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HomeMy WebLinkAbout10 UAMPS Wind Project Agenda Item # 10 WORKSHOP To: Board of Directors From: Stephen Hollabaugh Date: April 07, 2010 Subject: Discussion of a Power Sales Contract for the UAMPS Wind Project at Horse Butte 1. WHY THIS MATTER IS BEFORE THE BOARD This matter is before the Board as a status update of the UAMPS Wind project at Horse Butte in Idaho. 2. HISTORY Truckee Donner PUD is in the resource project at UAMPS. The resource project is used to investigate possible generation resources prior to starting a study project. The UAMPS Horse Butte Wind project has moved into a study project in which Truckee is a participant. A workshop was given to the Board on November 4, 2009 and this workshop is to update the Board prior to bringing a Power Sales Contract to the Board. 3. NEW INFORMATION As the Project approaches the power sales agreement stage, staff would like to discuss and update the Board on the Projects current status and the Power Sales Contract. The update to the Board will include the following: Project Status: UAMPS has completed a Project Cost Estimate with costs slightly higher than previously reported. The Internal Model - (Base Case) scenario was previously reported around the high 70's and has been raised to $80-81 MWh, this is a conservative assumption. The Citi Model - (Prepay Structure) was previously reported around the high 60's and has been raised to $71/MWh, the same conservative assumptions are inherited from the Internal Model. Project cost estimates are based on the V100 model. The V100 model refers to 100 meter blades that work better in lower winds. This is the newest and more efficient technology. The V100 model will have more energy produced than the V90 model (90 meter blades). The cost of the Turbines total 66% of the Project and the BOP total 34% of the Project. The Committee discussed the current value and the yearly increase of the price of the REC's. UAMPS has filed the Conditional Use permit application and included Photo Realistic Renderings of the Project as required with Bonneville County. Public Notice of Hearing was released Feb 9t" and the hearing is scheduled for Feb. 24t". UAMPS anticipates approval by mid-May. The environmental schedule is moving forward with ongoing consultation and coordination with the Idaho Fish and Game and the US Fish & Wildlife as well as studies on the Sage Grouse Winter Use Survey, Aerial Raptor Nest Survey, Sage Grouse Lek Survey, Sage Grouse Brooding Survey and Bat Monitoring. A full biological report will be completed in the summer 2010. UAMPS has submitted the Interconnection System Impact Study Agreement with BPA and anticipates the results of the study in early May, 2010. UAMPS is currently interviewing and evaluating turbine vendors so recommendations can be made to the Committee in March with regards to price, energy production, service, maintenance and warranty of the models and their ability to finance. UAMPS intends to recommend a Balance of Plant (BOP) contractor to the Committee by March based on their history with BPA and experience with Idaho business, climate and environmental issues. The staff evaluation will be based on attributes that include financial health, ability and history of financial performance, safety, litigation, insurance, etc. UAMPS has completed a construction timeline and Power Sales Contract schedule. Critical items that must be completed are the Power Sales Contract, power purchase agreement, subscription, BOP contract, WTG supplier, County permits, environmental and ISIS. The Project sizing is not transmission dependant, the Project area is not limiting the size, subscription is currently the limiting factor and the best project economics are yielded with a fully developed project. Staff recommended further commitments or a formally expanded marketing approach. POWER SALES CONTRACT A presentation was given to the UAMPS Horse Butte Project, Project Management Committee on March 16, 2010 by Chapman and Cutler, attorneys for UAMPS on this project. The following are the summarized minutes of that presentation. Jim Burr from Chapman & Cutler presented the Horse Butte Power Sales Contract (attached to file). The recitals set the table for the rest of the Power Sales Contract and describes UAMPS undertaking the Project thru the Development Agreement and Power Purchase Agreement. UAMPS sells the Project's capacity and energy as well as the environmental attributes to the participants. They also include UAMPS financing the cost of the Project thru the issuance of bonds and other standard recitals regarding the power and authority of UAMPS to enter into a contract. Citibank has proposed the following transaction structure with a chain of affiliated corporate entities that will enable the Project to capture federal tax credits and cash grants that are available for renewable energy projects. The Project Company, LLC, is formed and enters into a development agreement with the Development Company. During the developmental phase of the Project, UAMPS owns and controls the Development Company. Prior to commercial operation of the Project, the Development Company will sell the Project to the Project Company for an amount sufficient to retire the construction debt. At that time, the Power Purchase Agreement (PPA) will become fully effective for power deliveries. Six years after the commercial operation date of the Project, UAMPS can exercise their purchase option and have the rights to buy the Project at fair market value. SECTION 1 clarifies the definitions and basic terms that are both standard and unique to this contract. SECTION 2 clarifies the Terms of Contract as effective on execution between UAMPS and the participants and will remain in effect until the Project Management Committee (PMC) terminates the Project upon the latter: (i) the date all bonds are paid and retired, (ii) the date the Project is taken out of service and decommissioned. SECTION 3 defines entitlement shares as the participant's right to a specified percentage of project capability and environmental attributes. The entitlement share represents both the right to receive a specified percentage of output from the Project and the obligation to pay the same percentage of the costs of the Project. Entitlement shares also include renewable energy certificates which can either be used or marketed by UAMPS. The Committee recommended the contract be structured so participants have first rights to buy unwanted REC's at fair market value. When substantial subscription (87% Entitlement Shares) is achieved, the PMC may direct the Development Company to proceed with development activities. The PMC will only be able to move forward when they have a signed subscription. The PMC takes such actions as are necessary to cause 100% subscription. SECTION 4 shows that additional facilities or generating units would be undertaken as a separate phase. Original participants have the right to participate in separate phases under a supplemental Power Sales Contract with the same or a reduced entitlement share for each phase. Separate phases would be financed with additional bonds or with pay-as- you-go billings. SECTION 5 shows that UAMPS will guarantee the, construction loans, issuance of bonds to finance the prepayment under the PPA, cost of acquiring the Project upon exercising the purchase option under the PPA and additional bonds to finance any additional facilities. The PMC can allocate additional interest expense to participants that are tax exempt non- governmental utilities. SECTION 6 facilitates capital contributions, made by the participants at the time of commercial operation of the Project, to fund its entitlement share. This pre-payment can result in reduced debt service costs. SECTION 7 provides for UAMPS to operate the Project consistent with the Prudent Utility Practice. UAMPS ability to control project operations will be limited while the PPA is in effect and will only act on the recommendations of the PMC. The PMC provides primary oversight and decision-making for the Project and consists of one representative from each participant. Voting rights would be governed by UAMPS Joint Action Agreement and Bylaws. Voting rights of any defaulting participant would be suspended and unanimous votes would be necessary to terminate the Project. SECTION 8 provides for billing periods, bills and payments. Project costs are billed monthly by UAMPS and sent on or before the 25th day of the each month with payment due on or before the 10th day of the following month. All payment obligations are absolute and unconditional and are on "Pay First, then Dispute" terms. SECTION 9 provides for scheduling energy through UAMPS power pool. SECTION 10 clarifies that point of delivery is, the point of interconnection with the BPA Transmission system. Each participant is responsible for transmission costs from the delivery point to its system point of receipt. SECTION 11 and 12 clarifies that the interruption of deliveries due to uncontrollable forces such as transmission outages and other factors are beyond the control of UAMPS. SECTION 13 provides that insurance will be procured and maintained as provided in the Project Agreements and directed by the PMC. SECTION 14 provides for annual budget accounting with the usual and customary procedures and audits. SECTION 15 provides for procedures on sharing information between participants and UAMPS. The participants agree to provide certificates, legal opinions, and financial and operating information as needed for UAMPS bond offerings and SEC disclosure requirements. SECTION 16 deals with the issuance of bonds and refunding bonds upon approval of the PMC and the UAMPS Board. SECTION 17 provides that no sale or lease of the Project is permitted unless all the participants approve. In the event that the Project is terminated, UAMPS will try to salvage the contract, extract value and provide a final accounting to the participants. SECTION 18 sets forth representations, warranties and covenants. Each participant represents to UAMPS that is has duly authorized the Powers Sales Contract and that it is a binding and enforceable obligation. Each participant covenants to set its retail rates to produce revenues sufficient to operate its electric system, pay system indebtedness and meet its payment obligations under the Power Sales Contract. Additional participant covenants are standard and include adhering to the Prudent Utility Practice, restricting sale of your system or assignment of your Power Sales Contract. The Committee discussed and clarified qualified use. SECTION 19 deals with enabling the PMC to set up a reserve and contingency fund, outside of the bond documents, to provide reserves for renewals and replacement costs of the Project. SECTION 20 set forth a pledge of payment under the Power Sales Contracts to secure the bonds. SECTION 21 & 22 clarifies the defaults and remedies. The participants defaults include, failure to make payments when due, breach of covenants, and events of bankruptcy or in- solvency. The remedies provided to UAMPS include, suspension of service, termination of entitlement shares, and bringing forth suit for damages as needed. SECTION 23 clarifies the step-up provisions as UAMPS directed process to non-defaulting participants and their obligation to take a pro rata portion of the defaulting participant's entitlement share. Step-ups cannot increase a participant's original entitlement share by more than 25%. SECTION 24 thru 27 deals with standard miscellaneous default provisions. UAMPS may sue defaulting participants for damages or specific performance, participants may sue UAMPS for specific performance, subject to dispute resolution procedures. There is no general waiver default. SECTION 28 provides that the Power Sales Contract and UAMPS obligations under it are subject to terms and requirement of the Project Agreements, the Financing Documents and the permits and approvals for the Project. SECTION 29 deals with overall liabilities. UAMPS and the participants remain individually liable for the operation of their own properties. UAMPS liabilities with respect to the Project are to be covered by Insurance or thru the payment of power supply costs payable by the participants. SECTION 30 deals with the assignment of the Power Sales Contract and the limited ability of the parties to assign the Power Sales Contract or to pledge revenues payable under it, only to secure bonds. SECTION 31 provides the procedure for termination or amendment of the Power Sales Contract. There is no procedure for early termination of the Power Sales Contract, but there is a placeholder for early termination resulting from failed construction. Also the Power Sales Contract may not be amended if it adversely affects the bonds. If there are any amendments offered to a participant, the same amendment must be offered to all participants. SECTION 32 deals with the standard notice provisions, such as email, facsimile, US mail, etc. SECTION 33 clarifies the relationship of the parties. The Power Sales Contract is an arm's-length agreement between UAMPS and the participant, no partnership or joint venture is created. SECTION 34 clarifies that the liabilities of the parties under the Power Sales Contract are corporate; there is no individual liability of any officer or director. SECTION 35 deals with governing law, jurisdiction and venue. If there is any litigation, Utah law will be in effect and will take place in Utah Courts. SECTION 36 deals with severability. Each provision of the Power Sales Contract is severable if proven to be illegal or un-enforceable. Power Sales Contract: • Overview of project structure • Execution summary of power purchase agreement • Power Sales Contract open Issues 4. FISCAL IMPACT The cost for power produced from this plant could range from $71/MWh to $81/MWh. 5. RECOMMENDATION Receive this report and provide comment and direction. Stephen Hollabaugh Michael D. Holley Assistant General Manager General Manager