Title
UAB Recommendation on Approval of MOU Between GRU and GREC (NB)
Explanation
In June 2015, under the direction of a new General Manager, GRU staff undertook an exhaustive review of the GREC Power Purchase Agreement (PPA). In the course of this deep study, staff determined that the impact of the PPA is both financial and operational in addition to legal. The core of the PPA’s financial impact is GRU’s obligation to pay GREC $212,000 a day for what is termed “Available Energy.” This cost represents GREC’s cost of ownership and fixed cost of operations. Put simply, the cost of ownership is GREC’s debt payment and the return to its investors. The fixed costs of GREC’s operations are effectively GREC’s costs of being available to generate (staff, rolling stock and other monthly bills, excluding fuel and consumables). Staff determined that a buyout of GREC’s PPA will generate savings in the hundreds of millions of dollars if GRU can negotiate a reasonable buyout price.
In November 2016, after determining the purchase would be in the best interest of both the City and its utility customers, GRU staff began discussions with GREC Manager Jim Gordon. GRU legal counsel drafted a non-binding Memorandum of Understanding (MOU) that would serve as a framework for an asset purchase agreement to be negotiated thereafter. GRU staff gave presentations regarding the draft MOU to the Utility Advisory Board (UAB) on March 1, the City Commission on March 2, and the Chamber of Commerce on March 13, further updates to the UAB on March 15, and the City Commission on March 16. After several written drafts of the MOU went back and forth between staff for the two parties, by March 22 both GREC and GRU Managers reached agreement on the key terms and executed the MOU. The GREC Manager represented that the GREC Board had already agreed to the terms of the MOU. However, the MOU clearly stated that the GRU General Manager must present the MOU to the City Commission for approval b...
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