6.4. ERMUSR 01-13-2009~/
Elk River -=
Municipal Utilities
13069 Orono Parkway • P.O. Box 430
Elk River, MN 55330-0430
January 7, 2009
To: Elk River Municipal Utilities Commission
Jerry Takle
Jerry Gumphrey
John Dietz
From: Vance Zehringer
Subj: Power Supply Study
Phone: ?63.441.2020
Fax: 763.441.8099
As a result of the wholesale power supply contract termination notice from Connexus
Energy, efforts to find an alternate wholesale power source have been on going. To date,
we have had our legal firm examine the current contract to see if it can be terminated
without penalty prior to the termination date in 2018. The summary of findings is
attached.
Staff has met with representatives of Central Minnesota Municipal Power Agency
(CMMPA). They are interested in having us buy into their group and purchasing some of
the 80 megawatts remaining from Bigstone II should it become a reality in 7 years. The
cost of output from this proposed plant looks attractive, but the buy in costs are quite
high. They think they will receive approval on their Certificate of Need from the
MnPUC on January 15th and will look for a decision from us immediately following that
date.
Staff met with Wright-Hennepin to gain some insight into their purchase agreement with
Basin Power Cooperative. Their initial comment was "we are really interested in
purchasing you." After assuring them that this was not even a discussion item, they
shared Basin's commitment that precludes sales to any municipal utilities. It appears that
this attitude prevails among the power cooperatives in the region! Wright-Hennepin is
very interested in becoming our wholesale power supplier, however, that source would be
Basin Power Cooperative. They are open to further discussions pending our interest
level. I told them we will get back to them.
Power Supply Report Memo
Page 2 of 2
Staff also met with Connexus Energy to determine their level of interest in extending the
current contract beyond 10 years or writing a new one. Their initial comment was "we
are really interested in purchasing you." After assuring them that was not even a
discussion item, they shared that Great River Energy has received some serious
repercussions from other members of GRE about the "sweetheart deal" ERMU is getting.
They also have a commitment not to enter into any power supply agreements directly
with municipal utilities. Our discussion centered on what kind of a deal we can achieve
through Connexus Energy. They will work on three scenarios:
1. Draft an agreement as our wholesale power supplier beginning in 2009 and
extending through 2024.
2. Draft an agreement as our wholesale power supplier beginning in 2014 and
extending through 2029.
3. Draft an agreement as our wholesale power supplier at the termination of the
existing contract.
Their commitment was to have these ready for our consideration by January 26th
Additional meetings will be held with Xcel Energy, MMPA, and SMMPA prior to the
next Commission meeting. Minnesota Power is another consideration pending the
outcome of their disagreement with Nashwauk Municipal Utilities.
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a°6~ussen+y January 7, 2009
Elk River Municipal Utilities
Attention: Vance Zehringer
P.O. Box 430
Elk River, MN 55330
Attorneys at Law
Ronald G. Black
Elizabeth K. Moore Dear Mr. Zehringer:
James A. Bumgardner
Rhonda J. Magnussen ~ You requested an opinion regarding "loopholes" in the "All Requirements
Contract" with Connexus dated December 20, 1990 which provides for a
120 month termination notice. The prior agreement provided a 24 month
Ethne 0. Hedren notice prior to termination. Connexus has given a notice that it will
Christopher J. Johnson terminate the Contract at the end of the notice period.
The simple answer is no there is not a "loophole". However, the analysis
should not end there. A party to any agreement has several options. Of
course, one option is to perform as provided in the agreement. The
second is to negotiate a revision of the agreement. The third is to breach
the agreement by failing to perform.
First National When an agreement is breached, the non-breaching party is entitled to
damages. The typical measure of damages is lost profits. In other
Financial Center Words, what profit would the non-breaching party have made had the
Biz Main Street contract been fully performed. I have not researched the damages issue
suite l02 with respect to the contract at issue. Several factors come to mind
Elk River, MN 55330 initially, which one should analyze. For example, Connexus as a pass
through entity, may or may not incur damages if ERMU failed to perform;
how reasonable is the 120 month notice provision; what obligation does
ERMU have to find an alternative supplier and if it does find a supplier,
can it be held to the 120 month term; finally, does FERC have any role to
play?
I would be happy to meet with you and/or the Commission to discuss
further.
Phone
763.441.7040 Very truly yours,
Fax BLACK, MOORE, BUMGARDNER,
763.441.0901 MAGN S N, LTD.
Web
www.minnlawfirm.com RO Id G. Black
RGB/bmg
Qualified Neutral Under Rule u4