Community Based Energy
Development … Early Observations
APPA 2006 Business & Financial Conference
September 19, 2006
Background on SMMPA
Wholesale Joint Action
Agency.
Serving 18 Municipal
Members.
520 MW Summer Peaking
Utility.
3,000,000 MWH Sales.
Members have
approximately 110,00
retail customers.
38 Full & 2 Part Time Staff.
MN Renewable Initiatives
2001 MN Omnibus Energy Bill
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Green Pricing - Mandated all retail utilities to
offer a green priced alternative at least once
annually.
Renewable Energy Objective (REO).
 Utility Good Faith Effort.
 1% of retail sales supplied by renewables in 2005
growing 1% annually to 10% in 2015 (Energy based
objective).
2005 Community Based Energy
Development (CBED)

Governors call in 2006 for utilities to install
800MW of CBED.
SMMPA Renewable Initiatives
SMMPA began a green pricing program
prior to MN mandate (Dec. 2000)

Currently about 1,700 residential and 35
commercial/industrial customers – average
3.8 – 100kWh blocks per customer.
SMMPA Wind Generation

Currently owns and operates 8.5MW of wind
turbines interconnected to SMMPA Member
Utilities.
SMMPA Purchases of Renewable Energy
and Renewable Energy Credits
SMMPA Renewable Targets
Existing REO And Ellen Anderson 25% by 2025 Proposal
1200000
Approximately 99 - 2.5MW
Wind Turbines
1000000
Approximately 39 - 2.5MW
Wind Turbines
MWH
800000
600000
SMMPA’s intent is to bring CBED projects on
line on a time line to ensure full production in
2009. It is unlikely that CBED projects will be in
full production in 2008, as is depicted in the
graph.
400000
200000
0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Year
Existing REO Wind Power
Redwood Falls Hydro
Member Biodiesel (Avg. 10%)
2004 Basin TRC Purchase (75,000 MWh)
2005 Basin TRC Purchase (175,000 MWh)
2005 Biomass TRC Purchase (7,600 MWh)
St. Peter Biodiesel (B20)
Olmsted Waste To Energy PPA
Lake City CBED (One 1.65MW Turbine)
2006 CBED RFP (30MW)
New REO Wind (2.5MW units)
Ellen Anderson 25% by 2025
Original REO MWh
SMMPA Renewable Strategy
Portfolio of resource types and ownership
structures to meet the REO
Own
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P
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Approximately 5MW of owned & operated wind
turbines – 15,628 MWh annually.
Biodiesel – 1,250 MWh annually.
Member small hydro – 1,352 MWh annually.
Waste to Energy – 25,085 MWh annually.
CBED RFP – 100,000 MWh annually.
Member Community CBED – 5,500 MWh annually.
Wind Renewable Energy Credits (REC’s) – 250,000
MWh.
Biomass REC’s – 7,600 MWh.
New REO wind resource to meet target 260,000
MWh + annually.
SMMPA Renewable Strategy
Emphasis on Purchases
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Avoids problems with current turbine availability.
Avoids making investment in the face of limited
transmission availability.
Allows time for current turbine price bubble to
moderate.
Allows for turbine efficiency improvements to
take place before any decision to purchase.
Allows current design flaws/issues to be resolved
prior to SMMPA considering asset purchase.
Allows SMMPA to avoid/defer capital investment.
Recognition of the limited incentives available to
public power projects.
The CBED Opportunity
Will CBED Provide SMMPA with a costeffective opportunity for meeting the
REO?
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Law did not require the purchase, but instead
required that all utilities develop a CBED Tariff.
Wind power purchases in the region over the
last several years have been in the low to mid
$40/MWh range.
Governor set a 800MW target for MN utilities.
 SMMPA pro-rata share 30MW.

February issued an RFP for 100,000 MWh CBED
(roughly 30 MW).
The CBED Opportunity
How does CBED work?
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2005 Law required utilities to develop CBED
tariffs to implement the initiative.
Qualifying CBED owners.
 Minnesota residents.
 Limited liability corporations organized under
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Minnesota law that are made up of members
who are Minnesota residents.
Minnesota non-profit organizations.
Minnesota cooperative associations other than
rural electric cooperative associations or
generation and transmission (G&T) cooperatives.
Minnesota political subdivisions or local
governments other than municipal electric utilities
or municipal power agencies.
Tribal councils.
The CBED Opportunity
How does CBED work? (Continued)
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Qualifying CBED Ownership Structure.
 Project has no single qualifying owner owning
more than 15% of a C-BED project that consists of
more than two turbines; or
 For C-BED projects of one or two turbines, is
owned entirely by one or more qualifying owners,
with at least 51% of the total financial benefits
over the life of the project flowing to qualifying
owners.
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Local Support.
 Project requires a resolution of support adopted
by the county board of each county in which the
project is to be located.
The CBED Opportunity
How does CBED work? (Continued)
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CBED Tariff Structure.
 Allows for a rate up to a 2.7 cents/kWh net present value
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(NPV) over the 20-year life of the power purchase
agreement (PPA).
Must provide for a rate that is higher in the first ten years of
the PPA than in the last ten years.
Discount rate for the NPV calculation must be the utility’s
normal discount rate.
Shall consider C-BED aggregation mechanisms.
Qualifying owners provide sufficient security to secure
performance under the PPA, and project is non
transferable to anon-qualifying owner during the initial PPA.
C-BED developer & utility may negotiate a PPA different
terms.
C-BED projects are not eligible for net energy billing or
production incentives.
Our C-BED Expectations
Thought we would get a hand full of responses.
Thought they would be small – i.e. have to
assemble a number of different projects to
reach our 100,000 MWh (30MW) target.
Really no expectation of what prices might be
but didn’t see how they could meet the
$27/MWh NPV rate in statute.
Thought that bidders would have little
experience in developing projects.
Concerned that bidders may not have cleared
interconnection hurdles with the Midwest
Independent System Operator (MISO).
What Are We Learning?
11 responses
Project sizes were all over the place.
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Less than 5MW – 1 respondent.
20MW or less – 4 respondents.
30MW or More - 6 respondents (One offering 50MW).
Pricing
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All over the place ???
What does $27/MWh NPV mean?
More in the $40+ range on a traditional utility levelized approach.
Experience
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While bidders may not have extensive experience they have
formed alliances with those that have.
Interconnection
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In most cases substantive portions of MISO clearance needs to be
completed. Cannot absorb cost the way a FPL energy can.
Transmission and congestion issues is a determining factor.
CBED Pricing
SMMPA CBED RFP
NPV and Levelized Pricing (Busbar)
$70.00
$60.00
$/MWh
$50.00
$40.00
$30.00
$20.00
$10.00
$3
9
6
5
10
2
8
4
1
11
Bidder
NPV - CBED
Levelized Utility
CBED $27 NPV
7
CBED Pricing
SMMPA CBED RFP RESPONSES
(First Ten Yrs., Second Ten Yrs. Busbar Pricing)
$70.00
$60.00 , $60.00
Second Ten Years
$60.00
Bidder 9
Bidder 6
$52.60 , $52.60
$50.00
$49.50 , $49.50
Bidder 5
Bidder 10
$40.00
$35.00 , $35.00
$40.97 , $33.00
$47.40 , $29.90
$30.00
$48.00 , $35.00
Bidder 2
Bidder 8
$49.50 , $30.00
$53.00 , $29.00
$51.00 , $28.00
$20.00
Bidder 3
Bidder 4
Bidder 1
$48.00 , $24.00
Bidder 11
Bidder 7
$10.00
$$-
$10.00
$20.00
$30.00
$40.00
First Ten Years
$50.00
$60.00
$70.00
CBED FRP Locations
SMMPA CBED RFP
Deliverability remains
a big concern.
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MISO’s identified area
of concern indicating
that there are several
times (MW’s) the
number of projects in
this area than the
planed transmission
improvements.
SMMPA CBED RFP
Deliverability Issues Influence Selection
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After assessing busbar costs, we assessed
MISO Locational Marginal Pricing (LMP)
factors for each location
 Added over $7 per MWH in some locations.
 Negative in other locations.
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Deliverability issues and LMP costs were a
major determinants in selecting the
successful bidder.
Deliverability Influences Selection
SMMPA CBED RFP
50
Additional SMMPA Capital Contribution
LMP Compendated w/80% Hedge
Bid Price
47
$/MWh
44
41
38
35
9
3
6
Bidder
5
SMMPA CBED RFP
Where we’re at…
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Narrowed the field of 11 to a short list of 4.
Conducted additional due diligence.
Offered the final 4 an opportunity to adjust
their bid prior to the final selection.
 Three bidders raised their price.
 One bidder did not.
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In mid August Identified the successful bidder
and have begun negotiations to complete a
power purchase agreement.
SMMPA CBED RFP
What we have learned
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We will get CBED qualified bidders, and in the majority of
instances are willing to provide 30MW or more. Bidders
are interested, responsive and professional.
Pricing on the first ten and second ten years will vary
significantly, including bidders with constant pricing.
Price seems to be comparable with what we are hearing
about “non-CBED” small project PPA’s.
Harder for CBED projects to financially have all the MISO
approvals in hand.
Projects further west in state may have good busbar
prices but deliverability issues make the projects more risky
and add to project cost.
Projects have the potential to positively impact on local
economies.
While projects may be CBED eligible, their ownership
characteristics can vary significantly.
SMMPA CBED RFP
What We Have Yet to Learn
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Will CBED qualified bidders/projects be
around in the second 10 years when the
utility is to begin receiving the benefits from
the lower rate in the final 10 years of the
contract?
Is there a price premium for working with
CBED projects?
 SMMPA will shortly issue a second RFP for 30MW to
50MW of additional wind. RFP will be open to both
CBED and non-CBED bidders.
 SMMPA may choose to select additional CBED
proposals but wants to know if there is a difference,
what that difference is.
Questions?
Contact Information:
Larry Johnston
Southern Minnesota Municipal Power Agency
[email protected]
507.292.6440