ESCANABA - Escanaba is closer to deciding on a power purchase agreement, as officials consider cost strategies in conjunction with the sale of the power plant.
Pros and cons of transitional, short-term and long-term power purchase options were presented during a joint meeting of the city council and Electrical Advisory Committee (EAC) Wednesday.
The city is currently in negotiations with Traxys North America, which plans to convert the coal-fueled facility to burn biomass. Closing is scheduled for Dec. 10. Escanaba is selling the plant as a cost-savings measure because it will cost the city less to buy energy from a power supplier versus self-generation.
Compared to the city continuing to own the plant at a loss, the city has two options to purchase power after the sale, explained Tom Butz, an engineer with Power System Engineering. Each option includes a yearly 4.7 percent electric rate increase for five years - a decision reached during the city's budgeting process earlier this year.
One option is to buy energy from Traxys during the transition, which will last to around March 2012 - the anticipated biomass-conversion period - and then purchase power on a short-term basis from a power supplier. A short-term agreement could last anywhere from 16 months to December 2014, Butz said.
During the next five years, the city would nearly break even between rate revenues and power costs, he added.
A second option is to purchase power from Traxys during the transition period then contract with a power supplier for a long-term power purchase that could last from 16 months to any number of years. This scenario would likely represent a loss in revenue over a five-year period, he said.
For comparison purposes, the city could enter into a three- to four-year, short-term agreement with a power supplier immediately after the plant is sold to Traxys. This would offer the most cost-savings of the power options -approximately $1.9 million over five years -explained Butz, but is not a realistic option for the city because of the plant sale agreement.
"There is no deal to sell the plant without a transition power purchase agreement," he said. In the draft sale agreement between the city and Traxys, the transition power purchase is part of the sale.
According to City Controller Mike Dewar, this stipulation was part of the "give and take" in the negotiation process. A transition power sale helps Traxys but does not provide the best power rate for the consumer, he said, adding rates would be worse if the the city did not sell the inefficient plant."What we're trying to do is keep the rates low," Dewar said.
Butz recommended to council and EAC members that the city seek the shortest term for a transition power purchase agreement with Traxys and then lock into a short-term power purchase early with a power supplier at a known price.
After the meeting, City Manager Jim O'Toole said negotiations are continuing with Traxys, which sent the city comments on the sale of assets at the plant. Representatives of Traxys and the city recently walked through the facility to determine what is included in the sale.
"We just have to work through the issues," O'Toole said. "We will be doing that in short order so we can close this deal."
During the meeting, Butz explained the projected plant conversion schedule. After Traxys closes on the sale in December, work will begin to convert one of the two generating units to burn biomass. This is expected to take around eight months to complete. Both units will operate at the same time for a month before work begins to convert the second boiler to biomass.