AFEC CPP Presentation 060111 Final

8/6/2019 AFEC CPP Presentation 060111 Final

http://slidepdf.com/reader/full/afec-cpp-presentation-060111-final 1/57

1

AMPGS Report

and AMP Fremont Energy Center (AFEC)

Cleveland Public Utilities CommitteeJune 1, 2011



2

Agenda - Part A (AMPGS)

•

AMPGS Project History

• Participants Committee•

AMPGS Time Line

•

AMPGS Stranded Cost

•

Litigation Update

•

Power Supply Overview

•

AFEC Overview

•

AFEC Plant Configuration

•

Project Schedule

•

Key Provision in Power Sales Contracts

•

AFEC Summary

Agenda - Part B (AFEC)



3

Base Load Project History

• September 2002 – AMP Strategic Planidentified need for 500 - 750 MW base loadneed for membership

• April 2003 – CPP Cleveland’s Council approvedCPP’s participation in Developmental Phase of

New Base Load Project at 175 MW participationlevel

•

CPP invested $875,000 in the initial

Developmental Phase ($5.00/kW)



4

AMPGS Project

• November 2007 - CPP Cleveland’s Councilapproves CPP’s participation in the AMPGSCoal-Fired Base Load Project at 80 MW

participation level• Nominal 1000 MW State-of-the-Art Coal Power

Plant in Meigs County, Ohio

• Commitment to Powerspan multi-pollutantemission control technology, designed for future

expansion to be “CO2 capture ready”



5

Participants’ Committee

• 81 Participants in the AMPGS Project• Participants Committee consists of 20

Participants, plus representatives from two other

Joint Action Agencies (MSCPA and BRPA)• Commissioner Henderson elected as Chairman

of AMPGS Participants Committee and namedAMPGS Board Committee Chair

•

AMPGS Project Committee held during each

monthly Board Meeting



AMPGS Timeline

• February 2007 –Retained RW Beck as Owner’sEngineer

•

February 2008 –

Regional Participants

Meetings held for update on permitting and EPCProposals

•

August 2008 –

Participants Meeting held to

provide project update



AMPGS Timeline

•

October 2008 -

Retained Burns & Roe as

Participants Independent Consultant

•

October 2008 -

Participants Meeting held to

provide updates on indicative pricing and projectcosts from RW Beck. Burns & Roe recommendedto proceed with project. Participants authorized

Limited Notice to Proceed to Bechtel.• January 2009 – Executed Limited Notice toProceed Contract with Bechtel Corporation (EPC

Contractor)



•

May 1, 2009 –

Beck advises Bechtel in writing that

AMP is evaluating continuation of the AMPGSProject in light of changing market conditions andrequests a meeting to discuss an updated indicative

price. Meeting held on May 5, 2009.•

May 8, 2009 -

Bechtel provides AMP a written

update reflecting a nominal project ($10 million)

decrease in the August 2008 indicative price.•

May 26, 2009 –

Bechtel recommends that AMP

award the boiler and steam turbine generator

contracts to Hitachi.

AMPGS Timeline



9

AMPGS Timeline

•

May 28, 2009 –

Participants Meeting to review

project update and updated cost estimates.Participants affirmed that the project should moveforward and directed staff to execute steamturbine and boiler contracts and propertypurchases

June 2009 - AMP awarded a contract to HitachiPower Systems America for design and supply of coal boilers and steam turbines for the project.



10

AMPGS Timeline

September 2009 -

Initial on-site construction activities and

engineering design work got underway

October 30, 2009 –

In calls from Bechtel’s Project

Manager to Scott Kiesewetter and from Bechtel’s Presidentto Marc Gerken, AMP is advised for the first time that the

Target Price for the AMPGS Project would be more thanone billion dollars greater than Bechtel’s August 2008 andMay 2009 indicative price.

November 2009 – Meetings held with AMP and Bechtelrepresentatives. Bechtel proposes reducing scope of project and possible cost reductions. Estimated TargetPrice remains $800 million greater than August 2008 andMay 2009 indicative price (37% increase).



11

AMPGS Timeline

• November 24, 2009 - AMP Board of Trusteesand AMPGS Participants meetings held.Determined it was in the best interest of themember participants to give termination notice toBechtel Power Corporation, Hitachi Power System America, Powerspan Corp. and otherson pulverized coal construction and equipment

• December 2009 – Began evaluating conversionto a natural gas combined cycle plant along withlong term power supply purchases



12

AMPGS Timeline

• December 2009 – December 2010 – Development of self-build Natural GasCombined Cycle Plant at Meigs County Site,while also evaluating third party options

• November 2010 – Secured 100 MW purchaseof base load (7x24) power for 2015 – 2020AMPGS replacement power

• December 2010 – Cleveland City Councilapproves CPP taking 45 MW of AMPGS

Replacement power



13

AMPGS Stranded Cost

•

Current AMPGS stranded cost ≈

$119 Million

•

AMP Board and AMPGS Participants voted to add $34Million of development fee from AMPGS to AFEC

•

AMPGS Participants to be credited based on their shareof participation in AFEC

•

Remaining AMPGS stranded cost, not including anyfurther net proceeds from litigation, settlements, sale of land, etc. used to reduce (or repay) those amounts ≈

$85

Million



14

AMPGS Stranded Cost

•

If CPP participates in AFEC for 60,000 kW, Cleveland’s

maximum AMPGS stranded cost will be $7,522,906,which includes the reduction available to AFECparticipants resulting from applying $34 Million of theAMPGS development fee to the AFEC project –

If CPP does not participate in AFEC, Cleveland would not benefit

from the application of the development fee to AFEC

–

Cleveland’s maximum stranded cost would be $12,396,426

• AMP would include 50% of the $7,522,906, or $3,761,453, in the price of the power from the AFECplant; CPP would pay the other 50% to AMP from CPP’soperating fund over time



15

Litigation Update

• American Municipal Power, Inc. v. BechtelPower Corporation –

U.S. DISTRICT COURT [Columbus] CASE NO. 2:11-CV-

131

–

Filed, February 11, 2011

–

Judge Michael Watson

•

Seeking ≈

$100 Million of Sunk Cost Recovery

•

Claims: Breach of Contract; Gross Negligence;Breach of Fiduciary Duty



16

Litigation Update

•

Bechtel Represented by Pepper Hamilton

(Philadelphia) & Vorys (Columbus) Law Firms• Bechtel Response – filed on April 12, 2011

–

Denied any liability to AMP in connection with the

termination –

Included several defenses

•

Filed a counterclaim in the amount of $393,566.33; claimingAMP was required to pay a termination fee to Bechtel

• Motion to dismiss –

AMP’s claims for damages exceeded limited liability amount

–

Bechtel says the AMP complaint is not sufficiently specific

•

AMP’s answer to Bechtel’s counterclaim and

opposition to Bechtel’s motion to dismiss havebeen filed



17

Litigation Update

• Preliminary Conference with Magistrate –

May or June 2011

–

Determine Case Schedule

•

Likely 18 to 24 Months until Trial



18

Part B

American Municipal Power Fremont Energy Center (AFEC)

Project Summary



19

Power Supply Overview

0

0.5

1

1.5

2

2.5

3

3.5

0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

M

W

Percent of Hours in Year

Milan 2011 Load Duration Curve

Baseload Resources (7x24)

Intermediate Resources (5x16)

Peaking Resources

Load Duration Curve



20

Energy Purchases

• Standard electric commodities sold in electricmarket

–

5 x 16 = power and energy for Monday through

Friday for the 16 hours of the day usually starting at0700 and ending at 2300 (on-peak)

–

7 x 24 = power and energy for Monday through

Sunday for all 24 hours of the day

20



21

Base Load Resources

• Low operating cost•

Usually higher capital costs

•

Operate 24 hours a day

• Minimal amount of load and price following•

Base Load Resource Examples –

7x24 Purchases

–

Coal fired generation

–

Nuclear generation

–

Landfill gas/Biomass generation

– Hydroelectric generation – Natural Gas Combined Cycle Generation



22

Intermediate Resources

• Mid range of operating and capital costs• Operate mainly during on-peak hours

•

Ability to take off-line during low load and low

price hours

•

Intermediate Resource Examples

– 5x16 Purchases•

Monday –

Friday (7 am –

11 pm)

–

Natural Gas Combined Cycle generation



23

Peaking Resources

•

Lowest capital cost

•

Higher operating cost

•

Operate during peak hours (high load and prices) –

Hot summer days, cold winter days

•

Ability to bring on-line quickly

•

Peaking Resource Examples –

Diesel generation

– Simple cycle gas turbine –

Duct firing on combined cycle generation

–

Solar

–

Load curtailment (Demand Response)



24

AFEC Overview

•

The AMP Fremont EnergyCenter is a natural gascombined cycle (NGCC)facility currently under construction by FirstEnergy(FE) –

512 MW summer basecapacity, plus 163 MW ductfiring (peaking capacity)

–

Located in Fremont, Ohio

• It was formerly owned byCalpine Corporation, whichfiled bankruptcy in 2005

•

The facility was auctioned in

2007



25

AFEC Overview

• AMP has conductedconsiderable due diligencesince 2005 and placed a bidon the facility in 2007 –

FirstEnergy (FE) had thewinning bid and continuedconstruction

• Construction is largelycomplete and is expected tobe commercially available

by end-of-year 2011



26

•

AMP entered into a non-binding Memorandum of

Understanding (MOU) on February 3, 2011, withFirstEnergy (FE) regarding the potential purchase of theFremont Energy Center

• AMP entered into an Asset Purchase Agreement with FEon March 11, 2011 –

FE to reach Mechanical Completion by July 1, 2011

–

AFEC to successfully generate at least 675 MW (summer

condition) or purchased price partially refunded by FE

–

Incentives to increase capacity up to 707 MW

–

AMP to close by July 1, 2011 (Can be extended to July 15, 2011,

if notified by June 15, 2011)

AFEC Overview



27

AFEC Overview

•

Plant is currently 99% mechanically complete

per Owner’s Engineer • Final checkout activities to support

commissioning are approximately 85% complete

• Plant is interconnected with FirstEnergy (ATSI)system – to be part of PJM on June 1, 2011



28

AMP Power Supply Strategy

•

Fremont Energy Center fits well with AMP’s

overall power supply strategy –

Development of diverse generation assets

–

Reduce members’

reliance on wholesale power

markets

•

90% of AMP members’

intermediate needs come from

power markets

–

Fremont facility would provide a cost-effective, safe,environmentally friendly, asset-based alternative towholesale energy and capacity markets



29

Comparison to NGCC Alternatives

• AFEC Project was compared to self-build andother third party options

• AFEC resulted in considerably higher valuecompared to all other alternatives



30

Natural Gas Combined Cycle

•

A combined cycle is an assembly of engines that

convert heat into mechanical energy, which in turn driveselectrical generators

•

Natural Gas Combined Cycle

– A Gas turbine generator generates electricity and the wasteheat is used to make steam to generate additional electricity viaa Steam turbine

–

Enhances the efficiency of electricity generation

–

Most new gas power plants are of this type

•

Typically a base-load or intermediate power supplyresource



31



3232

AFEC Plant Configuration

•

Two (2) 180 MW Each Siemens

Combustion Turbine Generators•

Two (2) Nooter/Erickson HeatRecovery Steam Generators

– Equipped with 163 MW duct firing(peaking capacity)

–

Selective Catalytic Reduction (SCR)for NOx control

–

Oxidization Catalyst for COemissions control

•

One (1) Siemens 360 MW Steam

Turbine Generator (including theduct firing capabilities)



3333

Plant Overview



34

Plant Operation

•

Redundant design –

Two (2) Combustion Turbines and HRSGs

–

Redundant pumps

–

Gas compressors

• Flexible operation –

Minimum load of 179 MW (summer) can increaseincrementally to 512 MW (base capacity), plus 163MW peaking

• Asset purchase and AMP will own/operate –

Agreement allows flexibility to hire current employees



35



36

Project Schedule

•

Project is between 99% mechanically complete

• Per the Asset Purchase Agreement, FirstEnergycommitted to reach mechanical completion by July 1,2011

• Anticipate plant commissioning to begin in July 2011•

Performance testing expected to begin in the August–

September 2011 timeframe

• Performance testing expected to be completed byDecember 2011

•

On-line operation by January 2012



3737

Project Costs

Description Cost

Purchase Price $485,000,000

Cost Reimbursement for Period from 2/1/11 to 7/1/11(not to exceed)

$ 25,300,000

Total Purchase Price $510,300,000

Estimated AMP Owners Cost through 12/31/11 $ 58,597,000

Performance Testing Fuel (less Energy Sales during

Testing), Gas Pipeline Capacity Payment andWater/Wastewater For Testing

$ 5,788,000

Total Estimated AMP Owners Cost to COD $ 64,385,000

Total Estimated Costs for Purchase and Owner’s Cost to

COD (excluding financing and interest)

$574,685,000



3838

Total Estimated Bond Amount and Debt Service

Description Base Case

Estimated Bond Amount

Construction Costs $574,685,000

Forward Contract Buy-Outs $ 35,351,000

Net Interest During Construction $ 9,235,000

Deposit to Reserve Account $ 49,043,000

Issuance Expense $ 6,751,000

Total Estimated Bond Amount $675,065,000

Estimated Annual Debt Service

Annual Debt Service $ 49,043,000

Annual Net Debt Services $ 48,707,000



3939

Project Financing

•

AMP intends to finance all costs incurred in 2011

associated with the AFEC Project by its bank line of credit

•

The total amount of the bank line of credit required

during 2011 is estimated to be approximately $619.3million

•

AMP plans to repay the bank line of credit through

fixed-rate bonds to be issued in 2012•

Obtaining tax-exempt financing dependent uponreceiving Qualified Service Territory Certificates from

Participants



4040

Preliminary Delivered Natural Gas PriceForecast

(Nominal $/MMBtu)

Year Maumee Hub

Pipeline Transport

Dominion East Ohio Pipeline Lateral

Load Balancing

Charge

Total Fremont

Delivered Price

2011 4.66 0.16 0.02 0.10 4.94

2015 5.78 0.16 0.02 0.10 6.06

2020 7.25 0.16 0.02 0.10 7.53

2025 9.30 0.17 0.02 0.11 9.60

2030 12.78 0.19 0.02 0.12 13.12

2035 15.38 0.21 0.03 0.14 15.76



41

Natural Gas Supply

•

Site location has excellent optionally for gas

delivery from multiple suppliers• Existing FirstEnergy agreements for

transportation are assignable

• Evaluating gas supply options:

–

Objective to lower cost/risk of gas supply

– Short term – financial gas contracts (today lower thanforecast)

–

Long term –

physical gas reserves



42

Natural Gas Pipelines



43

AFEC Vs. Market Comparison

NPV savings over market

average (2012 – 2041) is$499 Million



44

Project Risks

Risk Factors Contribution to STD for the Base CaseContributi on to STD

Description $/MWh % of Total

Natural Gas Prices 41.98 98%

Interest Rates 0.84 2%SO2, and NOx Costs 0.00 0%

CO2, Costs 0.00 0%

Total 42.82 100%



45

AFEC Market Value

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

-800 -600 -400 -200 0 200 400 600 800 1,000 1,200

C u

m u l a t i v e P r o b a b i l i t y ( %

)

NPV Net Market Value - $Millions

Cost of AFEC > Cost of Market

Cost of AFEC < Cost of Market

Expected Net Market Value

Expected NPV NetMarket Value =

$499 Million92% Probability that Total

Cost of AFEC is Lessthan Market



46

Benefits•

Minimal construction risk

•

Negligible permitting risk –

Project fully permitted for construction: Title V Operational Permitto be applied for per normal process

•

Minimal interest during construction

• AFEC project provides long-term cost stability to themembers•

Net present value (2012 –

2041) of almost $500 million

value over market projections

• Project includes 675 MW of installed capacity for Participants

•

10 year 75% tax abatement on personal property onceproject on-line



47

Key Provisions in Power Sales Contracts

• 35 Year Take or Pay Contracts (lowest cost financing)•

Participants will subscribe for fixed shares (in kW and%) of the output of the Project

• All Participants will receive their shares of the Project(Contract Resources) at the Fremont LMP at the same“Project Rate”

•

25% Step Up Provision (mitigate “weak link”

analysis)

•

Project Costs are O&M Expense of the Member

•

Members pledge rates to cover costs

•

A committee of Participants will have both decision

making and advisory roles on Projects



48

Participants’ Committee

•

Participants choose members of Committee

•

Members must include at least 51% of Shares

•

Minimum of 8 members on Committee

•

Participants control Committee size

•

Weighted voting according to % Share

•

Meets not less than quarterly

•

Elects Chair and Vice-Chair

•

Chair appoints sub-committees



49

Super Majority of Participants

• 75% of all Project Shares (in kW)

•

Approval required for:

Issuance of any bonds associated with thepurchase of long term gas reserves

Any sale or transfer to third parties by AMP of anyinterest in Project, except as specifically

permitted

Termination of Power Sales Contract after Bondspaid



50

RW Beck Beneficial Use Analysis

• Cleveland Public Power’s Initial AFEC allocation,based on the results of the September 2010Optimal Power Supply Plan = 109,972 kW

–

Includes 82,688 kW of base capacity and 27,284 kWof peaking capacity

• Ordinance amount = 60,000 kW



51

RW Beck Beneficial Use Analysis – base Case

0

50

100

150

200

250

300

350

400

450

500

M e g a w a t t s

Power Supply Portfolio - ClevelandMarket Purchases

Existing Diesel

Existing Gas

AFEC

Solar

AMP Hydro

Prairie State

Greenup

Meldahl

Contract Buyouts

Existing Hydro

Existing Contract

Existing Coal

Peak Demand

Capacity Requirements



52

RW Beck Beneficial Use Analysis

0

50

100

150

200

250

300

350

400

450

500

M e g a w a t t s

Power Supply Portfolio - Cleveland

Market Purchases

Existing Diesel

Existing Gas

AFEC

Solar

AMP Hydro

Prairie State

Greenup

Meldahl

Contract Buyouts

Existing Hydro

Existing Contract

Existing Coal

Peak Demand

Capacity Requirements

Cleveland Capacity Position



53

7 946

76 86 88 90 93 95 103122 124 127 129 131

60

89

4175 78 80 83 85 88 91 96 99 102 105 108 110

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

M W

p y

Prairie State AMP-Hydro Meldahl/Greenup Market Baseload Contract

NYPA - Baseload Remaining Baseload Needs Market Intermediate Contract NYPA - Intermediate

Recommended CC Remaining Intermediate Needs Member Peaking Remaining Peaking Needs

Reserve Margin Peak Total Intermediate Needs Baseload Needs



54

AFEC Summary

•

AFEC provides both intermediate and peaking capacity

• Participation in the AFEC project diversifies power supply to help lower risk and cost

•

The AFEC project provides long-term cost stability

• Economies of Scale and Tax-Exempt financing aremajor benefits for AMP members

•

AFEC is a low-risk project due to the mitigation of

construction and permitting costs/risks•

Reduces members’

reliance on wholesale power

markets

–

Provides a cost-effective, safe, environmentally friendly, asset-

based alternative to wholesale energy and capacity markets



55

CPP Participation in AFEC•

CPP has intermediate power needs

• Current supply contracts do not cover all of CPP’s requirements

•

CPP’s power supply portfolio diversification

goals apply• Participation in AFEC will enable CPP to secure

intermediate power and diversify its portfolio

• CPP seeks approval to receive 60 MW from theAFEC project



56

Near-Term Next Steps

• March 15, 2011 – Subscription packets to members –

Including sample Ordinance/Resolution, Power Sales Contract,Member Beneficial Use Analysis and Project Feasibility Study

•

March 15 –

June 15, 2011 –

Subscription Period

•

June 15, 2011 –

Target for final executed power sales

contracts from participating members

•

July 1, 2011 –

Target for AMP financial closing on

purchase



Documents

AFEC CPP Presentation 060111 Final