Item Coversheet
City of Independence
AGENDA ITEM COVER SHEET
BILL NO. 19-0261st R

Agenda Title:

19-026 - 1R. An ordinance authorizing the City Manager to execute on behalf of the City of Independence, the Capacity Only Power Purchase Agreement with Oneta Power LLC, providing for the purchase of 46 megawatts of capacity only from the Oneta Generating Facility; payable only from the revenues of the Power and Light Operations and not from any tax revenues or general revenues.
Recommendations:

Staff recommends approval of the proposed ordinance.
Background:

In November of 2017, City Council approved retaining Burns & McDonnell to provide services for the formation of an IPL Energy Master Plan. The goal was to provide planning assistance for both short-term and long-term power supply needs. Independence Power & Light (IPL) requested that Burns & McDonnell assess the options that may be available to IPL for providing reliable, low cost, and environmentally compliant power to its customers.

 

The results of the IPL Master Plan were presented to City Council on August 27, 2018 and the final report was issued on September 20, 2018. The Master Plan was presented to the Public Utility Advisory Board (PUAB) on September 20, 2018. The following recommendations were presented for consideration:

 

1. The Blue Valley units have reached the end of their technical and economic useful lives.

 

2. IPL should consider retiring the units from service as soon as practical.

 

3. IPL should continue to operate and maintain the combustion turbines owned by IPL as they are low cost resources for providing capacity and provide enhanced reliability to IPL’s system.

 

4. IPL should issue a power supply request for proposal (“RFP”) that would focus on resources that provide capacity for IPL to meet its obligations, with less focus on energy.

 

5. Based on the results of the RFP, IPL should choose one or more options that provide IPL the flexibility to adjust to future electric industry market conditions, such as demand response, energy efficiency, and energy storage. Securing large or long-term resources may be detrimental to providing IPL the flexibility it needs to adapt to future conditions. After the proposals have been evaluated, IPL will be able to select the best mix of capacity resources to position the utility for future success.

 

6. On-system generation provides IPL increased reliability and protection from wholesale price volatility due to transmission congestion. The combustion turbines will eventually reach the end of their useful lives. IPL should continue to evaluate the combustion turbine sites for eventual replacement and repurposing with new generation resources in the future.

 

7. The value of repurposing the combustion turbine sites with new generation should continue to be evaluated within future energy master planning efforts.

 

On October 9, 2018, PUAB approved a motion to endorse a Power Supply RFP. Shortly after this motion, IPL retained Burns & McDonnell to assist in the development and evaluation of the Power Supply RFP.

On November 15, 2018, an RFP for up to 70 MW of Capacity Only or Capacity and Energy was issued. The RFP was posted as follows:

 

1) Posted on the City’s website.

2) Notification was provided to 205 potential companies by Public Purchase, the City’s internet-based, e-procurement system, of which 84 downloaded the bid documents.

 

The RFP requested proposals for up to 70 MW of accredited capacity only or accredited capacity and energy beginning June 1, 2020. It was requested that the proposals meet capacity requirements following the potential retirement of Blue Valley Generation Station. General Requirements of the RFP can be found in the Evaluation Summary Report.

 

On January 15, 2019, the RFP closed and the following companies presented proposals:

 

• Able Grid Energy Solutions
• Dogwood Energy
• Morgan Stanley Capital Group
• NextEra Energy Resources
• Oneta Power
• Tenaska Power Services
• The City of Lincoln, NE

An Evaluation Committee was formed that included members of IPL and City senior management. Burns & McDonnell was engaged to review the initial offers and provide a quantitative economic analysis along with a qualitative analysis summary for each respondent.

 

The Committee selected the following Respondents to short list and be considered for further evaluation:

 

• Dogwood Energy
• NextEra Energy Resources
• Oneta Power
• The City of Lincoln, NE

 

On February 25, 2019, the short list candidates were notified and asked to provide any additional information or revisions as needed along with their best and final price offering. Best and Final offers were received on March 1, 2019.

 

Based on the final analysis of the Average Annual Costs for each Respondent, the Evaluation Committee unanimously selected the Oneta 20 year Capacity-Only proposal as it represents the lowest overall cost for replacement capacity with minimal risk of market fluctuations. Details on the short list and final analysis details can be found in the Evaluation Summary Report.

 

On March 21, 2019, Staff presented the RFP results and staff recommendations to the PUAB. The PUAB recommended the following motion: “The PUAB recommends that City Council direct staff to enter into a capacity-only contract with Oneta for a 20 year term beginning June 1, 2020.”

 

Oneta Power Plant:
The Oneta Generating Facility is a 1,133 MW natural gas-fired combined cycle plant located in Coweta, Oklahoma. The facility was placed in service in 2002. Oneta provides capacity, energy, and ancillary services to the SPP power market.

 

Oneta Capacity Only Power Purchase Agreement—Major Provisions:
The Law Department with the assistance of outside legal counsel participated in the negotiations of the agreement. The major terms of the agreement are as follows:

 

Term: 20 years

 

Delivery Period: June 1, 2020 through May 31, 2039

 

Contract Capacity: The “Contract Capacity” sold by Seller to Buyer shall be 45 MW.

For Delivery Years 1-5, IPL shall have the right to increase the Quantity of the Contract Capacity (up to 70 MW total, the ‘Reserved Capacity’) for any remaining years of the Delivery Term. Beginning in Delivery Year 6, in the event Oneta is interested in pursuing a transaction with a third party for any portion of the Reserved Capacity that is not yet committed to IPL, Oneta shall give IPL advance notice, and IPL shall have the right, exercisable within a specified number of days following the notice, to add such portion of the Reserved Capacity to the Contract Capacity (in lieu of Oneta transacting with a third party for such portion). Any adjustment of Contract Capacity shall not fall below the level of Contract Capacity for the previous Delivery Year.

 

Price: The “Capacity Price” equals $1.95 per kW-month in the Delivery Year beginning June 1, 2020 (First Year Annual Cost equals $1.95 X 45MW X 1000 X 12mo = $1,053,000). For Delivery Years beginning June 1, 2021 through (and including) May 31, 2039, the Capacity Price shall equal the Capacity Price for the prior Delivery Year, multiplied by an Escalation Factor equal to one and two hundredths (1.02) per annum through delivery year ten, and one and two hundred thirty-five ten-thousandths (1.0235) per annum thereafter.

 

Contract Contingencies Summary: The Buyer’s obligation shall be contingent upon the Buyer obtaining network integrated transmission service with SPP for the delivery of Capacity from the Delivery Point to Buyer’s distribution system on and after June 1, 2020. If Buyer is unable to obtain transmission service based on the results of the SPP transmission study, the Buyer shall have the right to terminate the Agreement and this Confirmation and each Party shall be relieved of all obligations pursuant to this Confirmation without any further financial or other obligation to the other Party as a result of such termination or otherwise; provided that each Party shall be responsible for its own costs and expenses incurred prior to such termination.

 

If Buyer’s transmission request results in directly assigned transmission upgrade costs in excess of $1,000,000, or a start date for transmission service after June 1, 2020, Buyer shall provide notice to Seller, and Buyer shall have the right to terminate the Agreement within thirty (30) days and each Party shall be relieved of all obligations without any further financial or other obligation to the other Party as a result of such termination.




Fiscal Impact:

Funds are available in the IPL Operating Budget Acct. No. 6145.5308 for this project.



Department:          Power & LightContact Person:          Brenda Hampton


REVIEWERS:
DepartmentAction
Power and Light DepartmentApproved
Finance DepartmentApproved
Law DepartmentApproved
City Managers OfficeApproved
City Clerk DepartmentApproved

Council Action:          Council Action:          Accepted

ATTACHMENTS:
DescriptionType
Oneta OrdinanceOrdinance
Evaluation ReportBackup Material
Management Analyst MemoBackup Material