From: Kotke, Steven A

Sent: Tuesday, April 08, 2008 7:19 AM

To: Rybak, R.T.; Council Members

Cc: Roe, Shelley; Segal, Susan L.; Goeke, Greg A.; Bosacker, Steven; Hamilton, Heidi J; Ginder, Peter W.

Subject: Sale of City Property at 2850 20th Avenue South

Mayor and Councilmembers,

On March 26, 2008 you received an update from Greg Goeke, the Director of Property Services, (see
below) regarding the status of the City’s contract with Midtown Eco Energy LLC (MEEC) for the sale of
the property at 2850 20th Avenue South. At the time of Greg’s correspondence MEEC had not met a
requirement in the Option Agreement pertaining MEEC having “a commitment to enter into a power
purchase agreement, subject to reasonable conditions”. Between March 26 and today we have met
with MEEC and have had conversations with Xcel Energy regarding the status of the power purchase
agreement. I have determined that even though MEEC has supplied Xcel with considerable materials in
their application for a Power Purchase Agreement, they are still in the process of negotiating the terms
of a power purchase agreement and no tentative agreement has been reached. Unfortunately, the
status is not sufficient to reasonably demonstrate a commitment to enter into a power purchase
agreement at this time, conditioned or otherwise. I realize there has been considerable public and
media attention to the sale, however, this decision was reached by looking strictly at the specific
requirements of the contract and nothing else.

We will now proceed to statutorily cancel the Option Agreement. This will require the City to officially
notify MECC of our intent to cancel the agreement which will then begin a 60 day period in which they
will have the opportunity to cure the issues associated with cancellation of the contract.

We will submit a report on this issue to the Transportation and Public Works Committee meeting on
April 22, 2008.

Steve Kotke
Director of Public Works
 INTEROFFICE MEMORAND UM

TO: COUNCIL MEMBERS AND MAYOR RYBAK

FROM: GREG GOEKE

SUBJECT: MIDTOWN ECO ENERGY – OPTION ON PURCHASE AGREEMENT

DATE: 3/26/2008

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.