4.2. ERMUSR 10-09-2012 - Laserfiche WebLink

Home Browse Search

This final ruling from the EPA will not be made until after the GRE November 1 deadline and likely not until after the MISO reporting deadline. This creates a window of exposure where ERMU would be committing to a contract without knowing all the costs. The proposed amendment to the current capacity contract with GRE significantly reduces the capacity payment credits from $2.74/kW-month to $0.20/kW-month. This reduction is a reflection of the saturated capacity market. The smaller two of ERMU's four engines would also be removed from this Module E registration and be reclassified and used as emergency with black start capability. These changes result in an approximate reduction in annual capacity credits from $352,000 to $22,600. The estimated retrofit costs for the larger two engines to be RICE compliant is approximately $200,000. The proposed amendment to the current capacity contract would include a shift to align with the MISO Planning Year resulting in an initial term of 17 months. After that, the contract would be evergreen renewing year to year. This would make this initial term of the proposed amendment to the current capacity contract with GRE worth approximately $32,000 leaving ERMU exposed to approximately $167,000 in retrofit costs. There are other municipal utilities in Minnesota with diesel engines similar to ERMU's. For example, the diesel engines that Missouri River Energy Services (MRES) registers by contract for their member municipal utilities are very similar to ERMU's engines. Those municipal utilities are exposed to the same RICE rule and MISO registration considerations that ERMU is facing trying to maintain a valuable community emergency mitigation asset through selling the capacity on the MISO market. Because MRES is representing "members," they have provided a better than market multi-year contract to their members that allows the municipal utilities to have a guaranteed revenue source to invest into the maintenance and retrofit of their engines. This is a win-win for MRES and their members. Because of the current ERMU relationship with GRE and the current capacity agreement, the year-to-year evergreen approach forces GRE into only committing to a short term "business deal." This way GRE is not exposed to any financial risk. Unfortunately, this approach does not best serve the customers of ERMU. Further discussions with GRE have been open to analyzing a longer term contract that would allow ERMU the revenue stream to maintain and retrofit our engines. However, it is not likely that these options will be available prior to the existing November 1 deadline. ACTION REQUESTED: Staff recommends allowing the current capacity agreement with GRE to expire. Staff further recommends ERMU explore longer term capacity agreements (starting in the 2014-2015 MISO Planning Year) with GRE and other power agencies that would allow for sufficient revenue to retrofit and maintain ERMU's generation as a critical component of our community's emergency mitigation preparedness. rill AI Page 2 of 2 NATURE Public POWERED Power Provider T o S E R V E