Ten Utilities Sign the Dotted Line with a Fixed-Price Seasonal Power Purchase
As an extension of a complete planning and analysis effort, ten public power utilities participating in the CMPAS 2020 Power Supply Coalition will lower their overall portfolio cost and mitigate risk through a fixed-price shape product. The power contract developed by CMPAS will bring price stability by focusing on high-demand energy needs during on-peak hours. For local economies heavily-based in food production, a seasonally-shaped product that provides fixed-price power during high volume times is a perfectly tailored option for their energy needs.
Over a four year period, 30 utilities participated in the coalition with ten of them ultimately signing a competitive power supply contract. Those municipal utilities include Montezuma Light & Power in Iowa and nine in Minnesota including Blue Earth, Granite Falls, Janesville, Kasson, Kenyon, Mountain Lake, Sleepy Eye, Springfield, and Windom. Glencoe and Sleepy Eye signed related contracts in 2017 that focused solely on summer needs to meet industrial load demand.
“The power supply contracts signed last November provide favorable, long-term price certainty for approximately 75 percent of each utility’s portfolio costs,” said Chris Kopel, Interim Chief Executive Officer and Chief Operating Officer. “The 12-year power purchase agreement allowed us to simultaneously protect each city from price volatility while optimizing their existing resource mix and meeting their on-peak demand need.”
Long before a project gets to the contract stage, Kyle Haemig, CMPAS Resource Planner/Economist, conducts critical, comprehensive planning studies for each participant. Through this process, each coalition member gains access to a rigorous, customized analysis of alternatives that provides more information and insight than they could gather on their own at the same cost.
Throughout the process, CMPAS frequently consults with local staff and commissions to answer questions and determine the level of interest in pursuing various portfolio solutions. After receiving the go-ahead from numerous participants, CMPAS issued a request for proposals (RFP). Similar to the collaborative benefits of going through the coalition planning exercise, coalition participants benefitted as a group in obtaining more bids and competitive pricing than venturing alone.
“By planning ahead, we were able to use time to our advantage,” said Haemig. “Our preliminary analysis indicated that a standard 5 x16 (five weekdays from 7 am to 10 pm) fixed price purchase would meet some of the needs of the coalition partners. However, as fixed prices fell, the strategy shifted from obtaining the same amount of power every month to a fixed price, long-term, shaped product that more closely tracks energy needs according to the season of the year.
“Since prices are stable and low, we were in an almost-unique position to obtain power supply bargains. We worked hard to use the buyers market to benefit our public power partners,” said Haemig.
Although the first phase of the CMPAS 2020 Power Supply Coalition is completed, CMPAS continues to look to buy price insurance (also known as a “hedge”) for segments of each utility’s portfolio that remain vulnerable to price swings. At this time, CMPAS is exploring whether one more wind contracts could bring additional cost certainty to participants’ power supply portfolio. Although utility participants have met their state-mandated renewable obligations and further study and discussion is needed, wind might serve as a hedging alternative to further stabilize energy price swings, typically caused by natural gas resources.
Stay-tuned for future updates. If your public power utility has power supply or transmission planning needs or you want to stabilize fluctuating prices in your power portfolio, call CMPAS!