Municipal Utilities and Anoka Electric Company, now Connexus Energy
has had an all requirements contract where Connexus Energy through Great River Energy
supplies all of our power and energy needs. This agreement included a termination clause
allowing either party to give 120 month notice to terminate this agreement.
Per the attached letter, Connexus Energy has elected to terminate this agreement to be effective
September 30, 2018. This is purely a financial decision on Great River Energy's and Connexus'
part. They have indicated they can make more money selling power and energy on the open
market than selling it to us. If this is true, this is a strategy to lower costs to their members. Due
to the difficulty in constructing new power plant in today's uncertain environment, shedding our
load buy's Great River Energy possibly more time to decide what type of generation to build.
Also, because Great River Energy's upper management no longer lives and works in Elk River,
the community tie is gone.
We have the following options:
1) Renegotiate our contract with Great River Energy at a higher rate which they are willing
to do. This is possibly the easiest solution but possibly not in Elk River's best interest in
the king term. Because we do not have an equity share of Great River Energy we will not
have any influence in future rates and rate design.
2) Secure another power and energy contract from another entity such as a municipal power
agency, private company like Excel. or another generation and transmission co-op.
Availability of power and energy and at what price is unknown. Our long term contract
will be used as equity to secure loans to construct the necessary generation and
transmission facilities.
3) Join a municipal power agency like MRES, SMMPA or MMPA. Availability of power
and energy and at what price is unknown. Our long term contract will be used as equity
to secure loans to construct the necessary generation and transmission facilities.
4) Joint purchase a power plant thru say CMMPA. Two projects now under consideration
are Big Stone in South Dakota and the Excelsior project in northern Minnesota. These
options require a substantial amount of upfront money. New base load power plants
costs are in the $2,500 to $3,000/KW range. This option will also require us to secure
transmission capacity.
5) Sell the municipal utility to another entity and allow another entity to provide service to
Elk River. The upside is the community gets a big infusion of cash from the sale and the
downside is you forego all future decisions for infrastructure needs, reliability, customer
service, special programs and rates. These are the exact reason Elk River got into the
electric utility business in 1945.
6) Buy off the MISCO market which exhibits large price fluxions with possibility of
curtailment if access to generation and transmission become difficult.
7) Do nothing for a short time and allow the climate change activities and energy issues to
settle on a consistent path.
Either way, we are going to need some help feathering thru the options listed above as well as
other options I may have missed. There are many consultants available to help us. Dave Berg
with R.W. Beck is one that comes to mind because they already do our electric rate studies. He
is in the process of preparing a proposal to help us define the options, preliminary costs, risk
assessment and timetables. We will also need to define our values in regard to reliability, cost
and amount of input we desire to have for rates, rate design and special programs.
• ~C^O' NNEXUS®
~...I ~ ~~
Your Community Energy Partner
September 8, 2008
Confirmation of Email Sent on September 8, 2008
Bryan Adams
General Manager
Elk River Municipal Utilities
13069 Orono Parkway
Elk River, MN 55330
Subject: All Requirements Contract Termination
14601 Ramsey Boulevard
Ramsey, Minnesota 55303
763.323.2600
Fax: 763.323.2603
1.800.642.'1672
www.connexusenergy.com
info®connexusenergy.com
Dear Bryan:
This letter is a follow-up to our discussion on September 2, 2008, regarding the 1990 All
Requirements Contract between Elk River Municipal Utilities (ERMU) and Anoka Electric
Cooperative (now doing business as Connexus Energy).
In accordance with Section 6 of that contract, Connexus Energy is giving notice to terminate the
contract effective September 30, 2008. The requirement to give 120-month notice will make the
actual termination date September 30, 2018. At that time, all services provided under the
contract and all amendments to the contract will cease.
As we indicated to you, the primary reason for giving notice is that the price to ERMU under the
All Requirements Contract does not reflect the value of power in today's market. We are open to
renegotiate the contract with revised pricing prior to the termination date.
Please contact me if you have any questions or ideas.
Sincerely,
R
rG ~ r ~'~
Michael Rajala
President & CEO
By certified mail with return receipt
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