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| OTTR > SEC Filings for OTTR > Form 8-K on 16-Sep-2009 | All Recent SEC Filings |
16-Sep-2009
Termination of a Material Definitive Agreement
On September 11, 2009, Otter Tail Power Company ("Otter Tail"), a wholly
owned subsidiary of Otter Tail Corporation, announced its withdrawal-both as a
participating utility and as the project's lead developer-from Big Stone II, a
500-to-600-megawatt coal-fired power plant proposed for construction near
Milbank, South Dakota ("Big Stone II Plant"), with related transmission upgrades
in South Dakota and Minnesota (collectively, the "Big Stone II Project"). The
remaining participating utilities intend to continue the Big Stone II Project.
As a result of its withdrawal Otter Tail will cease to be a party to the
following agreements relating to the Big Stone II Project as of September 11,
2009: (i) the Participation Agreement dated June 30, 2005, as amended (the
"Participation Agreement"), among the following parties collectively referred to
as the "Owners": Central Minnesota Municipal Power Agency, Heartland Consumers
Power District, Montana-Dakota Utilities Co., a Division of MDU Resources Group,
Inc. ("Montana-Dakota"), Otter Tail and Western Minnesota Municipal Power Agency
("WMMPA"), and (ii) the Operation and Maintenance Agreement dated June 30, 2005,
as amended (the "O&M Agreement"), among Otter Tail, as Operator, and the Owners,
as amended. Southern Minnesota Municipal Power Agency and Great River Energy,
originally parties to both agreements, withdrew from the Big Stone II Project in
September 2007 and are no longer parties to either agreement.
The Participation Agreement is an agreement among the Owners to jointly
develop, finance, construct, own (as tenants in common) and manage the Big Stone
II Plant. The Participation Agreement includes provisions which obligate the
parties to the agreement to obtain financing and pay their share of development,
construction, operating and maintenance costs for the Big Stone II Plant. It
also provides for the sharing of the plant output. As a party to the
Participation Agreement, Otter Tail would have been obligated to pay for and own
a portion of the Big Stone II Plant, and would have been entitled to a
corresponding interest in the plant's electrical output. The Participation
Agreement establishes a Coordinating Committee and an Engineering and Operating
Committee to manage the development, design, construction, operation and
maintenance of Big Stone II. As a result of its September 11, 2009 withdrawal
from the Big Stone II Project, Otter Tail has no other obligations under the
Participation Agreement except that it must comply with certain provisions
relating to its withdrawal, including provisions requiring it to pay its portion
of certain project costs incurred and to transfer to the remaining Owners all of
its rights relating to the project, including its rights to plant property and
the other project agreements (including the O&M Agreement).
The O&M Agreement designates Otter Tail as the Operator of Big Stone II. The
Operator is required to provide staff and resources for the development, design,
financing, construction, and operation of Big Stone II, and the other project
participants are required to reimburse the Operator for their respective shares
of the costs relating to those activities. The Coordinating Committee and the
Engineering and Operating Committee, made up of representatives of all project
participants, are authorized to supervise the party acting as Operator. In
connection with Otter Tail's withdrawal from the Big Stone II Project, its
obligations under the O&M Agreement as an Owner will cease and the remaining
parties will determine who will step into the Operator role.
Under the terms of the Participation Agreement, the Owners had until
September 11, 2009 to decide whether to continue to participate in the project
or to withdraw without incurring termination penalties. Given the legislative
and regulatory uncertainties related to climate and environmental legislation
and the prevailing difficult economic conditions on September 11, 2009, Otter
Tail was not willing to create a binding financial obligation of approximately
$400 million for its share of the project, and elected to withdraw from the
project.
Otter Tail and Montana-Dakota are owners, along with NorthWestern
Corporation, of the Big Stone I Plant, which is adjacent to the site of the
proposed Big Stone II Plant. These three entities are also parties to a Master
Coal Purchase and Sale Agreement for the Big Stone I Plant with Rio Tinto Sage
LLC, and a Coal Supply Agreement with COALSALES LLC, also relating to the Big
Stone I Plant. Otter Tail and Montana-Dakota are also owners, along with
NorthWestern Corporation and Northern Municipal Power Agency, of Coyote Station,
an existing 450 megawatt electric generation plant near Beulah, North Dakota. In
addition, these four entities are parties to a Coyote Plant Coal Agreement with
Dakota Westmoreland Corporation. Otter Tail serves as the operator of both the
Big Stone I Plant and Coyote Station.
Date: September 16, 2009 By /s/ Kevin G. Moug
Kevin G. Moug
Chief Financial Officer
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