As the City continues to add more customers to its electric system, there is a need to increase our power generation capacity to meet future, continuous base loads.

Black Hills Wyoming, Inc. (BHW) has proposed a Power Purchase Agreement (PPA) for the City to obtain additional power generation capacity from the WYGEN I power unit located at the Neil Simpson Energy Complex at Wyodak, east of Gillette.  The WYGEN I power unit is an 85 MW coal-fired power plant that was commissioned in 2003. WYGEN I is very similar to the WYGEN III coal-fired power plant that was commissioned in 2010, for which the City owns 23%, or 23 MW of total available capacity.  The 23 MW from WYGEN III currently meets our base load requirements for the City; however, we expect these base loads to increase by approximately 0.5 MW per year for the foreseeable future.

The terms and conditions of the proposed PPA with BHW are summarized as follows:

1. Available Contract Amount = five (5) megawatts (MW)
2. Minimum Hourly Contract Amount = three (3) MW
3. Delivery Start Date = January 1, 2023
4. Term = twenty (20) years, for the period ending December 31, 2042

The PPA has two pricing components: (1) a fixed capacity payment, and (2) a variable energy payment.  These estimated cost (ranges) are summarized as follows:

1. Fixed Capacity Cost = $275,000 to $350,000 per MW of capacity per year
2. Variable Cost = $13.75 to $14.75 per megawatt hour (MWh)

Applying these pricing components to recent and future generation models from 2016 through 2020, the total, estimated annual cost associated with this PPA is approximately $2.0 million, or approximately $400,000 per MW of generation capacity.

The additional 5 MW from WYGEN I will provide cheap, coal-fired energy generation capacity to support our continuous base load.  Our current 23 MW from WYGEN III currently supports our existing base load.  Other generation resources from CT II, Western Area Power Administration (WAPA), and Economy Energy Contracts with Black Hills supports our peak loads, above 23 MW per day.  Based on our detailed analysis, we believe Gillette will continue to grow, and we should seek additional base load capacity at a rate of 0.5 MW per year to keep up with anticipated, long-term growth.  As such, City Staff strongly supports approval of the enclosed Resolution to authorize the Mayor to execute the 5 MW PPA with BHW.