HomeMy WebLinkAbout20100405 - VI-12MEMO
To: Honorable Mayor and City Council
From: Tom Montgomery
Date: March 31, 2010
Re: Authorize Expenditure for
Energy Credits Issue
Legal Services to Research Renewable
Council is requested to authorize up to $2,00o in legal services fees to research
ownership issues of Renewable Energy Credits generated by the City's
hydroelectric facility.
Background
Renewable Energy Credits (REC) are tradable, non - tangible energy
commodities in the United States that represent proof that 1 megawatt -hour of
electricity was generated from an eligible renewable energy resource. Our hydro
plant generates about 23,000 to 26, o 0 o RECs per year. Ownership of these
RECs are in dispute. RECs had not been created at the time our power purchase
agreement was signed. Although the City's facility is generating the renewable
energy, Xcel argues that since they have a 50 year power purchase agreement to
purchase all of the power generated by the hydro plant that the RECs belong to
them.
Two years ago, Xcel asked the Minnesota Public Utilities Commission
(MPUC) to rule on ownership of RECs for the 46 renewable energy generators
they purchase power from and whose power purchase agreements are silent on
ownership of RECs. The MPUC has asked Xcel to attempt to arrive at negotiated
settlements with the 46 renewable energy generators, and Xcel has reached
agreement with 12 of them.
Xcel has proposed an agreement with the City to split ownership of the
RECs generated by our hydropower plant 50/50. Xcel would not release the
settlement agreements with the 12 renewable energy generators that have settled,
but did comment that the agreements on the RECs included modifications to the
power purchase agreements that the generators had had previous issues with.
Xcel has also noted that the Colorado PUC has ruled that in similar situations the
RECs belong to the utility that purchased the power and not to the generator. I
have also talked with both St. Cloud and Dakota County, who both own hydro
power facilities, and neither has taken a position on RECs.
At this time, I do not know if Xcel's offer of a 50/50 split of the RECs is a
fair deal or not. Marketing of RECs is still in its infancy, and the recession has
greatly reduced their value. The only information I could end on the web is a
2008 report that listed sales of RECs ranging from $0.4o per MWh to $1.5o per
MWh. Using this range, the 20 o 8 value of our annual REC production would
range from $9,000 to $39,000 per year — minus brokerage charges. However,
RECs are only sold on a monthly basis and expire within 3o days of generation.
In order to better evaluate Xcel's proposal, I am requesting authorization
to spend up to $ 2, 0 0 o to hire Jim Strommen, the attorney who represents the
Suburban Rate Authority to further research the REC issue and the potential for
a MPUC ruling on the issue. Mr. Strommen has represented the Suburban Rate
Authority many times before the MPUC on electric, gas, and telephone rate
issues, and has worked with the City of Minneapolis and REC issues with their
proposed solar panel electricity generation installation on the roof of the
convention center. I have enclosed a copy of Mr. Strommen's letter proposal for
your information.
Council Action Requested
Council is requested to authorize spending up to $ 2, 0 0 0 on legal services
to research the hydropower plant's Renewable Energy Credit issue.
NIP «� �rR�si.
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CITYOF HASTINGS
C H A R T E R E ❑
Offices in
470 U.S. Bank Plaza
200 South Sixth Street
Minneapolis
Minneapolis, MN 55402
Saint Paul
(G12) 337 -9300 telephone
(612) 337 -9310 fax
St. Cloud
http: / /www.kennedy- graven.com
Affirmative Action, Equal Opportunity Employer
JAMES M. STROMMEN
Attomey at Law
Direct Dial (612) 337 -9233
Email: jstrommen@kennedy-graven.com
March 17, 2010
Tom Montgomery
Director of Public Works
City of Hastings
101 Fourth Street East
Hastings, Minnesota 55033 -1944
RE: Legal Services Regarding Renewable Energy Credits (RECs)
Dear Tom:
I enjoyed speaking with you yesterday, as always. This letter is a follow up to our conversation
regarding the issue you described involving rights to RECs under the Power Purchase Agreement
(PPA) with Xcel Energy, You asked for a proposal regarding legal services.
First, as I explained, the City of Hastings membership in the SRA allows a number of collective
benefits within the annual assessment charge. For example, we discussed the need for the City to
adopt the comprehensive ROW Management Ordinance to give it the unquestionable authority to
establish deadlines for utilities to relocate when the City is carrying out a public improvement
project. Under the law, it is questionable what authority the City will have if it does not adopt the
ROW Ordinance containing the comprehensive management tools found in Minnesota Statutes
§237.162 and .163 and Minnesota Rules 7819.0050 and following. A Model of the ROW
Ordinance can be found on the League of Minnesota City's website. I am happy to provide the
City guidance in that process as an SRA member.
Regarding the RECs issue, this matter represents one of unique interest to the City as a power
generator and falls outside the subject matter of the SRA. As you know, the SRA members
generally do not own municipal utilities and are presented issues as ratepayers and right -of -way
regulators. My hourly rate for work on the City's behalf with respect to RECs and the City's PPA
with Xcel Energy would be at $215 an hour. The City is well advised to gain additional information
about the most appropriate negotiating position on the matter of RECs. RECs could present a
significant income stream to the City.
I estimate that I could provide usable information for the benefit of the City within five to ten hours
of research. That would include obtaining information about any on -going dockets before the
365$21 v l .IMS KG400 -11
Tom Montgomery
March 17, 2010
Page 2 of 2
Public Utilities Commission on RECs, reviewing trends, if any, from other jurisdictions around the
country regarding entitlement to RECs, REC pricing and projections as to value in the future and the
costs and benefits of pressing for a more favorable split than 50150 with Xcel Energy regarding
REC units generated by the City.
If I find that the information the City needs on the above issues is readily available or of a
speculative nature only, I could take even less time than the above estimate. The best use of time,
however, is to gain the information and share it with you via a telephone conference rather than
writing a report. Therefore, the above estimate does not include the submittal of a report.
I hope this is helpful. Please contact me if the City would like to proceed.
Very truly yours,
7 11'0E'DY GRAVEN, CHARTERED
James M. Strommen
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