03-31-2016 HUCMMINUTES
Special Meeting — Hutchinson Utilities Commission
Thursday, March 31, 2016
Call to order — 7:30 a.m.
President Luhring called the meeting to order. Members present: President Donna
Luhring; Vice President Monty Morrow; Secretary Mark Girard; Commissioner Anthony
Hanson; Commissioner Robert Wendorff; Attorney Marc Sebora; General Manager
Jeremy Carter.
Others present: Jared Martig, Randy Blake, Dave Hunstad, John Webster, Dan Lang,
and Kim Koski.
The purpose of the special meeting was to present HUC's generation business model
and to discuss the Board's philosophy on generation along with the decision to remain
in generation or exit generation.
GM Carter presented an overview of the generation business model, discussing why
HUC is in generation and what opportunities it provides along with what the impact
would be if HUC exits generation. (Presentation attached.)
Considering HUC focuses on reliability and rate stabilization with generation being a key
component to both of these philosophies, the Board decided that HUC should continue
to remain in generation as long the generation business model can be financially
managed and continues to make financial sense for Hutchinson Utilities Commission.
There being no further business, a motion was made by Secretary Girard, seconded by
Vice President Morrow to adjourn the meeting at 8:48 a.m. Motion was unanimously
carried.
Mark Gir rd, Secretary
ATTEST: Awt t, i
Donna Luhring, President 1
5
�^VZCNIMSOy
Generation — Business Model
UTlL IT\ES
2
77
HUC Special Meeting
Thursday, March 3 1 51, 2016
7:30 a.m.
2011
Historical Power Supply
2012
2013
2014
2015
1a. Gen. (Hedging)
MWHR's
% of Total
MWHR's
% of Total
MWHR's
% of Total
a MWHR's
% of Total
; MWHR's
% of Total
MMES
131,400
42.8%
131,745
42.7%
218,975
75.5%
219,000
74.0%
219,000
72.5%
XCEL
131,520
42.8`0
131,745
42.7`0
-
0.0'0
-
0.0%
° -
0.0%
MISO
43,686
14.2%
38,704
12.5`0
50,593
17.4%
59,842
20.2`id
74,334
24.6%
Generation (1)
246
0.1%
6,371
2.0`0
20,149
6.9%
17,029
5.71A
8,483
2.7%
GRE (Wind)
240
0.11,0
240
0.1`'0
240
0.1%
240
0,1`0
240
0.1%
Total MWHR's
307,092
10096
308,805
100%
2891957
100%
206,111
Im
302,057
100%
1a. Gen. (Hedging)
246
2%
6,371
25%
20,149
57%
17,029
59%
8,483
38/0
1b. Gen. (M. sales)
13,065
98%
19,102
75%
15,466
43%
11,790
41%
13,928
62%
TOTAL MWHR'S GEN.
13,311
100%
25,473
100%
35,615
100%
28,819
100%
22,411
100%
4,755 SMPPA Sales 15,990 SMMPA Sales 10,884 Transalta
3,048 Market
�)) Current Generation Business Strategies
LInt
❑ Produce Electricity for HUC customers (Hedging Program)
13 Primary emphasis - when market prices are higher then the cost to
generate
When electricity demand is greater then RUC's baseload contract
❑ Produce Electricity sold
into
the MISO
Market
Secondary emphasis —
spill
over from
Hedging Program
❑ Helps fulfill MISO Capacity Requirements
13 HUC at a minimum is required to have 70 MW's of Capacity (Baseload
Contract — 25M W, 45M W? )
❑ Sell Excess Capacity
HUC - — 100 MW's of Generation & 25 MW's through Baseload Contract
❑ Sell Energy through Energy Contracts
CHINg
REVENUES
Market Sales
Capacity Sales
Energy Contract Sales
Total Revenues
EXPENSES
Personnel
Fuel
Internal Transfer
Materials, Supplies, G & A
Total Operating Expenses
Generation Income Statement
. m
Hutchinson Utilities Commission
Statement of Income and Expenses - Production (Generation Capabilities)
For Period Ending: (December 31, 2014 & 2015) & 5 Year Budget Estimates
2D17 -2D201 2014 Actuals 1 2015 Actuals 11 2015 Budget 1 2016 Budget 1 2017 Budget 1 2018 Budget 1 2019 Budget 1 2020 Budget
Est. $ 598,293 $ 124,859
Actual 80,000 294,200
Est. - 695,859
$ 678,293 $ 1,1141918
1,846,140 1,923,616
1,218,155
749,046
700,000
641,833
504,827
461,380
4,269,122
3,7751875
NET PROFIT/(LOSS) FROM OPERATIONS $ (3,590,829) $ (2,660,957)1
Depreciation 1,772,828 1,782,828
TOTAL NET PROFITI (LOSS) PRODUCTION $ (5,363,657) $ (4,443,785)
$ 700,000 $ 100,000 $
100,000 $
100,000 $
100,000 $
100,000
294,000 675,500
1,004,500
1,292,000
1,532,000
11135,000
1,232,320
1,232,320
1,246,720
1,256,320
1,256,320
$ 994,000 $ 210071820 $
2,336,820 $
21638,720 $
21888,320 $
2,4911320
1,699,720
1,738,127
1,796,244
1,799,878
1,955,192
2,047,123
1,153,192
1,212,204
1,224,326
1,236,569
1,248,935
1,261,424
641,833
647,166
651,700
656,366
659,783
659,783
412,842
499,612
490,295
501,241
512,420
523,832
319071587
4,097,109
4,162,565
4,194,055
4,376,330
4,492,162
$ (2,913,587) $ (2,089,289) $ (1,825,745) $ (1,555,335) $ (1,488,010) $ (2,000,842)
1,782,828 1,782,828 1,782,828 1,782,828 1,782,828 1,782,828
$ (4,696,415) $ (3,872,117) $ (3,608,573) $ (3,338,163) $ (3,270,838) $
Him
Generation Cash Flow
`jr, r t IT +10.
REVENUES
Market Sales
Capacity Sales
Energy Contract Sales
Total Revenues
EXPENSES
Personnel
Fuel
internal Transfer
Materials, Supplies, G & A
Total Operating Expenses
Est. $ 598,293 $ 124,859
Actual 80,000 294,200
Est. - 695,859
$ 678,293 $ 1,114,918
1,846,140 1,923,616
1,218,155
749,046
700,000
641,833
504,827
461,380
4,269,122
3,775,875
CF. POS./(NEG.) FROM OPERATIONS $ (3,590,829) $ (2,660,957)1
Capital Expenditure Program (TBD) 1,286,538 217,384
$ 700,000 $ 100,000 $
100,000 $
100,000 $
100,000 $
100,000
294,000 675,500
1,004,500
1,292,000
1,532,000
1,135,000
1,232,320
1,232,320
1,246,720
1,256,320
1,256,320
$ 994,000 $ 2,007,820 $
2,336,820 $
2,638,720 $
2,888,320 $
2,491,320
1,764,720
1,763,327
1,843,494
1,927,378
2,015,192
2,107,123
1,153,192
1,212,204
1,224,326
1,236,569
1,248,935
1,261,424
641,833
647,166
651,700
656,366
659,783
659,783
412,842
499,612
490,295
501,241
512,420
523,832
3,972,587
4,122,309
4,209,815
4,321,555
4,436,330
4,552,162
$ (2,978,587) $ (2,114,489) $ (1,872,995) $ (1,682,835) $ (1,548,010) $ (2,060,842)
282,000 234,500 380,000 330,000 140,000 300,000
TOTAL C.F. PO.S/(NEG.) $ (4,877,367) $ (2,878,341)1 $ (3,260,587) $ (2,348,989) $ (2,252,995) $ (2,012,835) $ (1,688,010) $
Avoidance Costs
❑ Purchasing 45 MW's of Capacity
At $2,400
per MW -
$1,296,000
Savings
At $2,900
per MW -
$1,566,000
Yearly
At $3,250 per MW - $1,755,000
❑ Hedging Program Savings
20132014
Avg.
Yearly
Savings
- $799,71 1
2013-2015
Avg.
Yearly
Savings -
$479,775
Other Discussion Points
Linot"
Depreciation
HUC does not need to fund capital replacements at the
current depreciation level
Does not necessarily need to be covered completely by
revenue streams outside of the retail rates
Utilities install generation not only for their own capacity
requirements but also for energy reliability
Internal Electric Division Transfer
Transfer made to the Gas division — no HUC cash outlay
impact
Current Generation & Facilities
A lot of useful life left in past HUC Investments made
M
LITE
Other Discussion Points
Operations
Continue to control expenses
Continue to maximize revenue opportunities
❑ EPA — Clean Power Plan
o Emissions Credit Market — Revenue Opportunity?
o Coal Plant retirements displaced by renewables and Natural Gas
Generation
ri Coal Plants remaining look to have a higher bidding price into the
markets
Exit Generation
Lose a business strategy to lean on as the industry changes
Reduce the upside potential to take advantage of future
opportunities
Entry back into Generation is unlikely
Becomes an easier HUC operation to manage
CMINB
Conclusions & Board Position
�tLIT1ES
If HUC's Cash Outlay can stay between $1.5-$2.0 million
annually two business plans are viable
Generation Business Model
Exiting Generation & purchasing capacity & add'I energy
Additional Energy purchased through MISO or
supplemental contracts
Exiting Generation limits business options
-- HUC's needs to maximize revenue opportunities
Take advantage of other potential investment
opportunities or partners if HUC stays in generation
Board Position?
)) Hutchinson Utilities Commission
77_
Q uestions?