INTEROFFICE MEMORAND UM

TO: COUNCIL MEMBERS AND MAYOR RYBAK

FROM: GREG GOEKE

SUBJECT: MIDTOWN ECO ENERGY – OPTION ON PURCHASE AGREEMENT

DATE: 3/31/2008

CC: STEVE KOTKE, PAT BORN, SHELLEY ROE

As many of you know, the City has entered into a conditioned Purchase Agreement with
Midtown Eco Energy LLC (the developer) for the sale of 2850 20th Ave South. The sale was
predicated on the site being developed for a biomass combined heat and power generation facility.

As required by the purchase agreement, the developer would need to meet certain requirements
(at specified dates) in order for the sale process to continue towards closing. The developer has
submitted documents and a required payment in with the intent of “exercising their option” to
purchase the property. The purchase agreement required that the developer initiate this process and
meet the “Option Requirements” of the purchase agreement by March 30, 2008. A staff team
comprised of Steve Kotke, Pat Born and Shelley Roe has reviewed the documentation submitted by
Midtown Eco Energy, LLC.

The Option Requirements are: (as written in the purchase agreement)

4.2.1 pay to Seller (the City) the entire Option Price ($50,000) …….

The Developer has met this requirement.

4.2.2 demonstrate the Buyer (Midtown Eco Energy, LLC) has submitted all necessary
application materials to the State of Minnesota’s Pollution Control Agency to
request issuance of an air quality permit as necessary to build and operate the
Project.

The Developer has met this requirement.

4.2.3 demonstrate that Buyer has submitted all necessary application materials to the City
of Minneapolis for a conditional use permit to build and operate the Project.

The Developer has met this requirement.

4.2.4 demonstrate that Buyer has financing commitments for debt and equity sufficient to
undertake the Project, which commitments may be reasonably conditioned, as well
as a commitment to enter in a power purchase agreement subject also to reasonable
conditions.

The Developer has not met this requirement.

 4.2.5 provide Seller with a copy of any Title Evidence and Buyer’s Objections ……

The Developer has met this requirement.

It is the staff’s joint professional position that the developer has not sufficiently demonstrated a
commitment from a utility provider to enter into a power purchase agreement. The Developer
submitted a letter from Xcel Energy dated March 17, 2008 which indicated that Xcel was in
negotiations with the developer, but the letter did not indicate a tentative agreement, an agreement in
principle or any commitment to enter into an agreement. Additionally, staff was concerned that the
letter was written from a mid-level staff person and that such person may not be a person with any
authority to speak for Xcel.

A certified letter has been sent to the developer addressing the City’s staff position on the issue.
We have offered to meet with the developer and others to address this issue. The developer is
entitled to provide additional information any time prior to the March 30, 2008 deadline in order to
meet the Option Requirements of the Purchase Agreement.