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United Power Association <br />P.O. 8ox800 · Elk River, MN55330-0800 . (612) 441-3121 <br /> <br />July 16, 1998 <br /> <br />Bryan Adams, P.E. <br />General Manager <br />Elk River Municipal Utilities <br />322 King Avenue <br />Elk River, MN 55330 <br /> <br />Dear Bryan: <br /> <br />As we have discussed, United Power Association (UPA) is interested in exploring the <br />construction of a combustion turbine (CT) peaking facility on a site owned by the City of Elk <br />River. We have considered your suggestion of siting it at the Elk River Municipal Utility (ERMU) <br />West Substation and have determined that our 69 kV transmission line can support 40 to 50 MW <br />without major modifications to our line or your substation. <br /> <br />Conceptually, we could install a 40-45 MW CT west of the substation on City land, run the <br />generator leads to a 13.8 kV to 69 kV step-up transformer in the substation and then tap into the <br />69 kV line. This provides peaking capacity near load centers and provides ERMU with <br />significantly greater system reliability. UPA would acquire the capacity and energy via a long- <br />term lease with the City. UPA would also provide operations and maintenance services. <br /> <br />With City ownership, the project would not be subject to personal property tax and could be <br />financed with municipal bonds. Preliminary estimates indicate the total cost to install the plant <br />on your site, including gas line, oil storage tank, transformer, and all auxiliary equipment, would <br />be roughly $15 million. While this is substantially higher than the unit cost of the larger units we <br />plan on installing elsewhere, the benefits of no property tax and Iow-cost financing could make <br />this an economical peaking resource. <br /> <br />If ,-c~**~, is still ,.,,~,-o~,.-.,4 in "'" ~-',',-~""'~"" ' " ~., <br /> ....... , .......... -u ..... ,.,,,~ a peaking facility, we request that the ¢-, t,, determine <br />the annual debt service cost for municipal financing $15 million for a 20 to 30-year term. We <br />could then get together to discuss the annual lease payments. We look forward to finding a <br />means to make this work for both of us. Please call me at 241-2300 if you have any questions. <br /> <br />Sincerely, <br /> <br />]~~CIATION <br />Manager, Generation Development <br /> <br />fc: Tony Rude <br /> Gordy Westerlind <br /> <br />A Touchstone Energy' Partner <br /> <br /> <br />