5.4. ERMUSR 04-13-2010April ~, 2010
To: Elk River 1Vlunicipal Utilities Commission
John Dietz
Jerry Gumphrey
Daryl Thompson
From: Troy Adams
Subject: Review and Consider wholesale Power Supply options
At the March 9th Utilities Commission meeting, the commission gave authorization to further
explore resource planning opportunities through a power supply coalition being organized by
Central Minnesota Municipal Power Agency CMMPA}. The informational kickoff meeting
was held at CMMPA's offices In Blue Earth, MN on April nth, At this meeting there were
representa~Ives from CMMPA, two other municipal utilities, another public paver joint action
agency representing approximately 15 municipal utilities, and a representative for three small
investor owned utilities IOU}. CMMPA Is a public power joint action agency representing 12
municipal utilities and was one of the primary participants in the Big Stone II ~BSI~} power plant
project. There are additional utilities that have some degree of interest that may join the
coalition that were not represented at this meeting. At the time of this meeting, there was no
commitment from any of the groups to participate, but rather gather information to take back to
their governing bodies, The utilities represented at this meeting account for approximately
650Mw of peak load.
The idea behind the coalition is to combine planning and resource efforts with other utilities
having similar needs in an effort to lower overall Individual costs. Each of these groups has
some future power supply need to address. ERMU's all requirements contract with Connexus
Energy is terminated in 2~1 ~. This Is the latest of the deadlines out of the others Involved. The
1DUs have existing contracts that will expire in a few years. The other independently
represented municipal utilities' deadlines fall in between ERMU's and the IOU's. The coalition
would be governed by a coordinating committee made up of representatives from the
participants. The decisions affecting the coalition would be made by those voting coordinating
committee members and not solely by CMMPA.
The process for participation in this proposed power supply coalition would begin with data
collection and focus on the aggregate needs for baseload, intermediate, and peaking. This would
be done primarily through the "grunt work" of CMII~PA's staff, but be overseen by third party
consultant R.w. Beck. Then, R,w. Beck would develop modeling assumptions for the aggregate
need. This information would be used to prepare a request for proposal ~RFP}. An analysis of
the individual needs of each participant would also be done. For ERMU, this would build off of
the study done by R.~w. Beck that compared BSII to the all requirements contract with
Connexus. Based on the information in the RFP responses, R,w. Beck would evaluate and
provide a recommended mix of resource types to each participant to build an individually
customized portfolio. Some of the deliverables from the process would include:
Projections of load, resource balance, and capacity for each participant.
Projected capacity requirements of the coalition.
Documentation of modeling assumptions.
RFP document and forms.
issue of RFP, monitoring of submittals, and bidder question response service.
Project pricing for existing participant's suppliers,
Response screening, results of final proposals, and participant portfolio analysis.
Cost comparison to participant's current power supply arrangements,
The scope of the process would not include the following deliverables:
Technical reports documentation limited to power point presentation format}
individual presentations to participants
® Comprehensive risk analysis
Robust portfolio optimization analysis snapshot analysis, not multiyear present value
analysis
Comprehensive solution to all related transmission issues.
The overall view of this process would start at data collection and end with a customized
portfolio proposal to take to the participant's governing body.
The process cost allocations have not been finalized. These could vary based on the number of
participants and the method selected for cost allocation, rf those in attendance of this meeting all
became participants, the costs for Elk River Municipal Utilities could range between $2ok and
$45k. This range reflects the differences in participant cost impact based on variations in
allocation methods, The cost allocation method that had unofficial general consensus at the
meeting would result in a project cost for ERMU of over $30k. The project would also have
provisions and off ramps for getting out part way through. The pro ject may be broken down into
phases for planning and RFP submittal, These are all points of discussion once the list of
participants firms up.
For Ellc River 11~unicipal Utilities, there are pros and cons to participating in the power supply
coalition, Some of the pros include:
. Analysis needed to compare our current contract with other opportunities .and utilities.
Economy of scale -lower individual study costs, potentially better proposals.
doting authority on coalition coordinating committee.
Customized participant portfolio, potential for individual participant contracts.
. RFP could request existing andlor new power supply sources.
. Ability to walk away with the study and not commit to entering into a wholesale power
contract.
Negotiating leverage with other potential agencies or power suppliers,
Some of the cons include:
Currently no participant commitment to the coalition, Many governing bodies still
need to make the decision to participate
Dne of the independently represented .municipal utilities makes up half of the capacity
need. what happens if they don't participate?
Doesn't address all transmission issues.
Also need to analyze the potential impact to our Conservation improvement Program
~CIP} and Load Management knot necessarily included in this process}
® would need to meet the Renewable Energy Standards ORES}which may need to be
analyzed separately,
Another related issue is the Associate Membership that ERMU has with CMMP.A. As part of
the process of exploring the BS~~ project, ERMU entered into this Associate Membership with a
1 year agreement. This agreement runs through May 26~h and requires 3 ~ days written notice to
cancel. The cost for this membership was $3Dk per year, It would appear that this would
become a redundant expense because ERMU would be paying for planning through the coalition,
~ will have more information on how this agreement plays into the coalition by the Commission
meeting,
At this point, there are lots of unknowns with this power coalition. However, there is potential
for this to be a very beneficial venture for ERMU, In our peak summer months, our power bill
runs near $2M, The costs of this study become relatively insignificant if the results can be
applied to secure ERMU a more cost effective power supply option either through renegotiation
or new supplier. This is an unbudgeted expense that wound need to be off set through capital
expense reduction or reduction in net to reserves, Staff requests the authority to enter into this
coalition and participate in the study phase of the process contingent upon the nature in outcome
of some of the unl~aawns. These unknowns would included acceptable off ramp provisions in
the coalition agreements, participation of enough other entities to provide economy of scale far
the study and possible RFP pracess, and amount of allocated cost determined far Ellc River
Municipal Utilities,