New agreement saves millions of dollars on city power generation

Luverne City Council members signed a new Reserved Capacity Agreement with Missouri River Energy Services that will more than pay for the recent $11 million upgrades to the city’s power plant.
MRES is an organization of 61 member municipalities in the Dakotas, Minnesota and Iowa that own and operate their own electric distribution systems.
MRES is part of two of the nation’s regional transmission organizations, Midcontinent Independent System Operator Inc. and Southwest Power Pool, which collaborate with other grid partners.
MRES reserves local generation capacity with its municipal members to sell to other parts of the country in the event of weather emergencies.
A good example of this was the Polar Vortex in February of 2021 when Luverne ran its backup generator around the clock for several days to help provide electricity for areas of Texas that had been affected by a winter snow and ice storm.
Since then Luverne and MRES invested nearly $11 million in power plant improvements that included two additional generators to supplement the 1950s model already in use. The city currently has 9.7 megawatts of generation capacity.
The city bonded to pay for the project, and MRES would pay roughly 43 percent in reserved capacity payments over 10 years.
However, with the new reserved capacity agreement between MRES and its members, the new rates will essentially end up paying for the entire project and more.
“This is a huge benefit for the city of Luverne,” Mayor Pat Baustian said about the agreement that was approved during the council’s Feb. 14 meeting.
He said MRES has reconsidered its supplies of dispatchable power — especially after the 2021 Polar Vortex – and decided to increase rate payments to its members.
The new rates are $5 per kilowatt per month as well as an upfront $2 per KW per month for 10 years as an incentive to its members to install new generation.
For Luverne, the new rates mean that instead of MRES paying $4.3 million toward the $11 million generation investment, Luverne will receive $16.9 million over the 30-year agreement, through May 31, 2052.
Although electric costs will rise over that time period, Baustian said it will still more-than pay for Luverne’s power generation.
“It creates opportunities for our city and residents and business industries to have this dispatchable power,” Baustian said.
“What a great agreement. I can’t say enough about it.”
The Reserved Capacity Agreement (RCA) serves as an agreement between MRES and its members contracting local generation capacity.
In the contract, MRES provides a monthly payment for the availability of required generation capacity to supply back to the grid, if needed.
The agreement helps participating members have local backup generation to increase the reliability of their own operations, as well.