Loading...
HomeMy WebLinkAbout1983-01-27 City Council Summary MinutesCITY COUNCIL MHIUTEN CITY OF PALO ALTO Adjourned Meeting of January 24, 1983 Thursday, January 27, 1983 ITEM Item 110,. Northern California Power Agency/Pacific Gas and Electric Interconnection Agreement PAGE 2 9 0 2 Adjournment 2 9-0 8 1 Adjourned Meeting of January 24, 1983 Thursday, January 27, 1983 The City Council of the City of Palo Alto met on this date i n the Council Chambers at City Hall, 2tO Hamilton Avenue, at 5:10 p.m. PRESENT: Bechtel . Cobb, Eyerly, Fazzino, Fletcher, Renzel, Witherspoon ABSENT: Klein, Levy ITEM #:1U, NORTHERN CALIFORNIA POWER AGENCY PACIFIC GAS AND y• Director of Utilities Edward Aghjayan said that the subject of. an interconnection agreement was complex. The particular agreement was 40 to 50 pages long and filled with technical terminology often difficult for some experts to understand. The staff report, dated January 20, 1983, provided an explanation about what the interconnection agreement did for the City of Palo Alto. He said the agreement provided supplemental power and energy when the City needed it. As the City's power projects went on line, they would not all be phased in at the appropriate time. For example, the City might need excess power An 1986, Calaveras might not be on line until late 1983. There might be times in the future when the City would not have sufficient power, from resources during a period of one to five years. The contract would allow for that. It allowed for transmission from those projects to the City of Palo Alto over PGG&E's transmission lines. It was a fact in Northern California that the electric transmission system was vir- tually under the control of PG&E Very few 'transmission lines in Northern California were owned . by other entitles. To get power from_ Calaveras, the geisers, or other projects in Northern California, it was necessary to use those: transmission lines. The City had the right to use _these lines,. the issue was the terms, conditions and price to -be paid for that right. The interconnec- tion agreement al lowed for the sale of NCPA surplus power to PG&E, and a reserve or backup ein the event if NCPA 's projects were down. Negotiations for the agreement had been ongoing since 1968-, and there was a. break through recently precipitated by the fact that the geisers: plant, the first NCPA geothermal project-, was ready to go _on line, and was generating power ----currently. Negotiations for the particular agreement were accelerated during the, last few months- so fast and so dynamically, that even '-to'.this mordent, there was. no final version of a marked up.. agreement. The agreement had some ambiguous areas and- Council wtiuid be. asked to pass a resol u- ti on' under certain conditions With regard- to those ambiguous .areas. There were several Assois.. that would -y . to an arbitrator for -decision. Mayor Bechtel commented that the deadFine fur the arbitration agreement was January 31,_.,1983. Negotiations had been ongoing for 14 Years, and she asked why it was - such an emergency all of a sudden. Senior Assistant City Attorney Anthony Bennetti said there was, an opportunity 'for further arbitration between NCPA and PG&E: PG&E reached a point . in the negotiations _:where they :-were willing to submit the remaining issues- to binding arbitration, and asked whether NCPA was " willing to do the same. NCPA " said it, was will`- my but; co rld not - bind its members. PG&E gave NCPA _a definite period of time to: yet its- members to agree to binding arbitration or else the arbitration would not be binding on PG&E,_ That was the deadline the City faced. Part of the problem was that it was not clear to the members exactly what the issues were that were being submitted to arbitration, and those issues which were agreed upon by December 27, 19J2 - 1 8 Councilmember Eyerly asked what provisions were in the current PG&E contract that could give Palo Alto problems without the interconnection agreement. He asked what the ramifications would be if Shell II came on line for NCPA with no interconnection agreement in place, and what Palo Alto and NCPA would do if Shell III and Calaveras came on line, and there was no interconnection aygreement. Mr. Ayhjayan said that the City's current agreement with PG&E was signed approximately ten years ago. It was not an interconnection agreement, but what was known as a "Partial Requirements Con- tract." In that agreement, PG&E agrees to supply all the City's needs above and beyond what it purchased from the western Area Power Administration (WAPA j. It was a fine agreement assuming that the City never wanted to buy power from any other resource in Northern California or. outside California. The interconnection agreement would replace the Partial Requirements Contract by agreeing to binding arbitration today. As :the arbitration pro- ceeded, and the interconnection agreement came into being, it would automatically replace the partial requirements cantract'the City had with PG&E. Some provisions in the interconnection agree- ment were not as good as those contained in the current agreement, and it might cost the City more for partial power or -excess power from PG&E. It required the City to put in several hundred thousand dollars worth of capacitors --a provision which was not in the City's current agreement. The first question should be why agree to terms not as good as those already agreed upon. He said there was another provision in the current agreement which allowed that the agreement was cancellable by either party on two years notice. PG&E could cancel the agreement on two year's notice. The City was not currently buying any power from PG&E, and probab- ly would not buy any for two years anyway, so in effect there was a nonayreement. If the City did not need any power from them for two years, and they could cancel it on two year's notice, it was not much solace to the City to have that agreement., If the City rejected the interconnection agreement because it believed it had a pretty good partial requirements contract,, that would not meet the City's needs because PG&E would cancel the -.agreement and the City would have to negotiate a new doe which would contain the same provisions it tried to avoid. Beyond that ,..even with the partial requirements agreement, the City had no provisions to get power from resources such as Calaveras and the geisers. NCPA mem- bers passed a resolution affording Palo Alto efive megawatts of Shell III, which needed to yet down into Palo Alto, and 40 mega- watts of Calaveras' power needed to get to PaTo o Al to. The inter -- connection agreement _would allow that to happen. If the City, rejected the -binding arbitration, PG&E had the right,- at its op- tion, to reject the ,entire interconnection -agreement. 1f that happened, the effect. on the other: MCPA cities ..would- be more .si.gnie. ticant because t} ev needed to_ deliver power from Shell'. The City's urgency in getting into the interconnection agreement was_ not as severe as the other NCPA members, but in terms .0.17:4 long term plan, and in; terms: of getting power into Palo. -Alto, the. City quite clearly needed .that kind .of_ an agreement. NCPA staff and members, as well _as .City Of =Palo Alto .staff , .0elieVede that this -- was the City's best shot at getting; the< best .possible agreement . An -arbitrator would .provide' a better decision to the .City- of Palo Alto tn:fn the , kind .,of negotiations ethat were 0going%for ' 14; years. Courlci lmember Eyerli said a question was raised about why: the City negotiated for somany years with PG&E, and why. PG&E was all of _:a„ sudden applying pressure.: He did hot believe that PG&E was alone, he' be l ieved they were . urged by some NCPA actions including filing on Viabld.:. 2 9 .A 3 1/2.7/83 1 Dan Davidson, Spiegel & McUiarmid, Washington, DC, said that the sequence at which PG&E,agreed to binding arbitration occurred at the Nuclear Regulatory Commission (NLR). It was complained that PG&E was violating its Diablo Canyon anti-trust conditions, and a meeting was held with Harold Denten, the Director of Nuclear Regulations .and about U of his staff members. No progress was made during the morning of that meeting because PG&E refused to do anything. Mr. Denten asked George Maneatis, the -'Executive Vice President of PG&E, to think about it during lunch. Maneatis came_ back and said that if they did not get anywhere today, he would yet on the plane happy._ Mr. Denten said no, because PG&E would be found in -violation of its commitment, at which time PG&E proposed binding arbitration. If - al l the cities approved within a matter of weeks, the 14 -year effort would finally be culminated. Councilmember Fletcher said she was - interested in what objections PG&E had to the particular features. in the proposed agreement, Mr. Aghjayan said that PG&E objected to virtually every word in _. every sentence of the entire agreement, which was why it had taken 1.4 years. PG&E was not very cooperative. Councilmember Menzel said she understood the purposes of the interconnection agreement, and said the Council received material for the meeting of January [4, 1983, which included a resolution, and this afternoon the Council received two documents --an inter- connection agreement summary and a detailed letter to Eimer Hall from the NCPA. It was clear that there were points of disagree- ment within that letter, and that the _City wanted to protect itself. She asked what the Council would be asked to do tonight. Mr. eennetti said Council would be asked to pass an amended reso- lution which he drafted today after receiving the same detailed information from NCPA that Council received. The resolution staff prepared for Monday night approved the arbitration agreement, and staff_ prepared it with the understanding that some of the issues identified _by NCPA were going to be resolved prior to the time when -the City had to act. Since the issues were not going to be resolved, staff now'eproposed a resolution which approved the.arbi- trat i on agreement, unless NCPA and PG&E failed to agree on certain key paragraphs, or those conditions were at least .arbitrated. Under -the current agreement, NCPA was not sure whether the issues were in front of the .arbitrator, and in order to ensure that they were, the City wanted to: condition its consent to arbitration on raving those Matters at least heard before the arbitrator if NCPA and i3G&E could not `agree as to how they should read. In the event the issues were determined, either by -the arbitrator or by a court of law, not to be properly before the arbitrator, then the City's .approval would ---not operate.. Staff, wanted to be sure that the arbitrator addressed certain key sections- which both he and NCPA had problems with relating to PG&E's obligations to provide power in tare - event that. transmission facilities were not 'adequate and there Were -delays in building adequate transmission racilhies. One bpt'ion for., providing transmission .was to pay Ay advance to have PG&E-- construct the facilities.. - PG&E had reserved the right to take Material and.. lab -or, paid :.for by NCPA, and, divert it to other projects which it found " to be of greater importance to its system. NCPA wanted to =rmake sure that from both vconstitutional point .of.>_v.iew and: -0 contract point of view that it was- :compensated" r- fo those..materials if they: were diverted from the.: project,- and: that: -the issue got before- the arbitrator He.: said .there -were. al so ;-.s-ore' provisions --relating to. the ;liability of each NCPA member The City ->:had insisted -that tnai liability .be proportional to the - 'benefit: received under the agreement, That;:was :to- sat.that if the -City lwas.7 ,.i iablee:for ' ore.>`,than It agreed` to ri: ht no:w, it' should:: have some. additional Benefit later-.- ._.on do_ wn the line. For instance�_..PGB&E proposed that -members. be jointly= and severally i iabl`e For-- the ,debt of all_ -Other .members with'out. --any: torrespon- The 'r ding ea :i:ts rights to "transu s fora. -City --.did not: 1 v want to be responsible for any more than its proportional debt, but if it had to be responsible for more than was agreed to under the agreement , it wanted ,a corresponding increase in the rights to transmission and power than it would have under the agreement in order to obtain consideration for its additlonal money. He said the other sections were similar in that they related to making sure that NCPA received a corresponding consideration. for any ad- vance it was required, under the agreement, to make to PG&E for construction or refinement of transmission lines. He pointed out that if the City entered the arbitration agreement and agreed to be bound by the result, it agreed to the arbitrator having the power to determine those issues adversely to the City. There was a risk that the arbitrator would not be convinced by the City's arguments about receiving a corresponding benefit, and require it to pay PG&E. lhen it would be an argument between the City and PG&E about whether there were any lawful considerations which might be somewhat less than what the City would like to imagine such that someone might find that the City got a general overall benefit out of being a party to the agreement in the first place, and, therefore, it was proper for the City to pay those additional amounts. Staff believed the risk was worth taking because of the future needs of power and the fact the City was probably not going to get such an adverse arbitrator's decision. Everyone involved with the arbitrator believed that he would be convinced that the NCPA cities should be allowed to get a corresponding benefit to whatever moneys were paid into the agreement, and that in fact, that issue would be determined adversely to PG&E. Councilmember Renzel clarified that the new resolution approved the interconnection agreement subject- to approval being of no force and effect if agreement was not reached on all those matters which did not comport between the marked up agreement and what PU&E formalized. Shp asked what would happen if the good faith resolution were not received. Mr. Bennett? said NCPA would have its old agreement and what was referred to as the "Stanislaus Commitments," which were made con- ditions of PG&E's Diablo license. PG&E would be in exactly the same position they were in when they finally agreed to binding arbitration. The NCPA could go to the NRC and complain that PG&E had not fulfilled their Diablo commitment, and the whole process would start again. Councilmember Renzel clarified that NCPA was still protected even if that subsequent condition went into effect. Mr. B€nnetti said yes. Councilmember- Cobb said there were two resolutions before the Council. The first was the one which committed to binding arbi- tration. Mr. Bennetti said the first resolution was presented on ' Monday night and was superseded. He asked that the Council approve the second resolution which said that the City would commit to binding arbitration provided that those, issues remained in arbitration or were mutua 1.1y resolved., by PG&E and NCPA. Councilmember Cobb clarified with Mr. Bonn_ etti that the proviso coveredtheitems on Page 2 of the document entitled *Interconnec- tion' Agreement. "- Courici.lmernber Cobb :asked if : all the other= cities were passing resolutions putting forth the same proviso. Mr. be'nnett# Said . that several citiet acted to approve . the arbi tration agreement before those issues came=- up, and they were on record as approving :tha arbitration with no conditions. Upon having a meeting with the negotiating, teak and Spiegel and McDiarmid, the two remaining cities --Palo Alto and Redding -- decided not to act until today for the City of Palo Alto and Monday for the City of Redding. The City of Gridley, which previ- ously approved the resolution, retracted its approval and made it subject to conditions the exact nature of which were unknown as this time. Today, the Alameda City Attorney was likewise contem- plating recommending to his council that they subject their ap- proval of the arbitration agreement to conditions based on the January 26 letter from Bob Grimshaw to Elmer Hall. Counci lmember -Cobb asked what would happen if the respective cities came in with different provisos or "bail -out" items. Would the cities have to keep iterating until they had a common set of resolutions or could they Proceed without them being common. He asked how the process worked. General Manager of NCPA, Bob Gri msnaw, said . that for one who had been living the situation, for two years, it was complex and he could appreciate the confusion when Councilmembers had to act on them. Normally, one just agreed to go to binding arbitration on a contract, which was what NCPA did at NRC. A decision had to be made right then and there, and at that time, NCPA had not been able to define the issues of arbitration. NCPA agreed to binding arbitration with the understanding that it could not commit the cities. Normally that would be it, but in the democratic process, there was a time lag between when all those actions were taken. NCPA was given date certains to accomplish some things, and the final meeting was held en Christmas Eve day at the FERC office in San Francisco. A lot of things were agreed to conceptually, i.e., NCPA agreed to a concept that the arbitrator put down in his notes with the understanding that the language would be put in later on. When the language was, received, NCPA did not believe it went along with the concept agreed to during negotiations, and should either be changed to that concept or made a part of the binding arbitra- tion. NCPA felt strongly that when the arbitrator looked at. his notes, he would agree. NCPA asked that the resolution be passed based on what NCPA and its negotiators thought when they left Christmas Eve day. Councilmaember Cobb said he was confused as to what happened when different cities had different resolutions in termst of what they would yo along with. If the City of Palo Alto put more stringent regulations on the table than some of the other cities who acted earlier, what would that do to the process. Mr. Bennetti did not believe there would he a protracted series because PG&E intended to hold NCPA to the February 1 deadline. Whatever conditions were attached to each cities' approval would be conditions at that time. Either the arbitrator would say that all the issues were in arbitration, or .not, and either the consent would hold or not, and PG&E would make up its mind to either go ahead with those cities with whom they had binding arbitration or not. If PG&E decided to scrap binding arbitration, there might be one more round, but he assumed that at that t me, it would all be coordinated and all the issues would be identified for eiieryone to vote on. Counci 'member Witherspoonasked which strategy. was preferred, r. Grimshaw said NCPA felt strongly that this was the best chance at getting a good agreement. The situation was unique in that NCPA was able to get to know the arbitrator before agreeing to binding arbitration., Many 'times that did not happen. NCPA found -the arbitrator to be very fair, and as long as he could be shown that one ..was not being unreasonable, : he tended., to favor that, which gave NCPA an advantage over PG&E, He believed they were better off going the binding arbitration, 'route than rejecting it and paving PG&E file something. Councilmember Witherspoon asked if Section 9.14 could be invoked. Mr. bennetti said the front page contained those, issues which ever•one agreed there was no agreement a -bout. Those issues .were definitely still in arbitration. One of .the problems was that if Section 9,14 were to remain the way it was worded today, it would not yet at the issues they were worried about on page 2. They were faced with a disadvantageous choice, He said that while they were convinced that the /arbitrator was a, ,fair ; person and one to whom they were willing to submit the matters, the resolution was worded only to take that away.. If the arbitrator agreed to arb_1- trate all of the sections and believed ,he had Jurisdcition, the City's condition subsequent would not go into operation ever; if NCPA and -'!�&E could not reach an agreement. The City was willing to bow tothe arbitrator's decision, but 'did not want him to back. off and say that the language was around before December 23, and was not objected to. Therefore, it was not within the arbitra- tor's..power to arbitrate it. In that case, the City of Palo Alto would not want its approval to stand because it could not live with the sections the way they were presently worded. Counci lmember Witherspoon clarified that the City was not hedging its bet against PG&E, but rather the arbitrtor. Mr. bennetti said it was against any argument of PG&E that the issues were no longer before the arbitrator, or if the arbitrator decided that the issues were not proper for arbitration. Mr. Grimshaw clarified that when the meeting ended on Christmas Eve day, supposedly those areas going to binding arbitration- were isolated, and _they had agreed on everything else. When NCPA received the draft, because they did not agree to all the language portions, it did not track what NCPA understood it agreed. Either it should -track to what was unaerstood or it --should no to binding arbitration.- The binding arbitration list should not be bound at what it -was when negotiations were broken. Counci lmember Eyerly said he understood that tonight's resol-ution would approve the binding arbitration agreement between PG&E and NCPA with the provision that the. arbitrator would consider those sections explained by Mr. Bennett-. He asked if staff was com- fortable with the six sections put in the resolution for arbitra- tion. Mr. Agh j cyan said staff was comfortable with the items. He opined that if the City did not pass a resolution with those provisions and the agreement was interpreted to the City's detriment on those. provisions, the City was better off not approving it. Those con- tingencies should . be included because they were important and adequately protected the City given the considerations that a perfect agreement would never be reached, iournci lmember Wenzel believed it was clear that the Council needed to pass ,the : resolution and make it contingent on, the condition subsequent which;. was put in the molt fled version. MOTION: Councilweanber Menzel moved, seconded by Fizzing', approval of the .resolution. RESOLUTION 6001. entitled 'RESOLUTION OF -ME lOURCIL 'OF PALO ALTO RATIFYING, APPROVING ASO AUTNOBIZI.NC -ThE EXECUTION OF AN AW$ITRATIOM:. AGREEMENT 1f = ANN BE:T.WEEN -TKE IORTNEOM -- CALIFORNIA POWER AGENCY AUU —PAC G•AS Al D ELECTRIC` CO$PANY, SUBJECT. TO COie0IY .OR5 . $EQ OEN ``• `.Counciisnember- Witherspoon:" clarified that ;'the concerns were so serious that'• they,. should-go.._to binding arbitration where the City might net get` everything .._it- wanted, but that .staff Was willing to risk- not. getting theagreement 2 9 0,7 1/27/63- 3:.-,. Mr. Aghjayan said that was correct. Ending up with an agreement interpreted as being the equivalent of the drafts received from PGik was the worst_ Case of all. There were a number of ambiguous. issues as well as those being arbitrated, and the City hoped that the arbitrator was fair and that it would not lose on all of the issues. _t4CPA recommended that the City approve the resolution with the..contingencies. Mr. Grimshaw said that NCPA recommended that the . Counci l pass the resolution with the contingencies. Councilmerrber Cobb said that if Redding had some problems and did not approve the resolution, the other 11 cities could not move ahead. Mr. Grimshaw said PG&E could - waive its option not to proceed if it desired. Counclimember Menzel clarified that as long as the two resolutions which might be passed by the individual cities encompassed the agreement to binding arbitration, -the condition subsequent would riot destroy tae ability of there being an agreement by all agents. Mr. lfennetti said there could be an argument from PG&E that since the approval was conditiu.ned, it was not an approval. Councilmember Renzel clarified that the NRC would make the deci- sion. Mr. Bennetti said that was correct. MOTIONS PASSED unanimously, Klein, Levy absent. Mayor Bechtel said that this would be the last City Council meet- ing attended by Director of Utilities Edward Aghjayan. She thanked Mr. Aghjayan for his outstanding job. Counci lmernber Renzel said that although she sometimes disagreed about sources of power, she believed that Mr. Aghjayan had done an outstanding job. She wished nim luck. ADJOURNMENT Council adjourned at 5:55 ATTE T: p.m. APPROVED;