03-23-2017 HUCCPMINUTES
Special Meeting — Hutchinson Utilities Commission
Thursday, March 23, 2017
Call to order — 7:00 a.m.
President Morrow called the meeting to order. Members present: President Monty
Morrow; Vice President Anthony Hanson; Secretary Mark Girard; Commissioner Robert
Wendorff; Commissioner Don Martinez; General Manager Jeremy Carter
Others present: Jared Martig, Dave Hunstad, Dan Lang, and Kim Koski.
The purpose of the special meeting was to conduct a workshop to discuss Units 6 and 7
generation project.
GM Carter presented an overview on the proposed generation project of installing two
new units at Plant 1 (Units 6 and 7) at 9 to10 megawatts per unit along with a general
timeline for the project. HUC would utilize tax-exempt financing along with entering into
a capacity contract with municipal buyers which would cover the majority of the project
cost. The estimated project cost is $16 million to $18 million to be financed over 20
years. GM Carter emphasized these are best estimates and the final costs of the project
will be based on bid specifications and line item quoting by various vendors.
(Presentation attached.)
GM Carter stated there would be an out clause in the capacity contracts effective until
December 2017 to allow an out if HUC decides before then that the project is not
feasible. There would be approximately $700,000 of unrecoverable costs if the project
does not move forward.
After considering the concerns and benefits to HUC regarding this project, the Board
sees the generator project as viable.
GM Carter will put together additional analysis to bring back to the Board.
There being no further business, a motion was made by Vice President Hanson,
seconded by Secretary Girard to adjourn the meeting at 8:53 a.m. Motion was
unanimously carried.
Mark Girard, Secretary
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ATTEST:
Monty orrow, President
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Hutchinson Utilities Commission
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Generation Project Workshop
Tuesday, March 23, 2017
7:00 a.m.
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d Generation Project Overview
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\TI�ITIES
Installation of (2) new units
Units 6 & 7 (9-10 MW's/unit)
Latest Installed Unit —Unit 5 in 2013 (9.3 MW's)
Finance the project through Tax -Exempt Financing
Enter into a Capacity Contract with Municipal Buyers
This capacity contract would cover the majority of the
project costs
HUC can use the energy at it's discretion
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Estimated Project Costs
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Estimated Project Cost: �$15.8M-$18.3M
Initial Preparation Costs: $65K
Generator Costs: $8-$10.5M
Engineering Services: $382K
Electrical Contracting: $1.6M
Construction/Concrete Work: $600K
Meth/Strutt/Civil/Materials/Commissioning: $3.2M
Cooling Tower Upgrade: $342K
Contingency &Consulting Fees: $1.6M
Est. 20 Year Financing Cost : --$25.3M-$28.3M
Bank Qualified or bid into the market
Yearly P&I on Debt Service: $1.2M - $1.4M
Cash outlay on cooling tower upgrade
20 Year Capacity Contract Revenue: $23.5M
Yearly Capacity Revenue: $1.176M
Other Financing &Cash Flow Options:
Combination of Cash and Tax Exempt Financing
25 or 30 Year Financing
Capitalize Interest &defer principal payments until 2020
Pay only interest &defer principal payments until 2020
Front/Back load debt service payments versus level structure
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Discussion on Documents to Approve
Capacity Agreement
Buyer and Seller Agreement -20 MW's of Capacity for 20
years. Additional 10 year extension opportunity.
NAEMA is the comprehensive document to the capacity sales
agreement
Supplemental Agreement
Part of the Capacity agreement — speaks to credit assurance,
default scenarios, collateral assurances
❑ Consulting Agreement
This is the agreement to broker the deal between the
prospective buyers of the capacity & HUC
❑ Engineering Agreement
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Timeline on Documents to Approve
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Capacity Agreement
April/May Timeframe
Out clause until December 31, 2017
Supplemental Agreement
April/May Timeframe
Consulting Agreement
April/May Timeframe
Two payment Installments:
First one at capacity agreement execution
❑ Engineering Agreement
April/May Timeframe
Potentially Unrecoverable Costs
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Capacity & Supplemental Contract Approval: April
Engineering Contract Approval: April
Bid Specifications sent: End of July
Bids Received: End of August
Final Project Costs Identified: Mid September
Potentially Unrecoverable Costs
Preparation costs: $65K
Engineering Fees: 50%-75% of total fee$382K
First Half Consulting Fee Payment: ~$413K
Generator Benefits to HUC
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Begins the long-term process of capital replacement of
aging generators unit 3 & 4 (-3.5 MW/unit)
Unit b would allow HUC to be completely hedged against
the market when HUC's load is over 51 MW's
Unit 7 could be excess generation for market sales or allow
a more efficient unit to run versus an older unit for HUC's
hedging program.
Allows for additional energy contract sales
May provide opportunity for ancillary revenues
Continues to provide long-term business flexibility &
generation capabilities into the future if/when the industry
changes
Allows HUC to continually leverage the gas pipeline
Generator Concerns to HUC
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Continues to keep HUC tied to long-term assets
Continues staff monitoring & reporting on
generator emissions & regulations
Continue to have O & M costs involved in adding
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Review Detailed Documents
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Cash Flow models
January 2019 — /'nay 2020, look for short-term capacity or
energy contracts to mitigate cash flow outlays
Project Timeline
Generators operational by year end 2018
Detailed Project & Financing Costs
Generator Operational Information
Wholesale Business Model Financials
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Board Discussion Points
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Viable Project Structure from the Boards
Perspective
Is there a maximum project cost or spread between
the annual revenue received and debt service that
would kill the project structure proposed?
Is the board comfortable with the unrecoverable
costs if a project does not move forward?
What other information or analysis would the
board like to see?
Questions?. ?. ?m ?m