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Staff Report 198-10
TO: HONORABLE CITY COUNCIL ATTN: FROM: DATE: SUBJECT: FINANCE COMMITTEE CITY MANAGER APRIL b, 2010 DEPARTMENT: UTILITIES CMR: 198:10 Utilities Advisory Commission Recommendation to Adopt A Resolution Approving A Power Purchase Agreement with Ameresco San Joaquin LLC for the Acquisition of Up to 52,000 Megawatt -hours per Year of Energy Either Over Fifteen Years at a Cost Not To Exceed $88.7 Million, or Over Twenty Years at a Cost Not to Exceed 5122.4 Million, and to Adopt A Resolution Approving A Power Purchase Agreement with Ameresco Crazy Horse LLC for the Acquisition of Up to 52,000 Megawatt -hours per Year of Energy Either Over Fifteen Years at a Cost Not To Exceed $80.7 Million, or Over Twenty Years at a Cost Not to Exceed $111.3 Million RECOMMENDATION Staff and the Utilities Advisory Committee recommend that the Council: 1. Adopt a resolution approving a Power Purchase Agreement (PPA) with Ameresco San Joaquin LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy either: a. Over fifteen years at a cost not to exceed $88.7 million, including, if required, a payment of up to $1.425 million for electric transmission interconnection costs; or b. Over twenty years at a cost not to exceed $122.4 million, including, if required, a payment of up to $1.425 million for electric transmission interconnection costs; and 2. Adopt a resolution approving a PPA with Ameresco Crazy Horse LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy either: a. Over fifteen years at a cost not to exceed $80.7 million, including, if required, a payment of up to $1.425 million for electric transmission interconnection costs; or b. Over twenty years at a cost not to exceed $111.3 million, including, if required, a payment of up to $1.425 million for electric transmission interconnection costs; and 3. Waive the application of the investment -grade credit rating requirement of Section 2.30.340(d) of the Palo Alto Municipal Code, which applies to energy companies that do business with the City, as the Ameresco companies are not rated by credit agencies. CMR: 198:10 Page 1 of 32 REPORT SUMMARY At the March 16, 2010 meeting of the Council Finance Committee, staff recommended approval of four PPAs for renewable energy (landfill gas to electricity) that would have increased the renewable energy fraction of the electric utility resource portfolio from 21% to 33% by 2015. In addition, -staff conveyed-Arneresco's request that the City expeditiously consider the PPAs, as Ameresco needs to have signed PPAs in order to qualify for Federal stimulus funds. The Finance Committee outlined several concerns with the recommendation, including staff's failure to return to the Finance Committee with an evaluation of the long-term plans and policies for acquisition of renewable energy and energy efficiency before presenting contracts to meet the current policy goals, the lack of review by the UAC of the proposed contracts, the creditworthiness of Ameresco as a counterparty, and the risk inherent in locking in prices for 20 years, during which time technological advances could lead to a reduction in prices for renewable energy. Staff informed Ameresco of the Finance Committee's comments to the originally negotiated contracts and negotiated additional pricing and term options that addressed some of the issues raised by the Finance Committee. The Ameresco entities reconfirmed that there is a short timeline to act on the contracts before they commit their projects to others. Therefore, staff has revised its proposals, eliminated the highest priced project, negotiated price reductions, and negotiated PPAs with terms of 12, 15 and 20 years. With the rejection of the highest -priced project, Ameresco removed one of the three remaining projects for consideration by Palo Alto, leaving two contracts for the City's consideration. In addition, Ameresco has expressed a strong preference for execution of a PPA for the San Joaquin project. Therefore, the City can execute a PPA relating to only the San Joaquin project, execute PPAs relating to both the San Joaquin and the Crazy Horse projects, or decline to execute PPAs relating to the projects. Staff recommends approval of either 15 -year or 20 -year term PPAs for both the San Joaquin and Crazy Horse projects. Approval of these contracts, expected to cost in the aggregate up to $169.4 million over 15 years, is expected to increase the amount of the electric portfolio derived from renewable power by about 6.4% from about 22% to about 28%. This action would bring the City closer to meeting the Council -approved goal to supply 33% of the City's electric needs with renewable energy resources, yet leave room for additional renewable energy resources to be sought from other renewable energy projects in the future. Renewable Portfolio Standard Goals In 2002, the Council adopted a renewable resource portfolio standard with the objective of meeting 20 percent of the City's electrical load with new renewable resources by 2015, while ensuring the retail rate impact does not exceed 0.50/kWh on average, amounting to a premium of approximately 5 percent of the average retail rate (CMR:398:02). This goal was established as an update to the objectives and guidelines of the Long-term Electric Acquisition Plan (LEAP), the policy guidance for management of the electric resource portfolio. In March 2007, the Council advanced and increased the Renewable Portfolio Standard (RPS) with a target to meet 20 percent of City loads with renewable resources by 2008, 30 percent by CMR: 198:10 Page 2 of 32 2012 and 33 percent by 2015. The new target was to be achieved while maintaining the retail rate impact measure of 0.5¢/kWh (CMR:158:07). The relevant portion of the applicable LEAP Guideline 6 (Renewable Energy Supply) reads, as follows: Reduce electric portfolio dependence on fossil fuels by meeting at least 80% of City's long term energy needs from non -fossil and non-nuclear supply. A. Renewable Portfolio Standard: In addition to the voluntary program, the City shall invest in new renewable resources to meet the City's sustainability goals while ensuring that the retail rate impact does not exceed 0.5 0/kWh on average. B. Pursue a target level of new renewable purchases of 20% of the expected portfolio load by 2008 and move to a 30% target by 2012 and 33% by 2015. The contracts for investment in renewable resources shall not exceed 30 years in term. Consistent with state standards, staff uses California's definition of qualifying renewable resources, which are defined as electric generating resources powered by energy sources limited to wind, solar, biomass, landfill gas, geothermal, small (less than 30 MW) hydroelectric, ocean wave, tidal and thermal energy, digester gas, municipal solid waste and fuel cells using renewable fuels. In addition, the "new" in the RPS goal is interpreted as requiring RPS resources to have an initial commercial operation dates after October 1, 2002, the date when the first RPS goal was adopted by Council. To conform to LEAP Guideline 6A — ensuring that the acquisition of new renewable resources does not raise retail rates by more than 0.5 0/kWh on average — a rate impact calculation is made at the time of commitment of each resource based on the total cost of the resource as compared to the wholesale market price of non-renewable energy at the time that the contract is executed. The impacts on rates of each resource are added together to determine if the resource being added would drive the cumulative retail rate impact above the 0.5 0/kWh upper limit. The limit is converted into an annual premium "budget" for qualifying renewables. For example, for 2009, the annual premium is calculated by multiplying the annual energy sales (1,000,000 MWhlyear) by the premium (0.5 0/kWh, or $5/MWh) to get $5.0 million/year. Current Status of Renewable Resources in Electric Portfolio Five Power Purchase Agreements (PPAs) for output as generated from new renewable resources have been executed and energy is currently flowing to Palo Alto. An additional two PPAs have been executed for resources that are under construction. The resources for all seven existing PPAs are shown in Table 1 below. CMR: 198:10 Page 3 of 32 Table 1- ExistinO Renewable Ener Contracts Supplier Technology Date Contract Executed Actual or Estimated Online Date Annual Energy (GWh) High Winds Iberdrola Wind Nov. 2004 Dec. 2004 51.8 Iberdrola Wind Oct. 2005 June 2006 74.4 Shiloh- Santa Cruz Ameresco Landfill Gas Nov. 2004 Feb. 2006 11.2 Half Moon Bay Ameresco Landfill Gas Jan. 2005 Apr. 2009 40.8 Keller Canyon Ameresco Landfill Gas Aug. 2005 Aug. 2009 11.8 Subtotal - Operating 190.0 Butte County Ameresco Landfill Gas Nov. 2008 Sep. 2011 16.5 Johnson Canyon Ameresco Landfill Gas Aug. 2009 Oct. 2011 11.2 Subtotal - Under Construction 27.7 Total - All Executed Contracts 217.7 Together, when all of the committed facilities reach commercial operating status, these resources will provide about 21% of Palo Alto's total energy supply needs as shown in Table 1 and Figure 1 below: Figure 1- Palo Alto's Renewable Resources 400 RPS Goal: 20% (2008) 14% 10% 17% T9% RPS Goal: 30% (2012) 23% RPS Goal: 33% (2015) 22% 22% 21% 21% T T 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Calendar Year El Short-term Renewables ©Johnson Canyon LFG El Butte County LFG ■ Keller Canyon LFG Half Moon Bay LFG ® Santa Cruz LFG ■ Shiloh Wind 0 High Winds CMR: 198:10 Page 4 of 32 Note that the volumes in Figure 1 are actual deliveries through 2009 and estimated deliveries after 2009. Energy deliveries from the wind energy contracts were lower than expected in 2009 due to a transmission line outage. "Green Premium" Calculation For each resource the levelizedl cost impact ($/year) is calculated based on the energy cost plus transmission charges, minus any system or local capacity value provided, and minus the wholesale market price quote for similar shaped market (non-renewable energy or "brown power") power plus transmission charges. The brown market value at the time of commitment to the PPA or project is used as the baseline market from which the green premium for the PPA or project is calculated. This methodology freezes the green premium for each project so that it does not rise or fall with future fluctuations in the energy markets. Table 2 below shows the amount of the green premium that has been used up with the existing seven PPAs. As shown, the earlier contracts that were executed in 2004 and 2005 were priced very near the brown energy market price. The last two contracts were priced significantly higher than the brown energy market price. Table 2 — Green Premium for Existing Renewable EnerQv Contracts Date Contract Executed Annual Energy (GWh) Levelized Project Cost ($/MWh) Adjusted * Brown Market Cost ($/MWh) Green Premium ($/MWh) Green Premium ($1000/yr ) High Winds Nov. 2004 51.8 57.60 55.0 2.56 132 Shiloh Wind Oct. 2005 74.4 62.95 69.5 (6.50) (484) Santa Cruz LFG Nov. 2004 11.2 62.32 59.3 2.97 33 Half Moon Bay LFG Jan. 2005 40.8 58.97 67.5 (8.55) (349) Keller Canyon LFG 2005 11.8 70.88 83.9 (13.00) (154) Butte County LFG Nov. 2008 16.5 98.66 78.6 22.11 365 Johnson Canyon LFG Aug. 2009 11.2 98.66 67.3 56.35 633 Total - All Committed Contracts 217.7 176 ' Levelizing is a process of taking nominal cash flows, discounting them to present value, summing the present values, and amortizing the present value into [equal size repeating = how about "uniform periodic" or "uniform monthly"?] payments like a mortgage. The discounting and the amortizing are both performed with the user's discount rate or time value of money. CMR: 198:10 Page 5 of 32 * Brown Market Costs are levelized across the project's contract period, and adjusted for the comparison project's delivery shape, local and system capacity value, transmission costs and losses. Note that the Brown Market Cost does not include any future cost for emissions allowances. These costs could be imposed starting in 2014. The cost for these allowances is highly uncertain at this point. As part of the Climate Protection Plan (CPP) approved by the Council in December 2007, a greenhouse gas (GHG) adder of $20 per metric ton, escalating by 5% per year, is to be incorporated in utility purchasing decisions. The relevant section of the CPP related to this direction reads, as follows: "Utilities will employ a $20/metric ton GHG adder in purchasing evaluation, increasing by 5% per year starting in 2008. The adder will be applied to purchases that are not mandated or otherwise undertaken to meet other policy directives, and shall be utilized until allowance allocations, cap and trade, or other regulations are implemented that internalize the cost of GHG in utility operations. The proposed adder reflects the financial risk of future emissions regulation, not an estimate of environmental costs." The impact of the $20/ton GHG adder would be to add about $10/MWh onto the levelized brown energy market prices shown in the Table 2. Council Action in August 2009 In July 2009, when staff requested that the Finance Committee recommend that the Council approve the PPA with Ameresco Johnson Canyon landfill (CMR: 305:09), the Finance Committee discussed the rising cost of renewable energy and stated that these high prices should prompt a review of the policies and guidelines related to the acquisition of renewable power and the emphasis on efficiency improvements that could reduce electricity use. In August 2009, the Council agreed with the Finance Committee's recommendation and directed staff to work with the UAC to re-evaluate the policies and plans related to the acquisition of renewable energy and energy efficiency and report back to the Finance Committee (CMR: 342:09). Following this directive, in November 2009, staff discussed with the UAC the plan to calculate the energy efficiency potential, which is the first step in completing the update to the ten-year Electric Energy Efficiency (EE) Plan. The UAC agreed with staff' s recommendation to value energy efficiency at least as highly as renewable energy. Staff presented the UAC with the draft 2010 10 -year Electric EE Plan for its review in February 2010 and with the final 2010 EE Plan in March 2010 for recommendation. The plan is now scheduled for Finance Committee review on April 6, 2010 and Council action in early May 2010. The plan is required to be filed with the California Energy Commission in May 2010. Staff is performing an internal evaluation of the gas and electric portfolio management plans. In August 2010, the UAC is scheduled to review potential changes to the objectives and guidelines of the Long-term Electric Acquisition Plan (LEAP) and the objectives and guidelines of the Gas CMR: 198:10 Page 6 of 32 Utility Long-term Plan (GULP). The current LEAP guidelines include direction related to the pursuit of renewable energy supplies and the evaluation and funding of energy efficiency. Staff would then take recommendations from the UAC on these plans and their underlying policies to the Finance Committee and Council.' 201 -0 - Ten -Year -Electric -Energy Efficiency (EE) Plan In March 2010, the UAC unanimously recommended Council approve the proposed 2010 Ten - Year Electric EE Plan. The 2010 EE Plan doubles the energy savings goals in the 2007 EE Plan. Figure 2 below shows the actual electric load since 1990 and the load forecast until 2020 without additional EE, with the 2007 EE Plan goals and with the 2010 EE Plan goals. The load forecast includes the expected increased load due to the construction of the Stanford Hospital expansion proj ect. Figure 2 — Electric Consumption Forecast and Planned Energy Efficiency Historic and Projected Annual Electric Loads Impact of Energy Efficiency Programs on Load Forecast Annual Load (MWh) 1,400,000 1,200,000 1,000,000 800,000 600,000 400,000 - 200,000 - Historic load + Forecast with 2010 EE plan goals - f - Forecast with 2007 EE Plan goals - • - Forecast with no additional EE Program 1990 1995 2000 2005 2010 2015 202C The citywide electric load in 2020 is expected to be about 1,087 GWh/year with no additional energy efficiency. Assuming that the goals in the 2007 EE Plan are achieved, the 2020 load would be about 1,041 GWh/year. If the goals in the proposed 2010 EE Plan are achieved, the 2020 load would be about 1,001 GWhlyear, a load reduction of about 86 GWhlyear. CMR: 198:10 Page 7 of 32 Given this load forecast, meeting a 33% RPS goal in 2020 would require about 359 GWh/year with no additional energy efficiency. If the goals in the proposed 2010 EE Plan are achieved, a 33% RPS goal in 2020 would require about 330 GWhlyear. Therefore, meeting the 2010 EE Plan goals would reduce by 29 GWh/year the amount of renewable energy required to meet a 33% RPS goal in 2020. In addition, meeting the 2010 EE Plan goals reduces the amount of other (non renewable) -power -purchases by 57 GWh/year. The Market for Renewable Resources in California and the West With the arrival of RPS goals for investor owned utilities (IOUs) and the likelihood of still higher RPS goals as a result of new state and federal legislation, the developers of renewable power have turned even more bullish on the pricing prospects of their products. Legislation under consideration that establishes higher RPS targets, carbon taxes, or carbon cap -and -trade mechanisms drives the pricing bullishness of renewable energy project developers. In the meantime, the California Public Utilities Commission's (CPUC) "Market Price Referent" (MPR) calculation has impacted renewable energy prices. The MPR is published by the CPUC annually and consists of prices above which renewable projects proposed to IOUs would face additional CPUC scrutiny. Therefore, the MPR appears to act as a renewable energy price floor for Palo Alto, as proposers know they can get at least the MPR if they offer the project to the IOUs. For 20 -year base load power contracts with delivery starting in 2013 the current levelized MPR is $109/MWh, and for 15 -year contracts, the current levelized MPR is $102/MWh. The MPR is calculated as the cost of buying and operating a combined cycle gas fired power plant in California as well as buying carbon dioxide (CO2) offsets for its emissions. It is not surprising that many suppliers have an interest in waiting for higher demand stemming from legislative requirements since many believe that future prices for renewable power will be higher and don't want to commit now to current prices. Staff has experience with some proposers which are unable or unwilling to follow through on proposed prices after the City has received responses to requests for proposals. Developers have also negotiated with one potential buyer and then, using that experience, switched to a second buyer for final commitment. Palo Alto's Current Efforts to Acquire New Renewable Energy Resources Palo Alto continues to pursue renewable resources to meet its RPS goal through four venues: 1. Projects brought to the Northern California Power Agency (NCPA) general membership, such as the Western GeoPower project; 2. Projects considered as enhancements to the existing Calaveras hydroelectric project; 3. Projects submitted to the NCPA Green Power Project (NGPP) via its RFPs and unsolicited proposals, as well as development opportunities where NGPP would develop renewable energy such as a landfill gas fired generator; and 4. Palo Alto's RFPs, including the latest one, which drew 43 project proposals. The status of efforts in the four venues is described below: 1. NCPA general membership projects: In February 2008, the Council approved a PPA with Western GeoPower Incorporated (WGI) through an NCPA Third Phase Agreement for the purchase of up to 5 average megawatts of CMR: 198:10 Page 8 of 32 energy at a price cap of $98/megawatt-hour (CMR 141:08). The third phase agreement was executed on May 28, 2008 by NCPA. The financial crisis of 2008 undermined project financing and WGI informed NCPA that the contract price must increase to $117/MWh for the project to be viable. The project may be pursued by a new developer or by NCPA. If the project is revived, Palo Alto may be able to subscribe to up to 52 GWh of energy from the project. NCPA is exploring additional projects at this time and staff is engaged in the evaluation of any projects that may surface from this venue. 2. Calaveras hydroelectric project enhancements: NCPA is considering pursuing the 300 kW McKays Point microturbine project, which could provide 0.4 GWhlyear to Palo Alto, and the Beaver Creek penstock turbine project on two pipes to divert water from the currently operating simple energy dissipation valves and into small turbines for renewable electrical power production, which could provide Palo Alto 1.1 GWhlyear. Other enhancements to the Calaveras project appear less attractive at this time. Palo Alto's share of these projects would be approximately 1.5 GWhlyear and may materialize by 2020. 3. NCPA Green Power Project (NGPP): NCPA continues to negotiate and work toward contracts with several proposers, but no PPA has yet been executed in the five years NGPP has sought renewable energy. NGPP has the weakness of a variety of NCPA member appetites occasionally resulting in some, but not enough, members interested in a project at a certain price. In other cases proposers got close to executing agreements before choosing other, more accommodating, buyers. Also just as with Palo Alto's RFP process, some projects and companies do not follow through after proposing and do not result in a contract at the offered price. Currently, there are several NGPP projects under negotiation. They are summarized in Table 3 below. Table 3 -- NGPP Pro'ects Under Ne ' otiation Additional NGPP development opportunity projects not yet subscribed by members include several solar projects, a wind project and a project to clean dairy manure methane to pipeline quality gas are being evaluated for further consideration and negotiation of PPAs. 4. Palo Alto's Requests for Proposals (RFPs): After an inability to secure a PPA after negotiations with two proposers from the 2007 RFP, Palo Alto issued an RFP in March 2009 that resulted in 16 project proposals being submitted. Of the CMR: 198:10 Page 9 of 32 16 proposals submitted, there were three wind proposals, two biomass proposals (including landfill gas projects), two geothermal projects, eight solar projects, and one small hydro project. One of the projects solicited from this RFP resulted in a PPA that Council approved in August 2009 with the Ameresco Johnson Canyon landfill. The City issued -its fifth RFPforelectric power supplies from renewable resources in October 2009. Forty-two project proposals were received by the RFP closing date of November 10, 2009. Staff evaluated the proposals on the basis of quality and completeness of proposal, bidders' qualifications and financial stability, project viability, compatibility with City's existing portfolio, and total cost of proposal and value to City. The four highest ranked proposals were with Ameresco for landfill gas -to -energy projects. Other proposals were more expensive than those from Ameresco or were not realistic. Ameresco is interested in starting construction on all four projects by the end of 2010 to qualify for Federal stimulus funds. Ameresco has stated that its positive experience in executing five renewable PPAs with Palo Alto since 2004, encouraged it to propose these projects to Palo Alto in hopes of negotiating contracts in time to meet construction deadlines. Ameresco has cited that this is the reason for its relatively low-priced proposals to Palo Alto. The proposals received are shown in Figure 3 below, a scatter plot showing the proposals' green premium, in $/MWh over brown power, and the expected output from the projects in GWh/year. CMR: 198:10 Page 10 of 32 Figure 3 — Fall 2009 Renewable RFP Results: Green Premium Versus Project Size $140 $120 $80 - $60 - $40 - $20 0 Ameresco Crazy Horse l Avenel Combined Ameresco Crazy Hors* Ameresco San Joaquin • Ameresco Forward 10 20 30 40 50 Project Size (GWhlyear) 60 70 80, Each proposal received is shown in Figure 2 by project size and green premium. The proposals with the lowest prices were three Ameresco landfill gas projects: Forward, San Joaquin, and Crazy Horse. A combined PPA with Ameresco's Crazy Horse and Avenal landfill gas projects was also a relatively low cost proposal. Table 4 below summarizes the proposals received. Table 4 — Summary of Pro osals Received in Res u once to Palo Alto's Fall 2009 RFP Landfill Gas Baseload 10 103-142 32-72 Solar PV Intermittent 29 Geothermal Baseload Digester Gas Wind Baseload Intermittent 1 1 2 106-216 119 170 106-115 47-142 87 108 70-76 CMR: 198:10 Page 11 of 32 The projects (other than the Ameresco projects that were considered) are included in Table 5 below. Table 5 — Second Best Proposals Received in Response to Palo Alto's Fall 2009 RFP ,, is s.. .y 0miumn '{yxlrye I s'n$' IS +[Sf Wh , .0 `eF `, .S =F c ec ogy t .»� hh }� 5 N } - i,■�y� i A.. + � � i rp ' ,�fidF e o cte , b _i, ,1 %3 P iii �£ 'Y ,� xK � {` �� Landfill Gas 35 119 47 Yes Green premium too high; costs for interconnection and emissions controls would be extra Solar PV 36 123 47 No Green premium too high; project unlikely to be completed Landfill Gas 11 120 50 No Green premium too high Landfill Gas 11 135 59 Yes Green premium too high Wind 77 106 76 No Green premium too high; Transmission challenges; Wind is a bad fit for portfolio Solar PV 75 146 95 No Green premium too high RPS Progress by Other Agencies Figure 4 below shows the fraction of California -eligible renewable resources NCPA member agencies, Sacramento Municipal Utilities Commission (SMUD), Southern California Edison (SCE), and PG&E have achieved in 2008 and 2009. CMR: 198:10 Page 12 of 32 Figure 4— Renewables, expressed as a fraction of annual retail sales, for NCPA Members .70% 60% 50% 40% 30% 20% 10% 0% RPS Status in 2008 and 2009 California Eligible Renewables G((' „<p , `,�o ff' oG {a .O C' �a act e*. • (N. .... ae, b� �g e� o�O� c�a �� lea �oee Co QG ��� O°�at- �Q �,Q 5� P�c�• Finance Committee's Direction On March 16, 2010, staff presented its recommendation to the Finance Committee, namely, to recommend that the Council adopt resolutions relating to the approval and execution of four PPAs with four Ameresco LLCs for renewable energy from projects that convert landfill gas to energy with Ameresco (CMR: 166:10). The Finance Committee did not support the recommendation for several reasons, including the following: • The Finance Committee reviewed the last proposed renewable energy PPA in July 2009, which was also with Ameresco, and requested that staff return with a review of policy and plans related to the acquisition of renewable energy and energy efficiency. Staff has not yet returned to the Finance Committee in response to this direction. • The term for the proposed PPAs was 20 years and the pricing terms would lock -in pricing for the 20 -year terms of the PPAs. The Finance Committee expressed concern that technology advancements, especially given the recent focus on green tech and Federal stimulus funding, would result in lower cost renewables in the future, leaving these contracts higher priced than the alternatives and keeping Palo Alto's costs and rates high. Another concern is that executing all four PPAs would tie up all remaining renewable energy needs at the same time at similar prices, while a smaller amount would be less risky. CMR: 198:10 Page 13 of 32 • All four proposed PPAs were with Ameresco, with which the City has already executed five PPAs for landfill gas -to -energy projects. The "concentration risk" of having nine contracts with the same company would result in Ameresco comprising 64% of the City's renewable energy portfolio and 21% of the entire electric energy supplies, the second largest energy supplier behind the Western Area Power Administration. In addition, the Finance Committee asked for information on Palo Alto's share of Ameresco's total renewable business.- • The financial strength, or "credit risk", of the Ameresco holding company was questioned, as it is a rapidly growing company with high debt levels. Staff was asked to return with updated financial information for Ameresco when audited financial information for 2009 becomes available (expected in about two months). DISCUSSION The concerns expressed by the Finance Committee were considered by staff. Staff has modified its proposal and now requests the UAC's review and recommendation on staff's latest recommendation. Staff also provides additional information responsive, in part, to some of the concerns raised by the Finance Committee. In the interest of time, and because of the temporal nature of Ameresco's proposal to sell green power to Palo Alto, staff recommends a reduced purchase commitment. Staff's response to the concerns raised by the Finance Committee on March 16, 2010 follows. Review of Energy Acquisition Policies and Plans The Council's August 2009 direction was to "work with the Utilities Advisory Commission and then report back to the Finance Committee with a re-examination of the policies and goals that are being used in the alternate energy program, including the energy efficiency plans and the electric acquisition policies and plans" (CMR: 3452:09). Staff interpreted that direction as a requirement to take policies and plans relating to the acquisition of renewable energy and energy efficiency back to the UAC and the Finance Committee, and has incorporated that direction in its plans and schedules. At the UAC's November 2009 meeting, staff presented a proposal for the evaluation of energy efficiency to be used in the update to the ten-year Electric Energy Efficiency (EE) Plan. At that time, the UAC agreed with staff' s recommendation to use the price of renewable energy as the avoided cost to evaluate energy efficiency measures. This would ensure that staff was valuing energy efficiency at least as highly as renewable energy. In February 2010, staff presented the UAC with the draft 2010 10 -year Electric EE Plan for its review. At that meeting, the UAC generally agreed with staff on the goals and costs of the new EE Plan. At its March 9, 2010 meeting, the UAC voted unanimously to recommend that the Council approve the proposed 2010 10 -year Electric EE Plan. The Plan is now scheduled for the Finance Committee's review on April 6, 2010 and the Council will be requires to take action in May 2010. A final adopted Plan must be filed with the California Energy Commission in May 2010. Staff has scheduled a review of the energy acquisition plans for the gas and electric utilities with the UAC in August 2010. At that time, the UAC will review potential changes to the objectives and guidelines of the Long-term Electric Acquisition Plan (LEAP) and the objectives and guidelines of the Gas Utility Long-term Plan (GULP). The current LEAP guidelines include CMR: 198:10 Page 14 of 32 direction related to the pursuit of renewable energy supplies and the evaluation and funding of energy efficiency. Staff would then take the recommendations of the UAC on these plans and their underlying policies to the Finance Committee and the Council for approval. Time Sensitivity of Proposed PPAs AftertheMarch- 16, 20-10 Finance Committee meeting, staff contacted Ameresco to ascertain whether Ameresco would hold open the offers contained in the PPAs until such time as the Finance Committee can review the plans and policies related to the acquisition of renewable energy and energy efficiency. Ameresco responded that they intend to execute PPAs sooner than the time afforded for that review and that, if Palo Alto needed more time, Ameresco would prefer to commence negotiations with other counterparties for the four projects in question. Ameresco and other utilities both have indicated that the offers and expressions of interest have started. Technology Risk and Risk of Locking in Prices for 20 Years Following the March 16 Finance Committee meeting, staff negotiated different contract terms with Ameresco in addition to the originally proposed 20 -year terms. Ameresco has provided prices for the PPAs for terms of 12, 15 and 20 years. Ameresco declined to offer a PPA with a 10 -year term. Staff reconsidered the advisability of its original recommendation to execute all four PPAs at the same time. Staff has revised the recommendation and now proposes to execute two PPAs and to reduce the terms for those PPAs. Descriptions of the pricing and terms for the revised PPAs are provided below under the "New Proposal" section below. Concentration Risk with Ameresco Even with the revised proposed PPAs, Ameresco would still provide a substantial fraction of Palo Alto's energy supplies. The City has already executed five PPAs with Ameresco entities for landfill gas -to -energy (LFGTE) projects, three of which are operational and delivering energy. If the two proposed PPAs are executed, it would have seven PPAs with Ameresco for LFGTE projects. Table 6 below provides a summary of the energy supplies for 2015 in an average hydrologic year. Ameresco currently provides about 8.8% of the City's total needs and, if the two proposed PPAs are executed, would provide about 15% of the City's total needs. Table 6 — Electric Ener2v Su lies in 2015 E s'�p @ rc ,. e s Western Area Power Administration (hydroelectric supplies) 37.0% Calaveras Hydroelectric Project 13.0% Iberdrola (wind power) 14.0% Ameresco existing contracts (landfill -gas -to -energy projects) 8.8% Ameresco proposed new contracts (landfill -gas -to -energy projects) 6.2% Total supplies locked in with contracts 79.0% Ameresco currently operates thirteen LFGTE plants, including four in California. Of the four operating plants in California, Palo Alto has PPAs with three (Santa Cruz, Half Moon Bay, and Keller Canyon). For these three projects, Palo Alto and Alameda share the output equally. CMR: 198:10 Page 15 of 32 Ameresco has an additional three LFGTE plants under construction, including one in California. Ameresco also has four LFGTE plants that are in the design and permitting stage, including two in California with which Palo Alto has PPAs (Butte County and Johnson Canyon). These plants are expected to be in commercial operation in 2011. In summary, Palo Alto has already committed to five of Ameresco's seven LFGTE plants in California that are operating, under construction,orin -the planning/permitting stages. This information is summarized in Table 7 below. Table 7 — Ameresco's Landfill-Gas-to-Enersv Plants , trt `.T O ,rrii :.¢ i?►�1 ld l r '�_ Plants Operating 13 4 3 (50:50 share with Alameda) Plants under construction 3 1 0 Plants in design and permitting stage 4 2 2 TOTAL 20 7 5 Ameresco also has four other biogas and biomass to electric plants operating (including three cogeneration plants) and a number of other landfill gas collection systems and pipelines to boilers that directly burn the gas. Ameresco's Credit Risk Ameresco is a relatively small company and does not have a credit rating by Moody's Investor Services or Standard and Poor's. The City's Energy Risk Manager provided a presentation on the credit status of Ameresco to the Finance Committee at its March 16, 2010 meeting. Ameresco's 2007 and 2008 audited financial reports were analyzed to determine an estimated default frequency (EDF) rate that raised concerns about the likelihood of Ameresco defaulting on its obligations to deliver the energy agreed to in a PPA. However, the City has several layers of protection against such a default: 1. First, all the existing and proposed PPAs with Ameresco are Limited Liability Corporations (LLCs) as the project lenders require each project to stand alone to protect any potential problem projects from harming another. The project lenders require that all of the physical plant assets, contracts, and equity contribution by Ameresco reside within each project entity. Therefore, a default by another project should not precipitate a default by either the San Joaquin or the Crazy Horse LLC's. 2. Second, the PPAs require that Palo Alto pay only for the energy that is actually delivered. If Ameresco doesn't deliver the energy, then Palo Alto does not pay. The result of this would be that Palo Alto would need to purchase replacement energy. If Palo Alto wanted to replace the energy needed with renewable energy, it could take time to find replacement renewable energy and the prices could be higher than the contracted price. 3. Third, if Ameresco defaults due to nonperformance (it is not delivering the energy produced by the projects), the project lenders have the right to step in and assume control of the power plants from Ameresco. Thus, the project lenders have an incentive to make CMR: 198:10 Page 16 of 32 sure that the projects perform (and the City gets its energy) so that the City pays for the power delivered and the debt can eventually be paid off. The project lenders must honor the PPA terms and conditions with Palo Alto. 4. Fourth, under the PPAs, if both Ameresco and its project lenders fail to meet certain performance -standards, then -the City -has -the -right to step in and -assume -operation -of the power plant if the City feels it is worthwhile to do so. However, if lower cost renewable resources were available in the market, Palo Alto would most likely acquire them rather than step in to operate the Ameresco plant. These four protections are important in minimizing the risk to the City. However, staff recognizes the concern that every Ameresco LLC entity that the City has contracted with is solely controlled by Ameresco, Inc. Ameresco, Inc. and each of the LLCs are one and the same entity. If Ameresco, Inc. should fail in some endeavor wholly unrelated to any of the LLCs with whom the City may contract, the real probability exists that such a failure will directly affect each and every LLC with the City of Palo Alto, precisely because Ameresco, Inc. is the sole member of each LLC. Under these conditions, the practical risk with Ameresco as a counterparty is that Palo Alto does not receive the energy promised under the PPAs and it must find alternate replacement energy. This would just return Palo Alto to the position it is in today -- needing to shop for renewable energy to meet its goals. New Proposal After receiving the feedback from the Finance Committee on March 16, 2010, staff conducted further negotiations with Ameresco and reconsidered Ameresco's updated proposals. The highest priced PPA originally proposed was for the Avenal Landfill project, the smallest project of the four. As Ameresco did not offer to lower the price for that project, staff declined further consideration of this project due to the cost. Ameresco stated that, if Avenal was dropped by Palo Alto, it would remove the Forward Landfill project from further consideration by Palo Alto as Ameresco plans to bundle those two projects together for consideration by other buyers. The two remaining projects — the San Joaquin and Crazy Horse projects — are discussed below with the options available to the City. Ameresco has also stipulated that Palo Alto can choose to execute (a) the San Joaquin project's PPA or (b) both the San Joaquin and Crazy Horse projects' PPAs. Ameresco is not offering the option to execute only the Crazy Horse project's PPA. Of course, choosing not to execute both PPAs is also an option. San Joaquin Landfill The San Joaquin Landfill project is expected to be a 4.3 megawatt (MW) project at the San Joaquin Landfill operated by San Joaquin County in Linden, California. The landfill has been in operation since 1966 and the County boasts a 60% waste diversion rate toward recycling and composting. Ameresco has site development rights and a gas purchase agreement in place with the County. The 4.3 MW plant is expected to produce 32 GWhlyear. The plant may be sized up CMR: 198:10 Page 17 of 32 to 6.2 MW, a size that could produce a maximum output of 52 GWh/year. The plant may provide local capacity benefits, but the project was evaluated as if it would not have this value since it may not be realized. The original proposal for the San Joaquin Landfill project was for a 20 -year PPA with first -year pricing -of-$93.33/M-Wh-(9.333- 0/kWh) escalating at 1.5% per year. If emissions controls are -- required on the San Joaquin project, the City would pay a cost proportionate "rate adder." If emission controls are required, the rate adder is $0.60/MWh plus $0.55/MWh for each $100,000 of verified emission controls expense that Ameresco incurs. The first -year rate adder is capped at $10.01/MWh and would escalate at 1.5% per year. This formula allows the City to benefit if the cost of emissions controls equipment is less than the maximum cost anticipated. However, if the cost of emissions controls equipment is greater than the maximum cost anticipated in the formula, Ameresco can request that Palo Alto pay the additional cost. If Palo Alto does not agree to pay that cost, then Ameresco can cancel the contract at that time. In addition, a prepayment for the interconnection charges would be required at a cost of 1.5 times the cost above $300,000 up to a maximum prepayment amount of $1.425 million. If the interconnection costs are above $1.25 million, Ameresco has the right to terminate the agreement. At the same time Palo Alto and Ameresco could negotiate additional reimbursement to reestablish the mutual attractiveness of the contract. The price structure in the original proposal is as shown in Table 8 below. Table 8 — Original Proposal San Joaquin Landfill First -Year Prices and Pa -Ahead Cost J.,' E 5 I I E G w ini �`�y.]i n I i E L I I[ •�.I,i ', I I g'k ® �.;.: E 1 E i ey - V i �iYk¢�'r '[,T I . 1 �i F C ! S4P i�5. ;*� P. I i l l I [I I > E IS Re i % >= $1,250,000 $1,425,000 Up to $103.34 $93.33 $1,000,000 $1,050,000 Up to $103.34 $93.33 $750,000 $675,000 Up to $103.34 $93.33 $500,000 $300,000 Up to $103.34 $93.33 Up to $300,000 $0 Up to $103.34 $93.33 Ameresco provided revised pricing for San Joaquin Landfill PPAs of 20- and 15 -year terms. The new pricing is $2/MWh lower than the original pricing. Pricing for a 15 -year PPA is the same as for a 20 -year PPA. The rate adder for emissions controls, if required, would be the same as in the original proposal. The revised pricing is summarized in Table 9 below for the San Joaquin Landfill PPAs of 20- and 15 -year terms. CMR: 198:10 Page 18 of 32 Table 9 - Revised Proposal San Joaquin Landfill First -Year Prices for 15- and 20 -year Terms f h l E 'Ti i � 1 i.ti .vi .I Gi`4 !b L 9 l i3 } i , LLT �y. -0 .^-+ JAW:! i' ! ,wg.- N'° I� 'F (�" Y '4 .{',1 z /�A' V � - ;SS !If '� k �iY i i11/ L1 7 ! V `: 3' h Et i• • .F • z.. k Siu a s Yf i a� d� h - I _ }, k ,i, �( }t, � ._P ' ¢E � 'd ;,. :. fli!?k,'C3 >= $1,250,000 $1,425,000 Up to $101.34 $91.33 Up to $106.54 $97.03 $1,000,000 $1,050,000 Up to $101.34 $91.33 Up to $105.17 $95.51 $750,000 $675,000 Up to $101.34 $91.33 Up to $103.80 $94.02 $500,000 $300,000 Up to $101.34 $91.33 Up to $102.43 $92.52 Up to $300,000 $0 Up to $101.34 $91.33 Up to $101.34 $91.33 Ameresco also provided pricing for a 12 -year PPA and declined to offer a 10 -year term. The pricing for the 12 -year PPA is substantially higher ($11.08/MWH higher) than for the 15- or 20 - year terms. Pricing is summarized in Table 10 below for a San Joaquin Landfill PPA with a 12 - year term. Table 10 - Revised Proposal San Joaquin Landfill First -Year Prices for 12 -year Term � r .,r, err � r �, m is eat y w �. �r >� �' - f are Pace 1 f F! �jiTiY - *. h Rio � '4- t!i `f K :' � it s4 € �� ' td s ' f tad ��1�11s91�i� k- ,( E `YF�7- ,, �i $ Tlh '£ §L .. Y ➢ . i1 C 011 01 t1'4 t i r` v ' q' k }' . 4 T ! rc �a ", ,S '"�.'' eE U b ,r ' � '' -s >f 11.E f?' - L a' 113` ' g s '^'� sy* ly q�t 1 � � � -, y � �/�! i .. �.. � >= $1,250,000 $1,425,000 Up to $112.42 $102.41 Up to $117.62 $108.11 $1,000,000 $1,050,000 Up to $112.42 $102.41 Up to $116.25 $106.59 $750,000 $675,000 Up to $112.42 $102.41 Up to $114.88 $105.10 $500,000 $300,000 Up to $112.42 $102.41 Up to $113.51 $103.60 Up to $300,000 $0 Up to $112.42 $102.41 Up to $112.42 $102.41 Due to the increased prices for a 12 -year PPA, staff does not recommend that option. For both a 20 -year and a 15 -year PPA, it is cheaper to prepay for the interconnection costs than pay a higher energy price for 15 or 20 years. If the City makes a prepayment for the interconnection costs and Ameresco doesn't complete the plant, Ameresco must repay the City the money that it prepaid. Staff recommends the Council approves a 15 -year or a 20 -year term PPA with the San Joaquin Landfill project and commit to prepaying the costs of the interconnection equipment if they are higher than $300,000 up to a maximum prepayment amount of $1.425 million. The first -year CMR: 198:10 Page 19 of 32 price for the recommended PPA for the San Joaquin project is, therefore, $91.33/MWh plus any required rate adder if emissions controls equipment is required. Crazy Horse Landfill The. Crazy Horse Landfill project is a 4.3 MW project at the Crazy Horse Canyon Landfill operatedbythe Salinas Valley Solid Waste Authority (SVSWA) in Salinas, California. Ameresco has site development rights and has negotiated a gas purchase agreement with the SVSWA. Ameresco does not expect emission controls equipment will be required at the Crazy Horse project, so there is no rate adder included. The 4.3 MW Crazy Horse Landfill plant is expected to produce 32 GWh/ year. The plant size could range from 1.6 MW to 6.2 MW. If sized at the maximum 6.2 MW, the maximum output that the plant could generate is 52 GWh/year. The plant would not provide local capacity benefits. The original proposal for the Crazy Horse Landfill project was for a 20 -year PPA with pricing dependent upon the cost of interconnection and whether or not the City also committed to the Avenal Landfill project as shown in Table 11 below. Rates would escalate at 1.5% per year. Table 11— Original Proposal Crazy Horse Landfill First -Year Prices with Pa v Ahead Costs se yYi� h r { tU `Au �nx] .P '' , .rrE 1� �t L ¢ ! . n f iii Arco tt e- ,n t k y $ � >= $1,250,000 $1,425,000 $96.08 $91.08 $1,000,000 $1,050,000 $96.08 $91.08 $750,000 $675,000 $96.08 $91.08 $500,000 $300,000 $96.08 $91.08 Up to $300,000 $0 $96.08 $91.08 Ameresco provided revised pricing for Crazy Horse Landfill PPAs of 20- and 15 -year terms as shown in Table 6 below. The new pricing is $4/MWh lower than the original pricing. Pricing for a 15 -year PPA is the same as for a 20 -year PPA. The revised pricing and term proposals are summarized in Table 12 below for Crazy Horse Landfill PPAs of 20- and 15 -year terms. Table 12 — Revised Proposal Crazy Horse Landfill First -Year Prices for 15- and 20 -year Terms ' ,Jib d terc >= $1,250,000 $1,425,000 $92.08 $97.19 $1,000,000 $1,050,000 $92.08 $95.83 $750,000 $675,000 $92.08 $94.47 $500,000 $300,000 $92.08 $93.10 Up to $300,000 $0 $92.08 $92.08 CMR: 198:10 Page 20 of 32 Ameresco also provided pricing for a 12 -year PPA for the Crazy Horse project, but declined to offer a 10 -year term. The pricing for the 12 -year PPA is higher ($7/MWH higher) than for the 15- or 20 -year terms. Pricing is summarized in Table 13 below for a Crazy Horse Landfill PPA with a 12 -year term. Table 13 -- Revised Proposal Crazy Horse Landfill First -Year Prices for 12 -year Term Cra te p an _ ` With Prepayment Fir 1 ear, a �Iter e n ,Tnterconnection Pay ost First Vear rice �$ with no Prepa� i"en : i$/11 h)r >— $1,250,000 $1,425,000 $99.08 $104.19 $1,000,000 $1,050,000 $99.08 $102.83 $750,000 $675,000 $99.08 $101.47 $500,000 $300,000 $99.08 $100.10 Up to $300,000 $0 $99.08 $99.08 Due to the increased prices for a 12 -year PPA, staff does not recommend that option. For both a 20 -year and a 15 -year PPA, it is cheaper to prepay for the interconnection costs than pay a higher energy price for 15 or 20 years. As with the San Joaquin PPA, if the City makes a prepayment for the interconnection costs and Ameresco doesn't complete the plant, Ameresco must repay the City the money that it prepaid. Staff recommends the Council approves a 15 -year or a 20 -year term PPA with the Crazy Horse Landfill project and commit to prepaying the costs of the interconnection equipment if they are higher than $300,000 up to a maximum prepayment amount of $1.425 million. The first -year price for the recommended PPA for the Crazy Horse project is, therefore, $92.08/MWh. Note that if the City wishes to execute a PPA for the Crazy Horse project, it must also commit to the San Joaquin project. Staff recommends approval of PPAs relating to both the Crazy Horse and the San Joaquin projects. Summary of the Two PPAs Still Under Consideration Table 14 below summarizes the information provided above for the two projects for the most likely size of the project and assuming a "capacity factor" of 85%, which is about the capacity factor that the existing Ameresco projects have achieved. Capacity factor is the ratio of the annual energy produced divided by the maximum energy that could be produced running the plant at full rated capacity every hour of the year. The costs shown in Table 9 assume that the interconnection cost is $1.25 million and that the highest anticipated cost for emissions control equipment is required for San Joaquin. The table shows the first -year cost, the full -term cost, and the annual renewable premium for each PPA, for terms of 12, 15, and 20 years, and for whether the interconnection costs are paid in advance or embedded in the energy pricing. CMR: 198:10 Page 21 of 32 Table 14 - Summary of the Options for the Two Projects Given the Most Likel Plant Sizing and Expected Plant Output 20 101.34 76.5 1.15 San Joaquin 32 20 106.54 117.62 97.19 97.19 56.9 49.1 72.0 51.9 1.30 15 101.34 55.6 1.17 12 112.42 48.4 1.57 Crazy Horse 32 20 92.08 69.6 1.08 15 92.08 50.6 1.10 12 99.08 42.8 1.37 Staff recommends 15 -year or 20 -year term PPAs for both the San Joaquin and the Crazy Horse projects with a prepayment for interconnection equipment costs, if required. Execution of the two proposed PPAs would add about 6.4% of the City's total electric supply needs from new renewable energy sources. As existing renewable energy PPAs will account for about 21.8% of the City's total electric needs when all plants are operational, these new PPAs will result in an RPS of about 28% in 2013, when the projects are expected to begin generating energy, assuming expected capacity factors of 85%. With a capacity factor of 95%, plant output would increase to 72 GWhlyear, with a resulting RPS of 29% in 2013. Table 15 below summarizes the information for the proposed PPAs for the landfill gas -to -energy renewable energy projects if the likely plant size were installed for both a 15 -year and a 20 -year term. CMR: 198:10 Page 22 of 32 Table 15 - Summary of the Two Proposed PPAs Likely Plant Sizin t� e e k f f b ti : xR X.aY':n. � ��;; � �s {�� 's vy f �k {:' . $..`Sek. Ex ectel Cost ($ � "� n � � � z Expec�te e ' e ewa Cost �1 Fu m ti �'m' � � =far S �� _ T. f� • .<'4 't,, Si. i Tcr , a. Y 4 en ;. < .. 1. .. - San Joaquin 32 101.34 55.6 76.5 1.22 1.21 Crazy Horse 32 92.08 50.6 69.6 1.15 1.13 Both Projects 64 96.71 106.2 146.1 2.37 2.34 Table 15 shows that the aggregate cost of the green premiums for the two proposed PPAs is expected to be about $2.3 million/year starting in 2013, when the projects are expected to be in commercial operation. The green cost premiums for the two PPAs result in a retail rate impact of about 0.23 ¢/kWh. The existing renewable energy PPAs together have required a cost premium over brown power of about 0.018¢/kWh so the total renewable premium including the existing and the proposed new PPAs results in a retail rate impact of about 0.250/kWh to raise the RPS from 22% to about 28% of the electric load. However, it must be noted that the prices and renewable premiums shown here assume the highest price under the contracts (emissions controls equipment are required and PG&E's interconnection costs are high), but assumes the expected generator plant size and energy production. Therefore, the actual premium is expected to be below the stated retail rate impact. Table 16 below summarizes the information for the proposed PPAs if the maximum plant size for each is installed. As these plant sizes are possible, though unlikely, these costs are used for the maximum not -to -exceed amounts in the PPAs for both a 15 -year and a 20 -year term. Table 16 - Summary of the Two Proposed PPAs Maximum Plant Sizin re r�oje 3 iEng' " , '� 3�''�.i.. - !odl�cd , I _ � �. hf . � �. a .. _ , T r ;' , St munpi 1 C�rilt +� �f ( Mxrmu if CostPAl �0 R �S E �_ 3�� .3 !� - q _� .ti d-,.F`t,.' �6,z �` e�A+ .�/ • ��,.e uQd 4 471 � i : � � �:. 1p�, z"� fF i ki 9 ���1� } { -Fi�'�E tn l: .� L. i T RV , �� � � �'�d San Joaquin 52 101.34 88.7 122.4 1.94 1.96 Crazy Horse 52 92.08 80.7 111.3 1.78 1.79 Both Projects 104 96.71 169.4 233.7 3.72 3.74 Table 16 shows that the maximum aggregate cost of the green premiums for the two proposed PPAs is expected to be about $3.7 million/year starting in 2013, if both projects are sized at their maximum sizes and if the plants operate 95% of the time. The green cost premiums for the two PPAs for the maximum sized plants result in a retail rate impact of about 0.37¢/kWh. The existing renewable energy PPAs together have required a cost premium over brown power of about 0.018¢/kWh, so the total maximum renewable premium, including the existing and the CMR: 198:10 Page 23 of 32 proposed new PPAs at maximum plant sizing, would result in a retail rate impact of about 0.380/kWh. Thiswould raise the RPS from 22% to about 32 % of the electric load. Integration with the 10 -year Electric Energy Efficiency Plan The citywide electric load in 2015 and in 2020 is expected to be about 1,008 GWh/year and 1,001 GWh/year, respectively, assuming that the energy efficiency goals in the 2010 EE Plan are achieved. Given this load forecast, meeting a 33% RPS goal in 2020 would require about 330 GWh/year. Existing renewable resources provide about 218 GWh/year of energy, or an RPS of about 21.8% in 2020. If the two proposed PPAs were executed, the projects are expected to provide an additional 64 GWh/year of renewable energy, increasing the RPS to about 28.2% in 2020. If both projects were built to their maximum sizes, they would provide about 104 GWh/year of renewable energy, resulting in an RPS of about 32.2% in 2020. Palo Alto's Renewable Resource Portfolio with the Recommended PPAs With the recommended PPAs related to the San Joaquin and Crazy Horse land fill projects, Palo Alto's renewable resources are expected to increase to 28.2% in 2020. Figure 5 below illustrates the renewable resources in the portfolio including the two recommended PPAs with 15 -year terms. CMR: 198:10 Page 24 of 32 Figure 5 — Palo Alto's Renewable Resources with Recommended 15 -Year PPAs 400 350 300 250 200 150-- 100 -- 50 - 0 2005 RPS Goal: 20% (2008) RPS Goal: 33%0(2015) RPS Goal: 30% (2012) 2010 2015 2020 2025 2030 San Joaquin+Crazy Horse LFG M Short-term Renewables 0Johnson Canyon LFG 0 Butte County LFG ■ Keller Canyon LFG 0 Half Moon Bay LFG M Santa Cruz LFG ■ Shiloh Wind m High Winds 2035 Figure 6 below illustrates the renewable resources in the portfolio including the two recommended PPAs with 20 -year terms. CMR: 198:10 Page 25 of 32 Figure 6 — Palo Alto's Renewable Resources with Recommended 20 -Year PPAs 400 350 - 300 - 250 - 200 - 150 - 100 - 50 - 0 '2005 2015 2020 2025 2030 RPS Goal: 33% (2015) RPS Goal: 30% (2012) RPS Goal: 20% (2008) 2010 ®San Joaquin + Crazy Horse LFG r2 Short-term Renewables 0Johnson Canyon LFG 0 Butte County LFG • Keller Canyon LFG ❑ Half Moon Bay LFG M Santa Cruz LFG ■ Shiloh Wind High Winds 2035 As shown in Figures 5 and 6, the terms for the existing resources expire at varying times over the next 25 years so that new resources will need to be found to continue to meet the RPS goals in the future. Table 17 below shows a summary of the information for the current and the proposed PPAs including the levelized price, adjusted brown market cost, and green premium. For the proposed projects, the expected size of the project is used. CMR: 198:10 Page 26 of 32 With 20 -Year Terms With 15 -Year Terms Table 17 - Summary of Current and Proposed Renewable Energy Supplies Delivery Begins Dec -2004 Jan -2006 Feb -2006 Apr -2009 Aug -2009 Sep -2011 Oct -2011 Annual Generation (GWh) 51.8 74.4 11.2 40.8 11.8 16.5 11.2 Level ized Project Price ($IMWh) $ 57.60 Adjusted Brown Market Cost* ($IMWh) $ 55.0 $ 62.32 $ $ 58.97 $ $ 70.88 $ $ 98.66 $ $ 123.61 59.3 67.5 83.9 76.6. $ 67.3 Green Premium ($IMWh) Total Committed Green Premium: Total Annual Green Premium ($1000) a , Jan -2013 32.0 $ 115.33 $ 77.2 $ 38.12 1,220= PY�.1 17 �p °1 Py ryll 3 � Z Jan -2013 32.0 $ 105.13 $ 69.2 r $ 3597: . Total Green Premium with Two New Projects: gi. + - r C° # Jan -2013 32.0 $ r 118.10 $ 80.3 $ 37 80.:$ li fil„ 1290: k44 Jan -2013 32.0 $ 107.60 $ 72.3 $.: .. ;38 0::; a,...; 4;1 0,.# Total Green Premium with Two New Projects: How Green are Landfill -Gas -to -Energy (LFGTE) Projects? Concerns have been raised with respect to the "greenness" of LFGTE projects. One concern that remains is what will be the greenhouse gas (GHG) emission trade-off between burning landfill methane to generate electricity and burning natural gas to generate electricity. Another concern is that there could be an incentive to place recyclable and compostable materials in a landfill to provide future methane fuel for electricity generation rather than diverting those materials for reuse. Regarding the GHG emissions issue, a landfill gas (LFG) fired engine generator set emits the same amount of CO2 that a landfill gas flare would emit in order to burn the LFG. Therefore, the engine generator set emits no additional CO2. LFG-fired generation has no net CO2 emissions compared to flaring. A LFG-fired engine can have higher nitrogen oxide (NOx) emissions than a flare and that is the reason for possible requirement for emissions controls explained in the description of the projects' PPAs. However, NOx is not listed as a GHG. To comply with regulations the landfills must combust the LFG in either a flare or an engine. The CO2 emissions from a 4.3 MW landfill, the expected size for the San Joaquin and Crazy Horse landfills, can be calculated using numbers from the U.S. Department of Energy. If the CMR: 198:10 Page 27 of 32 LFG was combusted in an engine, the LFGTE generator would emit 31,000 tons per year of CO2 and generate about 32,000 GWh/year of electricity. If the LFG was combusted in a flare, the flare would emit 31,000 tons per year of CO2, the same as when used in an engine, but produces no energy. To generate the same amount of baseload energy (32,000 GWh/year), an average generator would emit about 1.3 pounds of CO2 per kWh, or 21,000 tons per year. Thus, the LFGTE would emit 31,000 tons of CO2 per year on site and the flare would emit a total of 52,000 tons of CO2 per year — 31,000 tons on site and 21,000 tons off -site for the same energy production. The 31,000 tons of CO2 are unavoidable once the waste is in the landfill. The 21,000 tons of fossil fuel related CO2 emissions from other generators are avoided if the landfill gas is combusted in an engine instead of a flare. The second concern is that LFGTE projects support landfilling of organic matter (e.g., paper, cardboard, yard trimmings/landscape debris, and food scraps) in order to create methane, which can be used to generate electricity. AB939 requires that certain percentages of municipal solid waste shall be recycled; paper, cardboard, wood, and other similar items are easy to recycle and to document, so most landfills do so. In addition, the San Joaquin and Crazy Horse landfills are not new landfills. The Crazy Horse Landfill opened in 1935 and closed in May 2009 with a volume of 2 million cubic yards. It has no space remaining and no longer accepts waste. The San Joaquin Landfill opened in 1966 and now has about 10 million cubic yards with space for 89 million cubic yards remaining and an estimated closure date of 2059. The San Joaquin County Public Works department operates it while maintaining a 60% diversion rate away from the landfill. This 60% diversion rate is better than the 50% diversion rate required by the Integrated Waste Management Act (AB 939) measured by the pre- and post -2007 techniques. Staff of the San Joaquin County Public Works Department, indicated that the construction and operation of the LFGTE project at their site will not impact their plans to continue diverting waste away from the landfill with recycling and composting programs. Similarly the staff of the Salinas Valley Solid Waste Authority said the construction and operation of the LFGTE project at their now closed Crazy Horse landfill will not impact their plans to continue diverting waste away from the landfill with recycling and composting programs. COMMISSION REVIEW AND RECOMMENDATIONS Staff provided a presentation on the proposed PPAs with Ameresco for the UAC at its special meeting on March 31, 2010. The UAC expressed a desire to address the questions and concerns that were raised by the Finance Committee on March 16, 2010. Chair Melton organized the discussion to get the sense of the UAC on each of the issues so that the UAC could clearly provide its advice to the Finance Committee. Issues include whether or not the UAC should first review the renewables procurement plans before making a commitment to a new renewable energy supplier, whether or not it is prudent to do more business with Ameresco, the appropriate term of the contracts, the political risk that the rules change in the future with respect to renewable power mandates, and whether landfill -gas -to -energy (LFGTE) plants should be considered "green" and renewable energy sources. CMR: 198:10 Page 28 of 32 Chair Melton stated that, until the Council changed the goal to achieve a 33% RPS, staff and the UAC should follow that mandate. He stated that staff is scheduled to review these long-term policies and plans in August 2010 with the UAC. During that review, he expects that the UAC will discuss whether to lower the RPS goal or to lengthen the time to achieve the goal (from 201 -5 -to 2020, —for -example). The -rest -of the commissioners agreed with Melton's assessment. On the issue of whether it is prudent for the City to do more business with Ameresco, the consensus of the UAC was that this was not an issue. Commissioners agreed that the City would be a customer of Ameresco, and not an investor in Ameresco. The proposed PPAs do not require paying for the energy up front and the City is not part of financing the project. The UAC also believed that there is little concern of having Ameresco as a counterparty since (1), if Ameresco fails to deliver, the City can ultimately take over operation of the project or buy power from another supplier and (2) the City has a five year track record with Ameresco where Ameresco consistently performed to the City's satisfaction. Commissioners also noted that when the City solicited the market for suppliers, the other proposals were even more expensive. Chair Melton summarized this sentiment by stating that the UAC does not see any undue risk with doing business with Ameresco. The UAC discussed the environmental attributes of LFGTE plants and whether they should be viewed as renewable resources. After discussion, the UAC reached consensus that LFGTE plants are green resources and are designated so under California rules. Commissioners agreed that it is far better environmentally to use landfill gas to generate electricity than to flare it and noted that these projects are sited on old landfills. Commissioners added that LFGTE has the advantage over some other renewable sources because it is baseloaded power. Regarding whether or not to prepay for the interconnection equipment costs, the UAC unanimously supported staff's recommendation to save money over the terms of the contracts by prepaying these costs rather than pay higher rates for the contract terms. The UAC concluded that the risk of prepayment were outweighed by the expected benefits. On the issue of the proper term for the contracts, the UAC agreed with staff that the 12 -year contract prices were not attractive and discussed the 15- and 20 -year term options. All commissioners agreed that they would support either a 15 -year term or a 20 -year term, but they each had a preference for one over the other. Three Commissioners expressed a preference for a 20 -year term over a 15 -year term while two Commissioners expressed a preference for a 15 -year term over a 20 -year term. However, the UAC was unanimous in supporting approval of contracts for the projects of either term, rather than not approving the contracts at all. One Commissioner stated that he only stated his preference for a 15 -year term over a 20 -year term out of deference for the concerns expressed by the Finance Committee. The Commissioners all agreed that committing to the contracts would not put the City at undue risk of prices for renewable energy falling due to changes in the market, the political or economic environment, or because of new and cheaper technologies appearing in the future. Commissioners stated that the proposed PPAs were reasonably priced and would add diversity to the electric portfolio that is currently heavy with exposure to brown market power prices, and to hydrologic conditions, which is and will be affected by droughts. CMR: 198:10 Page 29 of 32 The commission voted unanimously (5 to 0) to recommend that Council: 1. Adopt a resolution approving a Power Purchase Agreement (PPA) with Ameresco San Joaquin LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy over fifteen years at a cost not to exceed $88.7 million, or- over twenty -years -at a -cost not to exceed XXX, including, if-required,a payment of up to $1.425 million for electric transmission interconnection costs; 2. Adopt a resolution approving a PPA with Ameresco Crazy Horse LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy over fifteen years at a cost not to exceed $80.7 million, or over twenty years at a cost not to exceed YYY, including, if required, a payment of up to $1.425 million for electric transmission interconnection costs; and 3. Waive the application of the investment -grade credit rating requirement of Section 2.30.340(d) of the Palo Alto Municipal Code, which applies to energy companies that do business with the City, as the Ameresco companies are not rated by credit agencies. The UAC requested that staff provide the corresponding dollar figures for XXX and YYY to represent the appropriate not to exceed costs of the proposed PPAs for 20 -year terms since they were not available at the time of the UAC meeting. The UAC also wanted its vote to reflect the preference of the commission, by a 3 to 2 vote, for 20 -year terms to 15 -year terms for the PPAs. The notes from the UAC meeting are provided as Attachment J. RESOURCE IMPACT Fifteen -Year PPA Terms The cost of renewable energy supplies under the two agreements is expected to be up to $106 million over the 15 -year terms of the PPAs if both projects are built at the expected size, including the maximum prepayment cost of $1.425 million for each project for interconnection equipment. The annual expected cost is up to $6.2 million in the first year of operation with the cost escalating 1.5% per year over the 15 -year terms of the PPAs. Approval of the two PPAs would result in a retail rate impact estimated at up to 0.23 0/kWh, beginning no earlier than 2013. If both plants are built to their maximum sizes, the cost could be up to $169.4 million over 15 years, including the maximum prepayment cost of $1.425 million for each project for interconnection equipment. The annual cost for both PPA would be up to $10.0 million in the first year, escalating at 1.5% per year over the 15 -year term of the PPAs. In this case, the retail rate impact would be up to 0.45 0/kWh. Twenty -Year PPA Terms The cost of renewable energy supplies under the two agreements is expected to be up to $$146.1 million over 20 -year terms of the PPAs if both projects are built at the expected size, including the maximum prepayment cost of $1.425 million for each project for interconnection equipment. The annual expected cost is up to $6.2 million in the first year of operation with the cost CMR: 198:10 Page 30 of 32 escalating 1.5% per year over 20 -year terms. Approval of the two PPAs would result in a retail rate impact estimated at up to 0.23 0/kWh, beginning no earlier than 2013. If both plants are built to their maximum sizes, the cost could be up to $$233.7 million over 20 years, including the maximum prepayment cost of $1.425 million for each project for interconnection equipment. Theannualcost for both PPAs would be -up -to $10.0 million in the first year, escalating at 1.5% per year over the 20 -year term of the PPAs. In this case, the retail rate impact would be up to 0.45 0/kWh. For both the 15- and the 20 -year terms, uncertainties remain about plant sizing, the cost of interconnection equipment to the electric grid, and the requirement for and cost of emissions controls equipment. These uncertainties are expected to be resolved in about a year and have been presented, along with their maximum impacts, in this memorandum. POLICY IMPLICATIONS Adoption of the resolutions allows the City to participate in the agreements to purchase renewable energy and thereby is consistent with the Council's Top Five Priority of Environmental Protection. Participating in the agreement is also consistent with the following City policies and guidelines: 1. The Council -approved Climate Protection Plan, adopted December 3, 2007, containing Utilities Goal 2: Reduce carbon intensity of energy supply provided by Utilities; 2. The Council -approved Utilities Strategic Plan with regard to employing balanced environmental solutions; 3. The energy risk management policies; 4. The rate impact limits and the renewable portfolio targets in Long-term Electric Acquisition Plan Guideline (LEAP) #6; 5. The portfolio diversification goals in LEAP Guideline #3; 6. The City's Sustainability Policy Statement, adopted April 2, 2001 (CMR 175:01) and revised June 18, 2007 (CMR 260:07); 7. The Green Government Pledge, adopted July 19, 1999 (CMR 284:99); 8. The US Mayors' Climate Protection Agreement; and 9. The Comprehensive Plan, specifically: a. GOAL N-9: A clean, efficient, competitively -priced energy supply that makes use of cost-effective renewable resources. b. POLICY N-44: Maintain Palo Alto's long-term supply of electricity and natural gas while addressing environmental and economic concerns. c. POLICY N-48: Encourage the appropriate use of alternative energy technologies. ENVIRONMENTAL REVIEW Execution of these agreements does not meet the definition of a project, pursuant to section 21065 of the California Environmental Quality Act (CEQA). However, the City intends to receive output from projects that will constitute a project for the purposes of CEQA. Project developers will be responsible for acquiring necessary environmental reviews and permits on projects to be developed. CMR: 198:10 Page 31 of 32 ATTACHMENTS A: CMR: 166:10 — Adoption of Four Resolutions Approving Four Power Purchase Agreements with Ameresco Forward LLC, Ameresco San Joaquin LLC, Ameresco Avenal LLC, and Ameresco Crazy Horse LLC for the Acquisition in the Aggregate of Up to 166,000 Megawatt -hours per Year of Energy Over Twenty Years at an Estimated Cost Not to Exceed $388.5 Million -(without attachments) B: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco San Joaquin LLC C: Renewable Energy Power Purchase Agreement for a term of 15 Years Ameresco San Joaquin LLC D: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Crazy Horse LLC E: Renewable Energy Power Purchase Agreement for a term of 15 Years Ameresco Crazy Horse LLC F: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco San Joaquin LLC G: Renewable Energy Power Purchase Agreement for a term of 20 Years Ameresco San Joaquin LLC H: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Crazy Horse LLC I: Renewable Energy Power Purchase Agreement for a term of 20 Years Ameresco Crazy Horse LLC J: Draft Minutes from the March 31, 2010 UAC meeting K: Presentation provided to the UAC at its March 31, 2010 meeting PREPARED BY: REVIEWED BY: DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: OM KABAT 7 Senior Resource Originator ANE RATCHYE Assistant Director, Resource Management for a term of 15 Years between Palo Alto and for a term of 15 Years between Palo Alto and for a term of 20 Years between Palo Alto and for a term of 20 Years between Palo Alto and KARL VAN ORSDOL Energy Risk Manager VALERIE O. Director of Utilities G CMR: 198:10 Page32of32 ATTAC1IMiNT A TO: ATTN: FROM: DATE: SUBJECT: HONORABLE CITY COUNCIL FINANCE COMMITTEE CITY MANAGER MARCH 16, 2010 Adoption of Four Resolutions Approving Four Power Purchase Agreements with Ameresco Forward LLC, Ameresco San Joaquin LLC, Ameresco Avenal LLC, and Ameresco Crazy Horse LLC for the Acquisition in the Aggregate of Up to 166,000 Megawatt -hours per Year of Energy Over Twenty Years at an Estimated Cost Not to Exceed $388.5 Million DEPARTMENT: UTILITIES CMR: 166:10 RECOMMENDATION Staff recommends that the Finance Committee recommend that Council: 1 Adopt a resolution approving a Power Purchase Agreement (PPA) with Ameresco Forward LLC, a Delaware limited liability company, for the acquisition of up to 47,000 megawatt -hours (MWh) per year of energy over twenty years at an estimated cost not to exceed $108.6 million; 2. Adopt a resolution approving a PPA with Ameresco San Joaquin LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy over twenty years at an estimated cost not to exceed $124.7 million, including, if required, a payment of up to $1.425 million for electric interconnection costs; 3. Adopt a resolution approving a PPA (or a PPA in substantially similar form) with Ameresco Avenal LLC, a Delaware limited liability company, for the acquisition of up to 16,000 MWh per year of energy over twenty years at an estimated cost not to exceed $45.1 million, including if required, a payment of up to $1.425 million for electric interconnection costs; and 4. Adopt a resolution approving a PPA and Amendment No. 1 to the PPA with Ameresco Crazy Horse LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy over twenty years at an estimated cost not to exceed $110.1 million, including, if required, a payment of up to $1.425 million for electric interconnection costs. Additionally, for these agreements, staff recommends the Council waive the application of the investment -grade credit rating requirement of Section 2.30.340(d) of the Palo Alto Municipal Code as the Ameresco companies are not rated by credit agencies. REPORT SUMMARY Council approval of the four proposed contracts, expected to cost up to $284.5 million over 20 years, for renewable power will result in achievement of the goal to meet 33% of the Citywide CMR: 166:10 Page 1 of 12 electric needs with renewable energy. The additional cost of the renewable power over the estimated cost of "brown power" will result in a rate impact of a little less than 0.5 cents per kilowatt-hour (¢/kWh), about a 4% rate impact over current rates. Meeting the renewable energy goal is a major component, along with maximizing energy efficiency, of achieving the greenhouse gas reduction goals in the City's Climate Protection Plan. The four contracts require the City to purchase the renewable energy produced from electric generators fueled by landfill gas at new projects. Since the projects have not yet been built, there are several costs that are currently unknown associated with the projects. One is the size of the generator since that depends upon the amount and quantity of landfill gas that can be developed at each site. Another is the cost of the interconnection equipment required to connect to the electric grid and another is whether emissions control equipment is required and the cost of that equipment. All of these uncertainties will be resolved within two years and prior to delivery of the renewable energy. The Ameresco companies have provided attractive pricing to the City before the uncertainties are resolved in order to induce the City to execute contracts for the power purchases to allow it to complete the financing and begin construction as soon as possible to receive Federal stimulus funds. BACKGROUND In 2002, the Council adopted a renewable resource portfolio standard with the objective of meeting 20 percent of the City's electrical load with new renewable resources by 2015, while ensuring the retail rate impact does not exceed 0.50/kWh on average, amounting to a premium of approximately 5 percent of the average retail rate (CMR:398:02). In March 2007, the Council advanced and increased the Renewable Portfolio Standard (RPS) with a target to meet 20 percent of City loads with renewable resources by 2008 and 33 percent by 2015. The new target was to be achieved while maintaining the retail rate impact measure of 0.50/kWh (CMR:158:07). The City is currently receiving about 18 percent of its electricity from RPS resources. The City has executed agreements with other projects that will result in a 21 percent RPS when they are operational (expected in 2012) with minimal impact on retail rates. The City is still seeking new renewable energy equal to approximately 12 percent of annual usage to meet the 33 percent renewable portfolio goal by 2015. The City issued its fifth Request for Proposals (RFP) for electric power supplies from renewable resources in October 2009. Forty-two project proposals were received by the RFP closing date of November 10, 2009. Staff evaluated the proposals on the basis of quality and completeness of proposal, bidders' qualifications and financial stability, project viability, compatibility with City's existing portfolio, and total cost of proposal and value to City. These four Ameresco proposals were more attractive than the other proposals received in response to the RFP. Other proposals were more expensive than the proposals from Ameresco and would likely have resulted in a retail rate exceeding the constraint in the RPS guideline. Ameresco is interested in starting construction on these projects by the end of 2010 to qualify for Federal stimulus funds. Ameresco has stated that its positive experience in executing five CMR: 166:10 Page 2 of 12 renewable power PPAs with Palo Alto since 2004, encouraged it to propose these four PPAs to Palo Alto in hopes of negotiating contracts in time to meet construction deadlines. Ameresco has cited that this is the reason for its relatively low-priced proposals to Palo Alto. Ameresco indicates that delays in contract approval would jeopardize qualification for stimulus funds and would lead to higher prices for the PPAs. DISCUSSION Ameresco develops and operates landfill gas -fired power plants across the United States, including four operating in, and two others undergoing permitting in, California. Ameresco is executing landfill gas fuel purchase agreements and site lease agreements with four landfills that will enable development of the four projects described below. Development of landfill gas power plants involves two cost uncertainties which are determined by outside agencies and typically are unknown to the developer and the City until many months after commitment to a PPA. These contingencies are: 1) the cost of the required interconnection with the electric transmission grid owned by Pacific Gas and Electric Company (PG&E); and 2) the cost of emission control equipment that may be required by the local air pollution control district. In the past, Council has agreed to reopen PPAs to accommodate price changes for these uncertainties or the developers have priced the uncertainties into the PPAs. To explicitly deal with these uncertainties, staff and Ameresco have negotiated either price formulas or prepayment terms that will incorporate these costs in three of the PPAs (all except for the Forward Landfill project). The final cost will depend on the conditions imposed by PG&E for interconnection charges and on equipment requirements imposed by the governing air pollution control district. These conditions are expected to be determined in 2012 during later stages of permitting or early operation for the projects. The effect of these contract terms is that the City, not Ameresco, bears the risk of these yet -to -be -determined costs. Staff believes that having the City take the risk is justified by getting a lower rate. For each project, Ameresco has estimated the size of equipment that will be required to match the estimated availability of landfill gas. However, during each project's final engineering phase, based on the volume and quality of landfill gas available, the equipment size will be selected. Therefore, the electricity generated could range up or down from the estimated output. These outcomes would change the amount of energy produced by Ameresco and purchased by Palo Alto, but all the energy produced would be purchased at the price and terms in the proposed PPAs. The uncertainty of project size and output will be resolved well before energy deliveries begin. Ameresco plans to build all four plants, which would qualify as renewable power projects under State -adopted definitions. They will be electrically connected to the transmission system operated by the California Independent System Operator. Under the terms of the PPAs, Palo Alto would pay predetermined rates over the terms of the agreements for any energy delivered. Palo Alto would pay only for energy after its delivery. If delivered volumes decrease, Palo Alto's volume -based payments to Ameresco would decrease proportionately, freeing up money to purchase replacement renewable energy from other sources. CMR: 166:10 Page 3 of 12 To encourage innovation, the parties negotiated a term in three of the PPAs (all except for the Avenal project) that enables Ameresco to install engine heat recovery technology that could boost electric output from the same landfill gas by 5% to 25% and to sell this additional renewable energy to the City under the same contract and terms. Forward Landfill The Forward Landfill project has the simplest PPA of the four, with a single price that requires Ameresco to take the risk of cost changes in interconnection requirements and emissions controls requirements. The Forward Landfill project is located in Manteca, California, and uses a landfill gas -fired turbine to produce a net output of 4.6 Megawatts (MW) with an annual estimated output of 38 gigawatt-hours (GWh), or about 3.8% of Palo Alto's electric needs. The price is 9.9 0/kWh (equivalent to $99/MWh) escalating at 1.5% annually for the 20 -year delivery term. This would result in a nominal cost of $87.6 million during the 20 -year delivery term. The levelized cost is approximately $1.4 million per year (or $35 per MWh) higher than the current projected cost of purchasing the same volume of traditional ("brown") energy from the market. Although the project size is likely to be 4.6 MW, it could range from 1.6 MW to 5.7 MW, with a corresponding range in energy production. At the maximum project size, energy production would be 47 GWh at a nominal cost of $108.6 million during the 20 -year delivery term. San Joaquin Landfill The San Joaquin Landfill project is expected to be a 4.3 MW project at the San Joaquin Landfill operated by San Joaquin County in Linden, California. Ameresco has site development rights and a gas purchase agreement in place with the County. Under the proposed PPA, Palo Alto would receive and pay for the entire net output from the expected 4.3 MW plant, or 36 GWh/year amounting to 3.6% of the City's total electric load. The plant may be sized up to 6.2MW, a size that could produce 52 GWh/year amounting to approximately 5.2% of the City's total electric load. If emissions controls are required on the San Joaquin project, the City would pay a cost proportionate "rate adder." If emission controls are required, the rate adder is $0.60/MWh plus $0.55/MWh for each $100,000 of emission controls expense that Ameresco incurs. The first - year rate adder is capped at $10.01/MWh and would escalate at 1.5% per year. This formula allows the City to benefit if the cost of emission control equipment is less than the maximum anticipated. To minimize the cost the City pays for the interconnection costs over the term of the PPA, the City negotiated a prepayment for the incremental interconnection costs. The prepayment for the interconnection would be 1.5 times the amount of the PG&E interconnection charge that exceeds $300,000 up to a maximum payment of 81.425 million. (The reason that Ameresco would collect 1.5 times the cost is that the prepayment is taxable for Ameresco which has an effective 33% tax rate.) For example, if the interconnection costs were $750,000, then the City's up -front payment (before energy deliveries started) would be $675,000 [1.5 X ($750,000 — $300,000)]. As shown in Table 1 below, the City would also pay an energy rate of $93.33/MWh plus, if emission controls are required, the emissions control rate adder described above would apply, for all energy deliveries. Rates would escalate at 1.5% per year. CMR: 166:10 Page 4 of 12 - San Joaquin Landfill First -Year Prices and Pay -Ahead Cost San Joaquin Landfill Emission Controls . Required (S/MWh) Emission Controls Not Require d. ($IMWh) . : . . PG&E Interconnection Cost.: .... Interconnection , Pay -Ahead Cost >= $1,250,000 $1,425,000 Up to $103.34 $93.33 $1,000,000 $1,050,000 Up to $103.34 $93.33 $750,000 $675,000 Up to $103.34 $93.33 $500,000 $300,000 Up to $103.34 $93.33 Up to $300,000 $0 Up to $103.34 $93.33 The Avenal Landfill The Avenal Landfill project is a 1.4 MW project at the Avenal Landfill operated by Waste Connections in Avenal, California. Ameresco is finalizing a site lease and a gas purchase agreement with the landfill. Under the proposed PPA, Palo Alto would receive and pay for the entire net output from the 1.4 MW plant that would produce an expected 12 GWh/year amounting to approximately 1.2% of the City's total electric load. The plant may be sized between 0.8 MW and 1.9 MW. At 1.9 MW, the plant could produce 16 GWhlyear, or 1.6% of the City's total electric load. As with the San Joaquin Landfill project, if emissions controls are required on the Avenal project, the City would pay a cost proportionate rate adder. If emission controls are required, the rate adder is $0.60/MWh plus $0.80/MWh for each $100,000 of emission controls expense Ameresco incurs to build the initial plant. The first year rate adder is capped at $15.23/MWh and would escalate at 1.5% per year. Ameresco and the City negotiated a pricing matrix whereby the starting price the City would pay was dependent upon the actual PG&E interconnection cost and whether or not emission control equipment is required by the San Joaquin Valley Air Pollution Control District. Under the proposed PPA, Palo Alto would purchase the full output of the plant at a starting price from the pricing matrix based on interconnection costs and on emission control equipment requirements. Table 2 below is the pricing matrix that shows the negotiated first -year prices based on various outcomes. Table 2 - Avenal Landfill First -Year Prices Avenal Landfill Emission Controls .: Required ($IMVLWh) Emission Controls Not Required PG&E Interconnection Cost >_ $1,250,000 Up to $123.35 $108.56 $1,000,000 Up to $121.78 $106.55 $750,000 Up to $119.76 $104.53 $500,000 Up to $117.73 $102.50 Up to $300,000 Up to $116.14 $100.91 In the highest cost scenario with emission controls required and PG&E interconnection costs of more than $1.25 million, the price would be 12.335 0/kWh escalating at 1.5% annually for the 20 -year delivery term. This would result in a nominal cost of $33.2 million during the 20 -year CMR: 166:10 Page 5 of 12 delivery term for the 1.4 MW sized project. The levelized cost is approximately $0.81 million per year (or $70 per MWh) higher than the current projected cost of purchasing the same volume of brown energy from the market. Staff recommends this pricing matrix rather than prepaying the incremental interconnection costs as with the San Joaquin Landfill project since the savings are minimal for that option. The Avenal Landfill project has a relatively high initial cost to develop the site and for the interconnections needed to operate the first engine. After the initial project is built and operational in 2012, Ameresco expects to be able to expand it approximately every four years as increased amounts of landfill gas are produced by the growing landfill. Palo Alto would be well positioned to negotiate additional purchases from the site at relatively more attractive pricing. However, under the proposed PPA, Palo Alto is neither obligated to take energy from any expansion projects from this project nor obligated to negotiate an agreement for energy from any expansion projects. Ameresco is especially interested in getting the Avenal Landfill project executed so it has agreed to discount the price of the Crazy Horse Landfill project PPA by $5.00/MWh if Palo Alto executes the Avenal PPA and the Avenal Landfill project achieves commercial operation. To implement the pricing discount made available by executing the Avenal PPA, Amendment No. 1 to the PPA must be executed (Attachment I). Amendment No. 1 would only be effective if Palo Alto executes both the Avenal and the Crazy Horse PPAs. Crazy Horse Landfill The Crazy Horse Landfill project is a 4.3 MW project at the Crazy Horse Canyon Landfill operated by the Salinas Valley Solid Waste Authority (SVSWA) in Salinas, California. Ameresco has site development rights and a gas purchase agreement in place with the SVSWA. Ameresco does not expect emissions controls to be required on the Crazy Horse project, so there is no rate adder included. Under the proposed PPA, Palo Alto would receive and pay for the entire net output from the expected 4.3 Megawatt (MW) Crazy Horse Landfill plant amounting to 36 GWh/ year or approximately 3.6% of the City's total electric load. The plant size could range from 1.6 MW to 6.2 MW. If sized at the maximum 6.2 MW, the plant could produce 52 GWh/year, or approximately 5.2% of the City's electric load. As with the San Joaquin Landfill project, the City negotiated a prepayment for the incremental interconnection costs. The prepayment for the interconnection would be 1.5 times the amount of the PG&E interconnection charge that exceeds $300,000 up to a maximum payment of $1.425 million. As shown in Table 3 below, the City would also pay an energy rate of $91.08/MWh if it also takes delivery of Avenal output or $96.08/MWh without Avenal. Rates in either case would escalate at 1.5% per year. CMR: 166:10 Page 6 of 12 Crazy Horse Landfill First -Year Prices with Pay Ahead Costs Crazy Horse Landfill Without Av'ena1. PPA . ($/MWh) With Avenal PPA $IMWh PG&E Interconnection Cost.. Interconnection Pay -Ahead Cost >_ $1,250,000 $1,425,000 $96.08 $91.08 $1,000,000 $1,050,000 $96.08 $91.08 $750,000 $675,000 $96.08 $91.08 $500,000 $300,000 $96.08 $91.08 Up to $300,000 $0 $96.08 $91.08 Summary of the Four Proposed PPAs Table 4 below summarizes the information provided above for the four proposed PPAs for the landfill gas -to -energy renewable energy projects. The energy production and, therefore, the costs, shown in Table 4 assume that the equipment operates 95% of the time over the 20 -year term of the PPA. This relatively high "capacity factor" is assumed to determine the maximum amount of money that could be spent under the contract. The actual capacity factor is more likely to be around 90%. Forward San Joaquin Avenal Table 4 — Summary of the Four Proposed PPAs Given the Most Likely Plant Sizing First Year Energy'' Cost (¢/kWh). Maximum Energy Produced (GWh/yr) 38 36 9.900 10.334 axmum Contracte .Cost' 20 Yearn ($million) 87.6 86.9 Maximum Renewable Cost Premium:: ($million/year).; 1.40 1.40 12 12.335 33.2 0.81 Crazy Horse (without Avenal) Crazy Horse (with Avenal) All Projects All Projects (except Avenal) 36 36 122 110 9.608 9.108 10.033 9,95 80.9 76.8 284.5 255.4 1.40 1.20 4.81 4.00 Table 5 below summarizes the information for the four proposed PPAs for the landfill gas -to - energy renewable energy projects if the maximum plant size were installed. Since these plant sizes are possible, although unlikely, these costs are used for the maximum not to exceed amounts in the PPAs. CMR: 166:10 Page 7 of 12 Table 5 — Summary of the Four Proposed PPAs he Maximum Plant Sizin Project Maximum Energy. Produced (GWh/yr) 47 First Year Energy Cost (¢/kWh) 9.900 Maximum. Contract Cost 20 Years ($million): 108.6 Maximum' Renewable . . Cost Premium ($miV►on/year) 1.7 Forward San Joaquin 52 10.334 124.7 2.1 Avenal 16 12.335 45.1 1.1 Crazy Horse (without Avenal) 52 9.608 116.1 2.1 Crazy Horse (with Avenal) 52 9.108 110.1 1.8 All Projects 166 10.022 388.5 6.7 All Projects (except Avenal) 151 9.952 349.4 5.9 Execution of the four proposed PPAs would add about 12.2% of the City's total electric supply needs from new renewable energy sources. Since existing renewable energy PPAs will account for about 21% of the City's total electric needs when all plants are operational, these new PPAs will result in an RPS of 33.3%, very close to the 33% RPS target. The cost premium of the four proposed PPAs results in a retail rate impact of about 0.470/kWh. The existing renewable energy PPAs together have required a cost premium over brown power of about 0.01 ¢/kWh so the total renewable premium including the existing and the proposed new PPAs results in a retail rate impact of about 0.480/kWh, or very near the 0.50/kWh limit in the RPS guideline. However, it must be noted that the prices and renewable premiums shown here assume the highest price under the contracts (emissions controls are required and PG&E interconnection costs are high) and that the capacity factor for each project is 95%. Therefore, the actual premium is expected to be even further below the 0.50/kWh retail rate impact limit. As shown in Table 5, approval of the three larger, lower cost PPAs (all but the Avenal PPA) would result in a total RPS of about 31.9% with a retail rate impact estimated at 0.42 cents per kWh (shy of the 33% RPS target and within the 0.5 0/kWh rate impact limit). Comparison with Other Price Benchmarks The contract prices for these four proposed new PPAs are similar to the renewable energy PPA most recently approved by Council. The Johnson Canyon landfill gas -to -energy PPA with Ameresco that Council approved in August 2009 (CMR: 343:09) had a start price of 10.9 0/kWh in an air district that does not require additional emission controls. The prices also are similar to the California. Public Utilities Commission (CPUC) Market Price Referent (MPR) of 10.9 0/kWh for projects delivering energy for 20 years starting in 2013. The CPUC calculates the MPR based on the cost of new efficient gas -fired generation, including the cost of carbon dioxide emission allowances. Prior History and City Contracts with Ameresco The City has previously executed five PPAs with Ameresco. for projects that are expected to deliver 92 gigawatt hours per year of renewable energy (amounting to 9% of the City's electric CMR: 166:10 Page 8 of 12 needs, or about 42% of the City's RPS committed contract volume to date) once all are operational. Executing all four of the new PPAs under consideration would raise Ameresco's supply percentage to 21% of the City's electric needs or about 63% of the City's RPS portfolio. Ameresco's provision of a relatively high share of renewable generation may appear to present a concentration risk, but the risks to the City are mitigated by a number of factors, including the City's step-in rights to operate the plants in the event of default, the absence of a cross -default provision,. which isolates each contract from default by one of the other contracts, and Ameresco's reliable record of performance with the City since executing the first contract with them in 2004. In a worst case scenario of energy not being delivered, Palo Alto would not pay for the energy could purchase less expensive "brown power" in the near term if required and would pursue new sources of renewable energy. Credit Risk Ameresco is a relatively small company that does not have a credit rating from Moody's Investor Services or Standard and Poor's. Ameresco is a rapidly growing company and as such does face some of the stresses inherent in rapid growth. These stresses led to an increase in the estimated default frequency (EDF) from 0.4% to 1.1% based on staff analysis of the company's 2007 and 2008 audited financial reports. Interim unaudited financial reports for the first 3 quarters of 2009 indicate a further increase in financial stress on this rapidly growing firm, with the EDF growing to 4.3%. The higher EDF rate leads to increased potential default risk to the City. Despite this increased risk, it should be noted that the City only pays for energy that is actually delivered. While a default would make the City "short" renewable power, the City could consider other, likely more expensive, sources of renewable power or even temporarily halt its renewable purchases and purchase much less expensive wholesale (brown) power. Because energy deliveries for each PPA will be tied to a specific generator at a specific location, in contrast to market contracts whose deliveries are often backed by the financial strength or collateral of companies rather than a physical asset, staff recommends that the Council waive the investment -grade credit requirement for public agency contracts required under Section 2.20.340 (d) of the Palo Alto Municipal Code. This conforms to Council action on prior renewable resource contracts with similar characteristics (CMR:461:04, CMR:100:05, CMR:350:05, CMR:437:08, and CMR:343:09). This waiver is intended to benefit only small, but sound, companies that do not have credit ratings. Palo Alto has had a positive experience to date with Ameresco in regards to its five existing landfill gas -to -energy agreements. The proposed PPAs between Palo Alto and Ameresco (Attachments B, D, F, and H) were reviewed by Utilities staff, the City Attorney's office, and the Energy Risk Manager to determine that the combination of value, price, terms, creditworthiness of provider, and credit assurances warrant Palo Alto's participation. Other Risks Two other risks need to be raised with regard to the project. The first is the risk that after the City's prepayment occurs, the project does not reach completion. This could be due to a financial default of Ameresco, or some other factor such as a force majeure event. In the case of a financial default, the City's risk is directly proportional to the time from payment to project completion. This is expected to be 6 months or less. This would expose the City to a risk of CMR: 166:10 Page 9 of 12 approximately 2% or less of the payment costs for each project. It should be noted that by the time the City pays the interconnect cost, Ameresco would have invested more than 50% of project total costs as well as the initial $300,000 per site. Another potential risk, which staff deems acceptable, is technology risk. This is the risk that during the course of the 20 year project, new technologies are developed and deployed which significantly reduce the market prices of renewable electricity, and the market turns from a "sellers market" to a "buyer's market". Historically, especially between 1900 and 1970, new generation technologies did significantly reduce energy prices. In the case of these projects, however, the goal is to achieve the Renewable Portfolio Standards by 2015. A new technology could be developed in the short term to dramatically reduce renewable power costs, although currently there are no market indications that such a breakthrough is likely. Nevertheless, this risk does exist, though rendering an assessment of impact of this risk is problematic. RESOURCE IMPACT The cost of renewable supplies under the four agreements is expected to be up to $284.5 million over 20 years if the plant size for all projects is as expected. The annual expected cost is up to $12.6 million in the first year with the cost escalating 1.5% per year over the 20 -year term of the PPAs. Approval of all four PPAs would result in an RPS of about 33.0% with a retail rate impact estimated at up to 0.48 0/kWh (meeting the 33% RPS target and slightly below the 0.5 0/kWh rate impact limit guideline). Minor uncertainties remain about plant sizing and ultimate costs. If more resources are needed to meet the 33% target, staff will return to Council with additional resources for consideration before 2015. If all plants are built to the maximum size, the cost could be up to $388.5 million over 20 years with an annual cost of $16.7 million in the first year, escalating 1.5% per year of the 20 -year term of the PPAs. In this case, the RPS could be 37.4% with a total RPS rate impact of 0.65 0/kWh. POLICY IMPLICATIONS Adoption of these resolutions allows the City to participate in the agreements to purchase renewable energy and thereby is consistent with the Council's Top Five Priority of Environmental Protection. Participating in the agreement is also consistent with the following City policies and guidelines: 1. The Council -approved Climate Protection Plan, adopted December 3, 2007, containing Utilities Goal 2: Reduce carbon intensity of energy supply provided by Utilities; 2. The Council -approved Utilities Strategic Plan with regard to employing balanced environmental solutions; 3. The energy risk management policies; 4. The rate impact limits and the renewable portfolio targets in Long-term Electric Acquisition Plan Guideline (LEAP) #6; 5. The portfolio diversification goals in LEAP Guideline #3; CMR: 166:10 Page 10 of 12 6. The City's Sustainability Policy Statement, adopted April 2, 2001 (CMR 175:01) and revised June 18, 2007 (CMR 260:07); 7. The Green Government Pledge, adopted July 19, 1999 (CMR 284:99); 8. The US Mayors' Climate Protection Agreement; and 9. The Comprehensive Plan, specifically: a. GOAL N-9: A clean, efficient, competitively -priced energy supply that makes use of cost-effective renewable resources. b. POLICY N-44: Maintain Palo Alto's long-term supply of electricity and natural gas while addressing environmental and economic concerns. c. POLICY N-48: Encourage the appropriate use of alternative energy technologies. ENVIRONMENTAL REVIEW Execution of these agreements does not meet the definition of a project, pursuant to section 21065 of the California Environmental Quality Act (CEQA). However, the City intends to receive output from projects that will constitute a project for the purposes of CEQA. Project developers will be responsible for acquiring necessary environmental reviews and permits on projects to be developed. CMR: 166:10 Page 11 of 12 ATTACHMENTS A: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Forward LLC B: Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Forward LLC C: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco San Joaquin LLC D: Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco San Joaquin LLC E: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Avenal LLC F: Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Avenal LLC G: Resolution approving Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Crazy Horse LLC H: Renewable Energy Power Purchase Agreement between Palo Alto and Ameresco Crazy Horse LLC 1: Amendment No. 1 to the Power Purchase Agreement between Palo Alto and Ameresco Crazy Horse LLC PREPARED BY: REVIEWED BY: DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: TOM KABAT Senior Resource Originator JANE RATCHYE Assistant Director, Re rce Management KARL VAN ORSDOL Energy Risk Manager CMR: 166:10 Page 12 of 12 Not Yet Approved ATTACHMENT B Resolution Resolution of the Council of the City of Palo Alto Approving the Long Term Power Purchase Agreement (Landfill Gas Power) with Ameresco San Joaquin LLC for the Purchase of Electricity Generated by Landfill Gas Electric Generating Facilities WHEREAS, the City of Palo Alto (the "City"), a municipal utility and a chartered city is a member of the Northern California Power Agency ("NCPA"); WHEREAS, on March 5, 2007, the City approved eight electric portfolio planning and management guidelines to guide the development and management of the City's long-term electricity acquisition plan; one of the guidelines is to pursue target levels of new renewable resource energy purchases equal to thirty percent (30%) and thirty-three percent (33%) of the City's expected energy load by 2012 and 2015, respectively; WHEREAS, the City is interested in purchasing power generated by renewable resources for the benefit of its electric customers; WHEREAS, by purchasing these sources of renewable energy, the City will help reduce the production of greenhouse gases and assist in reducing volatile organic compound emissions; WHEREAS, Ameresco San Joaquin LLC ("Ameresco") proposed its project in response to the City's Request for Proposals 134307 ("RFP") in November 2009, and it was deemed competitive with other RFP respondents; WHEREAS, the execution of this power purchase agreement with Ameresco is anticipated to enable the City to meet a three -percent portion of its goal of sourcing 33% of its energy needs from renewable electric energy; WHEREAS, the City is allocated a 100 percent share of the power from the initial project, amounting up to 6.2 megawatts of plant net output; WHEREAS, the power purchase agreement allows Ameresco to sell the City additional output, if developed, from engine heat recovery, at the contract price; NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE, as follows: SECTION 1. The Council hereby approves the City' s execution of the long- term Power Purchase Agreement (Landfill Gas Power) made between Ameresco San Joaquin LLC, as Seller, and the City of Palo Alto, as Buyer. The delivery term of the agreement is fifteen (15) years, commencing upon the Commercial Operation Date of 100308 j 0073322 1 Not Yet Approved the planned electric generation facility. Quantity is a 100 percent share of the plant's net output. Spending authority under the agreement is not to exceed one eighty eight million seven hundred thousand dollars ($88,700,000). The City Manager is hereby authorized to sign the agreement with Ameresco San Joaquin LLC and the City Manager or his designee is authorized to sign any confirmations executed in connection with the agreement on behalf of the City. SECTION 2. With respect to the Council's award of the Power Purchase Agreement referred to in Section 1 above, the Council hereby waives the creditworthiness requirements of Palo Alto Municipal Code section 2.30.340(c) as it may apply to Ameresco San Joaquin LLC. SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act and no environmental assessment is required. The County of San Joaquin will be the lead agency for the purposes of compliance with the requirements of the California Environmental Quality Act INTRODUCED AND PASSED: AYES: NOES: ABSENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager Senior Asst. City Attorney Director of Utilities Director of Administrative Services 100308 j 0073322 2 ATTACHMENT C POWER PURCHASE AGREEMENT This Power Purchase Agreement is entered into this day of 2010 (the "Effective Date") by and between the City of Palo Alto, a California chartered municipal corporation and Ameresco San Joaquin LLC, a Delaware limited liability company. RECITALS 1. Seller intends to develop, finance, build, own and operate a Landfill Gas electric generating facility to be located at the Foothill Sanitary Landfill (the "Landfill") located at 6484 N. Waverly Road, Linden, California, on a site leased from San Joaquin County, which owns the Landfill. 2. Buyer is engaged in the procurement and supply of electricity to residential and commercial customers in the City of Palo Alto. 3. Buyer wishes to purchase the Output of the Plant and intends to resell related Energy to its residential and commercial customers. 4. Buyer is willing to purchase, and Seller is willing to sell, the Output of the Plant, on the terms and conditions and at the prices set forth in this Agreement. 5. Seller may determine to incorporate heat recovery equipment to produce additional electrical output to be included and sold as Energy in accordance with the terms of this Agreement. 6. Seller may determine to expand the Plant in the future depending on the availability of Landfill Gas and other factors in accordance with the terms of this Agreement. 7. Buyer will have a right of first refusal to purchase Expansion Plant Output, such right to be exercisable as provided in this Agreement. NOW THEREFORE, in consideration of these premises and the mutual promises set forth below, the Parties agree, as follows. SANFRAN 90103 (2K) AGREEMENT ARTICLE I - DEFINITIONS Initially capitalized terms, whenever used in this Agreement, have the meanings set forth below unless otherwise herein defined. The term "including," when used in this Agreement, shall mean to include "without limitation." 1.1 Agreement: This Power Purchase Agreement, including all appendices, as it may be amended from time to time. 1.2 Availability Threshold: The mechanical availability of the Plant calculated as of the end of each calendar month during the Term as a percentage in accordance with the following: A = 100 x Available Hours Base Hours Where: A = Availability Threshold Available Hours = the number of hours during the prior twenty-four (24) months in which the Plant is capable of delivering Energy to the Point of Interconnection; provided that, to the extent that the Plant is not capable of delivering all of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) in any hour, the Available Hours with respect to such hour shall be reduced pro rata to reflect the fraction of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) the Plant is capable of delivering in such hour. Base Hours = the number of hours during the same twenty-four (24) months period referred to in Available Hours; provided that, to the extent that the Plant is partially or wholly incapable or 2 SANFRAN 90103 (2K) otherwise unable to deliver Energy in any hour as a result of a Force Majeure Event or because of fuel unavailability in any hour due to no fault or negligence of Seller, that hour (or if the Plant's capacity is only partially constrained, the pro rata portion of that hour) shall be excluded from the Base Hours. There shall be no Availability Threshold during the first twelve (12) month period following the Commercial Operation Date. Starting with the thirteenth (13th) month after the Commercial Operation Date and continuing through the twenty-fourth (24th) month, the above formula will be used to determine the Availability Threshold with the exception that both Available Hours and Base Hours will be calculated, starting with the first hour of operation on the Commercial Operation Date and including all relevant hours thereafter to the end of the month relevant. Starting with the twenty-fifth (25th) month, the Availability Threshold shall be calculated on a rolling basis using the previous twenty-four (24) month period. 1.3 Buyer: The City of Palo Alto, a California chartered municipal corporation, and any successor or permitted assignee. 1.4 Commercial Operation: The condition of the Plant (in this instance, Plant shall not include equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is not then installed by Seller) whereupon it (a) is certified by Seller to be complete in accordance with manufacturers' recommendations except for punch list items, and (b) has passed the performance test set forth in Appendix E while synchronized with the LDC System or ISO transmission grid. 1.5 Commercial Operation Date: The date upon which Commercial Operation first occurs. 1.6 Confirmation Notice: As defined in Appendix G. 1.7 Contractual Obligations: As to Seller, any material agreement, instrument or undertaking to which Seller is a party or by which it or any of its property is bound. 1.8 Effective Date: As defined in the first paragraph of this Agreement. SANFRAN 90103 (2K) 3 1.9 Energy: The electricity generated by the Plant and delivered to Buyer by the Seller, pursuant to this Agreement, respectively, at the Point of Interconnection, as expressed in units of kilowatt-hours (kWh) or megawatt - hours (MWh), including Test Energy. 1.10 Environmental Attributes: Any and all credits, benefits, emissions reductions, offsets, and allowances, howsoever entitled, attributable to the generation from the Plant or Expansion Plant(s), as the case may be, and its displacement of conventional energy generation. Environmental Attributes include but are not limited to: (1) any avoided emissions of pollutants to the air, soil or water such as sulfur oxides (SOx), nitrogen oxides (NOx), carbon monoxide (CO) and other pollutants; (2) any avoided emissions of carbon dioxide (CO2), methane (CH4) and other greenhouse gases (GHGs) that have been determined by the United Nations Intergovernmental Panel on Climate Change to contribute to the actual or potential threat of altering the Earth's climate by trapping heat in the atmosphere; and (3) the reporting rights to these avoided emissions such as Green Tag Reporting Rights. Green Tag Reporting Rights are the right of a Green Tag purchaser to report the ownership of accumulated Green Tags in compliance with federal or state law, if applicable, and to a federal or state agency or any other party at the Green Tag purchaser's discretion, and include without limitation those Green Tag Reporting Rights accruing under Section 1605(b) of The Energy Policy Act of 1992 and any present or future federal, state, or local law, regulation or bill, and international or foreign emissions trading program. Green Tags are accumulated on kWh basis and one Green Tag represents the Environmental Attributes associated with one (1) MWh of energy. Environmental Attributes do not include (i) any energy, capacity, reliability or other power attributes from the Plant or Expansion Plant(s), (ii) production tax credits associated with the construction or operation of the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, and other financial incentives in the form of credits, reductions, or allowances associated with the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, that are applicable to a state or federal income taxation obligation, (iii) fuel -related subsidies or "tipping fees" that may be paid to Seller to accept certain fuels, or local subsidies received by the Seller or the owner of the Landfill for the destruction of particular pre-existing pollutants or the promotion of local environmental benefits, or (iv) emission reduction credits encumbered or used by the Plant or 4 SANFRAN 90103 (2K) Expansion Plant(s) for compliance with local, state, or federal operating and/or air quality permits. 1.11 Environmental Attribute Reporting Rights: All rights to report ownership of the Environmental Attributes to any person or entity, under Section 1605(b) of the Energy Policy Act of 1992 or otherwise. 1.12 Environmental Law: Any federal, state and local laws, including statutes, regulations, rulings, orders, administrative interpretations and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances, as amended from time to time. 1.13 Expansion Plant: Any expansion of the Plant from its Initial Capacity, or any other electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Each such expansion of the Plant or additional facility shall be deemed to be an "Expansion Plant." 1.14 Expansion Plant Output: All capacity, energy, associated Environmental Attributes, ancillary services, contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes produced by Seller at any Expansion Plant. 1.15 FERC: Federal Energy Regulatory Commission and its successor organization, if any. 1.16 Fixed Increase For Emission Controls: As defined in Appendix G. 1.17 Force Majeure Event: Any act or event that delays or prevents a Party from timely performing obligations under this Agreement or from complying with conditions required under this Agreement to the extent that such act or event is reasonably unforeseeable and beyond the reasonable control of and without the fault or negligence of the Party relying thereon as justification for such delay, nonperformance, or noncompliance. Force Majeure Events typically include: (i) acts of God or the elements, extreme or severe weather conditions, explosion, fire, epidemic, landslide, mudslide, sabotage, lightning, earthquake, flood or similar cataclysmic event, acts of public enemy, war, blockade, civil insurrection, riot, civil disturbance or strike or other labor difficulty caused or 5 SANFRAN 90103 (2K) suffered by a Party; (ii) any restraint or restriction imposed by law or by rule, regulation or other acts or omissions of governmental authorities, whether federal, state or local which by exercise of due diligence and in compliance with applicable law a Party could not reasonably have been expected to avoid and to the extent which, by exercise of due diligence and in compliance with applicable law, has been unable to overcome (so long as the affected Party has not applied for or assisted such act by a governmental authority); and (iii) electric transmission interruptions or curtailments (not including any such event that results from a failure by Buyer to obtain firm transmission or similar rights, or otherwise to make congestion -related payments); provided that the term "Force Majeure Event" does not include (a) economic conditions that render a Party's performance of this Agreement at the Price unprofitable or otherwise uneconomic (including Buyer's ability to buy Energy or Environmental Attributes at a lower price, or Seller's ability to sell Energy or Environmental Attributes at a higher price, than the Price), (b) a governmental act by Buyer that delays or prevents Buyer from timely performing its obligations under this Agreement, (c) a Plant Outage, including as a result of a failure or shortage of landfill gas, except, in any case, if caused by an event or circumstance that meets the requirements set forth in this Section 1.17 (other than as described in (iii) above), (d) failure or delay in grant of Permits, or (e) failures or delays by the LDC or the ISO in entering into all agreements with Seller contemplated by this Agreement. 1.18 Governmental Authority: Any federal, state or local government, or political subdivision thereof, including, without limitation, any municipality, township or county, or any entity or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any corporation or other entity owned or controlled by any of the foregoing. 1.19 Increase For Emission Controls: As defined in Appendix G. 1.20 Initial Capacity: The installed gross capacity of the Plant on the Commercial Operation Date, such capacity to be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection) and as further specified (and possibly increased from the installed gross capacity (which may increase the net at the Point of Interconnection) of the Plant on the Commercial Operation Date) pursuant to Section 4.3(c). SANFRAN 90103 (2K) 6 1.21 Interconnection: Construction, installation, operation and maintenance of all Interconnection Facilities. 1.22 Interconnection Agreement: The agreement between Seller and LDC pursuant. to which Seller and LDC set forth the terms and conditions for Interconnection of the Plant to the LDC System, as amended from time to time. 1.23 Interconnection Facilities: All the facilities installed for the purpose of interconnecting the Plant to the LDC System, including, but not limited to, transformers and associated equipment, relay and switching equipment and safety equipment. 1.24 ISO: The California Independent System Operator Corporation, or its functional successor. 1.25 kWh: kilowatt-hour. 1.26 Landfill Gas: The gas (and its constituent elements) generated from decomposition of materials deposited in the Landfill. 1.27 LD Amount: The Monthly LD Amount multiplied by 12 (twelve). 1.28 LDC: Pacific Gas and Electric Company, a California corporation. 1.29 LDC System: The electric power generation, transmission, substation and distribution facilities owned, operated and/or maintained by LDC, which shall include, without limitation, after construction and installation, the circuit reinforcements, extensions, and associated terminal facility reinforcements or additions required to interconnect LDC's facilities with the Plant. 1.30 Lender(s): Any Person(s) providing money or extending credit (including any capital lease) to Seller for (i) the construction of the Plant, (ii) the term or permanent financing of the Plant, or (iii) working capital or other ordinary business requirements for the Plant. "Lender(s)" shall not include trade creditors of Seller. 1.31 LFG Agreement: As defined in Section 4.2(d). 7 SANFRAN 90103 (2K) 1.32 Monthly LD Amount: The product of (i) $7000 per MW, (ii) Buyer's Percentage Share and (iii) the Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) specified under Section 4.3(c) (net at the Point of Interconnection). 1.33 MW: Megawatt. 1.34 MWh: Megawatt hour. 1.35 NCPA: The Northern California Power Agency, a joint action agency organized and existing under the laws of the State of California. 1.36 Outage: A physical state in which all or a portion of the Plant is unavailable to provide Energy to the Point of Interconnection, or in which any portion of the LDC System is unavailable to receive Energy, to the extent that the unavailability affects the LDC System's ability to accept delivery of Energy at the Point of Interconnection, whether planned or unplanned. 1.37 Output: All actual capacity of the Initial Capacity and associated Energy, as well as the following, as associated with the Initial Capacity and/or associated Energy: Environmental Attributes; ancillary services; contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes. 1.38 Parties: Buyer and Seller, and their respective successors and permitted assignees. 1.39 Party: Buyer or Seller, and each such Party's respective successors and permitted assignees. 1.40 Percentage Share: One Hundred percent (100%). 1.41 Permits: All material federal, state or local authorizations, certificates, permits, licenses and approvals required by any Governmental Authority for the construction, ownership, operation and maintenance of the Plant (in this 8 SANFRAN 90103 (2K) instance, Plant shall not include the equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is or is not installed by Seller). 1,42 Person: An individual, partnership, corporation (including a business trust), limited liability company, joint stock, company, trust, unincorporated association, joint venture, Governmental Authority or other entity. 1.43 Plant: The generation facility described in Recital 1 to be constructed and owned by Seller and located on the Site for the generation and delivery of electricity, including the step-up transformer, revenue quality meter and all other facilities up to the Point of Interconnection, but not including any Expansion Plant. At any time during the Term, Seller may, in Seller's sole discretion, construct and/or install and own equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Output (Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any such additional Output), provided that such equipment for recovering waste heat shall be become part of the Plant (including, after installation of such equipment, part of the definition of Plant) and shall not be considered an Expansion Plant. 1.44 Point of Interconnection: The point on the electrical system where the Plant is physically interconnected with the LDC System, which is anticipated to be at the high side of Seller's step-up transformers at the Plant. 1.45 Price: As defined in Section 2.3 and Appendix G. 1.46 Production Incentives: Any and all tax credits, deductions, allowances and exemptions applicable to federal, state and local taxes and any other payment, credit, deduction, benefit, grant or monetary incentive provided by any Governmental Authority or any Person, and all air emission credits, reductions or offsets, whether now in effect or arising in the future, in each case arising from the activities contemplated by this Agreement, including the extraction, sale, purchase, processing and/or distribution of Landfill Gas and/or the generation and sale of electricity using Landfill Gas as a fuel, including "Renewable Energy Production Incentive Payments" from the U.S. Department of Energy, emission credits, reductions, offsets or any other 9 SANFRAN 90103 (2K) similar benefits arising from the generation, collection, production, purchase, use, reduction, conversion, destruction or resale of Landfill Gas. Notwithstanding the foregoing, Production Incentives shall not include anything that qualifies as Output, but Production Incentives shall include Section 29 Credits and Section 45 Credits. 1.47 Prudent Utility Practice: Those practices, methods and equipment, as changed from time to time, that: (i) when engaged in are commonly used in the United States of America in prudent electrical engineering and operations to operate landfill gas generation electric equipment and related electrical equipment lawfully and with safety, reliability, efficiency and expedition; or (ii) in the exercise of reasonable judgment considering the facts known, when engaged in could have been expected to achieve the desired result consistent with applicable law, safety, reliability, efficiency and expedition. Prudent Utility Practices are not limited to an optimum practice, method, selection of equipment or act, but rather are a range of acceptable practices, methods, selections of equipment or acts. 1.48 Reimbursement Amount: As defined in Section 4.1(h). 1.49 Required Emission Controls: means any equipment and/or devices that need to be installed, in Seller's sole discretion, to treat engine emissions at the Plant to meet Requirements of Law and/or requirements of law applicable to Seller and/or the Plant (including, without limitation, any permit, any air permit in connection with the Plant, and any approvals in connection with the construction and/or operation of the Plant). Required Emission Controls shall include, without limitation, any (i) Selective Catalytic Reduction equipment or any such other commercially used equipment at such time for nitrogen oxides (NOx) emission reduction, (ii) Oxidizing Catalysts or any such other commercially used equipment at such time for carbon monoxide (CO) reduction, and/or (iii) a Continuous Emission Monitor or any such other commercially used equipment at such time that performs a similar function. 10 SANFRAN 90103 (2K) 1.50 Requirements of Law: Collectively, any federal or state law, treaty, franchise, rule, regulation, order, writ, judgment, injunction, decree, award or determination of any arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon Seller or Buyer or any of their property or to which Seller or Buyer or any of their respective properties are subject. 1.51 San Joaquin County: The County of. San Joaquin, a political subdivision of the State of California with principal offices at 44 N. San Joaquin Street, Suite 627 Stockton, California 95202 1.52 Section 29 Credits: Those tax credits available under Section 29 of Subtitle A, Chap. 1A, Part IV of the Internal Revenue Code of 1986, as amended, as of the Effective Date. 1.53 Section 45 Credits: Those tax credits available under Section 45 of Subtitle A, Chap. 1A, Part IV of the Internal Revenue Code of 1986, as amended, or any other similar federal, state or local tax credits, deductions, payments or benefits arising from the purchase of Landfill Gas or the generation and sale of electricity using Landfill Gas as a fuel, not including any Environmental Attributes. 1.54 Seller: Ameresco San Joaquin LLC, a Delaware limited liability company, and any successor or permitted assignee. 1.55 Seller's Interconnection Costs: As defined in Section 4.1(h). 1.56 Site: The real property in Linden, California on which the Plant is to be built and located, as more particularly described in Appendix A. 1.57 Site Control: The point at which Seller satisfies one or more of the following conditions: (1) Seller is (a) the lessee under a lease, or (b) the grantee under an exclusive easement, with the owner (or its subsidiary) of the Landfill that allows Seller to construct and operate the Plant at the Site during the Term in accordance with this Agreement; (2) Seller has a fee ownership of the Site; or (3) any other form of site control acceptable to Buyer in its reasonable discretion. 1.58 Term: The period of time during which the Agreement is in effect. 11 SANFRAN 90103 (2K) 1.59 Test Energy: Energy generated by the Plant and delivered to the Point of Interconnection prior to the Commercial Operation Date. 1.60 Variable Increase For Emission Controls: As defined in Appendix G. 1.61 WREGIS: Western Renewable Energy Generation Information System, or its successor; provided that the successor is capable of performing substantially similar functions and is acceptable to both Parties. 1.62 WREGIS Certificates: The meaning set forth in WREGIS Operating Rules. 1.63 WREGIS Operating Rules: The rules describing the operations of the Western Renewable Energy Generation Information System, as published by WREGIS and as may be amended from time to time. ARTICLE II TERM, PURCHASE AND SALE 2.1 Term This Agreement shall be effective upon execution by authorized representatives of both Parties and, unless earlier terminated pursuant to an express provision of this Agreement, shall continue until the fifteenth (15th) anniversary of the Commercial Operation Date. 2.2 Purchase and Sale of the Output (a) In accordance with the terms and conditions hereof, commencing on the Commercial Operation Date and continuing throughout the Term, Seller shall sell and deliver at the Point of Interconnection, and Buyer shall purchase, accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output produced during the Term pursuant to the terms of this Agreement. Prior to the Commercial Operation Date, Buyer shall purchase and accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output relating to Test Energy pursuant to the 12 SANFRAN 90103 (2K) terms of this Agreement. All Test Energy shall be scheduled in accordance with the procedures set forth in Appendix D. Seller shall not sell to any other party, and Buyer may claim credit for, Buyer's Percentage Share of the Output as may be available from time to time. (b) Throughout the Term, Seller shall sell and transfer to Buyer, and Buyer shall purchase and receive from Seller, all right, title and interest in and to the Environmental Attributes associated with Buyer's Percentage Share of the Output, if any, whether now existing or subsequently generated or acquired (other than by direct purchase from a third party) by Seller, or that hereafter come into existence, during the Term, as a component of the Output purchased by Buyer from Seller hereunder. Seller agrees to transfer and make such Environmental Attributes available to Buyer immediately to the fullest extent allowed by applicable law upon Seller's production or acquisition of the Environmental Attributes. If Seller receives any tradable Environmental Attributes based on the greenhouse gas reduction benefits or other emission offsets attributed to its fuel usage, it shall be entitled to retain sufficient Environmental Attributes to ensure that there are zero net emissions associated with the production of electricity from such facility. Seller shall not assign, transfer, convey, encumber, sell or otherwise dispose of all or any portion of Buyer's Percentage Share of the Environmental Attributes to any Person other than Buyer. Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any Environmental Attributes. (c) Seller shall use commercially reasonable efforts to use WREGIS to authenticate the transfer of "WREGIS Certificates" from Seller to Buyer in accordance with WREGIS reporting protocols and the terms of this Agreement. Seller shall use commercially reasonable efforts to register the Plant with WREGIS. After the Plant is registered with WREGIS, Seller agrees to use commercially reasonable efforts to transfer WREGIS Certificates to Buyer using the Forward Certificate Transfer method, as described in WREGIS Operating Rules and as designated by Buyer. Buyer shall be responsible for providing required information and taking any action that may be necessary for the registration of the Plant and for transfer of WREGIS Certificates to Buyer's WREGIS account. Except as the Parties may otherwise agree, in writing, in the event that WREGIS is not in operation, or WREGIS does not track Seller's transfer of WREGIS Certificates to Buyer, or its designees, on or before the 30th day of 13 SANFRAN 90103 (2K) each calendar month, Seller shall document the production and transfer of Environmental Attributes under this Agreement by delivering to Buyer an attestation for the Environmental Attributes produced by the Plant, in whole MWh, in the preceding calendar quarter. The form of attestation shall be substantially in the form as set forth in Appendix B. Seller shall be responsible for the WREGIS expenses associated with registering the Plant, maintaining its account, paying the WREGIS Certificates' issuance fees, and transferring WREGIS Certificates to Buyer. Buyer shall be responsible for the WREGIS expenses associated with maintaining its account and subsequent transferring or retiring of WREGIS Certificates. Seller shall, as instructed by Buyer and at Buyer's cost, dispute data with WREGIS. Notwithstanding anything herein to the contrary, if Seller's cost (including labor billed at standard external rates) associated with WREGIS in connection with this Agreement or compliance with this Section 2.2 exceeds $2,500 in any calendar year, Buyer shall reimburse Seller for the amount in excess of $2,500; provided, however, Buyer may designate an alternate accounting system(s), at no cost to Seller, to document or otherwise verify that transfer of RECs or other Environmental Attributes if Seller's WREGIS costs exceed $2,500 in any calendar year. The $2,500 amount shall be escalated at a rate of 1.5% annually, commencing on the first day of the January following the Commercial Operation Date and continuing every subsequent anniversary thereafter. For the purposes of this Section 2.2, "commercially reasonable efforts" shall exclude (i) making any changes to the Plant or any Expansion Plant or the method of operation thereof and (ii) expenditure of any funds other than nominal filing fees. (d) During the Term, Seller shall not report to any person or entity that the Environmental Attributes granted hereunder to Buyer belong to anyone other than Buyer, and Buyer may report under any program that such Environmental Attributes purchased hereunder belong to it. 2.3 Price Subject to the provisions of Section 4.1(k), Buyer shall pay Seller the Price, as determined in Appendix G, per MWh of Energy delivered or tendered to Buyer 14 SANFRPN 90103 (2K) at the Point of Interconnection. The Price shall be the total compensation owed by Buyer for Output delivered or tendered to Buyer hereunder. 2.4 Tax Credits Buyer agrees and acknowledges that all Production Incentives shall be owned by Seller and/or the owner of the Landfill; provided, that to the extent Buyer pays in full for emission offsets and otherwise makes any additional payments pursuant to Section 4.3(j) in full, Seller shall pay Buyer the Percentage Share of up to one hundred percent (100%) of the net economic value (net of reasonable transaction fees) realized by Seller from the Section 45 Credits until Seller has reimbursed Buyer for all such payments made by Buyer pursuant to Section 4.3(j). Buyer shall not claim Production Incentives. Buyer agrees to cooperate with Seller and/or the owner of the Landfill as may be necessary to allow maximization of the value of, and realization of, all Production Incentives; provided that Buyer shall not be required to incur additional costs or accept any diminution in value of its rights under this Agreement or of the Output purchased hereunder. In addition, Buyer shall not take any action (except as otherwise permitted under this Agreement), that would in any way reduce or eliminate the availability to Seller or the owner of the Landfill of any Production Incentive, including without limitation the Section 29 Credits, and Buyer shall forego any credits or benefits available to it (other than Environmental Attributes) to the extent necessary to allow Seller and the owner of the Landfill to obtain the full benefit of the Production Incentives, but in no event shall Buyer be required to forego receipt of Energy. 2.5 Rieht of First Refusal for Expansion Plant and Expansion Plant Output (a) Seller may in its sole discretion determine, from time to time, during the Term to develop, finance, construct and/or operate an Expansion Plant. Each time such a determination is made, Seller shall notify Buyer of such determination and shall offer in writing to sell the Percentage Share of the Expansion Plant Output to Buyer. The offer shall include the price to be paid by Buyer for the Percentage Share of the Expansion Plant Output, the term of the proposed power purchase agreement and the other principal terms and conditions of the proposed sale. If Buyer wishes to accept such offer to purchase all (but not less than all) of such Percentage Share of the Expansion Plant Output, Buyer shall so notify Seller within sixty (60) days of its receipt of such offer. Buyer and Seller shall promptly thereafter enter into good faith 15 SANFRAN 90103 (2K) negotiation of a definitive power purchase agreement incorporating the terms of such offer. Until such an Expansion Plant power purchase agreement is executed, the Seller's proposal, accepted by Buyer (including any modifications agreed upon. in writing by both parties), shall control all dealings between the Parties relating to the Expansion Plant. Should any issue arise that is not covered by such documentation, the terms of this Agreement shall apply. (b) If Buyer does not accept Seller's offer to purchase Buyer's Percentage Share of the Expansion Plant Output within sixty (60) days of receipt of Seller's offer, Seller shall be free to offer to sell that portion of the Expansion Plant Output to any third party at a price and on other terms and conditions which, taken as -a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer. If Seller offers to break up Buyer's Percentage Share of the Expansion Plant Output to sell to multiple independent buyers, Seller shall notify Buyer in writing of the terms and conditions of such offers and Buyer shall again have the right of first refusal consistent with the terms set forth above for each of the lesser amounts being offered to the third parties. If Buyer does not purchase its Percentage Share of the Expansion Plant Output and Seller sells such Expansion Plant Output to a third party, Seller shall promptly certify, in writing, to Buyer that the terms and conditions of sale of such Expansion Plant Output to such third party, taken as a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer, and Seller shall provide the relevant contract and any other supporting documentation for such certification. Upon the sale of such Expansion Plant Output in compliance with this Agreement, Buyer shall have no further rights to be offered or to purchase such Expansion Plant Output. Buyer's refusal of its Percentage Share of the Expansion Plant Output from one Expansion Plant shall not affect Buyer's right to purchase its Percentage Share of the Expansion Plant Output from a later Expansion Plant under the terms of this Agreement. Seller shall not sell or provide Buyer's Percentage Share of the Expansion Plant Output to any third party unless it can do so without compromising in any material way its ability to provide Buyer's Percentage Share of the Output to Buyer hereunder. The materiality of any such impact shall be determined by Buyer in its reasonable discretion. If Seller sells or provides Expansion Plant Output to any third party, Seller shall not employ Landfill Gas to fuel such Expansion Plant in any hour unless the Landfill Gas flow requirements of the Initial Capacity have been, and shall continue to be, met. 16 SANFRAN 90103 (2K} 2.6 Option to Install Emission Controls Buyer may at its option, exercised from time to time, install emission controls on the Plant in connection with the Initial Capacity and on any Expansion Plant from which Buyer purchases Expansion Plant Output (so long as Buyer purchase all such Expansion Plant Output) beyond those then required to meet the Requirements of Law applicable to Seller or the Plant; provided that (a) Buyer shall (i) bear all costs and financial, regulatory and operational risks thereof, including, without limitation, the capital cost thereof and any increase in operation or maintenance expenses, and (ii) shall keep Seller whole in all respects, including for decreases in Output and other adverse effects on the Initial Capacity and the Expansion Plant and its performance, increases in operations and maintenance costs and failures of such emission controls to operate, and (b) Buyer shall not make any such changes to the Initial Capacity or the Expansion Plant without the consent of Seller to the design and plan for implementation of such changes, such approval not to be unreasonably withheld. ARTICLE III METERING AND BILLING 3.1 Metering Requirements The transfer of Energy from Seller to Buyer shall be measured by revenue quality metering equipment at the Point of Interconnection. Such metering equipment, including any equipment required for communicating meter data (e.g., a dedicated data line) to Buyer or the ISO, shall be selected, provided, installed, owned, maintained and operated, at Seller's sole cost and expense, by Seller or its designee in accordance with applicable ISO rules. Seller shall exercise reasonable care in the maintenance and operation of any such metering equipment, and shall test and verify the accuracy of each meter at least annually. Seller shall inform Buyer upon at least ten (10) days' prior written notice of the time and date of these tests, and shall permit Buyer to be present at such tests and to receive the results of such tests. Subject to Buyer paying for its Percentage Share of the cost of any update or upgrade to such metering equipment pursuant to a new requirement of the ISO, the LDC or any 17 SANFRAN 90103 (2K) other Governmental Authority adopted following the Commercial Operation Date, each of Seller's meters shall be accurate to the metering specifications then in effect for ISO meter accuracy. Seller shall further install and maintain all equipment and data circuits necessary to transmit all monitored real time supervisory control and data acquisition ("SCADA") system data and real time data from the ISO meter to the ISO and the NCPA, while adhering to both ISO and NCPA communications protocols. Seller shall provide a copy of each Certificate of Compliance, if any, issued by the ISO. Buyer and NCPA shall be provided access to all monitored SCADA points to be used at their discretion in real time monitoring. Buyer may further, at its sole cost and expense, install and maintain check meters and all associated measuring equipment necessary to permit an accurate determination of the quantities of Energy delivered under this Agreement provided that said equipment does not interfere with the Seller's metering equipment. Seller shall permit Buyer or Buyer's representative access to its Plant for the purpose of installing and maintaining such check meters. Seller shall submit to the ISO, or allow the ISO to retrieve, any meter data required by the ISO related to the Plant output in accordance with the ISO's settlement and billing protocol and meter data tariffs. Buyer shall have reasonable access to relevant meters and associated facilities, as well as real time access to all meter data, as is necessary for Buyer or its agent to perform its duties as scheduling coordinator and comply with the requirements of the ISO tariff. 3.2 Billing Seller shall read the meter at the end of each calendar month of the Term, and provide to Buyer on or before the tenth (10th) day of the following month an invoice based upon the meter data for Energy delivered in such calendar month and the corresponding attestation pursuant to Section 2.2(c) (if such attestation is required). Such invoice may be transmitted electronically via e- mail to [*AcctsPayable@ncpa.com], or to any other email address designated in writing by Buyer, with a copy to follow via United States Mail to the notice address designated below. Should either Seller or Buyer determine at a later date, but in no event later than two (2) years after the original invoice date, that the invoice amount was incorrect, that Party shall promptly notify the other Party of the alleged error. If the amount invoiced was too low, Buyer shall, upon receiving verification of the error and supporting documentation 18 SANFRAN 40103 (2K) from Seller, pay any undisputed portion of the difference within thirty (30) days of receipt of verification. If the amount invoiced was too high, Seller shall, upon receiving verification of the error and supporting documentation from Buyer, pay any undisputed portion of the difference within thirty (30) days of receipt of verification. Any such amount shall be subject to the interest rate as designated in Section 3.3 running from the original due date of payment. 3.3 Payment For Energy delivered to Buyer pursuant this Agreement, Buyer or its agent shall pay Seller by electronic transfer of funds by the later of the twentieth (20th) day of the month or the tenth (10th) business day after the invoice is received in accordance with Section 3.2. If such due date falls on a weekend or legal holiday, such due date shall be the next day which is not a weekend or legal holiday. Payments made after the due date shall be considered late and shall bear interest on the unpaid balance at an annual rate equal to two percent (2%) plus the average daily prime rate as determined from the "Money Rates" section of the West Coast Edition of The Wall Street Journal for the days of the late payment period multiplied by the number of days elapsed from and including the day after the due date, to and including the payment date. Interest shall be computed on the basis of a 365 -day year. In the event this index is discontinued or its basis is substantially modified, the Parties shall agree on a substitute equivalent index. Should Buyer in good faith dispute the amount of an invoice, Buyer or its agent may withhold such disputed amounts until the dispute is resolved by arbitration or other permissible method. Such disputed amounts shall bear interest at the interest rate described above. Failure of Buyer or its agent to withhold any amount is not a waiver of Buyer's right to challenge such amount. Both Parties shall maintain all payment records relating to this Agreement for a minimum of two (2) years, and shall permit the other Party, upon reasonable notice, to inspect and audit such records as the requesting Party deems reasonably necessary to protect its rights. ARTICLE IV SELLER'S OBLIGATIONS 19 SANFRAN 90103 (2K) During the Term, Seller hereby agrees to perform the following affirmative obligations: 4.1 Development, Finance, Construction and Operation of the Plant Seller shall: (a) Develop, finance and construct the Plant. (b) Provide Buyer access to a "real time" Plant monitoring system (which, at a minimum, shall provide "real time" information regarding the net output of the Plant) that is anticipated to be internet-based and include alarms. (c) Seek, obtain, maintain, comply with and, as necessary, renew and modify from time to time, all Permits, certificates or other authorizations which are required by any Requirements of Law or Governmental Authority as prerequisites to engaging in the activities required of Seller by the Agreement and to meeting Seller's obligation to operate the Plant consistently with the terms of the Agreement. (d) Operate, ' maintain,and repair the Plant in accordance with this Agreement, all Requirements of Law applicable to Seller or the Plant, Contractual Obligations, Permits and in accordance with Prudent Utility Practice, including with respect to efforts to maintain availability of the Initial Capacity. (e) Obtain and maintain the policies of insurance in amounts . and with coverages as set forth in Appendix C. (f) Operate and maintain in a manner consistent with Prudent Utility Practice the facilities it will own and otherwise cooperate with LDC in the physical interconnection of the Plant to the LDC System in accordance with the Interconnection Agreement. (g) By October 1st of each year of the Term, provide Buyer and NCPA with an annual projection of scheduled Outages for the following calendar year. Should Seller make any changes to such projection, it will notify Buyer and NCPA of such changes at least fourteen (14) days in advance of any newly scheduled or rescheduled Outage. If Buyer requests a change to the scheduled 20 SANFRAN 90103 (2K) date of any Outage (including to a date set forth in a change notice from Seller), Seller shall consider such request in good faith and notify Buyer of its decision within seven (7) days. In no instance will Seller schedule Outages of more than twenty-four (24) hours between June 1st and September 30th during the Term. In connection with any Outage, whether it is a scheduled or unscheduled Outage, Seller shall notify Buyer and NCPA, as soon as practicable, of the percentage of Plant expected to be out of service and how long the Outage is expected to last. If the Outage is total (a one hundred percent (100%) Outage) and is due to a failure of the Plant rather than the transmission and distribution system beyond the Point of Interconnection, Seller shall give Buyer and NCPA at least four (4) hours notice before Seller commences re -energizing the Plant. In addition, Seller will comply with NCPA's reasonable scheduling protocols, as they may be changed from time to time. A copy of the current version of NCPA's scheduling protocols, which the Parties agree are reasonable, is attached as Appendix D. (h) Negotiate and enter into an Interconnection Agreement with LDC to enable Buyer to transmit Energy received at the Point of Interconnection through the ISO -controlled grid. Seller shall be responsible for and pay all initial non -recurring costs and charges arising under the Interconnection Agreement (even if not actually incurred) prior to the Commercial Operation Date in compliance with the Interconnection Agreement and associated rules and requirements in place as of the Commercial Operation Date (the "Seller's Interconnection Costs"); provided, however, if the Seller's Interconnection Costs are, in Seller's reasonable discretion estimated to exceed, and/or do exceed, one million two hundred fifty thousand dollars ($1,250,000.00), then Seller may terminate this Agreement without liability of either Party to the other by giving notice to Buyer in writing of such termination; provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees to adjust the Price payable under Section 2.3 of this Agreement (and Appendix G hereto) and/or agrees to reimburse Seller more than the maximum Reimbursement Amount (as defined below), and within forty-five (45) days thereafter agrees with Seller in writing (each in their sole discretion) to an amendment of this Agreement revising the Price payable under Section 2.3 of this Agreement (and Appendix G hereto) and/or revising the Reimbursement Amount. All other out-of-pocket costs and charges related to interconnection other than these initial non -recurring costs and charges will be reimbursed, on a pro rata, energy basis, by the purchasers of energy from the Plant. During 21 SANFRAN 90103 (2K) the Term prior to any Expansion Plant becoming available for commercial service, Buyer will reimburse Seller for its Percentage Share of such other out- of-pocket costs and charges under the Interconnection Agreement paid or required to be paid by Seller to LDC or its successor; provided, however, Buyer shall be responsible for its Percentage Share of such other out-of-pocket costs and charges under the Interconnection Agreement only to the extent Buyer has approved in writing, in the sole discretion of Buyer, the Interconnection Agreement, including any amendments (which shall not include changes in relevant tariffs) from time to time. If Seller's Interconnection Costs are above three hundred thousand dollars ($300,000.00), then Buyer shall reimburse (and pay) Seller, on a dollar for dollar basis, an amount equal to the product of (a) the amount (in dollars) equal to the difference between Seller's Interconnection Costs and three hundred thousand dollars ($300,000.00), times (b) 1.5 (the product thereof being the "Reimbursement Amount"); provided, however, the maximum Reimbursement Amount that Buyer shall be obligated to reimburse (pay) to Seller shall be one million four hundred twenty-five thousand dollars ($1,425,000.00). Notwithstanding anything to the contrary in the immediately previous sentence, Seller may terminate this Agreement without liability of either Party to the other Party if Seller's Interconnection Costs (calculated without taking into consideration any Reimbursement Amount) are estimated to exceed and/or do exceed one million two hundred fifty thousand dollars ($1,250,000.00) as provided above in this Section 4.1(h). Buyer shall pay Seller the Reimbursement Amount within thirty (30) days after the Buyer receives an invoice from Seller for such Reimbursement Amount (Seller may send one invoice to Buyer for the entire Reimbursement Amount or Seller may send multiple invoices to Buyer which total the entire Reimbursement Amount). Seller shall not invoice Buyer for any of Seller's Interconnection Costs until Seller's Interconnection Costs have exceeded three hundred thousand dollars ($300,000.00) and Seller shall provide Buyer with evidence of Seller's Interconnection Costs such as the Interconnection Agreement and/or invoices. Upon completion of an Expansion Plant which uses the Interconnection Facilities, such other out-of-pocket costs and charges shall be prorated, on a Percentage Share of energy basis, and Buyer's share would be based on its Percentage Share of Energy compared to the energy of the Expansion Plant delivered to the Point of Interconnection. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. If this Agreement is terminated before the expiration of the Term (before the 15th anniversary of the Commercial Operation Date) by either Party 22 SANFRAN 90103 (2K) and there is no Event of Default by Buyer (no Event of Default by Buyer at the time of the election to terminate (by either Party) through the effective date of the termination), then, to the extent Buyer has paid Seller any Reimbursement Amount prior to the effective date of such termination of this Agreement, Seller shall refund to Buyer a proportion of any such Reimbursement Amount paid by Buyer to Seller within thirty (30) days after the effective date of such termination of this Agreement as set forth in the following sentence in this paragraph. The proportion of the Reimbursement Amount that Seller shall refund to Buyer per the immediately previous sentence shall be an amount equal to the sum of the Reimbursement Amount (to the extent previously paid by Buyer to Seller) multiplied by a fraction, whose numerator is equal to the number of years and full months remaining in the Term, expressed in months, at the effective date of termination and whose denominator is equal to the full Term of the Agreement, expressed in months (or 180 months). (i) Negotiate and enter into a Participating Generator Agreement and a Meter Service Agreement for ISO Metered Entities with the ISO, the load control area operator for the LDC System that is interconnected with the Plant. Buyer shall pay for or reimburse Seller for Buyer's Percentage Share of any such costs or charges associated with these agreements, except to the extent such cost or charge is required to be paid by Seller under Sections 3.1 and 4.1(h) of this Agreement. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (j) Coordinate all Plant start-ups and shut -downs, in whole or in part, with Buyer in accordance with ISO scheduling protocols and the reasonable protocols established by Buyer that are not inconsistent with the ISO tariff and ISO procedures. (k) Maintain an Availability Threshold of at least seventy percent (70%). Should Seller fail to maintain such an Availability Threshold, the Price applicable to Output sold and purchased during each month during which the Availability Threshold is below seventy percent (70%) shall be seven and one- half percent (7.5%) below the Price that would otherwise be in effect pursuant to Section 2.3 (and Appendix G) until the Availability Threshold is increased to at least seventy percent (70%). Except as otherwise expressly stated in Sections 6.4 and 7.6, the foregoing shall be Buyer's sole remedy for any shortfall of or failure to produce Output or failure to maintain any particular Availability Threshold. 23 SANFRAN 90103 (2K) 4.2 GeneralObli2ations (a) Seller shall obtain in its own name and at its own expense any and all pollution or environmental credits or offsets necessary to operate the Plant in compliance with the Environmental Laws. (b) Seller shall keep complete and accurate operating and other records and all other data for the purposes of proper administration of the Agreement, including such records as may be required by any Governmental Authority or Prudent Utility Practice. (c) Seller shall continue to (i) preserve, renew and keep in full force and effect its organizational existence and good standing, and take all reasonable action to maintain all applicable Permits, rights, privileges, licenses and franchises necessary or desirable in the ordinary course of its business; and (ii) comply with all Contractual Obligations and Requirements of Law applicable to Seller or the Plant. (d) Within ninety (90) days after the Effective Date, Seller shall make available for review by Buyer, and its representatives, at Seller's attorney's offices in San Francisco, California, a fully executed copy of its contract with San Joaquin County, including all exhibits, attachments, and other supporting documents thereto, for the purchase of Landfill Gas (the "LFG Agreement"). Such contract may be redacted to remove pricing information. If (i) Seller does not fulfill its obligations under the first two sentences of this Section 4.2(d) within the time allowed, or (ii) Seller fulfills such obligations but Buyer in its reasonable discretion does not approve of the terms of the LFG Agreement, then Buyer may, as its sole remedy and without. liability of one Party to the other Party, terminate this Agreement by written notice given no later than sixty (60) days after Seller has fulfilled, or failed to fulfill, as the case may be, such obligations under such first two sentences. Other than increasing the amount of fuel purchased thereunder, Seller shall not allow such contract to be amended or otherwise modified, nor shall it waive or fail to enforce any of its rights thereunder, without Buyer's prior written approval, whose approval shall not be unreasonably withheld. Seller shall make the LFG Agreement available to Buyer for review during normal business hours at Seller's attorney's offices in San Francisco, California throughout the Term within seven (7) days of receipt of a written request by Buyer. 24 SANFRAN 90103 (2K) (e) Seller shall provide to Buyer such other information regarding the permitting, engineering, construction or operations of the Plant as Buyer may from time to time reasonably request, subject to licensing or other restrictions of Seller or a third party with respect to confidentiality, disclosure or use. (f) Seller shall enter into any agreements with the ISO required by the ISO for generators delivering power into the ISO -controlled grid. Except for such costs and charges as are expressly identified in this Agreement as Seller's costs, Buyer shall reimburse Seller for all costs and charges under such agreements. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (g) Seller shall provide Buyer with a copy of its ultimate corporate parent's audited financial statements as at the end of its accounting year prepared in accordance with Generally Accepted Accounting Principles ("GAAP") consistently applied, no later than four (4) months after the end of such accounting year of such entity. Seller shall also provide, on a quarterly basis, an unaudited financial statement in the form of Appendix F, prepared in accordance with GAAP consistently applied for Seller and for Seller's ultimate corporate parent. Such financial statements shall be certified by an officer of Seller as fairly presenting the financial condition of the Seller subject only to what would typically be included in year-end audit adjustments and footnotes. If, from time to time, an audited year-end financial statement is prepared for Seller, Seller shall provide it to Buyer no later than four (4) months after the end of Seller's accounting year. 4.3 Construction Milestones (a) The Parties agree that time is of the essence and that certain milestones (individually, a "Milestone" and, collectively, the "Milestones") for the development, financing and construction of the Plant must be achieved in a timely fashion or Buyer shall suffer damages. Seller shall provide Buyer with documentation satisfactory to Buyer, in Buyer's reasonable discretion, to support the achievement of the Milestones by the dates set forth below. (b) The following events are all of the Milestones: 25 SANFRAN 90103 (2K) (i) By the date ninety (90) days following the Effective Date, Seller shall have signed an LFG Agreement with San Joaquin County and have obtained Site Control. (ii) By the date twenty-six (26) months following the date that Buyer approves the LFG Agreement, Seller shall (a) have obtained all Permits necessary, in final form, to commence construction of the Plant and (b) have entered into an Interconnection Agreement. (iii) By the date one (1) month following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(ii), and (b) entering into an Interconnection Agreement, Seller shall have arranged financing for construction of the Plant or otherwise made funds available to commence and complete construction. (iv) By the date twelve (12) months following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(ii), and (b) entering into an Interconnection Agreement, Seller shall have commenced construction of the Plant. (v) By the date eighteen (18) months following the arrangement of financing or availability of funds for construction, Seller shall have achieved the Commercial Operation Date. (c) Starting on the Effective Date, Seller shall provide to Buyer monthly progress reports concerning the progress towards completion of the Milestones. In addition, within five (5) business days of the completion of each Milestone, Seller shall provide a certification to Buyer along with any supporting documentation, demonstrating the satisfaction of the Milestone. Seller shall provide to Buyer additional information concerning Seller's progress towards, or confirmation of, achievement of the Milestones, as Buyer may reasonably request from time to time. Within seven (7) days of the later of (i) obtaining the authority to construct for the Plant from the applicable air quality management district or (ii) Seller's receipt of the system impact and facility cost studies from the LDC, but in no event later than the date set forth in Section 4.3(b)(ii), Seller shall specify the Initial Capacity of the Plant (which shall be subject to the limits contained in Section 1.20); provided, however, Seller may (in Seller's sole discretion) increase the Initial Capacity of the Plant at any time during the Term by adding equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy. If Seller decides to increase the Initial Capacity of the Plant during the Term (after Seller has originally 26 SANPRAN 90103 (2K) specified the Initial Capacity of the Plant), then Seller shall provide Buyer with written notice of the date of such increase, the amount of such increase, and the entire capacity of the Plant (as increased) as of such date. The new increased capacity of the Plant shall then become the Initial Capacity of the Plant from the date set forth in Seller's written notice until the end of the Term (the Initial Capacity of the Plant (as increased) shall be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection). Seller makes no written or oral representation or warranty, either express or implied, regarding whether or not Seller will add equipment for recovering waste heat from the prime mover engines of the Plant and/or utilize that waste heat to produce additional Energy. (d) Upon becoming aware that it will, or is reasonably likely to, fail to achieve a Milestone by the required date, for any reason, including a Force Majeure Event, Seller shall so notify Buyer, in writing, as soon as is reasonably practicable. Such notice shall explain the cause of the delay, provide an updated date for achievement of the Milestone(s) and describe Seller's plan for meeting the Milestone. Seller's notice will also explain any impact such delay may or will have on any other Milestone, and measures to be taken to mitigate such impact. (e) In the event that a Force Majeure Event causes any delay to the achievement of the Milestones set forth in Sections 4.3(b)(iii), (iv), or (v), such Milestone's deadline may be extended, together with any Force Majeure Event extensions for other Milestones, for a period not to exceed six (6) months. The extension of the deadline for any Milestone shall extend the deadline for all subsequent Milestones, provided that in no event shall the combined extensions for Force Majeure Events for any or all of the Milestones exceed six (6) months. (f) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(i) for any reason, Buyer may terminate this Agreement, without liability of either Party to the other, by giving notice to Seller in writing of such termination at any time prior to Seller curing its failure. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(i). 27 SANFRAN 90103 (2K) (g) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(ii) for any reason, Buyer may terminate this Agreement, without liability of either Party to the other, within ten (10) business days after the Milestone date by giving notice to Seller in writing of such termination. If Seller meets the Milestone set forth in Section 4.3(b)(ii) prior to Buyer giving written notice of termination, this Agreement shall remain in full force and effect. If Buyer does not terminate this Agreement within ten (10) business days after the Milestone date, Seller shall continue to pursue satisfaction of the relevant Milestone, and Buyer must give Seller sixty (60) days' prior written notice to terminate this Agreement, during which period if Seller cures such defect and achieves the relevant Milestone, such termination shall be void and this Agreement shall remain in full force and effect. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(ii). (h) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(iv) within six (6) months after the relevant Milestone date for any reason (or up to twelve (12) months if also delayed by a Force Majeure Event), Seller may deposit an amount, per month, equal to the Monthly LD Amount into a segregated escrow account reasonably acceptable to Buyer by the first day of such month, for every month after such Milestone date until the Milestone is met. Such funds will be used towards any liquidated damages as set forth in Section 7.4(c), and shall be held in escrow until such time that liquidated damages, if any, become payable to Buyer. Should the amount in the escrow account exceed the final amount of liquidated damages, such excess funds shall be returned to Seller. Should Seller (i) at any time fail to make such monthly deposits or (ii) fail to satisfy the Milestone set forth in Section 4.3(b)(iv) for more than twelve (12) months, Buyer may terminate this Agreement upon written notice to Seller of such termination. Upon such termination, Seller will pay to Buyer, within thirty (30) days of the termination notice, an amount equal to the LD Amount as liquidated damages. Seller's escrow option, Buyer's option to terminate, and liquidated damages shall be Buyer's sole remedies for any failure of Seller to meet the Milestones set forth in Section 4.3(b)(iii) or (iv). (i) Seller covenants that it will diligently pursue all Milestones including the Commercial Operation Date, which Seller envisions will occur within thirty (30) months following the execution of this Agreement. 28 SANFRAN 90103 (2K) (j) In the event that any of the approvals described in Section 4.3(b)(ii) are not obtained by the date specified in Section 4.3(b)(ii) for satisfaction of the relevant Milestone or are obtained on a basis not reasonably satisfactory to Seller, including without limitation, in the case of the air permit (from the air pollution control district that has jurisdiction over construction and operation of the Plant), approval of construction and operation of the Plant on a basis not consistent with internal combustion engines without emission controls, pollution or environmental credits or offsets, Seller may terminate this Agreement without liability of either Party to the other Party by giving notice to Buyer, in writing, of such termination; provided that such notice must be given no later than fourteen (14) days following the earlier of (a) the date on which a given approval not satisfactory to Seller is received, in writing, or (b) the date specified in Section 4.3(b)(ii) for satisfaction of the relevant Milestone; further provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees (i) to pay Seller with the first invoice following the Commercial Operation Date the reasonable all -in cost (including reasonable broker fees, if any) to purchase all such offsets sufficient to operate the Plant at full Initial Capacity (less reasonably projected scheduled Outages for maintenance) for the term of this Agreement, and (11) to adjust the price payable under Section 2.3 (and Appendix 0) of this Agreement and within thirty (30) days thereafter agrees with Seller (each in their sole discretion), in writing, to an amendment of this Agreement revising such price. Failure to provide notice of termination by the date specified above shall constitute a waiver of the right to terminate this Agreement as provided in this Section 4.30). In the event that Seller exercises such termination. right, Buyer shall have a right of first refusal to purchase the output of any electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Such right of first refusal shall conform to the provisions of Section 2.5. The provisions of this Section 4.30) shall survive termination of this Agreement under this Section 4.30) for a period of five (5) years from the effective date of such termination. ARTICLE V BUYER'S OBLIGATIONS 5.1 Delivery and Transmission 29 SANFRAN 90103 (2K) Except for Seller's obligations pursuant to Sections 3.1 and 4.1(h), Buyer shall be solely responsible for paying its Percentage Share of costs and charges associated with the receipt of Energy, under this Agreement, at the Point of Interconnection and for the transmission and delivery of the Energy from the Point of Interconnection to any other point downstream of the Point of Interconnection (including, without limitation, transmission costs and charges, competition transition charges, applicable control area service charges, transmission congestion charges, inadvertent energy flows, any other ISO charges related to the transmission of such Energy by the ISO and any charge assessed or collected in the future pursuant to any utility tariff or rate schedule, however defined, for transmission or transmission -related service rendered by or for any transmission -owning or operating entity). NCPA, acting on behalf of Buyer, shall be scheduling coordinator for the transmission of Energy from the Plant in accordance with applicable ISO rules. Buyer's duties as scheduling coordinator shall be limited to those duties as are specifically required of scheduling coordinators in the ISO tariff and the ISO protocols. Commercial arrangements for such transmission and delivery services will be coordinated and settled by NCPA directly with the ISO or other third parties. At the option of Buyer, the Plant may be included within NCPA's metered sub -system in connection with the scheduling of power over the ISO grid and related functions; provided that such inclusion shall have no adverse effect on Plant operations or Seller (or any such effect shall be fully mitigated by Buyer). Seller will do all things reasonably needed to allow Buyer to comply with any obligations, and minimize any potential liability, under the ISO tariff; provided, that if such actions require any actions beyond the giving of notice provided by Buyer, then Buyer shall reimburse its Percentage Share of all out- of-pocket costs and charges of such actions. If and to the extent that Seller fails to comply with the notice provision in Section 4.1(g) concerning Outages or with its obligations as outlined in the previous sentence, Seller shall be wholly responsible for all imbalances, deviations, or any other ISO charges or penalties associated with such Outage or ISO tariff obligation. Buyer may replace NCPA as Scheduling Coordinator for the Plant. If NCPA ceases to be the Scheduling Coordinator for the Plant and Buyer is unable, within fourteen (14) business days of notice from Seller, to appoint a replacement Scheduling Coordinator, Seller shall have the right to appoint a replacement Scheduling Coordinator on Buyer's behalf, and Buyer shall enter into all reasonable and appropriate agreements with such replacement Scheduling Coordinator at its own cost. 30 SANFRAN 90103 (2K) 5.2 Taxes Buyer shall pay and be fully responsible for any sales, use,. gross receipts, utility or other taxes, assessments or fees, if any, incurred or imposed on the sale or transfer of Energy from Seller to Buyer under this Agreement. Buyer shall not be responsible for any taxes measured on the net income of Seller or ad valorem taxes paid by Seller or San Joaquin County associated with the Site or the Landfill 5.3 Notification of Transmission Outages Buyer will exercise reasonable efforts to provide Seller with as much advance notice as practicable of any Outage on the LDC System or other transmission or delivery facilities which may adversely affect the delivery of Energy to Buyer. ARTICLE VI FORCE MAJEURE 6.1 Force Majeure Events It is understood that at times unavoidable delays or interruptions in delivery or performance may result from Force Majeure Events. The performance of each Party under this Agreement may be subject to interruptions or reductions due to a Force Majeure Event. Both Parties shall in good faith use such effort as is reasonable under all the circumstances known to that Party affected by the Force Majeure Event at the time to remove or remedy the cause(s) and mitigate the inability to perform. However, the obligation to use such reasonable efforts shall not be interpreted to require resolution of labor disputes by acceding to demands of the opposition when such course is inadvisable in the discretion of the Party having such difficulty. 6.2 Remedial Action Subject to the limitation on extensions of Milestones set forth in Section 4.3(e), a Party shall not be liable to the other Party if the Party is prevented 31 SANFAAN 90103 (2K) from performing its obligations hereunder due to a Force Majeure Event. The Party rendered unable to fulfill an obligation by reason of a Force Majeure Event shall take all action necessary to remove such inability with all due speed and diligence. The nonperforming Party shall be prompt and diligent in attempting to remove the cause of its failure to perform, and nothing herein shall be construed as permitting that Party to continue to fail to perform after said cause has been removed. Notwithstanding the foregoing, the existence of a Force Majeure Event shall not excuse any Party from its obligations to make payment of amounts due hereunder. 6.3 Notice In the event of any delay or nonperformance resulting from a Force Majeure Event, the Party suffering the Force Majeure Event shall, as soon as practicable under the circumstances, notify the other Party in writing of the nature, cause, date of commencement thereof and the anticipated extent of any delay or interruption in performance. 6.4 Termination Due To Force Majeure Event Subject to Section 4.3(e), if a Party is prevented from performing its material obligations under this Agreement for a period of twelve (12) consecutive months or longer, the unaffected Party may terminate this Agreement, without liability of either Party to the other, upon thirty (30) days' written notice at any time during the Force Majeure Event. ARTICLE VII DEFAULT/REMEDIES/TERMINATION 7.1 Events of Default by Buyer The following shall each constitute an "Event of Default" by Buyer: (a) Buyer breaches any material obligation (other than one covered by Section 7.1(b) or (c) of this Agreement) and fails to cure such breach within thirty (30) days after the receipt of written notification of breach by Seller or 32 SANFRAN 90103 (2K) such longer period as may be necessary to cure such breach as long as Buyer is exercising diligent efforts to cure such default. (b) Buyer fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Buyer under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Buyer of a voluntary proceeding under the bankruptcy or insolvency laws. 7.2 Events of Default by Seller (1) The following shall each constitute an "Event of Default" by Seller if Seller does not cure within the time set forth in clause (2), below: (a) Seller breaches any material obligation (other than ones covered by Sections 7.2(1)(b), (c), (d), (e) or (f) of this Agreement or for which a remedy is specified). (b) Seller fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Seller under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Seller of a voluntary proceeding under the bankruptcy or insolvency laws. (d) Seller sells or transfers Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof) or the right to Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof), to the extent that such Expansion Plant Output is purchased by Buyer, to any Person other than. Buyer. (e) Seller fails to comply with the terms of Buyer's right of first refusal as described in Section 2.5 of this Agreement. 33 SANFRAN 90103 (2K) (f) Subject to Section 7.4(c), Seller fails, for any reason other than an unauthorized act or omission by Buyer, to achieve the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(v), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e). (2) Time for Cure. Nothing described in any of Sections 7.2(1)(a), (d) or (e) above shall constitute an Event of Default if Seller cures the event, failure or circumstance within (30) days after the receipt of written notification by Buyer or such longer period as may be necessary to cure as long as Seller is exercising diligent efforts to cure. 7.3 Termination for Default. (a) In the event the defaulting Party fails to cure the Event of Default within the period for curative action under Sections 7.1 or 7.2, as applicable, the non - defaulting Party may terminate the Agreement by notifying the defaulting Party in writing of (i) the decision to terminate and (ii) the effective date of the termination. (b) Upon termination of the Agreement by Buyer pursuant to Section 7.3(a) due to an Event of Default by Seller, (i) Buyer shall have no future or further obligation to purchase the Output of the Plant or to make any payment whatsoever under this Agreement, except for payments for obligations arising or accruing prior to the effective date of termination, and (ii) Seller shall, if Buyer has paid in full for emission offsets pursuant to Section 4.3(j), either (A) reimburse Buyer pro rata for any unused such offsets paid for by Buyer or (B) transfer to Buyer title to any unused such offsets paid for by Buyer. Upon termination of the Agreement by Seller pursuant to Section 7.3(a) due to an Event of Default by Buyer, Seller shall have no future or further obligation to deliver the Output of the Plant to Buyer or to satisfy any other obligation of this Agreement, except for payments or other obligations arising or accruing prior to the effective date of termination. After the effective date of termination, the Agreement shall not be construed to provide any residual value to either Party or any successor or any other Person, for rights to, use of or benefits from the Plant to any Person. 7.4 Damages 34 SANFRAN 90103 (2K) (a) For all claims, causes of action and damages the Parties shall be entitled to the recovery of actual damages allowed by law unless otherwise limited by the Agreement. Neither the enumeration of Events of Default in Sections 7.1 and 7.2, nor the termination of this Agreement by a non -defaulting Party pursuant to Section 7.3(a), shall limit the right of a non -defaulting Party to rights and remedies available at law, including, but not limited to, claims for breach of contract or failure to perform by the other Party and for direct damages incurred by the non -defaulting Party as a result of the termination of this Agreement. (b) Except as otherwise specifically and expressly provided in the Agreement, neither Party shall be liable to the other Party under this Agreement for any indirect, special or consequential damages, including but not limited to loss of use, loss of revenues, loss of profit, interest charges, cost of capital or claims of its customers or members to which service is made. Except as set forth in Section 4.1(k) and except to the extent Seller violates its undertaking not to provide or sell rights to part or all of the Output to a party other than Buyer, Seller shall not be liable to Buyer for failure to provide any specific amount of Output hereunder. (c) In the event that Seller fails to meet the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(v), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e), Seller shall be liable for liquidated damages in the amount, per month, equal to the Monthly LD Amount for each full month (with parts of a month pro rated) that Seller is late in satisfying the Milestone. So long as Seller is paying such liquidated damages on a monthly basis, up to twelve (12) months, Buyer shall not be permitted to terminate this Agreement. If after twelve (12) months following the relevant Milestone deadline Seller has failed to achieve Commercial Operation, or if for any reason Seller fails to pay, or discontinues paying, the monthly liquidated damages provided for above, Buyer may terminate this Agreement upon thirty (30) days' prior written notice to Seller. This twelve (12) month period shall not be extended as a result of a Force Majeure Event. Upon such termination, Seller shall pay Buyer, within thirty (30) days of receipt of the termination notice, a lump sum equal to the LD Amount. No other damages or remedy shall be available to Buyer on the basis of such failure to meet the Milestone set forth in Section 4.3(b)(v) or termination of this Agreement based on failure to achieve Commercial Operation within twelve (12) months of that Milestone deadline. 35 SANFRAN 90103 (2K) (d) The Parties agree that the liquidated damages set forth in Sections 4.3(h) and 7.4(c) are reasonable and represent a fair and genuine estimate of the damages Buyer will suffer upon the failure of Seller to achieve Commercial Operation by the agreed upon date(s). The Parties acknowledge that it would be impracticable or extremely difficult to fix Buyer's actual damages, and therefore have deemed the liquidated damages set forth above to be the amount of damage sustained by Buyer upon such a failure. The Parties further agree that payment of such amount shall, be as liquidated damages and not as a penalty, and is therefore not subject to avoidance under California Civil Code section 1671. 73 Indemnification Seller and Buyer agree to defend, indemnify, and hold each other, and their respective officers, directors, employees and agents, harmless from and against all claims, demands, losses, liabilities, and expenses (including reasonable attorneys' fees) (collectively "Damages") for personal injury or death to persons and damage to each other's physical property or facilities or the property of any other Person to the extent arising out of, resulting from, or caused by the negligent or intentional and wrongful acts, errors, or omissions of the indemnifying Party. This indemnification obligation shall apply notwithstanding any negligent or intentional acts, errors or omissions of the indemnitees but the indemnifying Party's liability to pay Damages to the indemnified Party shall be reduced in proportion to the percentage by which the indemnitees' negligent or intentional acts, errors or omissions caused the Damages. Neither Party shall be indemnified for its Damages resulting from its sole negligence or willful misconduct. These indemnity provisions shall not be construed to relieve any insurer of its obligation to pay claims consistent with the provisions of a valid insurance policy. Buyer shall defend, indemnify and hold Seller and its officers, directors, employees and agents harmless from and against all claims, demands, losses, liabilities and expenses (including reasonable attorneys fees) arising out of or connected with the interaction with third parties in connection with WREGIS or any alternate accounting system(s) designated by Buyer. 7.6 Buyer's Right to Operate 36 SANFRAN 90103 (2K) If Seller (i) fails to maintain the Availability Threshold for a period of nine (9) months in any twelve (12) month period, or (ii) fails to generate Energy for sixty (60) consecutive days, then Buyer or its designee may, but shall not be obligated to, step-in and assume operational control from Seller of the Plant; provided that Buyer shall not be permitted to step-in and take control so long as Seller or any Lender(s) is using commercially reasonable efforts to remedy the failures described in (i) or (ii) above. Buyer, its employees, contractors and designees shall have the unrestricted right to enter the Plant to the extent necessary to operate the Plant. Upon the exercise of this right, Buyer or its designee shall at all times operate the Plant using Prudent Utility Practice and shall comply, to the extent commercially practicable, with the terms of this Agreement. Notwithstanding the foregoing, Seller shall not be excused from any obligation or remedy available to Buyer as a result of Buyer's operation of, or election not to operate, the Plant. Buyer shall pay Seller the applicable rate for Output provided hereunder, less any costs incurred by Buyer to operate the Plant. Buyer shall indemnify and hold Seller harmless from any liability to third parties arising out of Buyer's failure to operate the Plant using Prudent Utility Practice. Upon Buyer's satisfaction that Seller has the ability to operate the Plant in accordance with this Agreement, Seller shall resume operational control. Should Lender(s) refuse to finance the Plant, or materially condition such financing, solely as a result of this Section 7.6, and Seller gives Buyer written notice of such refusal to finance, Buyer shall have the following options: (1) terminate this Agreement without liability of one Party to the other Party; (2) renegotiate this Section 7.6 with Seller and Lender(s) in a manner mutually acceptable; (3) delete this Section 7.6 in its entirety (which deletion will not require Seller's additional consent); or (4) arrange for financing for the Plant under materially equivalent terms and conditions as the Lender(s) were prepared to provide but for this Section 7.6. If Buyer fails to elect and complete one of these options within sixty (60) days of written notice from Seller, Seller shall have the right to terminate this Agreement without liability of one Party to the other Party. ARTICLE VIII REPRESENTATIONS AND WARRANTIES 37 SANFAAN 90103 (2K) 8.1 Seller's Representations and Warranties Seller represents and warrants to Buyer that as of the Effective Date: (i) Seller is duly organized and validly existing as a limited liability company under the laws of Delaware, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Seller is duly qualified in each jurisdiction wherein the nature of the business transacted by it makes such qualification necessary; (ii) Seller has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder; all such actions have been duly authorized by all necessary proceedings on its part. As of the Effective Date, (a) the Plant shall on the Commercial Operation Date be a "qualifying small power production facility" as that term is defined in Section 3(17)(C) of the Federal Power Act, and will possess all of the exemptions from regulation provided in 18 CFR Sections 292.601(c) and 292.602; and (b) this Agreement is not required to be filed with FERC and no approval (except with respect to "qualifying small power production facility" status) with respect .to this Agreement is required from FERC. In the event that the Plant is not a "qualifying small power production facility" on the Commercial Operation Date or any date thereafter, Seller shall make appropriate filings under the Federal Power Act within sixty (60) days so as to comply with applicable law, subject at all times to the provisions of Article IX of this Agreement; (iii) The execution, delivery and performance of this Agreement by Seller will not conflict with its governing documents, any applicable laws, or any covenant, agreement, understanding, decree or order to which Seller is a party or by which it is bound or affected; (iv) This Agreement has been duly and validly executed and delivered by Seller and, as of the date firstset forth herein, constitutes a legal, valid and binding obligation of Seller, enforceable in accordance with its terms against Seller, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other 38 SANFRAN 90103 (2K) similar laws affecting the rights of creditors generally or by general principles of equity; and (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Seller, threatened in writing against Seller, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Seller, or to result in any impairment of Seller's ability to perform its obligations under this Agreement. 8.2 Buyer Representations and Warranties Buyer represents and warrants to Seller that as of the Effective Date: (i) Buyer is a chartered city and municipal corporation, duly organized and validly existing, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Buyer is duly qualified in each jurisdiction wherein the nature of the business transacted by it makes such qualification necessary; (ii) Buyer has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder and all such actions have been duly authorized by all necessary proceedings on its part; (iii) The execution, delivery and performance of this Agreement by Buyer will not conflict with its governing documents, any applicable laws or any covenant, agreement, understanding, decree or order to which Buyer is a party or by which it is bound or affected; (iv) This Agreement has been duly and validly executed and delivered by Buyer and, as of the first date set forth herein, constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms against Buyer, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally or by general principles of equity; and 39 SANFRAN 90103 (2K) (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Buyer, threatened in writing against Buyer, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Buyer, or'to result in any impairment of Buyer's ability to perform its obligations under this Agreement. ARTICLE IX NO CHANGE TO RATES, TERMS OR CONDITIONS The Parties intend that the standard of review for changes to any rate, charge, classification, term or condition of this Agreement at FERC shall be the most stringent standard permissible under applicable law. As to the Parties, it is understood that the standard is the "Mobile -Sierra public interest" standard of review, as stated by the United States Supreme Court in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Nos. 06-1457, 128 S.Ct. 2733 (2008), and consistent with the order of the Supreme Court in NRG Power Marketing, LLC, et al., v. Maine Public Utilities Commission et al., No. 08-674, 130 S.Ct. 693 (2010) ("NRG Order"). As to all other persons it is intended that the same standard, to the maximum degree as may be made applicable to other than the Parties, apply, to the maximum degree permitted under the NRG Order. ARTICLE X MISCELLANEOUS 10.1 Assignment The rights and obligations of this Agreement may not be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Seller may use subcontractors without Buyer's consent to comply with the terms of this Agreement, provided that, notwithstanding the use of subcontractors, Seller shall remain responsible for all of its obligations under this Agreement. Buyer may furthermore use any agent it so designates for scheduling and billing purposes, so long as Buyer remains responsible for all 40 SANFRAN 90103 (2K) of its obligations under this Agreement. Any purported' assignment of this Agreement in the absence of the required consent, except as provided in Section 10.2, shall be void. 10.2 Financing Notwithstanding Section 10.1, Seller may, without the consent of Buyer, assign, transfer or hypothecate its rights under this Agreement to Lenders as collateral security in connection with any financing of the purchase or operation of the Plant, provided that such Lender(s) or its designee agree(s), in writing, that upon assuming any of Seller's prospective rights under this Agreement, such Lender also shall be bound by all of Seller's prospective obligations under this Agreement. Notwithstanding any such assignment, Seller's obligations under this Agreement shall continue in their entirety in full force and effect and Seller shall remain fully liable for all of its obligations under or relating to this Agreement. Each such collateral assignment and any purchaser or transferee shall be subject to Buyer's rights and defenses hereunder and under applicable law. Seller shall provide prior written notice to Buyer at least seven (7) days prior to any such collateral assignment. In order to facilitate the obtaining of financing of the Plant, Buyer shall execute, upon request, a commercially reasonable consent to assignment, with respect to a collateral assignment hereof to Lenders in connection with the documentation of the financing or refinancing for the Plant. Any assignment in violation of this Agreement shall be void, ab initio. Buyer shall consider in good faith any amendments to this Agreement proposed by Seller which relate to financing of the Plant or other amendments requested by Seller in order to receive or maintain financing from Lenders. 10.3 Notices Any notice, demand, request, or communication required or authorized by this Agreement shall be delivered either by hand, facsimile, overnight courier or mailed by certified mail, return receipt requested with postage prepaid, to: 41 SANFRAN 90103 (OK) City of Palo Alto 250 Hamilton Avenue, Seventh Floor Palo Alto, CA 94301 Attention: City Clerk Telecopier: (650) 328-3631 on behalf of Buyer; with a copy to: City of Palo Alto 250 Hamilton Avenue, Eighth Floor Palo Alto, CA 94301 Attention: Senior Assistant City Attorney / Utilities Telecopier: (650) 329-2646 and to: City of Palo Alto 250 Hamilton Avenue, Third Floor Palo Alto, CA 94301 Attention: Director of Utilities Telecopier: (650) 321-0651 and to: Northern California Power Agency 651 Commerce Drive Roseville, CA 95678 Attention: Power Contracts Administrator Telecopier: (916) 781-4255 and to: 42 SANFRAN 90103 (2K} Ameresco San Joaquin LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: General Counsel Telecopier: (508) 661-2201 Telephone: (508) 661-2200 with a copy to: Ameresco San Joaquin LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: Senior Vice President, Renewable Energy Telecopier: (5 08) 661-2201 Telephone: (508) 661-2200 on behalf of Seller. The designation and titles of the person to be notified or the address of such person may be changed at any time by written notice delivered in the manner set forth in this Section 10.3. Any such notice, demand, request, or communication shall be deemed received (i) if delivered by hand by a Party or sent by facsimile or (ii) upon receipt by the receiving Party if sent by courier or U.S. mail. 10.4 Captions All titles, subject headings, section titles and similar items are provided for the purpose of reference and convenience and are not intended to be inclusive, definitive or to affect the meaning of the contents or scope of the Agreement. 10.5 No Third Party Beneficiary No provision of the Agreement is intended to, nor shall it in any way, inure to the benefit of any customer, property owner or any other third party, so as to 43 SANFRAN 90103 (2K) constitute any such Person a third -party beneficiary under the Agreement, or of any one or more of the terms hereof, or otherwise give rise to any cause of action in any Person not a Party hereto. 10.6 No Dedication No undertaking by one Party to the other Party under any provision of the Agreement shall constitute the dedication of that Party's system or any portion thereof to the other Party or to the public or affect Seller as an independent entity and not a public utility. 10.7 Entire Agreement; Integration This Agreement, together with all appendices attached hereto, constitutes the entire agreement between the Parties and supersedes any and all prior oral or written understandings. No amendment, addition to or modification of any provision hereof shall be binding upon the Parties, and neither Party shall be deemed to have waived any provision or any remedy available to it, unless such amendment, addition, modification or waiver is in writing and signed by a duly authorized officer or representative of the Parties. 10.8 Applicable Law The Agreement is made in the State of California and shall be interpreted and governed by the laws of the State of California and/or the laws of the United States, as applicable. 10.9 Venue The Parties hereby submit to the exclusive jurisdiction of the federal courts for the Northern District of the State of California; provided, however, that if such federal courts sitting in the Northern District of the State of California refuse jurisdiction, the Parties agree to the exclusive jurisdiction of the state courts sitting in the County of San Francisco, State of California. 10.10 Nature of Relationship The duties, obligations and liabilities of the Parties are intended to be several and not joint or collective. The Agreement shall not be interpreted or 44 SANFRAN 90103 (2K) construed to create an association, joint venture, fiduciary relationship or partnership between Seller and Buyer or to impose any partnership obligation or liability or any trust or agency obligation or relationship upon either Party. Seller and Buyer shall not have any right, power or authority to enter into any agreement or undertaking for, or act on behalf of, or act as or be an agent or representative of or otherwise bind the other Party. 10.11 Good Faith and Fair Dealing; Reasonableness The Parties agree to act reasonably and in accordance with the principles of good faith and fair dealing in the performance of this Agreement. Unless expressly provided otherwise in this Agreement, (i) wherever the Agreement requires the consent, approval or similar action by a Party, such consent, approval or similar action shall not be unreasonably withheld or delayed, and (ii) wherever the Agreement gives a Party a right to determine, require, specify or take similar action with respect to matters, such determination, requirement, specification or similar action shall be reasonable. 10.12 Severability Should any provision of the Agreement be or become void, illegal or unenforceable, the validity or enforceability of the other provisions of the Agreement shall not be affected and shall continue in full force and effect. The Parties will, however, use their best endeavors to agree on the replacement of the void, illegal, or unenforceable provision(s) with legally acceptable clauses which correspond as closely as possible to the sense and purpose of the affected provision. 10.13 Confidentiality All information disclosed by Seller, including, without limitation, all engineering documents, designs, specifications and financial information, shall be kept confidential and shall not be disclosed to any third party except as provided in this Section 10.13. Buyer acknowledges Seller's request to hold all information regarding this Agreement confidential. Buyer shall disclose such information to third parties only to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Notwithstanding the foregoing, either Party may disclose this Agreement to San Joaquin County or its 45 SANFRfN 90103 (2K) representatives, NCPA or its representatives, or to Lender(s) or potential Lender(s) or its/their representatives; provided that prior to such disclosure, the recipient shall agree, in writing, to keep the material confidential under terms no less stringent than as set forth in this Section 10.13. Buyer also shall be permitted to disclose this Agreement and related information to the City Council of Palo Alto for the express purpose of obtaining approval to execute this Agreement; provided that in connection with such disclosure Buyer shall only disclose such information to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Each Party shall be bound by its obligations of confidentiality hereunder for a period of two (2) years from expiration or any earlier termination of this Agreement. Notwithstanding anything to the contrary in this Section 10.13, nothing in this Agreement shall restrict any Party from using or disclosing confidential information in any manner it chooses, which confidential information (i) is or becomes generally available to the public other than as a result of a disclosure directly or indirectly by the disclosing Party or its representative; (ii) was within the using or disclosing Party's possession prior to it being furnished hereunder, provided that such information is not subject to another confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, any other party with respect to such information; (iii) is rightfully obtained by a Party from third parties authorized to make such disclosure without restriction; or (iv) is legally required to be disclosed by judicial, administrative or other governmental action as determined by such Party's attorney acting in good faith (including, but not limited to, the California Constitution, the California Public Records Act and the Brown Act), provided that prompt notice of said judicial or other governmental action shall have been given to the non - disclosing Party and that the non -disclosing Party shall, at its sole cost and expense, be afforded the opportunity (consistent with the legal obligations of the disclosing Party) to exhaust all reasonable legal remedies to maintain the confidential information in confidence. 10.14 Cooperation The Parties agree to reasonably cooperate with each other in the implementation and performance of the Agreement. Such duty to cooperate shall not require either Party to act in a manner inconsistent with its rights under the Agreement., 46 SANF'RAN 90103 (2K) 10.15 Counterparts This Agreement may be executed in two or more counterparts• and by different Parties on separate counterparts, all of which shall be considered one and the same agreement and each of, which shall be deemed an original. 10.16 Financing Notwithstanding anything to the contrary in this Agreement, Seller may terminate this Agreement at its sole discretion without liability of either Party to the other Party if Seller is unable to obtain financing, on terms satisfactory to Seller, for the (i) construction of the Plant, (ii) operations and/or maintenance of the Plant, and/or (iii) working capital or other ordinary business requirements for the Plant. [signature page follows] 47 SANFRAN 90103 (2K) IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the Effective Date. AMERESCO SAN JOAQUIN LLC By Ameresco, Inc., its sole member By: Name: Michael T. Bakas Title: Senior Vice President Date: THE CITY OF PALO ALTO APPROVAL AS TO FORM: By: Name: Grant Kolling Title: Senior Assistant City Attorney Date: CITY OF PALO ALTO By: Name: Lalo Perez Title: Administrative Services Director Date: CITY OF PALO ALTO By: Name: Valerie O. Fong Title: Utilities Director Date: CITY OF PALO ALTO By: Name: James Keene Title: City Manager Date: 48 SANFRAN 90103 (2K) COMMONWEALTH OF MASSACHUSETTS COUNTY OF MIDDLESEX ) SS } On this day of , before me, the undersigned notary public, personally appeared , as the of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco San Joaquin LLC, a Delaware limited liability company, proved to me through satisfactory evidence of identification, which was , to be the person whose name is signed on the preceding document, and acknowledged to me that he signed the preceding document voluntarily for its stated purpose as of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco San Joaquin LLC, a Delaware limited liability company. My Commission expires Notary Public 49 SANFRAN 90103 (2K) APPENDIX A SITE DRAWINGS Seller shall provide to Buyer the final Site Drawings prior to the Commercial Operation Date. 50 SANFRAN 90103 (2K) APPENDIX B FORM OF ATTESTATION Ameresco San Joaquin LLC Environmental Attribute Attestation and Bill of Sale Ameresco San Joaquin LLC ("Ameresco") hereby sells, transfers and delivers to ("Customer") the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid (as such term(s) are defined in the (identify contract) (the "Contract') dated , 20_, between Ameresco and Customer) arising from the generation for delivery to the grid of the energy by the Facility described below: Facility name and location: Fuel Type: Capacity (MW): Operational Date: (for facility that has added renewable capacity, show operational date and amount of new capacity) As applicable: CEC Reg. no. Energy Admin. ID no. Q.F. ID no. Dates MWhrs generated 20 20 20 in the amount of one Environmental Attribute or its equivalent for each megawatt hour generated; and Ameresco further attests, warrants and represents as follows: i) to the best of its knowledge, the information provided herein is true and correct; ii) its sale to Customer is its one and only sale of the Environmental Attributes and associated Environmental Attribute Reporting Rights referenced herein; iii) the Facility generated and delivered to the grid the energy in the amount indicated as undifferentiated energy; and [check one:] iv) Ameresco owns the Facility. iv) to the best of Ameresco's knowledge, each of the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid have been generated and sold by the Facility. This serves as a bill of sale, transferring from Ameresco to Customer all of Ameresco's right, title and interest in and to the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the energy for delivery to the grid. Contact Person: tel: 1-508-661-2200; fax: 1-508-661-2201 WITNESS MY HAND, AMERESCO SAN JOAQUIN LLC By: Ameresco, Inc., its sole member By Its Date: B-1 51 SANFRAN 90103 (2K) APPENDIX C INSURANCE COVERAGES At its own expense, Seller shall secure and maintain during the Term the following insurance with the coverage amounts indicated for occurrences during and arising out of Seller's performance of this Agreement. Such insurance shall be placed with responsible and reputable insurance companies in compliance with Requirements of Law applicable to Seller. 1. Workers' Compensation/Employer's Liability. Seller shall maintain Workers' Compensation Insurance and Employer's Liability Insurance which comply with Requirements of Law applicable to Seller. 2. Automobile Liability. Seller shall maintain Automobile Liability Insurance in compliance with Requirements of Law applicable to Seller, including coverage for owned, non -owned and hired automobiles for both bodily injury (including death) and property damage, including automobile liability contractual endorsement and uninsured/underinsured motorist protection endorsements. 3. Third Party Liability. Seller shall maintain third party liability insurance in compliance with Requirements of Law applicable to Seller on a project -specific basis covering against legal responsibility to others as a result of bodily injury, property damage and personal injury arising from the operation and maintenance of the Plant. Such policy shall be written with a limit of liability not less than $10,000,000 and a deductible not to exceed $10,000. Such liability may be in any combination of primary and excess/umbrella. Coverage shall include, but not be limited to, premises/operations, explosion, collapse, underground hazards, broad form property damage and personal injury liability. Such coverage shall not contain exclusions for punitive or exemplary damages, unless prohibited by law. 52 SANFRAN 90103 (2K) APPENDIX D SCHEDULING PROTOCOLS 1. Prior to three (3) business days before the end of a month, Seller is to provide to NCPA and Buyer a monthly forecast of loads and/or generation for the following month. At a minimum, monthly forecasts will be hourly kilowatt (kW) values by weekday, Saturday, and Sunday/Holiday. 2. No later than 1400 hrs. each Thursday, Seller shall provide a forecast of loads and/or generation for the following week to the extent it is different from the monthly forecast in Paragraph 1. Weekly forecasts will be hourly kW values for each hour of the week. 3. Daily modifications to forecasts. Unless otherwise mutually agreed, Seller may make changes to the weekly forecast by providing such changes to NCPA prior to 0800 hrs. two (2) days before the active scheduling day. a. Example: For power that is scheduled for generation or delivery on Thursday, March 25, 2010, changes must be submitted to NCPA by no later than 0800 hrs. on Tuesday, March 23, 2010. 4. Hourly modifications to active schedules. Unless otherwise mutually agreed, Seller may make changes to active schedules by providing such changes to NCPA with a minimum of four (4) hours' notice before the active hour to be changed. Changes to active schedules are limited to two._ (2) changes per day, excluding forced outages, unless otherwise agreed to between the parties. One request for a schedule change, of one hour or multiple hours duration, constitutes one schedule change. a. Example: For power that is scheduled for generation or delivery in hour ending 1500 hrs. (for the period from 1401 hrs. to 1500 hrs.), changes must be submitted to NCPA no later than 1100 hrs. 5. NCPA is to be notified of all planned or forced generation outages. 6. At Seller's request, NCPA will modify generation and load schedules for unforeseen circumstances in accordance with the above scheduling timeline constraints and NCPA Schedule Coordination Agreement. 53 SANFRAN 90103 (2K) 7. All notices and schedules are to be submitted to NCPA by phone, fax or email to the following persons: Chief Dispatcher/Scheduler. 8. In the absence of forecasts and schedules as noted above, NCPA will utilize the most current information provided by Seller in the development and submission of schedules. 54 SANFRAN 90103 (2K) EXAMPLE FORM OF DAY -AHEAD SCHEDULE For: June , Hour Ended: Expected Capability 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Expected Daily Temperatures, F Low High Contact Information: Scheduling Coordinator: Facility: CITY: SANFRAN 90103 (2K) APPENDIX E PERFORMANCE TEST Seller shall coordinate and schedule, with Buyer, a performance test after completion of all equipment startup and commissioning activities. This performance test may be performed before completing punch list items. Buyer shall be permitted to witness the performance test, including access to and copies of control room logs, control system display screens, and instrumentation data for a reasonable period of time before, during and after the performance test, and may also concurrently conduct a site inspection of the Landfill and Plant and associated facilities, systems and equipment. Seller shall supply a written copy of the performance test results to Buyer within five (5) business days following the conclusion of the test. The performance test shall continue for one hundred twenty (120) consecutive hours (the "Test Period") to demonstrate the following: 1) Net Generator Output: The power output for each generator shall be recorded for the Test Period to verify the net initial capacities. This performance test shall be performed for all engine/generators simultaneously and will be considered successful if the average net output for the Test Period is equal to eighty percent (80%) of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) designated in this Agreement. All power measurements shall be based on a power factor of 0.90. 2) Compliance: The performance test shall also demonstrate the ability of the Plant to comply with all material safety, system reliability, environmental, and other requirements of its permits, this Agreement, any interconnection agreements, and the LFG Agreement. SANFRAN 90103 (2K) 56 APPENDIX F SELLER'S SAMPLE QUARTERLY FINANCIAL STATEMENT Balance Sheets December 31, 2006 and 2007 ASSETS Current assets: Cash and cash equivalents Restricted cash Accounts receivable Prepaid and other current assets Total current assets Other assets: Project assets, net Due from member Debit issuance costs, net Total other assets LIABILITY AND MEMBER'S EQUITY Current liabilities: Current portion of long-term debt Accounts payable Accrued expenses Total current liabilities Long-term liabilities: Long-term debt, less current portion Deferred tax liabilities Total long-term liabilities Member's equity SANFRAN 90103 (2K) 57 Statements of Operations Years Ended December 31, 2006 and 2007 Revenues: Electricity Sales Costs of revenue: Operation and maintenance Depreciation of project assets Gross profit (loss) Operating expenses: Selling, general and administrative Operating income (loss) Interest and other financing costs Income (loss) before tax benefit (provision) Income tax benefit (provision) Net income (loss) SANFRAN 90103 (2K) Statements of Cash Flows Years Ended December 31, 2006 and 2007 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Amortization of deferred issuance costs Deferred taxes Change in assets and liabilities: (Increase) decrease in: Accounts receivable Prepaid expenses Accounts payable Due to (from) member Net cash provided by operating activities Cash flows from investing activities: Accounts payable relating to construction activity Accrued expenses relating to construction activity Purchase of project assets Net cash used in investing activities Cash flows from financing activities: Increase in restricted cash Capital contributions Distributions to member Proceeds from debt issuance Debt issuance costs Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosure of cash flow information: Cash paid during the year for: Interest Income taxes Supplemental disclosure of noncash transactions: Accrued purchases of project assets SANFRAN 90103 (2K) APPENDIX G Buyer shall pay Seller $91.33 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, provided, however, if any Required Emission Controls are installed, prior to the later of the (i) Commercial Operation Date, and (ii) date that is sixty (60) days after the completion of stack tests that Seller is required to perform (in connection with the Plant) by Requirements of Law and/or any permit, then the price Buyer shall pay Seller per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection shall be $91.33 per MWh plus (a) $0.60 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection (the "Fixed Increase For Emission Controls"), plus (b) $0.0000055 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection for each $1.00 of Seller's costs and/or expenses associated with the design, engineering, equipment, installation and commissioning of any and all Required Emission Controls (the "Variable Increase For Emission Controls" and collectively with the Fixed Increase For Emission Controls, the "Increase For Emission Controls"). The Increase For Emission Controls shall not exceed a maximum of $10.01 per MWh. The entire price that Buyer shall pay Seller per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection ($91.33 per MWh plus any Increase For Emission Controls) shall be escalated at a rate of 1.5% (of the then -current price) annually on the anniversary of (i) the first day of the first full month following the Commercial Operation Date or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date. Prior to the later of the (i) Commercial Operation Date, and (ii) a date that occurs sixty (60) days after the completion of stack tests, that Seller is required to perform (in connection with the Plant) by Requirements of Law and/or any permit, Seller may terminate this Agreement without liability of either Party to the other Party, if Seller's costs and/or expenses associated with the design, engineering, equipment, installation and commissioning of the Required Emission Controls are estimated to exceed (and/or do exceed) one million eight hundred twenty thousand dollars ($1,820,000.00), and Seller first communicates such information to Buyer and Seller thereafter provides notice of termination to Buyer, in writing; provided, however, that Seller's notice of termination shall not become effective if Buyer, by written notice to Seller within fourteen (14) days following the receipt of Seller's written notice of termination, agrees to subsequently adjust the Price payable under Section 2.3 of this Agreement (and this Appendix G) and/or agrees to reimburse Seller a mutually agreed amount based upon the amount by which the costs and/or expenses associated with the design, engineering, equipment, installation and commissioning of the Required Emission Controls exceed one million eight hundred twenty thousand dollars ($1,820,000.00) and, within forty-five (45) days following Seller's receipt of Buyer's notice regarding its interest in a Price adjustment and/or reimbursement arrangement, the Parties, in writing, execute an amendment of this Agreement (in each Party's sole discretion), revising the Price payable under Section 2.3 of this Agreement (and this Appendix G) and/or agreeing to a reimbursement amount from Buyer to Seller. Buyer shall pay Seller $91.33 per MWh of Test Energy delivered or tendered to Buyer at the Point of Interconnection; provided, however, that the amount due and/or paid to Seller for Test Energy shall be adjusted (it can only be adjusted up) after the Seller provides Buyer with the Confirmation Notice as further set forth below. SANFRAN 90103 (2K) To, among other things, confirm the price (as set forth in Section 2.3 of the Agreement and this Appendix G) to be paid from Buyer to Seller in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, Seller will provide Buyer with a written notice setting forth fifteen annual price rates (in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection) for the portion of the Term on and after the Commercial Operation Date (as each such annual price rate shall be escalated as set forth in the penultimate sentence of the first paragraph in this Appendix G), starting with the first annual price rate which will be $91.33 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, plus, to the extent applicable, the Increase For Emission Controls (such notice being referred to as the "Confirmation Notice"). The Confirmation Notice shall be (a) provided to Buyer on or prior to the later of the (i) date ten (10) days after the Commercial Operation Date, and (ii) date that is seventy (70) days after the completion of stack tests that Seller is required to perform (in connection with the Plant) by Requirements of Law and/or any permit; and (b) substantially in the form attached hereto in Appendix G-1 (with items in brackets modified and blank spaces filled -in as applicable). If Seller does not provide the Confirmation Notice to Buyer until after the Commercial Operation Date, then the price Buyer shall pay Seller (the price in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection) after the Commercial Operation Date shall be $91.33 per MWh (which shall be paid in accordance with the terms of the Agreement) until the date of the Confirmation Notice to Buyer (at which point such price may increase); provided, however, that after the date of the Confirmation Notice, Seller shall, within sixty (60). days following such date, send a statement to Buyer setting forth any additional amount owed from Buyer to Seller under this Agreement for the time period (during the Term) prior to the date of the Confirmation Notice if the price (in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection) as set forth in the Confirmation Notice is more than $91.33 per MWh during the first year following (i) the first day of the first full month following the Commercial Operation Date or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date. The amount due from Buyer to Seller pursuant to such statement shall be the difference of (a) the product of the total price (in dollars per MWh) for such first year (as set forth in the Confirmation Notice) times the total MWhs of Energy (including Test Energy) delivered or tendered to Buyer at the Point of Interconnection prior to the date of the Confirmation Notice, minus (b) the product of $91.33 times the total MWhs of Energy (including Test Energy) delivered or tendered to Buyer at the Point of Interconnection prior to the date of the Confirmation Notice (nothing in this sentence shall impact Buyer's obligation to also pay Seller $91.33 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection prior to the date of the Confirmation Notice (the payment from Buyer to Seller of the amount set forth in the statement is additional)). Buyer shall pay the amount set forth in such statement to Seller within thirty (30) days of Buyer's receipt of the statement. On and after the date of Confirmation Notice, Buyer shall pay Seller the applicable annual price rate, as set forth in the Confirmation Notice, per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection. Seller's failure to send Buyer a Confirmation Notice shall neither be an Event of Default by Seller nor shall it be cause for Buyer not to pay for Energy delivered or tendered to Buyer at the Point of Interconnection. SANFAAN 90103 (2K) APPENDIX G-1 [Letterhead] [DATE] [VIA 1 City of Palo Alto 250 Hamilton Avenue, Seventh Floor Palo Alto, CA 94301 Attention: City Clerk Re: Power Purchase Agreement — Confirmation Notice Dear City Clerk: Reference is made to the Power Purchase Agreement (the "Power Purchase Agreement"), dated as of [ ], 2010, between the City of Palo Alto ("Buyer") and Ameresco San Joaquin LLC ("Seller"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings given to such terms in the Power Purchase Agreement. In accordance with the terms of Section 2.3 and Appendix G of the Power Purchase Agreement, Seller hereby gives notice (the Confirmation Notice as defined in Appendix G of the Power Purchase Agreement) to Buyer that Seller [has/has not] installed Required Emission Controls [at a cost (including, without limitation, costs and/or expenses associated with the design, engineering, equipment, installation and commissioning of any and all Required Emission Controls) of [S 1]. Therefore, in accordance with the terms of Section 2.3 and Appendix G of the Power Purchase Agreement, the price Buyer shall pay Seller in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection from the Commercial Operation Date until [the first anniversary of (i) the first day of the first full month following the Commercial Operation or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date (Year 1 as set forth in the chart below)] and for each year thereafter [(the final year (15) being a partial year if the Commercial Operation Date does not fall on the first day of the month)] through the remainder of the Term shall be as follows in the chart below: Year Price in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection SANFRhN 90103 (2K) 1 [this column is to be filled -in] 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Sincerely, Ameresco San Joaquin LLC [By: Ameresco, Inc., its sole member] By: Name: Title: Enclosures cc: City of Palo Alto, 250 Hamilton Avenue, Eighth Floor, Palo Alto, CA 94301, Attention: Senior Assistant City Attorney / Utilities (with enclosures and sent via ) City of Palo Alto, 250 Hamilton Avenue, Third Floor, Palo Alto, CA 94301, Attention: Director of Utilities (with enclosures and sent via ) Northern California Power Agency, 651 Commerce Drive, Roseville, CA 95678, Attention: Power Contracts Administrator (with enclosures and sent via ) SANFRAN 90103 (2K) Not Yet Approved ATTACHMENT D Resolution Resolution of the Council of the City of Palo Alto Approving the Long -Term Power Purchase Agreement (Landfill Gas Power) and Amendment No. 1 to Power Purchase Agreement with Ameresco Crazy Horse LLC for the Purchase of Electricity Generated by Landfill Gas Electric Generating Facilities WHEREAS, the City of Palo Alto (the "City"), a municipal utility and a chartered city is a member of the Northern California Power Agency ("NCPA"); WHEREAS, on March 5, 2007, the City approved eight electric portfolio planning and management guidelines to guide the development and management of the City's long-term electricity acquisition plan; one of the guidelines is to pursue target levels of new renewable resource energy purchases equal to thirty percent (30%) and thirty-three percent (33%) of the City's expected energy load by 2012 and 2015, respectively; WHEREAS, the City is interested in purchasing power generated by renewable resources for the benefit of its electric customers; WHEREAS, by purchasing these sources of renewable energy, the City will help reduce the production of greenhouse gases and assist in reducing volatile organic compound emissions; WHEREAS, Ameresco Crazy Horse LLC ("Ameresco") proposed its project in response to the City's Request for Proposals 134307 ("RFP") in November 2009, and it was deemed competitive with other RFP respondents; WHEREAS, the execution of this power purchase agreement with Ameresco (the "Crazy Horse PPA") is anticipated to enable the City to meet a three -percent portion of its goal of sourcing 33% of its energy needs from renewable electric energy; WHEREAS, the City is allocated a 100 percent share of the power from the initial project, amounting to 6.2 megawatts of plant net output; WHEREAS, the Crazy Hose PPA allows Ameresco to sell the City additional output, if developed, from engine heat recovery, at the contract price; and NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE, as follows: SECTION 1. The Council hereby approves the City's execution of both the long-term Power Purchase Agreement (Landfill Gas Power) and the Amendment No. 1 to Power Purchase Agreement, made between Ameresco Crazy Horse LLC, as Seller, 100302 j 0073327 1 Not Yet Approved and the City of Palo Alto, as Buyer. The delivery term of the Power Purchase Agreement is fifteen (15) years, commencing upon the Commercial Operation Date of the planned electric generation facility. Quantity is a 100 percent share of the plant's net output. Spending authority under the Power Purchase Agreement and the Amendment No. 1 to Power Purchase Agreement is not to exceed eighty million seven hundred thousand dollars ($80,700,000). The City Manager is hereby authorized to sign the Power Purchase Agreement and the Amendment No. 1 to Power Purchase Agreement with Ameresco Crazy Horse LLC, and the City Manager or his designee is authorized to sign any confirmations executed in connection with the Power Purchase Agreement and the Amendment No. 1 to Power Purchase Agreement on behalf of the City. SECTION 2. With respect to the Council's approval and award of the Power Purchase Agreement and the Amendment No. 1 to Power Purchase Agreement referred to in Section 1 above, the Council hereby waives the creditworthiness requirements of Palo Alto Municipal Code section 2.30.340(c), as it may apply to Ameresco Crazy Horse LLC. SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act and no environmental assessment is required. The Salinas Valley Solid Waste Authority will be the lead agency for the purposes of compliance with the requirements of the California Environmental Quality Act INTRODUCED AND PASSED: AYES: NOES: ABSENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: Senior Asst. City Attorney City Manager Director of Utilities Director of Administrative Services 100302 i 0073327 2 ATTACHMENT E POWER PURCHASE AGREEMENT This Power Purchase Agreement is entered into this day of 2010 (the "Effective Date") by and between the City of Palo Alto, a California chartered municipal corporation and Ameresco Crazy Horse LLC, a Delaware limited liability company. RECITALS 1. Seller intends to develop, finance, build, own and operate a Landfill Gas electric generating facility to be located at the Crazy Horse Canyon Landfill (the "Landfill") located at 350 Crazy Horse Canyon Road, Salinas, California, on a site leased from Salinas Valley Solid Waste Authority, which owns the Landfill. 2. Buyer is engaged in the procurement and supply of electricity to residential and commercial customers in the City of Palo Alto. 3. Buyer wishes to purchase the Output of the Plant and intends to resell related Energy to its residential and commercial customers. 4. Buyer is willing to purchase, and Seller is willing to sell, the Output of the Plant, on the terms and conditions and at the prices set forth in this Agreement. 5. Seller may determine to incorporate heat recovery equipment to produce additional electrical output to be included and sold as Energy in accordance with the terms of this Agreement. 6. Seller may determine to expand the Plant in the future depending on the availability of Landfill Gas and other factors in accordance with the terms of this Agreement. 7. Buyer will have a right of first refusal to purchase Expansion Plant Output, such right to be exercisable as provided in this Agreement. NOW THEREFORE, in consideration of these premises and the mutual promises set forth below, the Parties agree, as follows. SANFRAN 90103 (2K) AGREEMENT ARTICLE I - DEFINITIONS Initially capitalized terms, whenever used in this Agreement, have the meanings set forth below unless otherwise herein defined. The term "including," when used in this Agreement, shall mean to include "without limitation." 1.1 Agreement: This Power Purchase Agreement, including all appendices, as it may be amended from time to time. 1.2 Availability Threshold: The mechanical availability of the Plant calculated as of the end of each calendar month during the Term as a percentage in accordance with the following: A = 100 x Available Hours Base Hours Where: A = Availability Threshold Available Hours = the number of hours during the prior twenty-four (24) months in which the Plant is capable of delivering Energy to the Point of Interconnection; provided that, to the extent that the Plant is not capable of delivering all of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) in any hour, the Available Hours with respect to such hour shall be reduced pro rata to reflect the fraction of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) the Plant is capable of delivering in such hour. Base Hours = the number of hours during the same twenty-four (24) months period referred to in Available Hours; provided that, to 2 SANFRAN 90103 (2K) the extent that the Plant is partially or wholly incapable or otherwise unable to deliver Energy in any hour as a result of a Force Majeure Event or because of fuel unavailability in any hour due to no fault or negligence of Seller, that hour (or if the Plant's capacity is only partially constrained, the pro rata portion of that hour) shall be excluded from the Base Hours. There shall be no Availability Threshold during the first twelve (12) month period following the Commercial Operation Date. Starting with the thirteenth (13th) month after the Commercial Operation Date and continuing through the twenty-fourth (24th) month, the above formula will be used to determine the Availability Threshold with the exception that both Available Hours and Base Hours will be calculated, starting with the first hour of operation on the Commercial Operation Date and including all relevant hours thereafter to the end of the month relevant. Starting with the twenty-fifth (25th) month, the Availability Threshold shall be calculated on a rolling basis using the previous twenty-four (24) month period. 1.3 Buyer: The City of Palo Alto, a California chartered municipal corporation, and any successor or permitted assignee. 1.4 Commercial Operation: The condition of the Plant (in this instance, Plant shall not include equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is not then installed by Seller) whereupon it (a) is certified by Seller to be complete in accordance with manufacturers' recommendations except for punch list items, and (b) has passed the performance test set forth in Appendix E while synchronized with the LDC System or ISO transmission grid. 1.5 Commercial Operation Date: The date upon which Commercial Operation first occurs. 1.6 Contractual Obligations: As to Seller, any material agreement, instrument or undertaking to which Seller is a party or by which it or any of its property is bound. 1.7 Effective Date: As defined in the first paragraph of this Agreement. SANFRAN 90103 (2K) 3 1.8 Energy: The electricity generated by the Plant and delivered to Buyer by the Seller, pursuant to this Agreement, respectively, at the Point of Interconnection, as expressed in units of kilowatt-hours (kWh) or megawatt - hours (MWh), including Test Energy. 1.9 Environmental Attributes: Any and all credits, benefits, emissions reductions, offsets, and allowances, howsoever entitled, attributable to the generation from the Plant or Expansion Plant(s), as the case may be, and its displacement of conventional energy generation. Environmental Attributes include but are not limited to: (1) any avoided emissions of pollutants to the air, soil or water such as sulfur oxides (SOx), nitrogen oxides (NOx), carbon monoxide (CO) and other pollutants; (2) any avoided emissions of carbon dioxide (CO2), methane (CH4) and other greenhouse gases (GHGs) that have been determined by the United Nations Intergovernmental Panel on Climate Change to contribute to the actual or potential threat of altering the Earth's climate by trapping heat in the atmosphere; and (3) the reporting rights to these avoided emissions such as Green Tag Reporting Rights. Green Tag Reporting Rights are the right of a Green Tag purchaser to report the ownership of accumulated Green Tags in compliance with federal or state law, if applicable, and to a federal or state agency or any other party at the Green Tag purchaser's discretion, and include without limitation those Green Tag Reporting Rights accruing under Section 1605(b) of The Energy Policy Act of 1992 and any present or future federal, state, or local law, regulation or bill, and international or foreign emissions trading program. Green Tags are accumulated on kWh basis and one Green Tag represents the Environmental Attributes associated with one (1) MWh of energy. Environmental Attributes do not include (i) any energy, capacity, reliability or other power attributes from the Plant or Expansion Plant(s), (ii) production tax credits associated with the construction or operation of the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, and other financial incentives in the form of credits, reductions, or allowances associated with the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, that are applicable to a state or federal income taxation obligation, (iii) fuel -related subsidies or "tipping fees" that may be paid to Seller to accept certain fuels, or local subsidies received by the Seller or the owner of the Landfill for the destruction of particular pre-existing pollutants or the promotion of local environmental benefits, or (iv) emission reduction credits encumbered or used by the Plant or Expansion Plant(s) for compliance with local, state, or federal operating and/or air quality permits. 4 SANFRAN 90103 (2K) 1.10 Environmental Attribute Reporting Rights: All rights to report ownership of the Environmental Attributes to any person or entity, under Section 1605(b) of the Energy Policy Act of 1992 or otherwise. 1.11 Environmental Law: Any federal, state and local laws, including statutes, regulations, rulings, orders, administrative interpretations and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances, as amended from time to time. 1.12 Expansion Plant:. Any expansion of the Plant from its Initial Capacity, or any other electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Each such expansion of the Plant or additional facility shall be deemed to be an "Expansion Plant." 1.13 Expansion Plant Output: All capacity, energy, associated Environmental Attributes, ancillary services, contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes produced by Seller at any Expansion Plant. 1.14 FERC: Federal Energy Regulatory Commission and its successor organization, if any. 1.15 Force Majeure Event: Any act or event that delays or prevents a Party from timely performing obligations under this Agreement or from complying with conditions required under this Agreement to the extent that such act or event is reasonably unforeseeable and beyond the reasonable control of and without the fault or negligence of the Party relying thereon as justification for such delay, nonperformance, or noncompliance. Force Majeure Events typically include: (i) acts of God or the elements, extreme or severe weather conditions, explosion, fire, epidemic, landslide, mudslide, sabotage, lightning, earthquake, flood or similar cataclysmic event, acts of public enemy, war, blockade, civil insurrection, riot, civil disturbance or strike or other labor difficulty caused or suffered by a Party; (ii) any restraint or restriction imposed by law or by rule, regulation or other acts or omissions of governmental authorities, whether federal, state or local which by exercise of due diligence and in compliance with applicable law a Party could not reasonably have been expected to avoid SANFRAN 90103 (2K) and to the extent which, by exercise of due diligence and in compliance with applicable law, has been unable to overcome (so long as the affected Party has not applied for or assisted such act by a governmental authority); and (iii) electric transmission interruptions or curtailments (not including any such event that results from.a failure by Buyer to obtain firm transmission or similar rights, or otherwise to make congestion -related payments); provided that the term "Force Majeure Event" does not include (a) economic conditions that render a Party's performance of this Agreement at the Price unprofitable or otherwise uneconomic (including Buyer's ability to buy Energy or Environmental Attributes at a lower price, or Seller's ability to sell Energy or Environmental Attributes at a higher price, than the Price), (b) a governmental act by Buyer that delays or prevents Buyer from timely performing its obligations under this Agreement, (c) a Plant Outage, including as a result of a failure or shortage of landfill gas, except, in any case, if caused by an event or circumstance that meets the requirements set forth in this Section 1.15 (other than as described in (iii) above), (d) failure or delay in grant of Permits, or (e) failures or delays by the LDC or the ISO in entering into all agreements with Seller contemplated by this Agreement. 1.16 Governmental Authority: Any federal, state or local government, or political subdivision thereof, including, without limitation, any municipality, township or county, or any entity or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any corporation or other entity owned or controlled by any of the foregoing. 1.17 Initial Capacity: The installed gross capacity of the Plant on the Commercial Operation Date, such capacity to be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection) and as further specified (and possibly increased from the installed gross capacity (which may increase the net at the Point of Interconnection) of the Plant on the Commercial Operation Date) pursuant to Section 4.3(c). 1.18 Interconnection: Construction, installation, operation and maintenance of all Interconnection Facilities. 1.19 Interconnection Agreement: The agreement between Seller and LDC pursuant to which Seller and LDC set forth the terms and conditions for 6 SANFRAN 90103 (2K) Interconnection of the Plant to the LDC System, as amended from time to time. 1.20 Interconnection Facilities: All the facilities installed for the purpose of interconnecting the Plant to the LDC System, including, but not limited to, transformers and associated equipment, relay and switching equipment and safety equipment. 1.21 ISO: The California Independent System Operator Corporation, or its functional successor. 1.22 kWh: kilowatt-hour. 1.23 Landfill Gas: The gas (and its constituent elements) generated from decomposition of materials deposited in the Landfill. 1.24 LD Amount: The Monthly LD Amount multiplied by 12 (twelve). 1.25 LDC: Pacific Gas and Electric Company, a California corporation. 1.26 LDC System: The electric power generation, transmission, substation and distribution facilities owned, operated and/or maintained by LDC, which shall include, without limitation, after construction and installation, the circuit reinforcements, extensions, and associated terminal facility reinforcements or additions required to interconnect LDC's facilities with the Plant. 1.27 Lender(s): Any Person(s) providing money or extending credit (including any capital lease) to Seller for (i) the construction of the Plant, (ii) the term or permanent financing of the Plant, or (iii) working capital or other ordinary business requirements for the Plant. "Lender(s)" shall not include trade creditors of Seller. 1.28 LFG Agreement: As defined in Section 4.2(d). 1.29 Monthly LD Amount: The product of (i) $7000 per MW, (ii) Buyer's Percentage Share and (iii) the Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering SANFRAN 90103 (2K) 7 waste heat is or is not installed by Seller)) specified under Section 4.3(c) (net at the Point of Interconnection). 1.30 MW: Megawatt. 1.31 MWh: Megawatt hour. 1.32 NCPA: The Northern California Power Agency, a joint action agency organized and existing under the laws of the State of California. 1.33 Outage: A physical state in which all or a portion of the Plant is unavailable to provide Energy to the Point of Interconnection, or in which any portion of the LDC System is unavailable to receive Energy, to the extent that the unavailability affects the LDC System's ability to accept delivery of Energy at the Point of Interconnection, whether planned or unplanned. 1.34 Output: All actual capacity of the Initial Capacity and associated Energy, as well as the following, as associated with the Initial Capacity and/or associated Energy: Environmental Attributes; ancillary services; contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes. 1.35 Parties: Buyer and Seller, and their respective successors and permitted assignees. 1.36 Party: Buyer or Seller, and each such Party's respective successors and permitted assignees. 1.37 Percentage Share: One Hundred percent (100%). 1.38 Permits: All material federal, state or local authorizations, certificates, permits, licenses and approvals required by any Governmental Authority for the construction, ownership, operation and maintenance of the Plant (in this instance, Plant shall not include the equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is or is not installed by Seller). SANFRAN 90103 (2K) 8 1.39 Person: An individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity. 1.40 Plant: The generation facility described in Recital 1 to be constructed and owned by Seller and located on the Site for the generation and delivery of electricity, including the step-up transformer, revenue quality meter and all other facilities up to the Point of Interconnection, but not including any Expansion Plant. At any time during the Tenn, Seller may, in Seller's sole discretion, construct and/or install and own equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Output (Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any such additional Output), provided that such equipment for recovering waste heat shall be become part of the Plant (including, after installation of such equipment, part of the definition of Plant) and shall not be considered an Expansion Plant. 1.41 Point of Interconnection: The point on the electrical system where the Plant is physically interconnected with the LDC System, which is anticipated to be at the high side of Seller's step-up transformers at the Plant. 1.42 Price: As defined in Section 2.3. 1.43 Production Incentives: Any and all tax credits, deductions, allowances and exemptions applicable to federal, state and local taxes and any other payment, credit, deduction, benefit, grant or monetary incentive provided by any Governmental Authority or any Person, and all air emission credits, reductions or offsets, whether now in effect or arising in the future, in each case arising from the activities contemplated by this Agreement, including the extraction, sale, purchase, processing and/or distribution of Landfill Gas and/or the generation and sale of electricity using Landfill Gas as a fuel, including "Renewable Energy Production Incentive Payments" from the U.S. Department of Energy, emission credits, reductions, offsets or any other similar benefits arising from the generation, collection, production, purchase, use, reduction, conversion, destruction or resale of Landfill Gas. Notwithstanding the foregoing, Production Incentives shall not include anything that qualifies as Output, but Production Incentives shall include Section 29 Credits and Section 45 Credits. SANFRAN 90103 (2K) 9 1.44 Prudent Utility Practice: Those practices, methods and equipment, as changed from time to time, that: (i) when engaged in are commonly used in the United States of America in prudent electrical engineering and operations to operate landfill gas generation electric equipment and related electrical equipment lawfully and with safety, reliability, efficiency and expedition; or (ii) in the exercise of reasonable judgment considering the facts known, when engaged in could have been expected to achieve the desired result consistent with applicable law, safety, reliability, efficiency and expedition. Prudent Utility Practices are not limited to an optimum practice, method, selection of equipment or act, but rather are a range of acceptable practices, methods, selections of equipment or acts. 1.45 Reimbursement Amount: As defined in Section 4.1(h). 1.46 Requirements of Law: Collectively, any federal or state law, treaty, franchise, rule, regulation, order, writ, judgment, injunction, decree, award or determination of any arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon Seller or Buyer or any of their property or to which Seller or Buyer or any of their respective properties are subject. 1.47 Salinas Valley Solid Waste Authority: Salinas Valley Solid Waste Authority, a joint powers authority under the laws of the State of California with principal offices at 128 Sun Street, #101, Salinas, California 93901. 1.48 Section 29 Credits: Those tax credits available under Section 29 of Subtitle A, Chap. 1A, Part IV of the Internal Revenue Code of 1986, as amended, as of the Effective Date. 1.49 Section 45 Credits: Those tax credits available under Section 45 of Subtitle A, Chap. 1A, Part IV of the Internal Revenue Code of 1986, as amended, or any other similar federal, state or local tax credits, deductions, payments or benefits arising from the purchase of Landfill Gas or the generation and sale of 10 SANFRAN 90103 (2K) electricity using Landfill Gas as a fuel, not including any Environmental Attributes. 1.50 Seller: Ameresco Crazy Horse LLC, a Delaware limited liability company, and any successor or permitted assignee. 1.51 Seller's Interconnection Costs: As defined in Section 4.1(h). 1.52 Site: The real property in Salinas, California on which the Plant is to be built and located, as more particularly described in Appendix A. 1.53 Site Control: The point at which Seller satisfies one or more of the following conditions: (1) Seller is (a) the lessee under a lease, or (b) the grantee under an exclusive easement, with the owner (or its subsidiary) of the Landfill that allows Seller to construct and operate the Plant at the Site during the Term in accordance with this Agreement; (2) Seller has a fee ownership of the Site; or (3) any other form of site control acceptable to Buyer in its reasonable discretion. 1.54 Term: The period of time during which the Agreement is in effect. 1.55 Test Energy: Energy generated by the Plant and delivered to the Point of Interconnection prior to the Commercial Operation Date. 1.56 WREGIS: Western Renewable Energy Generation Information System, or its successor; provided that the successor is capable of performing substantially similar functions and is acceptable to both Parties. 1.57 WREGIS Certificates: The meaning set forth in WREGIS Operating Rules. 1.58 WREGIS Operating Rules: The rules describing the operations of the Western Renewable Energy Generation Information System, as published by WREGIS and as may be amended from time to time. 11 SANFRAN 90103 (2K) ARTICLE II TERM, PURCHASE AND SALE 2.1 Term This Agreement shall be effective upon execution by authorized representatives of both Parties and, unless earlier terminated pursuant to an express provision of this Agreement, shall continue until the fifteenth (15t11) anniversary of the Commercial Operation Date. 2.2 Purchase and Sale of the Output (a) In accordance with the terms and conditions hereof, commencing on the Commercial Operation Date and continuing throughout the Term, Seller shall sell and deliver at the Point of Interconnection, and Buyer shall purchase, accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output produced during the Term pursuant to the terms of this Agreement. Prior to the Commercial Operation Date, Buyer shall purchase and accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output relating to Test Energy pursuant to the terms of this Agreement. All Test Energy shall be scheduled in accordance with the procedures set forth in Appendix D. Seller shall not sell to any other party, and Buyer may claim credit for, Buyer's Percentage Share of the Output as may be available from time to time. (b) Throughout the Term, Seller shall sell and transfer to Buyer, and Buyer shall purchase and receive from Seller, all right, title and interest in and to the Environmental Attributes associated with Buyer's Percentage Share of the Output, if any, whether now existing or subsequently generated or acquired (other than by direct purchase from a third party) by Seller, or that hereafter come into existence, during the Term, as a component of the Output purchased by Buyer from Seller hereunder. Seller agrees to transfer and make such Environmental Attributes available to Buyer immediately to the fullest extent allowed by applicable law upon Seller's production or acquisition of the Environmental Attributes. If Seller receives any tradable Environmental Attributes based on the greenhouse gas reduction benefits or other emission offsets attributed to its fuel usage, it shall be entitled to retain sufficient Environmental Attributes to ensure that there are zero net emissions associated 12 SANFRAN 90103 (2K) with the production of electricity from such facility. Seller shall not assign, transfer, convey, encumber, sell or otherwise dispose of all or any portion of Buyer's Percentage Share of the Environmental Attributes to any Person other than Buyer. Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any Environmental Attributes. (c) Seller shall use commercially reasonable efforts to use WREGIS to authenticate the transfer of "WREGIS Certificates" from Seller to Buyer in accordance with WREGIS reporting protocols and the terms of this Agreement. Seller shall use commercially reasonable efforts to register the Plant with WREGIS. After the Plant is registered with WREGIS, Seller agrees to use commercially reasonable efforts to transfer WREGIS Certificates to Buyer using the Forward Certificate Transfer method, as described in WREGIS Operating Rules and as designated by Buyer. Buyer shall be responsible for providing required information and taking any action that may be necessary for the registration of the Plant and for transfer of WREGIS Certificates to Buyer's WREGIS account. Except as the Parties may otherwise agree, in writing, in the event that WREGIS is not in operation, or WREGIS does not track Seller's transfer of WREGIS Certificates to Buyer, or its designees, on or before the 30th day of each calendar month, Seller shall document the production and transfer of Environmental Attributes under this Agreement by delivering to Buyer an attestation for the Environmental Attributes produced by the Plant, in whole MWh, in the preceding calendar quarter. The form of attestation shall be substantially in the form as set forth in Appendix B. Seller shall be responsible for the WREGIS expenses associated with registering the Plant, maintaining its account, paying the WREGIS Certificates' issuance fees, and transferring WREGIS Certificates to Buyer. Buyer shall be responsible for the WREGIS expenses associated with maintaining its account and subsequent transferring or retiring of WREGIS Certificates. Seller shall, as instructed by Buyer and at Buyer's cost, dispute data with WREGIS. Notwithstanding anything herein to the contrary, if Seller's cost (including labor billed at standard external rates) associated with WREGIS in connection with this Agreement or compliance with this Section 2.2 exceeds $2,500 in any calendar year, Buyer shall reimburse Seller for the amount in excess of $2,500; provided, however, Buyer may designate an alternate accounting system(s), at no cost to Seller, to document or otherwise 13 SANFRAN 90103 (2K) verify that transfer of RECs or other Environmental Attributes if Seller's WREGIS costs exceed $2,500 in any calendar year. The $2,500 amount shall be escalated at a rate of 1.5% annually, commencing on the first day of the January following the Commercial Operation Date and continuing every subsequent anniversary thereafter. For the purposes of this Section 2.2, "commercially reasonable efforts" shall exclude (i) making any changes to the Plant or any Expansion Plant or the method of operation thereof and (ii) expenditure of any funds other than nominal filing fees. (d) During the Term, Seller shall not report to any person or entity that the Environmental Attributes granted hereunder to Buyer belong to anyone other than Buyer, and Buyer may report under any program that such Environmental Attributes purchased hereunder belong to it. 2.3 Price Subject to the provisions of Section 4.1(k), Buyer shall pay Seller $92.08 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, which price shall be escalated at a rate of 1.5% (of the then -current price) annually on the anniversary of (i) the first day of the first full month following the Commercial Operation Date or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date. The Price shall be the total compensation owed by Buyer for Output delivered or tendered to Buyer hereunder. 2.4 Tax Credits Buyer agrees and acknowledges that all Production Incentives shall be owned by Seller and/or the owner of the Landfill; provided, that to the extent Buyer pays in full for emission offsets and otherwise makes any additional payments pursuant to Section 4.3(j) in full, Seller shall pay Buyer the Percentage Share of up to one hundred percent (100%) of the net economic value (net of reasonable transaction fees) realized by Seller from the Section 45 Credits until Seller has reimbursed Buyer for all such payments made by Buyer pursuant to Section 4.3(j). Buyer shall not claim Production Incentives. Buyer agrees to cooperate with Seller and/or the owner of the Landfill as may be necessary to allow maximization of the value of, and realization of, all 14 SANFRAN 90103 (2K) Production Incentives; provided that Buyer shall not be required to incur additional costs or accept any diminution in value of its rights under this Agreement or of the Output purchased hereunder. In addition, Buyer shall not take any action (except as otherwise permitted under this Agreement), that would in any way reduce or eliminate the availability to Seller or the owner of the Landfill of any Production Incentive, including without limitation the Section 29 Credits, and Buyer shall forego any credits or benefits available to it (other than Environmental Attributes) to the extent necessary to allow Seller and the owner of the Landfill to obtain the full benefit of the Production Incentives, but in no event shall Buyer be required to forego receipt of Energy. 2.5 Right of First Refusal for Expansion Plant and Expansion Plant Output (a) Seller may in its sole discretion determine, from time to time, during the Term to develop, finance, construct and/or operate an Expansion Plant. Each time such a determination is made, Seller shall notify Buyer of such determination and shall offer in writing to sell the Percentage Share of the Expansion Plant Output to Buyer. The offer shall include the price to be paid by Buyer for the Percentage Share of the Expansion Plant Output, the term of the proposed power purchase agreement and the other principal terms and conditions of the proposed sale. If Buyer wishes to accept such offer to purchase all (but not less than all) of such Percentage Share of the Expansion Plant Output, Buyer shall so notify Seller within sixty (60) days of its receipt of such offer. Buyer and Seller shall promptly thereafter enter into good faith negotiation of a definitive power purchase agreement incorporating the terms of such offer. Until such an Expansion Plant power purchase agreement is executed, the Seller's proposal, accepted by Buyer (including any modifications agreed upon in writing by both parties), shall control all dealings between the Parties relating to the Expansion Plant. Should any issue arise that is not covered by such documentation, the terms of this Agreement shall apply. (b) If Buyer does not accept Seller's offer .to purchase Buyer's Percentage Share of the Expansion Plant Output within sixty (60) days of receipt of Seller's offer, Seller shall be free to offer to sell that portion of the Expansion Plant Output to any third party at a price and on other terms and conditions which, taken as a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer. If Seller offers to break up Buyer's Percentage Share of the Expansion Plant Output to sell to SANFRAN 90103 (2K) 15 multiple independent buyers, Seller shall notify Buyer in writing of the terms and conditions of such offers and Buyer shall again have the right of first refusal consistent with the terms set forth above for each of the lesser amounts being offered to the third parties. If Buyer does not purchase its Percentage Share of the Expansion Plant Output and Seller sells such Expansion Plant Output to a third party, Seller shall promptly certify, in writing, to Buyer that the terms and conditions of sale of such Expansion Plant Output to such third party, taken as a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer, and Seller shall provide the relevant contract and any other supporting documentation for such certification. Upon the sale of such Expansion Plant Output in compliance with this Agreement, Buyer shall have no further rights to be offered or to purchase such Expansion Plant Output. Buyer's refusal of its Percentage Share of the Expansion Plant Output from one Expansion Plant shall not affect Buyer's right to purchase its Percentage Share of the Expansion Plant Output from a later Expansion Plant under the terms of this Agreement. Seller shall not sell or provide Buyer's Percentage Share of the Expansion Plant Output to any third party unless it can do so without compromising in any material way its ability to provide Buyer's Percentage Share of the Output to Buyer hereunder. The materiality of any such impact shall be determined by Buyer in its reasonable discretion. If Seller sells or provides Expansion Plant Output to any third party, Seller shall not employ Landfill Gas to fuel such Expansion Plant in any hour unless the Landfill Gas flow requirements of the Initial Capacity have been, and shall continue to be, met. 2.6 Option to Install Emission Controls Buyer may at its option, exercised from time to time, install emission controls on the Plant in connection with the Initial Capacity and on any Expansion Plant from which Buyer purchases Expansion Plant Output (so long as Buyer purchase all such Expansion Plant Output) beyond those then required to meet the Requirements of Law applicable to Seller or the Plant; provided that (a) Buyer shall (i) bear all costs and financial, regulatory and operational risks thereof, including, without limitation, the capital cost thereof and any increase in operation or maintenance expenses, and (ii) shall keep Seller whole in all respects, including for decreases in Output and other adverse effects on the Initial Capacity and the Expansion Plant and its performance, increases in operations and maintenance costs and failures of such emission controls to operate, and (b) Buyer shall not make any such changes to the Initial Capacity 16 SANFRAN 90103 (2K) or the Expansion Plant without the consent of Seller to the design and plan for implementation of such changes, such approval not to be unreasonably withheld. ARTICLE III METERING AND BILLING 3.1 Metering Requirements The transfer of Energy from Seller to Buyer shall be measured by revenue quality metering equipment at the Point of Interconnection. Such metering equipment, including any equipment required for communicating meter data (e.g., a dedicated data line) to Buyer or the ISO, shall be selected, provided, installed, owned, maintained and operated, at Seller's sole cost and expense, by Seller or its designee in accordance with applicable ISO rules. Seller shall exercise reasonable care in the maintenance and operation of any such metering equipment, and shall test and verify the accuracy of each meter at least annually. Seller shall inform Buyer upon at least ten (10) days' prior written notice of the time and date of these tests, and shall permit Buyer to be present at such tests and to receive the results of such tests. Subject to Buyer paying for its Percentage Share of the cost of any update or upgrade to such metering equipment pursuant to a new requirement of the ISO, the LDC or any other Governmental Authority adopted following the Commercial Operation Date, each of Seller's meters shall be accurate to the metering specifications then in effect for ISO meter accuracy. Seller shall further install and maintain all equipment and data circuits necessary to transmit all monitored real time supervisory control and data acquisition ("SCADA") system data and real time data from the ISO meter to the ISO and the NCPA, while adhering to both ISO and NCPA communications protocols. Seller shall provide a copy of each Certificate of Compliance, if any, issued by the ISO. Buyer and NCPA shall be provided access to all monitored SCADA points to be used at their discretion in real time monitoring. Buyer may further, at its sole cost and expense, install and maintain check meters and all associated measuring equipment necessary to permit an accurate determination of the quantities of Energy delivered under this Agreement provided that said equipment does not interfere with the Seller's metering equipment. Seller SANFRAN 90103 (2K) 17 shall permit Buyer or Buyer's representative access to its Plant for the purpose of installing and maintaining such check meters. Seller shall submit to the ISO, or allow the ISO to retrieve, any meter data required by the ISO related to the Plant output in accordance with the ISO's settlement and billing protocol and meter data tariffs. Buyer shall have reasonable access to relevant meters and associated facilities, as well as real time access to all meter data, as is necessary for Buyer or its agent to perform its duties as scheduling coordinator and comply with the requirements of the ISO tariff. 3.2 Billing Seller shall read the meter at the end of each calendar month of the Term, and provide to Buyer on or before the tenth (10th) day of the following month an invoice based upon the meter data for Energy delivered in such calendar month and the corresponding attestation pursuant to Section 2.2(c) (if such attestation is required). Such invoice may be transmitted electronically via e- mail to [*AcctsPayable@ncpa.com], or to any other email address designated in writing by Buyer, with a copy to follow via United States Mail to the notice address designated below. Should either Seller or Buyer determine at a later date, but in no event later than two (2) years after the original invoice date, that the invoice amount was incorrect, that Party shall promptly notify the other Party of the alleged error. If the amount invoiced was too low, Buyer shall, upon receiving verification of the error and supporting documentation from Seller, pay any undisputed portion of the difference within thirty (30) days of receipt of verification. If the amount invoiced was too high, Seller shall, upon receiving verification of the error and supporting documentation from Buyer, pay any undisputed portion of the difference within thirty (30) days of receipt of verification. Any such amount shall be subject to the interest rate as designated in Section 3.3 running from the original due date of payment. 3.3 Payment For Energy delivered to Buyer pursuant this Agreement, Buyer or its agent shall pay Seller by electronic transfer of funds by the later of the twentieth (20th) day of the month or the tenth (10th) business day after the invoice is received in accordance with Section 3.2. If such due date falls on a weekend or legal holiday, such due date shall be the next day which is not a weekend or 18 SANFRAN 90103 (2K) legal holiday. Payments made after the due date shall be considered late and shall bear interest on the unpaid balance at an annual rate equal to two percent (2%) plus the average daily prime rate as determined from the "Money Rates" section of the West Coast Edition of The Wall Street Journal for the days of the late payment period multiplied by the number of days elapsed from and including the day after the due date, to and including the payment date. Interest shall be computed on the basis of a 365 -day year. In the event this index is discontinued or its basis is substantially modified, the Parties shall agree on a substitute equivalent index. Should Buyer in good faith dispute the amount of an invoice, Buyer or its agent may withhold such disputed amounts until the dispute is resolved by arbitration or other permissible method. Such disputed amounts shall bear interest at the interest rate described above. Failure of Buyer or its agent to withhold any amount is not a waiver of Buyer's right to challenge such amount. Both Parties shall maintain all payment records relating to this Agreement for a minimum of two (2) years, and shall permit the other Party, upon reasonable notice, to inspect and audit such records as the requesting Party deems reasonably necessary to protect its rights. ARTICLE IV SELLER'S OBLIGATIONS During the Term, Seller hereby agrees to perform the following affirmative obligations: 4.1 Development, Finance, Construction and Operation of the Plant Seller shall: (a) Develop, finance and construct the Plant. (b) Provide Buyer access to a "real time" Plant monitoring system (which, at a minimum, shall provide "real time" information regarding the net output of the Plant) that is anticipated to be internet-based and include alarms. (c) Seek, obtain, maintain, comply with and, as necessary, renew and modify from time to time, all Permits, certificates or other authorizations SANFRAN 90103 (2K) I9 which are required by any Requirements of Law or Governmental Authority as prerequisites to engaging in the activities required of Seller by the Agreement and to meeting Seller's obligation to operate the Plant consistently with the terms of the Agreement. (d) Operate, maintain, and repair the Plant in accordance with this Agreement, all Requirements of Law applicable to Seller or the Plant, Contractual Obligations, Permits and in accordance with Prudent Utility Practice, including with respect to efforts to maintain availability of the Initial Capacity. (e) Obtain and maintain the policies of insurance in amounts and with coverages as set forth in Appendix C. (f) Operate and maintain in a manner consistent with Prudent Utility Practice the facilities it will own and otherwise cooperate with LDC in the physical interconnection of the Plant to the LDC System in accordance with the Interconnection Agreement. (g) By October 1st of each year of the Term, provide Buyer and NCPA with an annual projection of scheduled Outages for the following calendar year. Should Seller make any changes to such projection, it will notify Buyer and NCPA of such changes at least fourteen (14) days in advance of any newly scheduled or rescheduled Outage. If Buyer requests a change to the scheduled date of any Outage (including to a date set forth in a change notice from Seller), Seller shall consider such request in good faith and notify Buyer of its decision within seven (7) days. In no instance will Seller schedule Outages of more than twenty-four (24) hours between June 1st and. September 30th during the Term. In connection with any Outage, whether it is a scheduled or unscheduled Outage, Seller shall notify Buyer and NCPA, as soon as practicable, of the percentage of Plant expected to be out of service and how long the Outage is expected to last. If the Outage is total (a one hundred percent (100%) Outage) and is due to a failure of the Plant rather than the transmission and distribution system beyond the Point of Interconnection, Seller shall give Buyer and NCPA at least four (4) hours notice before Seller commences re -energizing the Plant. In addition, Seller will comply with NCPA's reasonable scheduling protocols, as they may be changed from time to time. A copy of the current version of NCPA's scheduling protocols, which the Parties agree are reasonable, is attached as Appendix D. SANFRAN 90103 (2K) 20 (h) Negotiate and enter into an Interconnection Agreement with LDC to enable Buyer to transmit Energy received at the Point of Interconnection through the ISO -controlled grid. Seller shall be responsible for and pay all initial non -recurring costs and charges arising under the Interconnection Agreement (even if not actually incurred) prior to the Commercial Operation Date in compliance with the Interconnection Agreement and associated rules and requirements in place as of the Commercial Operation Date (the "Seller's Interconnection Costs"); provided, however, if the Seller's Interconnection Costs are, in Seller's reasonable discretion estimated to exceed, and/or do exceed, one million two hundred fifty thousand dollars ($1,250,000.00), then Seller may terminate this Agreement without liability of either Party to the other by giving notice to Buyer in writing of such termination; provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees to adjust the Price payable under Section 2.3 of this Agreement and/or agrees to reimburse Seller more than the maximum Reimbursement Amount (as defined below), and within forty-five (45) days thereafter agrees with Seller in writing (each in their sole discretion) to an amendment of this Agreement revising the Price payable under Section 2.3 of this Agreement and/or revising the Reimbursement Amount. All other out-of-pocket costs and charges related to interconnection other than these initial non -recurring costs and charges will be reimbursed, on a pro rata, energy basis, by the purchasers of energy from the Plant. During the Term prior to any Expansion Plant becoming available for commercial service, Buyer will reimburse Seller for its Percentage Share of such other out-of-pocket costs and charges under the Interconnection Agreement paid or required to be paid by Seller to LDC or its successor; provided, however, Buyer shall be responsible for its Percentage Share of such other out-of-pocket costs and charges under the Interconnection Agreement only to the extent Buyer has approved in writing, in the sole discretion of Buyer, the Interconnection Agreement, including any amendments (which shall not include changes in relevant tariffs) from time to time. If Seller's Interconnection Costs are above three hundred thousand dollars ($300,000.00), then Buyer shall reimburse (and pay) Seller, on a dollar for dollar basis, an amount equal to the product of (a) the amount (in dollars) equal to the difference between Seller's Interconnection Costs and three hundred thousand dollars ($300,000.00), times (b) 1.5 (the product thereof being the "Reimbursement Amount"); provided, however, the maximum Reimbursement Amount that Buyer shall be obligated to reimburse (pay) to SANFRAN 90103 (2K) 21 Seller shall be one million four hundred twenty-five thousand dollars ($1,425,000.00). Notwithstanding anything to the contrary in the immediately previous sentence, Seller may terminate this Agreement without liability of either Party to the other Party if Seller's Interconnection Costs (calculated without taking into consideration any Reimbursement Amount) are estimated to exceed and/or do exceed one million two hundred fifty thousand dollars ($1,250,000.00) as provided above in this Section 4.1(h). Buyer shall pay Seller the Reimbursement Amount within thirty (30) days after the Buyer receives an invoice from Seller for such Reimbursement Amount (Seller may send one invoice to Buyer for the entire Reimbursement Amount or Seller may send multiple invoices to Buyer which total the entire Reimbursement Amount). Seller shall not invoice Buyer for any of Seller's Interconnection Costs until Seller's Interconnection Costs have exceeded three hundred thousand dollars ($300,000.00) and Seller shall provide Buyer with evidence of Seller's Interconnection Costs such as the Interconnection Agreement and/or invoices. Upon completion of an Expansion Plant which uses the Interconnection Facilities, such other out-of-pocket costs and charges shall be prorated, on a Percentage Share of energy basis, and Buyer's share would be based on its Percentage Share of Energy compared to the energy of the Expansion Plant delivered to the Point of Interconnection. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. If this Agreement is terminated before the expiration of the Term (before the 15th anniversary of the Commercial Operation Date) by either Party and there is no Event of Default by Buyer (no Event of Default by Buyer at the time of the election to terminate (by either Party) through the effective date of the termination), then, to the extent Buyer has paid Seller any Reimbursement Amount prior to the effective date of such termination of this Agreement, Seller shall refund to Buyer a proportion of any such Reimbursement Amount paid by Buyer to Seller within thirty (30) days after the effective date of such termination of this Agreement as set forth in the following sentence in this paragraph. The proportion of the Reimbursement Amount that Seller shall refund to Buyer per the immediately previous sentence shall be an amount equal to the sum of the Reimbursement Amount (to the extent previously paid by. Buyer to Seller) multiplied by a fraction, whose numerator is equal to the number of years and full months remaining in the Term, expressed in months, at the effective date of termination and whose denominator is equal to the full Term of the Agreement, expressed in months (or 180 months). SANFRAN 90103 (2K) 22 (i) Negotiate and enter into a Participating Generator Agreement and a Meter Service Agreement for ISO Metered Entities with the ISO, the load control area operator for the LDC System that is interconnected with the Plant. Buyer shall pay for or reimburse Seller for Buyer's Percentage Share of any such costs or charges associated with these agreements, except to the extent such cost or charge is required to be paid by Seller under Sections 3.1 and 4.1(h) of this Agreement. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (j) Coordinate all Plant start-ups and shut -downs, in whole or in part, with Buyer in accordance with ISO scheduling protocols and the reasonable protocols established by Buyer that are not inconsistent with the ISO tariff and ISO procedures. (k) Maintain an Availability Threshold of at least seventy percent (70%). Should Seller fail to maintain such an Availability Threshold, the Price applicable to Output sold and purchased during each month during which the Availability Threshold is below seventy percent (70%) shall be seven and one- half percent (7.5%) below the Price that would otherwise be in effect pursuant to Section 2.3 until the Availability Threshold is increased to at least seventy percent (70%). Except as otherwise expressly stated in Sections 6.4 and 7.6, the foregoing shall be Buyer's sole remedy for any shortfall of or failure to produce Output or failure to maintain any particular Availability Threshold. 4.2 General Obligations (a) Seller shall obtain in its own name and at its own expense any and all pollution or environmental credits or offsets necessary to operate the Plant in compliance with the Environmental Laws. (b) Seller shall keep complete and accurate operating and other records and all other data for the purposes of proper administration of the Agreement, including such records as may be required by any Governmental Authority or Prudent Utility Practice. (c) Seller shall continue to (i) preserve, renew and keep in full force and effect its organizational existence and good standing, and take all reasonable action to maintain all applicable Permits, rights, privileges, licenses and franchises necessary or desirable in the ordinary course of its business; and (ii) SANFRAN 90103 (2K) 23 comply with all Contractual Obligations and Requirements of Law applicable to Seller or the Plant. (d) Within ninety (90) days after the Effective Date, Seller shall make available for review by Buyer, and its representatives, at Seller's attorney's offices in San Francisco, California, a fully executed copy of its contract with Salinas Valley Solid Waste Authority, including all exhibits, attachments, and other supporting documents thereto, for the purchase of Landfill Gas (the "LFG Agreement"). Such contract may be redacted to remove pricing information. If (i) Seller does not fulfill its obligations under the first two sentences of this Section 4.2(d) within the time allowed, or (ii) Seller fulfills such obligations but Buyer in its reasonable discretion does not approve of the terms of the LFG Agreement, then Buyer may, as its sole remedy and without liability of one Party to the other Party, terminate this Agreement by written notice given no later than sixty (60) days after Seller has fulfilled, or failed to fulfill, as the case may be, such obligations under such first two sentences. Other than increasing the amount of fuel purchased thereunder, Seller shall not allow such contract to be amended or otherwise modified, nor shall it waive or fail to enforce any of its rights thereunder, without Buyer's prior written approval, whose approval shall not be unreasonably withheld. Seller shall make the LFG Agreement available to Buyer for review during normal business hours at Seller's attorney's offices, in San Francisco, California throughout the Term within seven (7) days of receipt of a written request by Buyer. (e) Seller shall provide to Buyer such other information regarding the permitting, engineering, construction or operations of the Plant as Buyer may from time to time reasonably request, subject to licensing or other restrictions of Seller or a third party with respect to confidentiality, disclosure or use. (f) Seller shall enter into any agreements with the ISO required by the ISO for generators delivering power into the ISO -controlled grid. Except for such costs and charges as are expressly identified in this Agreement as Seller's costs, Buyer shall reimburse Seller for all costs and charges under such agreements. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (g) Seller shall provide Buyer with a copy of its ultimate corporate parent's audited financial statements as at the end of its accounting year prepared in 24 SANFRAN 90103 (2K) accordance with Generally Accepted Accounting Principles ("GAAP") consistently applied, no later than four (4) months after the end of such accounting year of such entity. Seller shall also provide, on a quarterly basis, an unaudited financial statement in the form of Appendix F, prepared in accordance with GAAP consistently applied for Seller and for Seller's ultimate corporate parent. Such financial statements shall be certified by an officer of Seller as fairly presenting the financial condition of the Seller subject only to what would typically be included in year-end audit adjustments and footnotes. If, from time to time, an audited year-end financial statement is prepared for Seller, Seller shall provide it to Buyer no later than four (4) months after the end of Seller's accounting year. 4.3 Construction Milestones (a) The Parties agree that time is of the essence and that certain milestones (individually, a "Milestone" and, collectively, the "Milestones") for the development, financing and construction of the Plant must be achieved in a timely fashion or Buyer shall suffer damages. Seller shall provide Buyer with documentation satisfactory to Buyer, in Buyer's reasonable discretion, to support the achievement of the Milestones by the dates set forth below. (b) The following events are all of the Milestones: (i) By the date ninety (90) days following the Effective Date, Seller shall have signed an LFG Agreement with Salinas Valley Solid Waste Authority and have obtained Site Control. (ii) By the date one hundred fifty (150) days following the date of the LFG Agreement between Seller and Salinas Valley Solid Waste Authority (the date of the LFG Agreement shall be the date the LFG Agreement is made and entered into and fully executed), Seller shall have completed to Seller's satisfaction a review of the Site and the results of such review shall be satisfactory to Seller (including, without limitation, a Phase I environmental site assessment, a Phase II environmental site assessment and/or any other environmental assessment/study), if Seller decides, in Seller's sole discretion (at Seller's cost), to do such review of the Site. (iii) By the date twenty-six (26) months following the later of the (1) date that Buyer approves the LFG Agreement, and (2) date one hundred fifty (150) days following the date of the LFG 25 SANFRAN 90103 (2K) Agreement between Seller and Salinas Valley Solid Waste Authority (the date of the LFG Agreement shall be the date the LFG Agreement is made and entered into and fully executed), Seller shall (a) have obtained all Permits necessary, in final form, to commence construction of the Plant and (b) have entered into an Interconnection Agreement. (iv) By the date one (1) month following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(iii), and (b) entering into an Interconnection Agreement, Seller shall have arranged financing for construction of the Plant or otherwise made funds available to commence and complete construction. (v) By the date twelve (12) months following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(iii), and (b) entering into an Interconnection Agreement, Seller shall have commenced construction of the Plant. (vi) By the date eighteen (18) months following the arrangement of financing or availability of funds for construction, Seller shall have achieved the Commercial Operation Date. (c) Starting on the Effective Date, Seller shall provide to Buyer monthly progress reports concerning the progress towards completion of the Milestones. In addition, within five (5) business days of the completion of each Milestone, Seller shall provide a certification to Buyer along with any supporting documentation (if applicable), demonstrating the satisfaction of the Milestone. Seller shall provide to Buyer additional information concerning Seller's progress towards, or confirmation of, achievement of the Milestones, as Buyer may reasonably request from time to time. Within seven (7) days of the later of (i) obtaining the authority to construct for the Plant from the applicable air quality management district or (ii) Seller's receipt of the system impact and facility cost studies from the LDC, but in no event later than the date set forth in Section 4.3(b)(iii), Seller shall specify the Initial Capacity of the Plant (which shall be subject to the limits contained in Section 1.17); provided, however, Seller may (in Seller's sole discretion) increase the Initial Capacity of the Plant at any time during the Term by adding equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy. If Seller decides to increase the Initial Capacity of the Plant during the Term (after Seller has originally specified the Initial Capacity of the Plant), then Seller shall provide 26 SANFRAN 90103 (2K) Buyer with written notice of the date of such increase, the amount of such increase, and the entire capacity of the Plant (as increased) as of such date. The new increased capacity of the Plant shall then become the Initial Capacity of the Plant from the date set forth in Seller's written notice until the end of the Term (the Initial Capacity of the Plant (as increased) shall be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection). Seller makes no written or oral representation or warranty, either express or implied, regarding whether or not Seller will add equipment for recovering waste heat from the prime mover engines of the Plant and/or utilize that waste heat to produce additional Energy. (d) Upon becoming aware that it will, or is reasonably likely to, fail to achieve a Milestone by the required date, for any reason, including a Force Majeure Event, Seller shall so notify Buyer, in writing, as soon as is reasonably practicable. Such notice shall explain the cause of the delay, provide an updated date for achievement of the Milestone(s) and describe Seller's plan for meeting the Milestone. Seller's notice will also explain any impact such delay may or will have on any other Milestone, and measures to be taken to mitigate such impact. (e) In the event that a Force Majeure Event causes any delay to the achievement of the Milestones set forth in Sections 4.3(b)(iv), (v), or (vi), such Milestone's deadline may be extended, together with any Force Majeure Event extensions for other Milestones, for a period not to exceed six (6) months. The extension of the deadline for any Milestone shall extend the deadline for all subsequent Milestones, provided that in no event shall the combined extensions for Force Majeure Events for any or all of the Milestones exceed six (6) months. (0 In the event that Seller fails to meet the Milestones set forth in Section 4.3(b)(i) or (ii) for any reason, Buyer may terminate this Agreement, without liability of either Party to the other, by giving notice to Seller in writing of such termination at any time prior to Seller curing its failure. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(i) or (ii). (g) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(iii) for any reason, Buyer may terminate this Agreement, without 27 SANFAAN 90W3 (2K) liability of either Party to the other, within ten (10) business days after the Milestone date by giving notice to Seller in writing of such termination. If Seller meets the Milestone set forth in Section 4.3(b)(iii) prior to Buyer giving written notice of termination, this Agreement shall remain in full force and effect. If Buyer does not terminate this Agreement within ten (10) business days after the Milestone date, Seller shall continue to pursue satisfaction of the relevant Milestone, and Buyer must give Seller sixty (60) days' prior written notice to terminate this Agreement, during which period if Seller cures such defect and achieves the relevant Milestone, such termination shall be void and this Agreement shall remain in full force and effect. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(iii). (h) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(v) within six (6) months after the relevant Milestone date for any reason (or up to twelve (12) months if also delayed by a Force Majeure Event), Seller may deposit an amount, per month, equal to the Monthly LD Amount into a segregated escrow account reasonably acceptable to Buyer by the first day of such month, for every month after such Milestone date until the Milestone is met. Such funds will be used towards any liquidated damages as set forth in Section 7.4(c), and shall be held in escrow until such time that liquidated damages, if any, become payable to Buyer. Should the amount in the escrow account exceed the final amount of liquidated damages, such excess funds shall be returned to Seller. Should Seller (i) at any time fail to make such monthly deposits or (ii) fail to satisfy the Milestone set forth in Section 4.3(b)(v) for more than twelve (12) months, Buyer may terminate this Agreement upon written notice to Seller of such termination. Upon such termination, Seller will pay to Buyer, within thirty (30) days of the termination notice, an amount equal to the LD Amount as liquidated damages. Seller's escrow option, Buyer's option to terminate, and liquidated damages shall be Buyer's sole remedies for any failure of Seller to meet the Milestones set forth in Section 4.3(b)(iv) or (v). (i) Seller covenants that it will diligently pursue all Milestones including the Commercial Operation Date, which Seller envisions will occur within thirty-five (3 5) months following the execution of this Agreement. (j) In the event that any of the approvals described in Section 4.3(b)(iii) are not obtained by the date specified in Section 4.3(b)(iii) for satisfaction of the SANFRAN 90103 (2K) 28 relevant Milestone or are obtained on a basis not reasonably satisfactory to Seller, including without limitation, in the case of the air permit (from the air pollution control district that has jurisdiction over construction and operation of the Plant), approval of construction and operation of the Plant on a basis not consistent with internal combustion engines without emission controls, pollution or environmental credits or offsets, Seller may terminate this Agreement without liability of either Party to the other Party by giving notice to Buyer, in writing, of such termination; provided that such notice must be given no later than fourteen (14) days following the earlier of (a) the date on which a given approval not satisfactory to Seller is received, in writing, or (b) the date specified in Section 4.3(b)(iii) for satisfaction of the relevant Milestone; further provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees (i) to pay Seller with the first invoice following the Commercial Operation Date the reasonable all -in cost (including reasonable broker fees, if any) to purchase all such offsets sufficient to operate the Plant at full Initial Capacity (less reasonably projected scheduled Outages for maintenance) for the term of this Agreement, and (ii) to adjust the price payable under Section 2.3 of this Agreement and within thirty (30) days thereafter agrees with Seller (each in their sole discretion), in writing, to an amendment of this Agreement revising such price. Failure to provide notice of termination by the date specified above shall constitute a waiver of the right to terminate this Agreement as provided in this Section 4.3(j). In the event that Seller exercises such termination right, Buyer shall have a right of first refusal to purchase the output of any electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Such right of first refusal shall conform to the provisions of Section 2.5. The provisions of this Section 4.3(j) shall survive termination of this Agreement under this Section 4.3(j) for a period of five (5) years from the effective date of such termination. (k) In the event that Seller has not completed to Seller's satisfaction a review of the Site or the results of such review are not satisfactory to Seller as contemplated in Section 4.3(b)(ii), Seller may terminate this Agreement without liability of either Party to the other Party by giving notice to Buyer, in writing, of such termination, provided that such notice must be given no later than one hundred sixty-four (164) days following the date of the LFG Agreement between Seller and Salinas Valley Solid Waste Authority (the date of the LFG Agreement shall be the date the LFG Agreement is made and 29 SANFRAN 90103 (2K) entered into and fully executed). ARTICLE V BUYER'S OBLIGATIONS 5.1 Delivery and Transmission Except for Seller's obligations pursuant to Sections 3.1 and 4.1(h), Buyer shall be solely responsible for paying its Percentage Share of costs and charges associated with the receipt of Energy, under this Agreement, at the Point of Interconnection and for the transmission and delivery of the Energy from the Point of Interconnection to any other point downstream of the Point of Interconnection (including, without limitation, transmission costs and charges, competition transition charges, applicable control area service charges, transmission congestion charges, inadvertent energy flows, any other ISO charges related to the transmission of such Energy by the ISO and any charge assessed or collected in the future pursuant to any utility tariff or rate schedule, however defined, for transmission or transmission -related service rendered by or for any transmission -owning or operating entity). NCPA, acting on behalf of Buyer, shall be scheduling coordinator for the transmission of Energy from the Plant in accordance with applicable ISO rules. Buyer's duties as scheduling coordinator shall be limited to those duties as are specifically required of scheduling coordinators in the ISO tariff and the ISO protocols. Commercial arrangements for such transmission and delivery services will be coordinated and settled by NCPA directly with the ISO or other third parties. At the option of Buyer, the Plant may be included within NCPA's metered sub -system in connection with the scheduling of power over the ISO grid and related functions; provided that such inclusion shall have no adverse effect on Plant operations or Seller (or any such effect shall be fully mitigated by Buyer). Seller will do all things reasonably needed to allow Buyer to comply with any obligations, and minimize any potential liability, under the ISO tariff; provided, that if such actions require any actions beyond the giving of notice provided by Buyer, then Buyer shall reimburse its Percentage Share of all out- of-pocket costs and charges of such actions. If and to the extent that Seller fails to comply with the notice provision in Section 4.1(g) concerning Outages or with its obligations as outlined in the previous sentence, Seller shall be wholly responsible for all imbalances, deviations, or any other ISO charges or 30 SANFR4N 90103 (2K) penalties associated with such Outage or ISO tariff obligation. Buyer may replace NCPA as Scheduling Coordinator for the Plant. If NCPA ceases to be the Scheduling Coordinator for the Plant and Buyer is unable, within fourteen (14) business days of notice from Seller, to appoint a replacement Scheduling Coordinator, Seller shall have the right to appoint a replacement Scheduling Coordinator on Buyer's behalf, and Buyer shall enter into all reasonable and appropriate agreements with such replacement Scheduling Coordinator at its own cost. 5.2 Taxes Buyer shall pay and be fully responsible for any sales, use, gross receipts, utility or other taxes, assessments or fees, if any, incurred or imposed on the sale or transfer of Energy from Seller to Buyer under this Agreement. Buyer shall not be responsible for any taxes measured on the net income of Seller or ad valorem taxes paid by Seller or Salinas Valley Solid Waste Authority associated with the Site or the Landfill. 5.3 Notification of Transmission Outages Buyer will exercise reasonable efforts to provide Seller with as much advance notice as practicable of any Outage on the LDC System or other transmission or delivery facilities which may adversely affect the delivery of Energy to Buyer. ARTICLE VI FORCE MAJEURE 6.1 Force Majeure Events It is understood that at times unavoidable delays or interruptions in delivery or performance may result from Force Majeure Events. The performance of each Party under this Agreement may be subject to interruptions or reductions due to a Force Majeure Event. Both Parties shall in good faith use such effort as is reasonable under all the circumstances known to that Party affected by the Force Majeure Event at the time to remove or remedy the cause(s) and mitigate the inability to perform. However, the obligation to use such reasonable 31 SANFRAN 90103 (2K) efforts shall not be interpreted to require resolution of labor disputes by acceding to demands of the opposition when such course is inadvisable in the discretion of the Party having such difficulty. 6.2 Remedial Action Subject to the limitation on extensions of Milestones set forth in Section 4.3(e), a Party shall not be liable to the other Party if the Party is prevented from performing its obligations hereunder due to a Force Majeure Event. The Party rendered unable to fulfill an obligation by reason of a Force Majeure Event shall take all action necessary to remove such inability with all due speed and diligence. The nonperforming Party shall be prompt and diligent in attempting to remove the cause of its failure to perform, and nothing herein shall be construed as permitting that Party to continue to fail to perform after said cause has been removed. Notwithstanding the foregoing, the existence of a Force Majeure Event shall not excuse any Party from its obligations to make payment of amounts due hereunder. 6.3 Notice In the event of any delay or nonperformance resulting from a Force Majeure Event, the Party suffering the Force Majeure Event shall, as soon as practicable under the circumstances, notify the other Party in writing of the nature, cause, date of commencement thereof and the anticipated extent of any delay or interruption in performance. 6.4 Termination Due To Force Majeure Event Subject to Section 4.3(e), if a Party is prevented from performing its material obligations under this Agreement for a period of twelve (12) consecutive months or longer, the unaffected Party may terminate this Agreement, without liability of either Party to the other, upon thirty (30) days' written notice at any time during the Force Majeure Event. 32 SANFRAN 90103 (2K) ARTICLE VII DEFAULT/REMEDIES/TERMINATION 7.1 Events of Default by Buyer The following shall each constitute an "Event of Default" by Buyer: (a) Buyer breaches any material obligation (other than one covered by Section 7.1(b) or (c) of this Agreement) and fails to cure such breach within thirty (30) days after the receipt of written notification of breach by Seller or such longer period as may be necessary to cure such breach as long as Buyer is exercising diligent efforts to cure such default. (b) Buyer fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Buyer under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Buyer of a voluntary proceeding under the bankruptcy or insolvency laws. 7.2 Events of Default by Seller (1) The following shall each constitute an "Event of Default" by Seller if Seller does not cure within the time set forth in clause (2), below: (a) Seller breaches any material obligation (other than ones covered by Sections 7.2(1)(b), (c), (d), (e) or (f) of this Agreement or for which a remedy is specified). (b) Seller fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Seller under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Seller of a voluntary proceeding under the bankruptcy or insolvency laws. 33 SANFRAN 90103 (2K) (d) Seller sells or transfers Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof) or the right to Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof), to the extent that such Expansion Plant Output is purchased by Buyer, to any Person other than Buyer. (e) Seller fails to comply with the terms of Buyer's right of first refusal as described in Section 2.5 of this Agreement. (f) Subject to Section 7.4(c), Seller fails, for any reason other than an unauthorized act or omission by Buyer, to achieve the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(vi), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e). (2) Time for Cure. Nothing described in any of Sections 7.2(1)(a), (d) or (e) above shall constitute an Event of Default if Seller cures the event, failure or circumstance within (30) days after the receipt of written notification by Buyer or such longer period as may be necessary to cure as long as Seller is exercising diligent efforts to cure. 7.3 Termination for Default (a) In the event the defaulting Party fails to cure the Event of Default within the period for curative action under Sections 7.1 or 7.2, as applicable, the non - defaulting Party may terminate the Agreement by notifying the defaulting Party in writing of (i) the decision to terminate and (ii) the effective date of the termination. (b) Upon termination of the Agreement by Buyer pursuant to Section 7.3(a) due to an Event of Default by Seller, (i) Buyer shall have no future or further obligation to purchase the Output of the Plant or to make any payment whatsoever under this Agreement, except for payments for obligations arising or accruing prior to the effective date of termination, and (ii) Seller shall, if Buyer has paid in full for emission offsets pursuant to Section 4.3(j), either (A) reimburse Buyer pro rata for any unused such offsets paid for by Buyer or (B) transfer to Buyer title to any unused such offsets paid for by Buyer. Upon termination of the Agreement by Seller pursuant to Section 7.3(a) due to an SANFRAN 90103 (2K) 34 Event of Default by Buyer, Seller shall have no future or further obligation to deliver the Output of the Plant to Buyer or to satisfy any other obligation of this Agreement, except for payments or other obligations arising or accruing prior to the effective date of termination. After the effective date of termination, the Agreement shall not be construed to provide any residual value to either Party or any successor or any other Person, for rights to, use of or benefits from the Plant to any Person. 7.4 Damages (a) For all claims, causes of action and damages the Parties shall be entitled to the recovery of actual damages allowed by law unless otherwise limited by the Agreement. Neither the enumeration of Events of Default in Sections 7.1 and 7.2, nor the termination of this Agreement by a non -defaulting Party pursuant to Section 7.3(a), shall limit the right of a non -defaulting Party to rights and remedies available at law, including, but not limited to, claims for breach of contract or failure to perform by the other Party and for direct damages incurred by the non -defaulting Party as a result of the termination of this Agreement. (b) Except as otherwise specifically and expressly provided in the Agreement, neither Party shall be liable to the other Party under this Agreement for any indirect, special or consequential damages, including but not limited to loss of use, loss of revenues, loss of profit, interest charges, cost of capital or claims of its customers or members to which service is made. Except as set forth in Section 4.1(k) and except to the extent Seller violates its undertaking not to provide or sell rights to part or all of the Output to a party other than Buyer, Seller shall not be liable to Buyer for failure to provide any specific amount of Output hereunder. (c) In the event that Seller fails to meet the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(vi), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e), Seller shall be liable for liquidated damages in the amount, per month, equal to the Monthly LD Amount for each full month (with parts of a month pro rated) that Seller is late in satisfying the Milestone. So long as Seller is paying such liquidated damages on a monthly basis, up to twelve (12) months, Buyer shall not be permitted to terminate this Agreement. If after twelve (12) months following the relevant Milestone deadline Seller has failed 35 SANFRAN 90103 (2K) to achieve Commercial Operation, or if for any reason Seller fails to pay, or discontinues paying, the monthly liquidated damages provided for above, Buyer may terminate this Agreement upon thirty (30) days' prior written notice to Seller. This twelve (12) month period shall not be extended as a result of a Force Majeure Event. Upon such termination, Seller shall pay Buyer, within thirty (30) days of receipt of the termination notice, a lump sum equal to the LD Amount. No other damages or remedy shall be available to Buyer on the basis of such failure to meet the Milestone set forth in Section 4.3(b)(vi) or termination of this Agreement based on failure to achieve Commercial Operation within twelve (12) months of that Milestone deadline. (d) The Parties agree that the liquidated damages set forth in Sections 4.3(h) and 7.4(c) are reasonable and represent a fair and genuine estimate of the damages Buyer will suffer upon the failure of Seller to achieve Commercial Operation by the agreed upon date(s). The Parties acknowledge that it would be impracticable or extremely difficult to fix Buyer's actual damages, and therefore have deemed the liquidated damages set forth above to be the amount of damage sustained by Buyer upon such a failure. The Parties further agree that payment of such amount shall be as liquidated damages and not as a penalty, and is therefore not subject to avoidance under California Civil Code section 1671. 7.5 Indemnification Seller and Buyer agree to defend, indemnify, and hold each other, and their respective officers, directors, employees and agents, harmless from and against all claims, demands, losses, liabilities, and expenses (including reasonable attorneys' fees) (collectively "Damages") for personal injury or death to persons and damage to each other's physical property or facilities or the property of any other Person to the extent arising out of, resulting from, or caused by the negligent or intentional and wrongful acts, errors, or omissions of the indemnifying Party. This indemnification obligation shall apply notwithstanding any negligent or intentional acts, errors or omissions of the indemnitees but the indemnifying Party's liability to pay Damages to the indemnified Party shall be reduced in proportion to the percentage by which the indemnitees' negligent or intentional acts, errors or omissions caused the Damages. Neither Party shall be indemnified for its Damages resulting from its sole negligence or willful misconduct. These indemnity provisions shall 36 SANFRAN 90103 (2K) not be construed to relieve any insurer of its obligation to pay claims consistent with the provisions of a valid insurance policy. Buyer shall defend, indemnify and hold Seller and its officers, directors, employees and agents harmless from and against all claims, demands, losses, liabilities and expenses (including reasonable attorneys fees) arising out of or connected with the interaction with third parties in connection with WREGIS or any alternate accounting system(s) designated by Buyer. 7.6 Buyer's Right to Operate If Seller (i) fails to maintain the Availability Threshold for a period of nine (9) months in any twelve (12) month period, or (ii) fails to generate Energy for sixty (60) consecutive days, then Buyer or its designee may, but shall not be obligated to, step-in and assume operational control from Seller of the Plant; provided that Buyer shall not be permitted to step-in and take control so long as Seller or any Lender(s) is using commercially reasonable efforts to remedy the failures described in (i) or (ii) above. Buyer, its employees, contractors and designeesshall have the unrestricted right to enter the Plant to the extent necessary to operate the Plant. Upon the exercise of this right, Buyer or its designee shall at all times operate the Plant using Prudent Utility Practice and shall comply, to the extent commercially practicable, with the terms of this Agreement. Notwithstanding the foregoing, Seller shall not be excused from any obligation or remedy available to Buyer as a result of Buyer's operation of, or election not to operate, the Plant. Buyer shall pay Seller the applicable rate for Output provided hereunder, less any costs incurred by Buyer to operate the Plant. Buyer shall indemnify and hold Seller harmless from any liability to third parties arising out of Buyer's failure to operate the Plant using Prudent Utility Practice. Upon Buyer's satisfaction that Seller has the ability to operate the Plant in accordance with this Agreement, Seller shall resume operational control. Should Lender(s) refuse to finance the Plant, or materially condition such financing, solely as a result of this Section 7.6, and Seller gives Buyer written notice of such refusal to finance, Buyer shall have the following options: (1) terminate this Agreement without liability of one Party to the other Party; (2) renegotiate this Section 7.6 with Seller and Lender(s) in a manner mutually acceptable; (3) delete this Section 7.6 in its entirety (which deletion will not require Seller's additional consent); or (4) arrange for financing for the Plant 37 SANFRAN 90103 (2K) under materially equivalent terms and conditions as the Lender(s) were prepared to provide but for this Section 7.6. If Buyer fails to elect and complete one of these options within sixty (60) days of written notice from Seller, Seller shall have the right to terminate this Agreement without liability of one Party to the other Party. ARTICLE VIII REPRESENTATIONS AND WARRANTIES 8.1 Seller's Representations and Warranties Seller represents and warrants to Buyer that as of the Effective Date: (1) Seller is duly organized and validly existing as a limited liability company under the laws of Delaware, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Seller is duly qualified in each jurisdiction wherein the nature of the business transacted by it makes such qualification necessary; (ii) Seller has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder; all such actions have been duly authorized by all necessary proceedings on its part. As of the Effective Date, (a) the Plant shall on the Commercial Operation Date be a "qualifying small power production facility" as that term is defined in Section 3(17)(C) of the Federal Power Act, and will possess all of the exemptions from regulation provided in 18 CFR Sections 292.601(c) and 292.602; and (b) this Agreement is not required to be filed with FERC and no approval (except with respect to "qualifying small power production facility" status) with respect to this Agreement is required from FERC. In the event that the Plant is not a "qualifying small power production facility" on the Commercial Operation Date or any date thereafter, Seller shall make appropriate .filings under the Federal Power Act within sixty (60) days so as to comply with applicable law, subject at all times to the provisions of Article IX of this Agreement; 38 SANERAN 90103 (2K) (iii) The execution, delivery and performance of this Agreement by Seller will not conflict with its governing documents, any applicable laws, or any covenant, agreement, understanding, decree or order to which Seller is a party or by which it is bound or affected; (iv) This Agreement has been duly and validly executed and delivered by Seller and, as of the date first set forth herein, constitutes a legal, valid and binding obligation of Seller, enforceable in accordance with its terms against Seller, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally or by general principles of equity; and (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Seller, threatened in writing against Seller, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Seller, or to result in any impairment of Seller's ability to perform its obligations under this Agreement. 8.2 Buyer Representations and Warranties Buyer represents and warrants to Seller that as of the Effective Date: (1) Buyer is a chartered city and municipal corporation, duly organized and validly existing, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Buyer is duly qualified in each jurisdiction wherein the nature of the business transacted by it makes such qualification necessary; (ii) Buyer has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder and all such actions have been duly authorized by all necessary proceedings on its part; (iii) The execution, delivery and performance of this Agreement by Buyer will not conflict with its governing documents, any applicable laws or any covenant, agreement, understanding, decree or order to which Buyer is a party or by which it is bound or affected; 39 SANFRAN 90103 (2K) (iv) This Agreement has been duly and validly executed and delivered by Buyer and, as of the first date set forth herein, constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms against Buyer, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally or by general principles of equity; and (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Buyer, threatened in writing against Buyer, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Buyer, or to result in any impairment of Buyer's ability to perform its obligations under this Agreement. ARTICLE IX NO CHANGE TO RATES, TERMS OR CONDITIONS The Parties intend that the standard of review for changes to any rate, charge, classification, term or condition of this Agreement at FERC shall be the most stringent standard permissible under applicable law. As to the Parties, it is understood that the standard is the "Mobile -Sierra public interest" standard of review, as stated by the United States Supreme Court in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Nos. 06.1457, 128 S.Ct. 2733 (2008), and consistent with the order of the Supreme Court in NRG Power Marketing, LLC, et al., v. Maine Public Utilities Commission et al., No. 08-674, 130 S.Ct. 693 (2010) ("NRG Order"). As to all other persons it is intended that the same standard, to the maximum degree as may be made applicable to other than the Parties, apply, to the maximum degree permitted under the NRG Order. ARTICLE X MISCELLANEOUS 10.1 Assignment 40 SANFRAN 90103 (2K) The rights and obligations of this Agreement may not be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Seller may use subcontractors without Buyer's consent to comply with the terms of this Agreement, provided that, notwithstanding the use of subcontractors, Seller shall remain responsible for all of its obligations under this Agreement. Buyer may furthermore use any agent it so designates for scheduling and billing purposes, so long as Buyer remains responsible for all of its obligations under this Agreement. Any purported assignment of this Agreement in the absence of the required consent, except as provided in Section 10.2, shall be void. 10.2 Financing Notwithstanding Section 10.1, Seller may, without the consent of Buyer, assign, transfer or hypothecate its rights under this Agreement to Lenders as collateral security in connection with any financing of the purchase or operation of the Plant, provided that such Lender(s) or its designee agree(s), in writing, that upon assuming any of Seller's prospective rights under this Agreement, such Lender also shall be bound by all of Seller's prospective obligations under this Agreement. Notwithstanding any such assignment, Seller's obligations under this Agreement shall continue in their entirety in full force and effect and Seller shall remain fully liable for all of its obligations under or relating to this Agreement. Each such collateral assignment and any purchaser or transferee shall be subject to Buyer's rights and defenses hereunder and under applicable law. Seller shall provide prior written notice to Buyer at least seven (7) days prior to any such collateral assignment. In order to facilitate the obtaining of financing of the Plant, Buyer shall execute, upon request, a commercially reasonable consent to assignment, with respect to a collateral assignment hereof to Lenders in connection with the documentation of the financing or refinancing for the Plant. Any assignment in violation of this Agreement shall be void, ab initio. Buyer shall consider in good faith any amendments to this Agreement proposed by Seller which relate to financing of the Plant or other amendments requested by Seller in order to receive or maintain financing from Lenders. 10.3 Notices 41 SANFRAN 90103 (2K) Any notice, demand, request, or communication required or authorized by this Agreement shall be delivered either by hand, facsimile, overnight courier or mailed by certified mail, return receipt requested with postage prepaid, to: City of Palo Alto 250 Hamilton Avenue, Seventh Floor Palo Alto, CA 94301 Attention: City Clerk Telecopier: (650) 328-3631 on behalf of Buyer; with a copy to: City of Palo Alto 250 Hamilton Avenue, Eighth Floor Palo Alto, CA 94301 Attention: Senior Assistant City Attorney / Utilities Telecopier: (650) 329-2646 and to: City of Palo Alto 250 Hamilton Avenue, Third Floor Palo Alto, CA 94301 Attention: Director of Utilities Telecopier: (650) 321-0651 42 SANFRAN 90103 (21() and to: Northern California Power Agency 651 Commerce Drive Roseville, CA 95678 Attention: Power Contracts Administrator Telecopier: (916) 781-4255 and to: Ameresco Crazy Horse LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: General Counsel Telecopier: (508) 661-2201 Telephone: (508) 661-2200 with a copy to: Ameresco Crazy Horse LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: Senior Vice President, Renewable Energy Telecopier: (508) 661-2201 Telephone: (508) 661-2200 on behalf of Seller. The designation and titles of the person to be notified or the address of such person may be changed at any time by written notice delivered in the manner set forth in this Section 10.3. Any such notice, demand, request, or communication shall be deemed received (i) if delivered by hand by a Party or sent by facsimile or (ii) upon receipt by the receiving Party if sent by courier or U.S. mail. 43 SANFRAN 90103 (2K) 10.4 Captions All titles, subject headings, section titles and similar items are provided for the purpose of reference and convenience and are not intended to be inclusive, definitive or to affect the meaning of the contents or scope of the Agreement. 10.5 No Third Party Beneficiary No provision of the Agreement is intended to, nor shall it in any way, inure to the benefit of any customer, property owner or any other third party, so as to constitute any such Person a third -party beneficiary under the Agreement, or of any one or more of the terms hereof, or otherwise give rise to any cause of action in any Person not a Party hereto. 10.6 No Dedication No undertaking by one Party to the other Party under any provision of the Agreement shall constitute the dedication of that Party's system or any portion thereof to the other Party or to the public or affect Seller as an independent entity and not a public utility. 10.7 Entire Agreement; Integration This Agreement, together with all appendices attached hereto, constitutes the entire agreement between the Parties and supersedes any and all prior oral or written understandings. No amendment, addition to or modification of any provision hereof shall be binding upon the Parties, and neither Party shall be deemed to have waived any provision or any remedy available to it, unless such amendment, addition, modification or waiver is in writing and signed by a duly authorized officer or representative of the Parties. 10.8 Applicable Law The Agreement is made in the State of California and shall be interpreted and governed by the laws of the State of California and/or the laws of the United States, as applicable. 44 SANFRAN 90103 (2K) 10.9 Venue The Parties hereby submit to the exclusive jurisdiction of the federal courts for the Northern District of the State of California; provided, however, that if such federal courts sitting in the Northern District of the State of California refuse jurisdiction, the Parties agree to the exclusive jurisdiction of the state courts sitting in the County of San Francisco, State of California. 10.10 Nature of Relationship The duties, obligations and liabilities of the Parties are intended to be several and not joint or collective. The Agreement shall not be interpreted or construed to create an association, joint venture, fiduciary relationship or partnership between Seller and Buyer or to impose any partnership obligation or liability or any trust or agency obligation or relationship upon either Party. Seller and Buyer shall not have any right, power or authority to enter into any agreement or undertaking for, or act on behalf of, or act as or be an agent or representative of or otherwise bind the other Party. 10.11 Good Faith and Fair Dealing; Reasonableness The Parties agree to act reasonably and in accordance with the principles of good faith and fair dealing in the performance of this Agreement. Unless expressly provided otherwise in this Agreement, (i) wherever the Agreement requires the consent, approval or similar action by a Party, such consent, approval or similar action shall not be unreasonably withheld or delayed, and (ii) wherever the Agreement gives a Party a right to determine, require, specify or take similar action with respect to matters, such determination, requirement, specification or similar action shall be reasonable. 45 SANFRAN 90103 (2K) 10.12 Severability Should any provision of the Agreement be or become void, illegal or unenforceable, the validity or enforceability of the other provisions of the Agreement shall not be affected and shall continue in full force and effect. The Parties will, however, use their best endeavors to agree on the replacement of the void, illegal, or unenforceable provision(s) with legally acceptable clauses which correspond as closely as possible to the sense and purpose of the affected provision. 10.13 Confidentiality All information disclosed by Seller, including, without limitation, all engineering documents, designs, specifications and financial information, shall be kept confidential and shall not be disclosed to any third party except as provided in this Section 10.13. Buyer acknowledges Seller's request to hold all information regarding this Agreement confidential. Buyer shall disclose such information to third parties only to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Notwithstanding the foregoing, either Party may disclose this Agreement to Salinas Valley Solid Waste Authority or its representatives, NCPA or its representatives, or to Lender(s) or potential Lender(s) or its/their representatives; provided that prior to such disclosure, the recipient shall agree, in writing, to keep the material confidential under terms no less stringent than as set forth in this Section 10.13. Buyer also shall be permitted to disclose this Agreement and related information to the City Council of Palo Alto for the express purpose of obtaining approval to execute this Agreement; provided that in connection with such disclosure Buyer shall only disclose such information to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Each Party shall be bound by its obligations of confidentiality hereunder for a period of two (2) years from expiration or any earlier termination of this Agreement. Notwithstanding anything to the contrary in this Section 10.13, nothing in this Agreement shall restrict any Party from using or disclosing confidential information in any manner it chooses, which confidential information (i) is or becomes generally available to the public other than as a result of a disclosure directly or indirectly by the disclosing Party or its representative; (ii) was within the using or disclosing Party's possession prior to it being furnished 46 SANFRAN 90103 (2K) hereunder, provided that such information is not subject to another confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, any other party with respect to such information; (iii) is rightfully obtained by a Party from third parties authorized to make such disclosure without restriction; or (iv) is legally required to be disclosed by judicial, administrative or other governmental action as determined by such Party's attorney acting in good faith (including, but not limited to, the California Constitution, the California Public Records Act and the Brown Act), provided that prompt notice of said judicial or other governmental action shall have been given to the non -disclosing Party and that the non -disclosing Party shall, at its sole cost and expense, be afforded the opportunity (consistent with the legal obligations of the disclosing Party) to exhaust all reasonable legal remedies to maintain the confidential information in confidence. 10.14 Cooperation The Parties agree to reasonably cooperate with each other in the implementation and performance of the Agreement. Such duty to cooperate shall not require either Party to act in a manner inconsistent with its rights under the Agreement. 10.15 Counterparts This Agreement may be executed in two or more counterparts and by different Parties on separate counterparts, all of which shall be considered one and the same agreement and each of, which shall be deemed an original. 10.16 Financing Notwithstanding anything to the contrary in this Agreement, Seller may terminate this Agreement at its sole discretion without liability of either Party to the other Party if Seller is unable to obtain financing, on terms satisfactory to Seller, for the (i) construction of the Plant, (ii) operations and/or maintenance of the Plant, and/or (iii) working capital or other ordinary business requirements for the Plant. [signature page follows] 47 SANFRAN 90103 (2K) IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the Effective Date. AMERESCO CRAZY HORSE LLC By Ameresco, Inc., its sole member By: Name: Michael T. Bakas Title: Senior Vice President Date: THE CITY OF PALO ALTO APPROVAL AS TO FORM: By: Name: Grant Kolling Title: Senior Assistant City Attorney Date: CITY OF PALO ALTO By: Name: Lalo Perez Title: Administrative Services Director Date: CITY OF PALO ALTO By: Name: Valerie 0. Fong Title: Utilities Director Date: CITY OF PALO ALTO By: Name: James Keene Title: City Manager Date: 48 SANFRAN 90103 (2K) COMMONWEALTH OF MASSACHUSETTS ) SS COUNTY OF MIDDLESEX On this day of , before me, the undersigned notary public, personally appeared , as the of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco Crazy Horse LLC, a Delaware limited liability company, proved to me through satisfactory evidence of identification, which was , to be the person whose name is signed on the preceding document, and acknowledged to me that he signed the preceding document voluntarily for its stated purpose as of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco Crazy Horse LLC, a Delaware limited liability company. My Commission expires Notary Public 49 SANFRAN 90103 (2K) APPENDIX A SITE DRAWINGS Seller shall provide to Buyer the final Site Drawings prior to the Commercial Operation Date. 50 SANFRAN 90103 (2K) APPENDIX B FORM OF ATTESTATION Ameresco Crazy Horse LLC Environmental Attribute Attestation and Bill of Sale Ameresco Crazy Horse LLC ("Ameresco") hereby sells, transfers and delivers to ("Customer") the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid (as such term(s) are defined in the (identify contract) (the "Contract') dated , 20_ between Ameresco and Customer) arising from the generation for delivery to the grid of the energy by the Facility described below: Facility name and location: Fuel Type: Capacity (MW):_ Operational Date: (for facility that has added renewable capacity, show operational date and amount of new capacity) As applicable: CEC Reg. no. Energy Admin. ID no. Q.F. ID no. Dates MWhrs generated 20 20 20 in the amount of one Environmental Attribute or its equivalent for each megawatt hour generated; and Ameresco further attests, warrants and represents as follows: i) to the best of its knowledge, the information provided herein is true and correct; ii) its sale to Customer is its one and only sale of the Environmental Attributes and associated Environmental Attribute Reporting Rights referenced herein; iii) the Facility generated and delivered to the grid the energy in the amount indicated as undifferentiated energy; and [check one:] iv) Ameresco owns the Facility. iv) to the best of Ameresco's knowledge, each of the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid have been generated and sold by the Facility. This serves as a bill of sale, transferring from Ameresco to Customer all of Ameresco's right, title and interest in and to the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the energy for delivery to the grid. Contact Person: tel: 1-508-661-2200; fax: 1-508-661-2201 WITNESS MY HAND, AMERESCO CRAZY HORSE LLC By: Ameresco, Inc., its sole member By Its Date: B-1 51 SANFRAN 90103 (2K) APPENDIX C INSURANCE COVERAGES At its own expense, Seller shall secure and maintain during the Term the following insurance with the coverage amounts indicated for occurrences during and arising out of Seller's performance of this Agreement. Such insurance shall be placed with responsible and reputable insurance companies in compliance with Requirements of Law applicable to Seller. 1. Workers' Compensation/Employer's Liability. Seller shall maintain Workers' Compensation Insurance and Employer's Liability Insurance which comply with Requirements of Law applicable to Seller. 2. Automobile Liability. Seller shall maintain Automobile Liability Insurance in compliance with Requirements of Law applicable to Seller, including coverage for owned, non -owned and hired automobiles for both bodily injury (including death) and property damage, including automobile liability contractual endorsement. and uninsured/underinsured motorist protection endorsements. 3 Third Party Liability. Seller shall maintain third party liability insurance in compliance with Requirements of Law applicable to Seller on a project -specific basis covering against legal responsibility to others as a result of bodily injury, property damage and personal injury arising from the operation and maintenance of the Plant. Such policy shall be written with a limit of liability not less than $10,000,000 and a deductible not to exceed $10,000. Such liability may be in any combination of primary and excess/umbrella. Coverage shall include, but not be limited to, premises/operations, explosion, collapse, underground hazards, broad form property damage and personal injury liability. Such coverage shall not contain exclusions for punitive or exemplary damages, unless prohibited by law. 52 SANFR4N 90103 (2K) APPENDIX D SCHEDULING PROTOCOLS 1. Prior to three (3) business days before the end of a month, Seller is to provide to NCPA and Buyer a monthly forecast of loads and/or generation for the following month. At a minimum, monthly forecasts will be hourly kilowatt (kW) values by weekday, Saturday, and Sunday/Holiday. 2. No later than 1400 hrs. each Thursday, Seller shall provide a forecast of loads and/or generation for the following week to the extent it is different from the monthly forecast in Paragraph 1. Weekly forecasts will be hourly kW values for each hour of the week. 3. Daily modifications to forecasts. Unless otherwise mutually agreed, Seller may make changes to the weekly forecast by providing such changes to NCPA prior to 0800 hrs. two (2) days before the active scheduling day. a. Example: For power that is scheduled for generation or delivery on Thursday, March 25, 2010, changes must be submitted to NCPA by no later than 0800 hrs. on Tuesday, March 23, 2010. 4. Hourly modifications to active schedules. Unless otherwise mutually agreed, Seller may make changes to active schedules by providing such changes to NCPA with a minimum of four (4) hours' notice before the active hour to be changed. Changes to active schedules are limited to two (2) changes per day, excluding forced outages, unless otherwise agreed to between the parties. One request for a schedule change, of one hour or multiple hours duration, constitutes one schedule change. a. Example: For power that is scheduled for generation or delivery in hour ending 1500 hrs. (for the period from 1401 hrs. to 1500 hrs.), changes must be submitted to NCPA no later than 1100 hrs. 5. NCPA is to be notified of all planned or forced generation outages. 6. At Seller's request, NCPA will modify generation and load schedules for unforeseen circumstances in accordance with the above scheduling timeline constraints and NCPA Schedule Coordination Agreement. SANFRAN 90103 (2K) 53 7. All notices and schedules are to be submitted to NCPA by phone, fax or email to the following persons: Chief Dispatcher/Scheduler. 8. In the absence of forecasts and schedules as noted above, NCPA will utilize the most current information provided by Seller in the development and submission of schedules. 54 SANFRAN 90103 (2K) EXAMPLE FORM OF DAY -AHEAD SCHEDULE For: June , Hour Ended: Expected Capability 2 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Expected Daily Temperatures, F Low High Contact Information: Scheduling Coordinator: Facility: CITY: SANFRAN 90103 (2K) APPENDIX E PERFORMANCE TEST Seller shall coordinate and schedule, with Buyer, a performance test after completion of all equipment startup and commissioning activities. This performance test may be performed before completing punch list items. Buyer shall be permitted to witness the performance test, including access to and copies of control room logs, control system display screens, and instrumentation data for a reasonable period of time before, during and after the performance test, and may also concurrently conduct a site inspection of the Landfill and Plant and associated facilities, systems and equipment. Seller shall supply a written copy of the performance test results to Buyer within five (5) business days following the conclusion of the test. The performance test shall continue for one hundred twenty (120) consecutive hours (the "Test Period") to demonstrate the following: 1) Net Generator Output: The power output for each generator shall be recorded for the Test Period to verify the net initial capacities. This performance test shall be performed for all engine/generators simultaneously and will be considered successful if the average net output for the Test Period is equal to eighty percent (80%) of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) designated in this Agreement. All power measurements shall be based on a power factor of 0.90. 2) Compliance: The performance test shall also demonstrate the ability of the Plant to comply with all material safety, system reliability, environmental, and other requirements of its permits, this Agreement, any interconnection agreements, and the LFG Agreement. SANFRAN 90103 (2K) 56 APPENDIX F SELLER'S SAMPLE QUARTERLY FINANCIAL STATEMENT Balance Sheets December 31, 2006 and 2007 ASSETS Current assets: Cash and cash equivalents Restricted cash Accounts receivable Prepaid and other current assets Total current assets Other assets: Project assets, net Due from member Debit issuance costs, net Total other assets LIABILITY AND MEMBER'S EQUITY Current liabilities: Current portion of long-term debt Accounts payable Accrued expenses Total current liabilities Long-term liabilities: Long-term debt, less current portion Deferred tax liabilities Total long-term liabilities Member's equity SANPRAN 90103 (2K) 57 Statements of Operations Years Ended December 31, 2006 and 2007 Revenues: Electricity Sales Costs of revenue: Operation and maintenance Depreciation of project assets Gross profit (loss) Operating expenses: Selling, general and administrative Operating income (loss) Interest and other financing costs Income (loss) before tax benefit (provision) Income tax benefit (provision) Net income (loss) SANFRAN 90103 (2K) Statements of Cash Flows Years Ended December 31, 2006 and 2007 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Amortization of deferred issuance costs Deferred taxes Change in assets and liabilities: (Increase) decrease in: Accounts receivable Prepaid expenses Accounts payable Due to (from) member Net cash provided by operating activities Cash flows from investing activities: Accounts payable relating to construction activity Accrued expenses relating to construction activity Purchase of project assets Net cash used in investing activities Cash flows from financing activities: Increase in restricted cash Capital contributions Distributions to member Proceeds from debt issuance Debt issuance costs Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosure of cash flow information: Cash paid during the year for: Interest Income taxes Supplemental disclosure of noncash transactions: Accrued purchases of project assets SANFRAN 90103 (2K) Not Yet Approved ATTACHMENT F Resolution Resolution of the Council of the City of Palo Alto Approving the Long Term Power Purchase Agreement (Landfill Gas Power) with Ameresco San Joaquin LLC for the Purchase of Electricity Generated by Landfill Gas Electric Generating Facilities WHEREAS, the City of Palo Alto (the "City"), a municipal utility and a chartered city is a member of the Northern California Power Agency ("NCPA"); WHEREAS, on March 5, 2007, the City approved eight electric portfolio planning and management guidelines to guide the development and management of the City's long-term electricity acquisition plan; one of the guidelines is to pursue target levels of new renewable resource energy purchases equal to thirty percent (30%) and thirty-three percent (33%) of the City's expected energy load by 2012 and 2015, respectively; WHEREAS, the City is interested in purchasing power generated by renewable resources for the benefit of its electric customers; WHEREAS, by purchasing these sources of renewable energy, the City will help reduce the production of greenhouse gases and assist in reducing volatile organic compound emissions; WHEREAS, Ameresco San Joaquin LLC ("Ameresco") proposed its project in response to the City's Request for Proposals 134307 ("RFP") in November 2009, and it was deemed competitive with other RFP respondents; WHEREAS, the execution of this power purchase agreement with Ameresco is anticipated to enable the City to meet a three -percent portion of its goal of sourcing 33% of its energy needs from renewable electric energy; WHEREAS, the City is allocated a 100 percent share of the power from the initial project, amounting up to 6.2 megawatts of plant net output; WHEREAS, the power purchase agreement allows Ameresco to sell the City additional output, if developed, from engine heat recovery, at the contract price; NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE, as follows: SECTION 1. The Council hereby approves the City's execution of the long- term Power Purchase Agreement (Landfill Gas Power) made between Ameresco San Joaquin LLC, as Seller, and the City of Palo Alto, as Buyer. The delivery term of the agreement is twenty (20) years, commencing upon the Commercial Operation Date of the planned electric generation facility. Quantity is a 100 percent share of the plant's net 100308jb 0073322 Not Yet Approved output. Spending authority under the agreement is not to exceed one hundred twenty two million four hundred thousand dollars ($122,400,000). The City Manager is hereby authorized to sign the agreement with Ameresco San Joaquin LLC and the City Manager or his designee is authorized to sign any confirmations executed in connection with the agreement on behalf of the City. SECTION 2. With respect to the Council's award of the Power Purchase Agreement referred to in Section 1 above, the Council hereby waives the creditworthiness requirements of Palo Alto Municipal Code section 2.30.340(c) as it may apply to Ameresco San Joaquin LLC. SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act and no environmental assessment is required. The County of San Joaquin will be the lead agency for the purposes of compliance with the requirements of the California Environmental Quality Act INTRODUCED AND PASSED: AYES: NOES: ABSENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: City Manager Senior Asst. City Attorney Director of Utilities Director of Administrative Services 100308jb 0073322 2 ATTACHMENT G POWER PURCHASE AGREEMENT This Power Purchase Agreement is entered into this day of 2010 (the "Effective Date") by and between the City of Palo Alto, a California chartered municipal corporation and Ameresco San Joaquin LLC, a Delaware limited liability company. RECITALS 1. Seller intends to develop, finance, build, own and operate a Landfill Gas electric generating facility to be located at the Foothill Sanitary Landfill (the "Landfill") located at 6484 N. Waverly Road, Linden, California, on a site leased from San Joaquin County, which owns the Landfill. 2. Buyer is engaged in the procurement and supply of electricity to residential and commercial customers in the City of Palo Alto. 3. Buyer wishes to purchase the Output of the Plant and intends to resell related Energy to its residential and commercial customers. 4. Buyer is willing to purchase, and Seller is willing to sell, the Output of the Plant, on the terms and conditions and at the prices set forth in this Agreement. 5. Seller may determine to incorporate heat recovery equipment to produce additional electrical output to be included and sold as Energy in accordance with the terms of this Agreement. 6. Seller may determine to expand the Plant in the future depending on the availability of Landfill Gas and other factors in accordance with the terms of this Agreement. 7. Buyer will have a right of first refusal to purchase Expansion Plant Output, such right to be exercisable as provided in this Agreement. NOW THEREFORE, in consideration of these premises and the mutual promises set forth below, the Parties agree, as follows. .SANFRAN 90103 (2K) AGREEMENT ARTICLE I - DEFINITIONS Initially capitalized terms, whenever used in this Agreement, have the meanings set forth below unless otherwise herein defined. The term "including," when used in this Agreement, shall mean to include "without limitation." 1.1 Agreement: This Power Purchase Agreement, including all appendices, as it may be amended from time to time. 1.2 Availability Threshold: The mechanical availability of the Plant calculated as of the end of each calendar month during the Term as a percentage in accordance with the following: A = 100 x Available Hours Base Hours Where: A = Availability Threshold Available Hours = the number of hours during the prior twenty-four (24) months in which the Plant is capable of delivering Energy to the Point of Interconnection; provided that, to the extent that the Plant is not capable of delivering all of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) in any hour, the Available Hours with respect to such hour shall be reduced pro rata to reflect the fraction of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) the Plant is capable of delivering in such hour. Base Hours = the number of hours during the same twenty-four (24) months period referred to in Available Hours; provided that, to the extent that the Plant is partially or wholly incapable or 2 SANFRAN 90103 (2K) otherwise unable to deliver Energy in any hour as a result of a Force Majeure Event or because of fuel unavailability in any hour due to no fault or negligence of Seller, that hour (or if the Plant's capacity is only partially constrained, the pro rata portion of that hour) shall be excluded from the Base Hours. There shall be no Availability Threshold during the first twelve (12) month period following the Commercial Operation Date. Starting with the thirteenth (13th) month after the Commercial Operation Date and continuing through the twenty-fourth (24th) month, the above formula will be used to determine the Availability Threshold with the exception that both Available Hours and Base Hours will be calculated, starting with the first hour of operation on the Commercial Operation Date and including all relevant hours thereafter to the end of the month relevant. Starting with the twenty-fifth (25th) month, the Availability Threshold shall be calculated on a rolling basis using the previous twenty-four (24) month period. 1.3 Buyer: The City of Palo Alto, a California chartered municipal corporation, and any successor or permitted assignee. 1.4 Commercial Operation: The condition of the Plant (in this instance, Plant shall not include equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is not then installed by Seller) whereupon it (a) is certified by Seller to be complete in accordance with manufacturers' recommendations except for punch list items, and (b) has passed the performance test set forth in Appendix E while synchronized with the LDC System or ISO transmission grid. 1.5 Commercial Operation Date: The date upon which Commercial Operation first occurs. 1.6 Confirmation Notice: As defined in Appendix G. 1.7 Contractual Obligations: As to Seller, any material agreement, instrument or undertaking to which Seller is a party or by which it or any of its property is bound. 1.8 Effective Date: As defined in the first paragraph of this Agreement. 3 SANFRAN 90103 (2K) 1.9 Energy: The electricity generated by the Plant and delivered to Buyer by the Seller, pursuant to this Agreement, respectively, at the Point of Interconnection, as expressed in units of kilowatt-hours (kWh) or megawatt - hours (MWh), including Test Energy. 1.10 Environmental Attributes: Any and all credits, benefits, emissions reductions, offsets, and allowances, howsoever entitled, attributable to the generation from the Plant or Expansion Plant(s), as the case may be, and its displacement of conventional energy generation. Environmental Attributes include but are not limited to: (1) any avoided emissions of pollutants to the air, soil or water such as sulfur oxides (SOx), nitrogen oxides (NOx), carbon monoxide (CO) and other pollutants; (2) any avoided emissions of carbon dioxide (CO2), methane (CH4) and other greenhouse gases (GHGs) that have been determined by the United Nations Intergovernmental Panel on Climate Change to contribute to the actual or potential threat of altering the Earth's climate by trapping heat in the atmosphere; and (3) the reporting rights to these avoided emissions such as Green Tag Reporting Rights. Green Tag Reporting Rights are the right of a Green Tag purchaser to report the ownership of accumulated Green Tags in compliance with federal or state law, if applicable, and to a federal or state agency or any other party at the Green Tag purchaser's discretion, and include without limitation those Green Tag Reporting Rights accruing under Section 1605(b) of The Energy Policy Act of 1992 and any present or future federal, state, or local law, regulation or bill, and international or foreign emissions trading program. Green Tags are accumulated on kWh basis and one Green Tag represents the Environmental Attributes associated with one (1) MWh of energy. Environmental Attributes do not include (i) any energy, capacity, reliability or other power attributes from the Plant or Expansion Plant(s), (ii) production tax credits associated with the construction or operation of the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, and other financial incentives in the form of credits, reductions, or allowances associated with the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, that are applicable to a state or federal income taxation obligation, (iii) fuel -related subsidies or "tipping fees" that may be paid to Seller to accept certain fuels, or local subsidies received by the Seller or the owner of the Landfill for the destruction of particular pre-existing pollutants or the promotion of local environmental benefits, or (iv) emission reduction credits encumbered or used by the Plant or 4 SANFRAN 90103 (2K) Expansion Plant(s) for compliance with local, state, or federal operating and/or air quality permits. 1.11 Environmental Attribute Reporting Rights: All rights to report ownership of the Environmental Attributes to any person or entity, under Section 1605(b) of the Energy Policy Act of 1992 or otherwise. 1.12 Environmental Law: Any federal, state and local laws, including statutes, regulations, rulings, orders, administrative interpretations and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances, as amended from time to time. 1.13 Expansion Plant: Any expansion of the Plant from its Initial Capacity, or any other electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Each such expansion of the Plant or additional facility shall be deemed to be an "Expansion Plant." 1.14 Expansion Plant Output: All capacity, energy, associated Environmental Attributes, ancillary services, contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes produced by Seller at any Expansion Plant. 1.15 FERC: Federal Energy Regulatory Commission and its successor organization, if any. 1.16 fixed Increase For Emission Controls: As defined in Appendix G. 1.17 Force Majeure Event: Any act or event that delays or prevents a Party from timely performing obligations under this Agreement or from complying with conditions required under this Agreement to the extent that such act or event is reasonably unforeseeable and beyond the reasonable control of and without the fault or negligence of the Party relying thereon as justification for such delay, nonperformance, or noncompliance. Force Majeure Events typically include: (i) acts of God or the elements, extreme or severe weather conditions, explosion, fire, epidemic, landslide, mudslide, sabotage, lightning, earthquake, flood or similar cataclysmic event, acts of public enemy, war, blockade, civil insurrection, riot, civil disturbance or strike or other labor difficulty caused or 5 SANFRAN 90103 (2K) suffered by a Party; (ii) any restraint or restriction imposed by law or by rule, regulation or other acts or omissions of governmental authorities, whether federal, state or local which by exercise of due diligence and in compliance with applicable law a Party could not reasonably have been expected to avoid and to the extent which, by exercise of due diligence and in compliance with applicable law, has been unable to overcome (so long as the affected Party has not applied for or assisted such act by a governmental authority); and (iii) electric transmission interruptions or curtailments (not including any such event that results from a failure by Buyer to obtain firm transmission or similar rights, or otherwise to make congestion -related payments); provided that the term "Force Majeure Event" does not include (a) economic conditions that render a Party's performance of this Agreement at the Price unprofitable or otherwise uneconomic (including Buyer's ability to buy Energy or Environmental Attributes at a lower price, or Seller's ability to sell Energy or Environmental Attributes at a higher price, than the Price), (b) a governmental act by Buyer that delays or prevents Buyer from timely performing its obligations under this Agreement, (c) a Plant Outage, including as a result of a failure or shortage of landfill gas, except, in any case, if caused by an event or circumstance that meets the requirements set forth in this Section 1.17 (other than as described in (iii) above), (d) failure or delay in grant of Permits, or (e) failures or delays by the LDC or the ISO in entering into all agreements with Seller contemplated by this Agreement. 1.18 Governmental Authority: Any federal, state or local government, or political subdivision thereof, including, without limitation, any municipality, township or county, or any entity or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any corporation or other entity owned or controlled by any of the foregoing. 1.19 Increase For Emission Controls: As defined in Appendix G. 1.20 Initial Capacity: The installed gross capacity of the Plant on the Commercial Operation Date, such capacity to be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection) and as further specified (and possibly increased from the installed gross capacity (which may increase the net at the Point of Interconnection) of the Plant on the Commercial Operation Date) pursuant to Section 4.3(c). 6 SANFRAN 90103 (2K) 1.21 Interconnection: Construction, installation, operation and maintenance of all Interconnection Facilities. 1.22 Interconnection Agreement: The agreement between Seller and LDC pursuant to which Seller and LDC set forth the terms and conditions for Interconnection of the Plant to the LDC System, as amended from time to time. 1.23 Interconnection Facilities: All the facilities installed for the purpose of interconnecting the Plant to the LDC System, including, but not limited to, transformers and associated equipment, relay and switching equipment and safety equipment. 1.24 ISO: The California Independent System Operator Corporation, or its functional successor. 1.25 kWh: kilowatt-hour. 1.26 Landfill Gas: The gas (and its constituent elements) generated from decomposition of materials deposited in the Landfill. 1.27 LD Amount: The Monthly LD Amount multiplied by 12 (twelve). 1.28 LDC: Pacific Gas and Electric Company, a California corporation. 1.29 LDC System: The electric power generation, transmission, substation and distribution facilities owned, operated and/or maintained by LDC, which shall include, without limitation, after construction and installation, the circuit reinforcements, extensions, and associated terminal facility reinforcements or additions required to interconnect LDC's facilities with the Plant. 1.30 Lender(s): Any Person(s) providing money or extending credit (including any capital lease) to Seller for (i) the construction of the Plant, (ii) the term or permanent financing of the Plant, or (iii) working capital or other ordinary business requirements for the Plant. "Lender(s)" shall not include trade creditors of Seller. 1.31 LFG Agreement: As defined in Section 4.2(d). 7 SANFRAN 90103 (2K) 1.32 Monthly LD Amount: The product of (i) $7000 per MW, (ii) Buyer's Percentage Share and (iii) the Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) specified under Section 4.3(c) (net at the Point of Interconnection). 1.33 MW: Megawatt. 1.34 MWh: Megawatt hour. 1.35 NCPA: The Northern California Power Agency, a joint action agency organized and existing under the laws of the State of California. 1.36 Outage: A physical state in which all or a portion of the Plant is unavailable to provide Energy to the Point of Interconnection, or in which any portion of the LDC System is unavailable to receive Energy, to the extent that the unavailability affects the LDC System's ability to accept delivery of Energy at the Point of Interconnection, whether planned or unplanned. 1.37 Output: All actual capacity of the Initial Capacity and associated Energy, as well as the following, as associated with the Initial Capacity and/or associated Energy: Environmental Attributes; ancillary services; contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes. 1.38 Parties: Buyer and Seller, and their respective successors and permitted assignees. 1.39 Party: Buyer or Seller, and each such Party's respective successors and permitted assignees. 1.40 Percentage Share: One Hundred percent (100%). 1.41 Permits: All material federal, state or local authorizations, certificates, permits, licenses and approvals required by any Governmental Authority for the construction, ownership, operation and maintenance of the Plant (in this 8 SANFRAN 90103 (2K) instance, Plant shall not include the equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is or is not installed by Seller). 1.42 Person: An individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity. 1.43 Plant: The generation facility described in Recital 1 to be constructed and owned by Seller and located on the Site for the generation and delivery of electricity, including the step-up transformer, revenue quality meter and all other facilities up to the Point of Interconnection, but not including any Expansion Plant. At any time during the Term, Seller may, in Seller's sole discretion, construct and/or install and own equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Output (Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any such additional Output), provided that such equipment for recovering waste heat shall be become part of the Plant (including, after installation of such equipment, part of the definition of Plant) and shall not be considered an Expansion Plant. 1.44 Point of Interconnection: The point on the electrical system where the Plant is physically interconnected with the LDC System, which is anticipated to be at the high side of Seller's step-up transformers at the Plant. 1.45 Price: As defined in Section 2.3 and Appendix G. 1.46 Production Incentives: Any and all tax credits, deductions, allowances and exemptions applicable to federal, state and local taxes and any other payment, credit, deduction, benefit, grant or monetary incentive provided by any Governmental Authority or any Person, and all air emission credits, reductions or offsets, whether now in effect or arising in the future, in each case arising from the activities contemplated by this Agreement, including the extraction, sale, purchase, processing and/or distribution of Landfill Gas and/or the generation and sale of electricity using Landfill Gas as a fuel, including "Renewable Energy Production Incentive Payments" from the U.S. Department of Energy, emission credits, reductions, offsets or any other 9 SANFRAN 90103 (2K) similar benefits arising from the generation, collection, production, purchase, use, reduction, conversion, destruction or resale of Landfill Gas. Notwithstanding the foregoing, Production Incentives shall not include anything that qualifies as Output, but Production Incentives shall include Section 29 Credits and Section 45 Credits. 1.47 Prudent Utility Practice: Those practices, methods and equipment, as changed from time to time, that: (i) when engaged in are commonly used in the United States of America in prudent electrical engineering and operations to operate landfill gas generation electric equipment and related electrical equipment lawfully and with safety, reliability, efficiency and expedition; or (ii) in the exercise of reasonable judgment considering the facts known, when engaged in could have been expected to achieve the desired result consistent with applicable law, safety, reliability, efficiency and expedition. Prudent Utility Practices are not limited to an optimum practice, method, selection of equipment or act, but rather are a range of acceptable practices, methods, selections of equipment or acts. 1.48 Reimbursement Amount: As defined in Section 4.1(h). 1.49 Required Emission Controls: means any equipment and/or devices that need to be installed, in Seller's sole discretion, to treat engine emissions at the Plant to meet Requirements of Law and/or requirements of law applicable to Seller and/or the Plant (including, without limitation, any permit, any air permit in connection with the Plant, and any approvals in connection with the construction and/or operation of the Plant). Required Emission Controls shall include, without limitation, any (i) Selective Catalytic Reduction equipment or any such other commercially used equipment at such time for nitrogen oxides (NOx) emission reduction, (ii) Oxidizing Catalysts or any such other commercially used equipment at such time for carbon monoxide (CO) reduction, and/or (iii) a Continuous Emission Monitor or any such other commercially used equipment at such time that performs a similar function. 10 SANFRAN 90103 (2K) 1.50 Requirements of Law: Collectively, any federal or state law, treaty, franchise, rule, regulation, order, writ, judgment, injunction, decree, award or determination of any arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon Seller or Buyer or any of their property or to which Seller or Buyer or any of their respective properties are subject. 1.51 San Joaquin County: The County of San Joaquin, a political subdivision of the State of California with principal offices at 44 N. San Joaquin Street, Suite 627 Stockton, California 95202 1.52 Section 29 Credits: Those tax credits available under Section 29 of Subtitle A, Chap. 1A, Part IV of the Internal Revenue Code of 1986, as amended, as of the Effective Date. 1.53 Section 45 Credits: Those tax credits available under Section 45 of Subtitle A, Chap. 1A, Part IV of the Internal Revenue Code of 1986, as amended, or any other similar federal, state or local tax credits, deductions, payments or benefits arising from the purchase of Landfill Gas or the generation and sale of electricity using Landfill Gas as a fuel, not including any Environmental Attributes. 1.54 Seller: Ameresco San Joaquin LLC, a Delaware limited liability company, and any successor or permitted assignee. 1.55 Seller's Interconnection Costs: As defined in Section 4.1(h). 1.56 Site: The real property in Linden, California on which the Plant is to be built and located, as more particularly described in Appendix A. 1.57 Site Control: The point at which Seller satisfies one or more of the following conditions: (1) Seller is (a) the lessee under a lease, or (b) the grantee under an exclusive easement, with the owner (or its subsidiary) of the Landfill that allows Seller to construct and operate the Plant at the Site during the Term in accordance with this Agreement; (2) Seller has a fee ownership of the Site; or (3) any other form of site control acceptable to Buyer in its reasonable discretion. 1.58 Term: The period of time during which the Agreement is in effect. 11 SANFRAN 90103 (2K} 1.59 Test Energy: Energy generated by the Plant and delivered to the Point of Interconnection prior to the Commercial Operation Date. 1.60 Variable Increase For Emission Controls: As defined in Appendix G. 1.61 WREGIS: Western Renewable Energy Generation Information System, or its successor; provided that the successor is capable of performing substantially similar functions and is acceptable to both Parties. 1.62 WREGIS Certificates: The meaning set forth in WREGIS Operating Rules. 1.63 WREGIS Operating Rules: The rules describing the operations of the Western Renewable Energy Generation Information System, as published by WREGIS and as may be amended from time to time. ARTICLE II TERM, PURCHASE AND SALE 2.1 Term This Agreement shall be effective upon execution by authorized representatives of both Parties and, unless earlier terminated pursuant to an express provision of this Agreement, shall continue until the twentieth (2041) anniversary of the Commercial Operation Date. 2.2 Purchase and Sale of the Output (a) In accordance with the terms and conditions hereof, commencing on the Commercial Operation Date and continuing throughout the Term, Seller shall sell and deliver at the Point of Interconnection, and Buyer shall purchase, accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output produced during the Term pursuant to the terms of this Agreement. Prior to the Commercial Operation Date, Buyer shall purchase and accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output relating to Test Energy pursuant to the 12 SANFRAN 90103 (21(1 terms of this Agreement. All Test Energy shall be scheduled in accordance with the procedures set forth in Appendix D. Seller shall not sell to any other party, and Buyer may claim credit for, Buyer's Percentage Share of the Output as may be available from time to time. (b) Throughout the Term, Seller shall sell and transfer to Buyer, and Buyer shall purchase and receive from Seller, all right, title and interest in and to the Environmental Attributes associated with .Buyer's Percentage Share of the Output, if any, whether now existing or subsequently generated or acquired (other than by direct purchase from a third party) by Seller, or that hereafter come into existence, during the Term, as a component of the Output purchased by Buyer from Seller hereunder. Seller agrees to transfer and make such Environmental Attributes available to Buyer immediately to the fullest extent allowed by applicable law upon Seller's production or acquisition of the Environmental Attributes. If Seller receives any tradable Environmental Attributes based on the greenhouse gas reduction benefits or other emission offsets attributed to its fuel usage, it shall be entitled to retain sufficient Environmental Attributes to ensure that there are zero net emissions associated with the production of electricity from such facility. Seller shall not assign, transfer, convey, encumber, sell or otherwise dispose of all or any portion of Buyer's Percentage Share of the Environmental Attributes to any Person other than Buyer. Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any Environmental Attributes. (c) Seller shall use commercially reasonable efforts to use WREGIS to authenticate the transfer of "WREGIS Certificates" from Seller to Buyer in accordance with WREGIS reporting protocols and the terms of this Agreement. Seller shall use commercially reasonable efforts to register the Plant with WREGIS. After the Plant is registered with WREGIS, Seller agrees to use commercially reasonable efforts to transfer WREGIS Certificates to Buyer using the Forward Certificate Transfer method, as described in WREGIS Operating Rules and as designated by Buyer. Buyer shall be responsible for providing required information and taking any action that may be necessary for the registration of the Plant and for transfer of WREGIS Certificates to Buyer's WREGIS account. Except as the Parties may otherwise agree, in writing, in the event that WREGIS is not in operation, or WREGIS does not track Seller's transfer of WREGIS Certificates to Buyer, or its designees, on or before the 30th day of 13 SANFRAN 90103 (2K) each calendar month, Seller shall document the production and transfer of Environmental Attributes under this Agreement by delivering to Buyer an attestation for the Environmental Attributes produced by the Plant, in whole MWh, in the preceding calendar quarter. The form of attestation shall be substantially in the form as set forth in Appendix B. Seller shall be responsible for the WREGIS expenses associated with registering the Plant, maintaining its account, paying the WREGIS Certificates' issuance fees, and transferring WREGIS Certificates to Buyer. Buyer shall be responsible for the WREGIS expenses associated with maintaining its account and subsequent transferring or retiring of WREGIS Certificates. Seller shall, as instructed by Buyer and at Buyer's cost, dispute data with WREGIS. Notwithstanding anything herein to the contrary, if Seller's cost (including labor billed at standard external rates) associated with WREGIS in connection with this Agreement or compliance with this Section 2.2 exceeds $2,500 in any calendar year, Buyer shall reimburse Seller for the amount in excess of $2,500; provided, however, Buyer may designate an alternate accounting system(s), at no cost to Seller, to document or otherwise verify that transfer of RECs or other Environmental Attributes if Seller's WREGIS costs exceed $2,500 in any calendar year. The $2,500 amount shall be escalated at a rate of 1.5% annually, commencing on the first day of the January following the Commercial Operation Date and continuing every subsequent anniversary thereafter. For the purposes of this Section 2.2, "commercially reasonable efforts" shall exclude (i) making any changes to the Plant or any Expansion Plant or the method of operation thereof and (ii) expenditure of any funds other than nominal filing fees. (d) During the Term, Seller shall not report to any person or entity that the Environmental Attributes granted hereunder to Buyer belong to anyone other than Buyer, and Buyer may report under any program that such Environmental Attributes purchased hereunder belong to it. 2.3 Price Subject to the provisions of Section 4.1(k), Buyer shall pay Seller the Price, as determined in Appendix G, per MWh of Energy delivered or tendered to Buyer 14 SANFRAN 90103 (2K) at the Point of Interconnection. The Price shall be the total compensation owed by Buyer for Output delivered or tendered to Buyer hereunder. 2.4 Tax Credits Buyer agrees and acknowledges that all Production Incentives shall be owned by Seller and/or the owner of the Landfill; provided, that to the extent Buyer pays in full for emission offsets and otherwise makes any additional payments pursuant to Section 4.30) in full, Seller shall pay Buyer the Percentage Share of up to one hundred percent (100%) of the net economic value (net of reasonable transaction fees) realized by Seller from the Section 45 Credits until Seller has reimbursed Buyer for all such payments made by Buyer pursuant to Section 4.30). Buyer shall not claim Production Incentives. Buyer agrees to cooperate with Seller and/or the owner of the Landfill as may be necessary to allow maximization of the value of, and realization of, all Production Incentives; provided that Buyer shall not be required to incur additional costs or accept any diminution in value of its rights under this Agreement or of the Output purchased hereunder. In addition, Buyer shall not take any action (except as otherwise permitted under this Agreement), that would in any way reduce or eliminate the availability to Seller or the owner of the Landfill of any Production Incentive, including without limitation the Section 29 Credits, and Buyer shall forego any credits or benefits available to it (other than Environmental Attributes) to the extent necessary to allow Seller and the owner of the Landfill to obtain the full benefit of the Production Incentives, but in no event shall Buyer be required to forego receipt of Energy. 2.5 Right of First Refusal for Expansion Plant and Expansion Plant Output (a) Seller may in its sole discretion determine, from time to time, during the Term to develop, finance, construct and/or operate an Expansion Plant. Each time such a determination is made, Seller shall notify Buyer of such determination and shall offer in writing to sell the Percentage Share of the Expansion Plant Output to Buyer. The offer shall include the price to be paid by Buyer for the Percentage Share of the Expansion Plant Output, the term of the proposed power purchase agreement and the other principal terms and conditions of the proposed sale; If Buyer wishes to accept such offer to purchase all (but not less than all) of such Percentage Share of the Expansion Plant Output, Buyer shall so notify Seller within sixty (60) days of its receipt of such offer. Buyer and Seller shall promptly thereafter enter into good faith 15 SANFRAN 90103 (2K) negotiation of a definitive power purchase agreement incorporating the terms of such offer. Until such an Expansion Plant power purchase agreement is executed, the Seller's proposal, accepted by Buyer (including any modifications agreed upon in writing by both parties), shall control all dealings between the Parties relating to the Expansion Plant. Should any issue arise that is not covered by such documentation, the terms of this Agreement shall apply. (b) If Buyer does not accept Seller's offer to purchase Buyer's Percentage Share of the Expansion Plant Output within sixty (60) days of receipt of Seller's offer, Seller shall be free to offer to sell that portion of the Expansion Plant Output to any third party at a price and on other terms and conditions which, taken as a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer. If Seller offers to break up Buyer's Percentage Share of the Expansion Plant Output to sell to multiple independent buyers, Seller shall notify Buyer in writing of the terms and conditions of such offers and Buyer shall again have the right of first refusal consistent with the terms set forth above for each of the lesser amounts being offered to the third parties. If Buyer does not purchase its Percentage Share of the Expansion Plant Output and Seller sells such Expansion Plant Output to a third party, Seller shall promptly certify, in writing, to Buyer that the terms and conditions of sale of such Expansion Plant Output to such third party, taken as a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer, and Seller shall provide the relevant contract and any other supporting documentation for such certification. Upon the sale of such Expansion Plant Output in compliance with this Agreement, Buyer shall have no further rights to be offered or to purchase such Expansion Plant Output. Buyer's refusal of its Percentage Share of the Expansion Plant Output from one Expansion Plant shall not affect Buyer's right to purchase its Percentage Share of the Expansion Plant Output from a later Expansion Plant under the terms of this Agreement. Seller shall not sell or provide Buyer's Percentage Share of the Expansion Plant Output to any third party unless it can do so without compromising in any material way its ability to provide Buyer's Percentage Share of the Output to Buyer hereunder. The materiality of any such impact shall be determined by Buyer in its reasonable discretion. If Seller sells or provides Expansion Plant Output to any third party, Seller shall not employ Landfill Gas to fuel such Expansion Plant in any hour unless the Landfill Gas flow requirements of the Initial Capacity have been, and shall continue to be, met. 16 SANFRAN 90103 (2K) 2.6 Option to Install Emission Controls Buyer may at its option, exercised from time to time, install emission controls on the Plant in connection with the Initial Capacity and on any Expansion Plant from which Buyer purchases Expansion Plant Output (so long as Buyer purchase all such Expansion Plant Output) beyond those then required to meet the Requirements of Law applicable to Seller or the Plant; provided that (a) Buyer shall (i) bear all costs and financial, regulatory and operational risks thereof, including, without limitation, the capital cost thereof and any increase in operation or maintenance expenses, and (ii) shall keep Seller whole in all respects, including for decreases in Output and other adverse effects on the Initial Capacity and the Expansion Plant and its performance, increases in operations and maintenance costs and failures of such emission controls to operate, and (b) Buyer shall not make any such changes to the Initial Capacity or the Expansion Plant without the consent of Seller to the design and plan for implementation of such changes, such approval not to be unreasonably withheld. ARTICLE III METERING AND BILLING 3.1 Metering Requirements The transfer of Energy from Seller to Buyer shall be measured by revenue quality metering equipment at the Point of Interconnection. Such metering equipment, including any equipment required for communicating meter data (e.g., a dedicated data line) to Buyer or the ISO, shall be selected, provided, installed, owned, maintained and operated, at Seller's sole cost and expense, by Seller or its designee in accordance with applicable ISO rules. Seller shall exercise reasonable care in the maintenance and operation of any such metering equipment, and shall test and verify the accuracy of each meter at least annually. Seller shall inform Buyer upon at least ten (10) days' prior written notice of the time and date of these tests, and shall permit Buyer to be present at such tests and to receive the results of such tests. Subject to Buyer paying for its Percentage Share of the cost of any update or upgrade to such metering equipment pursuant to a new requirement of the ISO, the LDC or any 17 SANFRAN 90103 (2K) other Governmental Authority adopted following the Commercial Operation Date, each of Seller's meters shall be accurate to the metering specifications then in effect for ISO meter accuracy. Seller shall further install and maintain all equipment and data circuits necessary to transmit all monitored real time supervisory control and data acquisition ("SCADA") system data and real time data from the ISO meter to the ISO and the NCPA, while adhering to both ISO and NCPA communications protocols. Seller shall provide a copy of each Certificate of Compliance, if any, issued by the ISO. Buyer and NCPA shall be provided access to all monitored SCADA points to be used at their discretion in real time monitoring. Buyer may further, at its sole cost and expense, install and maintain check meters and all associated measuring equipment necessary to permit an accurate determination of the quantities of Energy delivered under this Agreement provided that said equipment does not interfere with the Seller's metering equipment. Seller shall permit Buyer or Buyer's representative access to its Plant for the purpose of installing and maintaining such check meters. Seller shall submit to the ISO, or allow the ISO to retrieve, any meter data required by the ISO related to the Plant output in accordance with the ISO's settlement and billing protocol and meter data tariffs. Buyer shall have reasonable access to relevant meters and associated facilities, as well as real time access to all meter data, as is necessary for Buyer or its agent to perform its duties as scheduling coordinator and comply with the requirements of the ISO tariff. 3.2 Billing Seller shall read the meter at the end of each calendar month of the Term, and provide to Buyer on or before the tenth (10th) day of the following month an invoice based upon the meter data for Energy delivered in such calendar month and the corresponding attestation pursuant to Section 2.2(c) (if such attestation is required). Such invoice may be transmitted electronically via e- mail to {*AcctsPayable@ncpa.com], or to any other email address designated in writing by Buyer, with a copy to follow via United States Mail to the notice address designated below. Should either Seller or Buyer determine at a later date, but in no event later than two (2) years after the original invoice date, that the invoice amount was incorrect, that Party shall promptly notify the other Party of the alleged error. If the amount invoiced was too low, Buyer shall, upon receiving verification of the error and supporting documentation 18 SANFRAN 90103 (21C) from Seller, pay any undisputed portion of the difference within thirty (30) days of receipt of verification. If the amount invoiced was too high, Seller shall, upon receiving verification of the error and supporting documentation from Buyer, pay any undisputed portion of the difference within thirty (30) days of receipt of verification. Any such amount shall be subject to the interest rate as designated in Section 3.3 running from the original due date of payment. 3.3 Payment For Energy delivered to Buyer pursuant this Agreement, Buyer or its agent shall pay Seller by electronic transfer of funds by the later of the twentieth (20th) day of the month or the tenth (10th) business day after the invoice is received in accordance with Section 3.2. If such due date falls on a weekend or legal holiday, such due date shall be the next day which is not a weekend or legal holiday. Payments made after the due date shall be considered late and shall bear interest on the unpaid balance at an annual rate equal to two percent (2%) plus the average daily prime rate as determined from the "Money Rates" section of the West Coast Edition of The Wall Street Journal for the days of the late payment period multiplied by the number of days elapsed from and including the day after the due date, to and including the payment date. Interest shall be computed on the basis of a 365 -day year. In the event this index is discontinued or its basis is substantially modified, the Parties shall agree on a substitute equivalent index. Should Buyer in good faith dispute the amount of an invoice, Buyer or its agent may withhold such disputed amounts until the dispute is resolved by arbitration or other permissible method. Such disputed amounts shall bear interest at the interest rate described above. Failure of Buyer or its agent to withhold any amount is not a waiver of Buyer's right to challenge such amount. Both Parties shall maintain all payment records relating to this Agreement for a minimum of two (2) years, and shall permit the other Party, upon reasonable notice, to inspect and audit such records as the requesting Party deems reasonably necessary to protect its rights. ARTICLE IV SELLER'S OBLIGATIONS 19 SANFAAN 90103 (2K) During the Term, Seller hereby agrees to perform the following affirmative obligations: 4.1 Development, Finance, Construction and Operation of the Plant Seller shall: (a) Develop, finance and construct the Plant. (b) Provide Buyer access to a "real time" Plant monitoring system (which, at a minimum, shall provide "real time" information regarding the net output of the Plant) that is anticipated to be internet-based and include alarms. (c) Seek, obtain, maintain, comply with and, as necessary, renew and modify from time to time, all Permits, certificates or other authorizations which are required by any Requirements of Law or Governmental Authority as prerequisites to engaging in the activities required of Seller by the Agreement and to meeting Seller's obligation to operate the Plant consistently with the terms of the Agreement. (d) Operate, maintain, and repair the Plant in accordance with this Agreement, all Requirements of Law applicable to Seller or the Plant, Contractual Obligations, Permits and in accordance with Prudent Utility Practice, including with respect to efforts to maintain availability of the Initial Capacity. (e) Obtain and maintain the policies of insurance in amounts and with coverages as set forth in Appendix C. (f) Operate and maintain in a manner consistent with Prudent Utility Practice the facilities it will own and otherwise cooperate with LDC in the physical interconnection of the Plant to the LDC System in accordance with the Interconnection Agreement. (g) By October 1St of each year of the Term, provide Buyer and NCPA with an annual projection of scheduled Outages for the following calendar year. Should Seller make any changes to such projection, it will notify Buyer and NCPA of such changes at least fourteen (14) days in advance of any newly scheduled or rescheduled Outage. If Buyer requests a change to the scheduled 20 SANFRAN 90103 (2K) date of any Outage (including to a date set forth in a change notice from Seller), Seller shall consider such request in good faith and notify Buyer of its decision within seven (7) days. In no instance will Seller schedule Outages of more than twenty-four (24) hours between June 1st and September 30th during the Term. In connection with any Outage, whether it is a scheduled or unscheduled Outage, Seller shall notify Buyer and NCPA, as soon as practicable, of the percentage of Plant expected to be out of service and how long the Outage is expected to last. If the Outage is total (a one hundred percent (100%) Outage) and is due to a failure of the Plant rather than the transmission and distribution system beyond the Point of Interconnection, Seller shall give Buyer and NCPA at least four (4) hours notice before Seller commences re -energizing the Plant. In addition, Seller will comply with NCPA's reasonable scheduling protocols, as they may be changed from time to time. A copy of the current version of NCPA's scheduling protocols, which the Parties agree are reasonable, is attached as Appendix D. (h) Negotiate and enter into an Interconnection Agreement with LDC to enable Buyer to transmit Energy received at the Point of Interconnection through the ISO -controlled grid. Seller shall be responsible for and pay all initial non -recurring costs and charges arising under the Interconnection Agreement (even if not actually incurred) prior to the Commercial Operation Date in compliance with the Interconnection Agreement and associated rules and requirements in place as of the Commercial Operation Date (the "Seller's Interconnection Costs"); provided, however, if the Seller's Interconnection Costs are, in Seller's reasonable discretion estimated to exceed, and/or do exceed, one million two hundred fifty thousand dollars ($1,250,000.00), then Seller may terminate this Agreement without liability of either Party to the other by giving notice to Buyer in writing of such termination; provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees to adjust the Price payable under Section 2.3 of this Agreement (and Appendix G hereto) and/or agrees to reimburse Seller more than the maximum Reimbursement Amount (as defined below), and within forty-five (45) days thereafter agrees with Seller in writing (each in their sole discretion) to an amendment of this Agreement revising the Price payable under Section 2.3 of this Agreement (and Appendix G hereto) and/or revising the Reimbursement Amount. All other out-of-pocket costs and charges related to interconnection other than these initial non -recurring costs and charges will be reimbursed, on a pro rata, energy basis, by the purchasers of energy from the Plant. During 21 SANPRAN 90103 (2K) the Term prior to any Expansion Plant becoming available for commercial service, Buyer will reimburse Seller for its Percentage Share of such other out- of-pocket costs and charges under the Interconnection Agreement paid or required to be paid by Seller to LDC or its successor; provided, however, Buyer shall be responsible for its Percentage Share of such other out-of-pocket costs and charges under the Interconnection Agreement only to the extent Buyer has approved in writing, in the sole discretion of Buyer, the Interconnection Agreement, including any amendments (which shall not include changes in relevant tariffs) from time to time. If Seller's Interconnection Costs are above three hundred thousand dollars ($300,000.00), then Buyer shall reimburse (and pay) Seller, on a dollar for dollar basis, an amount equal to the product of (a) the amount (in dollars) equal to the difference between Seller's Interconnection Costs and three hundred thousand dollars ($300,000.00), times (b) 1.5 (the product thereof being the "Reimbursement Amount"); provided, however, the maximum Reimbursement Amount that Buyer shall be obligated to reimburse (pay) to Seller shall be one million four hundred twenty-five thousand dollars ($1,425,000.00). Notwithstanding anything to the contrary in the immediately previous sentence, Seller may terminate this Agreement without liability of either Party to the other Party if Seller's Interconnection Costs (calculated without taking into consideration any Reimbursement Amount) are estimated to exceed and/or do exceed one million two hundred fifty thousand dollars ($1,250,000.00) as provided above in this Section 4.1(h). Buyer shall pay Seller the Reimbursement Amount within thirty (30) days after the Buyer receives an invoice from Seller for such Reimbursement Amount (Seller may send one invoice to Buyer for the entire Reimbursement Amount or Seller may send multiple invoices to Buyer which total the entire Reimbursement Amount). Seller shall not invoice Buyer for any of Seller's Interconnection Costs until Seller's Interconnection Costs have exceeded three hundred thousand dollars ($300,000.00) and Seller shall provide Buyer with evidence of Seller's Interconnection Costs such as the Interconnection Agreement and/or invoices. Upon completion of an Expansion Plant which uses the Interconnection Facilities, such other out-of-pocket costs and charges shall be prorated, on a Percentage Share of energy basis, and Buyer's share would be based on its Percentage Share of Energy compared to the energy of the Expansion Plant delivered to the Point of Interconnection. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. If this Agreement is terminated before the expiration of the Term (before the 20th anniversary of the Commercial Operation Date) by either Party 22 SANFRAN 90103 (2K) and there is no Event of Default by Buyer (no Event of Default by Buyer at the time of the election to terminate (by either Party) through the effective date of the termination), then, to the extent Buyer has paid Seller any Reimbursement Amount prior to the effective date of such termination of this Agreement, Seller shall refund to Buyer a proportion of any such Reimbursement Amount paid by Buyer to Seller within thirty (30) days after the effective date of such termination of this Agreement as set forth in the following sentence in this paragraph. The proportion of the Reimbursement Amount that Seller shall refund to Buyer per the immediately previous sentence shall be an amount equal to the sum of the Reimbursement Amount (to the extent previously paid by Buyer to Seller) multiplied by a fraction, whose numerator is equal to the number of years and full months remaining in the Term, expressed in months, at the effective date of termination and whose denominator is equal to the full Term of the Agreement, expressed in months (or 240 months). (i) Negotiate and enter into a Participating Generator Agreement and a Meter Service Agreement for ISO Metered Entities with the ISO, the load control area operator for the LDC System that is interconnected with the Plant. Buyer shall pay for or reimburse Seller for Buyer's Percentage Share of any such costs or charges associated with these agreements, except to the extent such cost or charge is required to be paid by Seller under Sections 3.1 and 4.1(h) of this Agreement. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (j) Coordinate all Plant start-ups and shut -downs, in whole or in part, with Buyer in accordance with ISO scheduling protocols and the reasonable protocols established by Buyer that are not inconsistent with the ISO tariff and ISO procedures. (k) Maintain an Availability Threshold of at least seventy percent (70%). Should Seller fail to maintain such an Availability Threshold, the Price applicable to Output sold and purchased during each month during which the Availability Threshold is below seventy percent (70%) shall be seven and one- half percent (7.5%) below the Price that would otherwise be in effect pursuant to Section 2.3 (and Appendix G) until the Availability Threshold is increased to at least seventy percent (70%). Except as otherwise expressly stated in Sections 6.4 and 7.6, the foregoing shall be Buyer's sole remedy for any shortfall of or failure to produce Output or failure to maintain any particular Availability Threshold. 23 SANFRAN 90103 (2K) 4.2 General Obligations (a) Seller shall obtain in its own name and at its own expense any and all pollution or environmental credits or offsets necessary to operate the Plant in compliance with the Environmental Laws. (b) Seller shall keep complete and accurate operating and other records and all other data for the purposes of proper administration of the Agreement, including such records as may be required by any Governmental Authority or Prudent Utility Practice. (c) Seller shall continue to (i) preserve, renew and keep in full force and effect its organizational existence and good standing, and take all reasonable action to maintain all applicable Permits, rights, privileges, licenses and franchises necessary or desirable in the ordinary course of its business; and (ii) comply with all Contractual Obligations and Requirements of Law applicable to Seller or the Plant. (d) Within ninety (90) days after the Effective Date, Seller shall make available for review by Buyer, and its representatives, at Seller's attorney's offices in San Francisco, California, a fully executed copy of its contract with San Joaquin County, including all exhibits, attachments, and other supporting documents thereto, for the purchase of Landfill Gas (the "LFG Agreement"). Such contract may be redacted to remove pricing information. If (i) Seller does not fulfill its obligations under the first two sentences of this Section 4.2(d) within the time allowed, or (ii) Seller fulfills such obligations but Buyer in its reasonable discretion does not approve of the terms of the LFG Agreement, then Buyer may, as its sole remedy and without liability of one Party to the other Party, terminate this Agreement by written notice given no later than sixty (60) days after Seller has fulfilled, or failed to fulfill, as the case may be, such obligations under such first two sentences. Other than increasing the amount of fuel purchased thereunder, Seller shall not allow such contract to be amended or otherwise modified, nor shall it waive or fail to enforce any of its rights thereunder, without Buyer's prior written approval, whose approval shall not be unreasonably withheld. Seller shall make the LFG Agreement available to Buyer for review during normal business hours at Seller's attorney's offices in San Francisco, California throughout the Term within seven (7) days of receipt of a written request by Buyer. 24 SANFRAN 90103 (2K) (e) Seller shall provide to Buyer such other information regarding the permitting, engineering, construction or operations of the Plant as Buyer may from time to time reasonably request, subject to licensing or other restrictions of Seller or a third party with respect to confidentiality, disclosure or use. (f) Seller shall enter into any agreements with the ISO required by the ISO for generators delivering power into the ISO -controlled grid. Except for such costs and charges as are expressly identified in this Agreement as Seller's costs, Buyer shall reimburse Seller for all costs and charges under such agreements. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (g) Seller shall provide Buyer with a copy of its ultimate corporate parent's audited financial statements as at the end of its accounting year prepared in accordance with Generally Accepted Accounting Principles ("GAAP") consistently applied, no later than four (4) months after the end of such accounting year of such entity. Seller shall also provide, on a quarterly basis, an unaudited financial statement in the form of Appendix F, prepared in accordance with GAAP consistently applied for Seller and for Seller's ultimate corporate parent. Such financial statements shall be certified by an officer of Seller as fairly presenting the financial condition of the Seller subject only to what would typically be included in year-end audit adjustments and footnotes. If, from time to time, an audited year-end financial statement is prepared for Seller, Seller shall provide it to Buyer no later than four (4) months after the end of Seller's accounting year. 4.3 Construction Milestones (a) The Parties agree that time is of the essence and that certain milestones (individually, a "Milestone" and, collectively, the "Milestones") for the development, financing and construction of the Plant must be achieved in a timely fashion or Buyer shall suffer damages. Seller shall provide Buyer with documentation satisfactory to Buyer, in Buyer's reasonable discretion, to support the achievement of the Milestones by the dates set forth below. (b) The following events are all of the Milestones: 25 SANFRAN 90103 (2K) (i) By the date ninety (90) days following the Effective Date, Seller shall have signed an LFG Agreement with San Joaquin County and have obtained Site Control. (ii) By the date twenty-six (26) months following the date that Buyer approves the LFG Agreement, Seller shall (a) have obtained all Permits necessary, in final form, to commence construction of the Plant and (b) have entered into an Interconnection Agreement. (iii) By the date one (1) month following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(ii), and (b) entering into an Interconnection Agreement, Seller shall have arranged financing for construction of the Plant or otherwise made funds available to commence and complete construction. (iv) By the date twelve (12) months following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(ii), and (b) entering into an Interconnection Agreement, Seller shall have commenced construction of the Plant. (v) By the date eighteen (18) months following the arrangement of financing or availability of funds for construction, Seller shall have achieved the Commercial Operation Date. (c) Starting on the Effective Date, Seller shall provide to Buyer monthly progress reports concerning the progress towards completion of the Milestones. In addition, within five (5) business days of the completion of each Milestone, Seller shall provide a certification to Buyer along with any supporting documentation, demonstrating the satisfaction of the Milestone. Seller shall provide to Buyer additional information concerning Seller's progress towards, or confirmation of, achievement of the Milestones, as Buyer may reasonably request from time to time. Within seven (7) days of the later of (i) obtaining the authority to construct for the Plant from the applicable air quality management district or (ii) Seller's receipt of the system impact and facility cost studies from the LDC, but in no event later than the date set forth in Section 4.3(b)(ii), Seller shall specify the Initial Capacity of the Plant (which shall be subject to the limits contained in Section 1.20); provided, however, Seller may (in Seller's sole discretion) increase the Initial Capacity of the Plant at any time during the Term by adding equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy. If Seller decides to increase the Initial Capacity of the Plant during the Term (after Seller has originally 26 SANFRAN 90103 (2K) specified the Initial Capacity of the Plant), then Seller shall provide Buyer with written notice of the date of such increase, the amount of such increase, and the entire capacity of the Plant (as increased) as of such date. The new increased capacity of the Plant shall then become the Initial Capacity of the Plant from the date set forth in Seller's written notice until the end of the Term (the Initial Capacity of the Plant (as increased) shall be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection). Seller makes no written or oral representation or warranty, either express or implied, regarding whether or not Seller will add equipment for recovering waste heat from the prime mover engines of the Plant and/or utilize that waste heat to produce additional Energy. (d) Upon becoming aware that it will, or is reasonably likely to, fail to achieve a Milestone by the required date, for any reason, including a Force Majeure Event, Seller shall so notify Buyer, in writing, as soon as is reasonably practicable. Such notice shall explain the cause of the delay, provide an updated date for achievement of the Milestone(s) and describe Seller's plan for meeting the Milestone. Seller's notice will also explain any impact such delay may or will have on any other Milestone, and measures to be taken to mitigate such impact. (e) In the event that a Force Majeure Event causes any delay to the achievement of the Milestones set forth in Sections 4.3(b)(iii), (iv), or (v), such Milestone's deadline may be extended, together with any Force Majeure Event extensions for other Milestones, for a period not to exceed six (6) months. The extension of the deadline for any Milestone shall extend the deadline for all subsequent Milestones, provided that in no event shall the combined extensions for Force Majeure Events for any or all of the Milestones exceed six (6) months. (f) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(i) for any reason, Buyer may terminate this Agreement, without liability of either Party to the other, by giving notice to Seller in writing of such termination at any time prior to Seller curing its failure. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(i). 27 SANFRAN 90103 (21() (g) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(ii) for any reason, Buyer may terminate this Agreement, without liability of either Party to the other, within ten (10) business days after the Milestone date by giving notice to Seller in writing of such termination. If Seller meets the Milestone set forth in Section 4.3(b)(ii) prior to Buyer giving written notice of termination, this Agreement shall remain in full force and effect. If Buyer does not terminate this Agreement within ten (10) business days after the Milestone date, Seller shall continue to pursue satisfaction of the relevant Milestone, and Buyer must give Seller sixty (60) days' prior written notice to terminate this Agreement, during which period if Seller cures such defect and achieves the relevant Milestone, such termination shall be void and this Agreement shall remain in full force and effect. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(ii). (h) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(iv) within six (6) months after the relevant Milestone date for any reason (or up to twelve (12) months if also delayed by a Force Majeure Event), Seller may deposit an amount, per month, equal to the Monthly LD Amount into a segregated escrow account reasonably acceptable to Buyer by the first day of such month, for every month after such Milestone date until the Milestone is met. Such funds will be used towards any liquidated damages as set forth in Section 7.4(c), and shall be held in escrow until such time that liquidated damages, if any, become payable to Buyer. Should the amount in the escrow account exceed the final amount of liquidated damages, such excess funds shall be returned to Seller. Should Seller (i) at any time fail to make such monthly deposits or (ii) fail to satisfy the Milestone set forth in Section 4.3(b)(iv) for more than twelve (12) months, Buyer may terminate this Agreement upon written notice to Seller of such termination. Upon such termination, Seller will pay to Buyer, within thirty (30) days of the termination notice, an amount equal to the LD Amount as liquidated damages. Seller's escrow option, Buyer's option to terminate, and liquidated damages shall be Buyer's sole remedies for any failure of Seller to meet the Milestones set forth in Section 4.3(b)(iii) or (iv). (i) Seller covenants that it will diligently pursue all Milestones including the Commercial Operation Date, which Seller envisions will occur within thirty (30) months following the execution of this Agreement. 28 SANFRAN 90103 (2K) (j) In the event that any of the approvals described in Section 4.3(b)(ii) are not obtained . by the date specified in Section 4.3(b)(ii) for satisfaction of the relevant Milestone or are obtained on a basis not reasonably satisfactory to Seller, including without limitation, in the case of the air permit (from the air pollution control district that has jurisdiction over construction and operation of the Plant), approval of construction and operation of the Plant on a basis not consistent with internal combustion engines without emission controls, pollution or environmental credits or offsets, Seller may terminate this Agreement without liability of either Party to the other Party by giving notice to Buyer, in writing, of such termination; provided that such notice must be given no later than fourteen (14) days ,following the earlier of (a) the date on which a given approval not satisfactory to Seller is received, in writing, or (b) the date specified in Section 4.3(b)(ii) for satisfaction of the relevant Milestone; further provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees (i) to pay Seller with the first invoice following the Commercial Operation Date the reasonable all -in cost (including reasonable broker fees, if any) to purchase all such offsets sufficient to operate the Plant at full Initial Capacity (less reasonably projected scheduled Outages for maintenance) for the term of this Agreement, and (ii) to adjust the price payable under Section 2.3 (and Appendix G) of this Agreement and within thirty (30) days thereafter agrees with Seller (each in their sole discretion), in writing, to an amendment of this Agreement revising such price. Failure to provide notice of termination by the date specified above shall constitute a waiver of the right to terminate this Agreement as provided in this Section 4.3(j). In the event that Seller exercises such termination right, Buyer shall have a right of first refusal to purchase the output of any electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Such right of first refusal shall conform to the provisions of Section 2.5. The provisions of this Section 4.3(j) shall survive termination of this Agreement under this Section 4.3(j) for a period of five (5) years from the effective date of such termination. ARTICLE V BUYER'S OBLIGATIONS 5.1 Delivery and Transmission 29 SANFRAN 90103 (2K) Except for Seller's obligations pursuant to Sections 3.1 and 4.1(h), Buyer shall be solely responsible for paying its Percentage Share of costs and charges associated with the receipt of Energy, under this Agreement, at the Point of Interconnection and for the transmission and delivery of the Energy from the Point of Interconnection to any other point downstream of the Point of Interconnection (including, without limitation, transmission costs and charges, competition transition charges, applicable control area service charges, transmission congestion charges, inadvertent energy flows, any other ISO charges related to the transmission of such Energy by the ISO and any charge assessed or collected in the future pursuant to any utility tariff or rate schedule, however defined, for transmission or transmission -related service rendered by or for any transmission -owning or operating entity). NCPA, acting on behalf of Buyer, shall be scheduling coordinator for the transmission of Energy from the Plant in accordance with applicable ISO rules. Buyer's duties as scheduling coordinator shall be limited to those duties as are specifically required of scheduling coordinators in the ISO tariff and the ISO protocols. Commercial arrangements for such transmission and delivery services will be coordinated and settled by NCPA directly with the ISO or other third parties. At the option of Buyer, the Plant may be included within NCPA's metered sub -system in connection with the scheduling of power over the ISO grid and related functions; provided that such inclusion shall have no adverse effect on Plant operations or Seller (or any such effect shall be fully mitigated by Buyer). Seller will do all things reasonably needed to allow Buyer to comply with any obligations, and minimize any potential liability, under the ISO tariff; provided, that if such actions require any actions beyond the giving of notice provided by Buyer, then Buyer shall reimburse its Percentage Share of all out- of-pocket costs and charges of such actions. If and to the extent that Seller fails to comply with the notice provision in Section 4.1(g) concerning Outages or with its obligations as outlined in the previous sentence, Seller shall be wholly responsible for all imbalances, deviations, or any other ISO charges or penalties associated with such Outage or ISO tariff obligation. Buyer may replace NCPA as Scheduling Coordinator for the Plant. If NCPA ceases to be the Scheduling Coordinator for the Plant and Buyer is unable, within fourteen (14) business days of notice from Seller, to appoint a replacement Scheduling Coordinator, Seller shall have the right to appoint a replacement Scheduling Coordinator on Buyer's behalf, and Buyer shall enter into all reasonable and appropriate agreements with such replacement Scheduling Coordinator at its own cost. 30 SANFRAN 90103 (2K) 5.2 Taxes Buyer shall pay and be fully responsible for any sales, use, gross receipts, utility or other taxes, assessments or fees, if any, incurred or imposed on the sale or transfer of Energy from Seller to Buyer under this Agreement. Buyer shall not be responsible for any taxes measured on the net income of Seller or ad valorem taxes paid by Seller or San Joaquin County associated with the Site or the Landfill 5.3 Notification of Transmission Outages Buyer will exercise reasonable efforts to provide Seller with as much advance notice as practicable of any Outage on the LDC System or other transmission or delivery facilities which may adversely affect the delivery of Energy to Buyer. ARTICLE VI FORCE MAJEURE 6.1 Force Majeure Events It is understood that at times unavoidable delays or interruptions in delivery or performance may result from Force Majeure Events. The performance of each Party under this Agreement may be subject to interruptions or reductions due to a Force Majeure Event. Both Parties shall in good faith use such effort as is reasonable under all the circumstances known to that Party affected by the Force Majeure Event at the time to remove or remedy the cause(s) and mitigate the inability to perform. However, the obligation to use such reasonable efforts shall not be interpreted to require resolution of labor disputes by acceding to demands of the opposition when such course is inadvisable in the discretion of the Party having such difficulty. 6.2 Remedial Action Subject to the limitation on extensions of Milestones set forth in Section 4.3(e), a Party shall not be liable to the other Party if the Party is prevented 31 SANFRAN 90103 (2K) from performing its obligations hereunder due to a Force Majeure Event. The Party rendered unable to fulfill an obligation by reason of a Force Majeure Event shall take all action necessary to remove such inability with all due speed and diligence. The nonperforming Party shall be prompt and diligent in attempting to remove the cause of its failure to perform, and nothing herein shall be construed as permitting that Party to continue to fail to perform after said cause has been removed. Notwithstanding the foregoing, the existence of a Force Majeure Event shall not excuse any Party from its obligations to make payment of amounts due hereunder. 6.3 Notice In the event of any delay or nonperformance resulting from a Force Majeure Event, the Party suffering the Force Majeure Event shall, as soon as practicable under the circumstances, notify the other Party in writing of the nature, cause, date of commencement thereof and the anticipated extent of any delay or interruption in performance. 6.4 Termination Due To Force Majeure Event Subject to Section 4.3(e), if a Party is prevented from performing its material obligations under this Agreement for a period of twelve (12) consecutive months or longer, the unaffected Party may terminate this Agreement, without liability of either Party to the other, upon thirty (30) days' written notice at any time during the Force Majeure Event. ARTICLE VII DEFAULT/REMEDIES/TERMINATION 7.1 Events of Default by Buyer The following shall each constitute an "Event of Default" by Buyer: (a) Buyer breaches any material obligation (other than one covered by Section 7.1(b) or (c) of this Agreement) and fails to cure such breach within thirty (30) days after the receipt of written notification of breach by Seller or 32 SANFRAN 90103 (2K) such longer period as may be necessary to cure such breach as long as Buyer is exercising diligent efforts to cure such default. (b) Buyer fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Buyer under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Buyer of a voluntary proceeding under the bankruptcy or insolvency laws. 7.2 Events of Default by Seller (1) The following shall each constitute an "Event of Default" by Seller if Seller does not cure within the time set forth in clause (2), below: (a) Seller breaches any material obligation (other than ones covered by Sections 7.2(1)(b), (c), (d), (e) or (f) of this Agreement or for which a remedy is specified). (b) Seller fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Seller under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Seller of a voluntary proceeding under the bankruptcy or insolvency laws. (d) Seller sells or transfers Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof) or the right to Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof), to the extent that such Expansion Plant Output is purchased by Buyer, to any Person other than Buyer. (e) Seller fails to comply with the terms of Buyer's right of first refusal as described in Section 2.5 of this Agreement. 33 SANFRAN 90103 (2K) (f) Subject to Section 7.4(c), Seller fails, for any reason other than an unauthorized act or omission by Buyer, to achieve the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(v), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e). (2) Time for Cure. Nothing described in any of Sections 7.2(1)(a), (d) or (e) above shall constitute an Event of Default if Seller cures the event, failure or circumstance within (30) days after the receipt of written notification by Buyer or such longer period as may be necessary to cure as long as Seller is exercising diligent efforts to cure. 7.3 Termination for Default (a) In the event the defaulting Party fails to cure the Event of Default within the period for curative action under Sections 7.1 or 7.2, as applicable, the non - defaulting Party may terminate the Agreement by notifying the defaulting Party in writing of (i) the decision to terminate and (ii) the effective date of the termination. (b) Upon termination of the Agreement by Buyer pursuant to Section 7.3(a) due to an Event of Default by Seller, (i) Buyer shall have no future or further obligation to purchase the Output of the Plant or to make any payment whatsoever under this Agreement, except for payments for obligations arising or accruing prior to the effective date of termination, and (ii) Seller shall, if Buyer has paid in full for emission offsets pursuant to Section 4.3(j), either (A) reimburse Buyer pro rata for any unused such offsets paid for by Buyer or (B) transfer to Buyer title to any unused such offsets paid for by Buyer. Upon termination of the Agreement by Seller pursuant to Section 7.3(a) due to an Event of Default by Buyer, Seller shall have no future or further obligation to deliver the Output of the Plant to Buyer or to satisfy any other obligation of this Agreement, except for payments or other obligations arising or accruing prior to the effective date of termination. After the effective date of termination, the Agreement shall not be construed to provide any residual value to either Party or any successor or any other Person, for rights to, use of or benefits from the Plant to any Person. 7.4 Damages 34 SANFRAN 90103 (2K) (a) For all claims, causes of action and damages the Parties shall be entitled to the recovery of actual damages allowed by law unless otherwise limited by the Agreement. Neither the enumeration of Events of Default in Sections 7.1 and 7.2, nor the termination of this Agreement by a non -defaulting Party pursuant to Section 7.3(a), shall limit the right of a non -defaulting Party to rights and remedies available at law, including, but not limited to, claims for breach of contract or failure to perform by the other Party and for direct damages incurred by the non -defaulting Party as a result of the termination of this Agreement. (b) Except as otherwise specifically and expressly provided in the Agreement, neither Party shall be liable to the other Party under this Agreement for any indirect, special or consequential damages, including but not limited to loss of use, loss of revenues, loss of profit, interest charges, cost of capital or claims of its customers or members to which service is made. Except as set forth in Section 4.1(k) and except to the extent Seller violates its undertaking not to provide or sell rights to part or all of the Output to a party other than Buyer, Seller shall not be liable to Buyer for failure to provide any specific amount of Output hereunder. (c) In the event that Seller fails to meet the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(v), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e), Seller shall be liable for liquidated damages in the amount, per month, equal to the Monthly LD Amount for each full month (with parts of a month pro rated) that Seller is late in satisfying the Milestone. So long as Seller is paying such liquidated damages on a monthly basis, up to twelve (12) months, Buyer shall not be permitted to terminate this Agreement. If after twelve (12) months following the relevant Milestone deadline Seller has failed to achieve Commercial Operation, or if for any reason Seller fails to pay, or discontinues paying, the monthly liquidated damages provided for above, Buyer may terminate this Agreement upon thirty (30) days' prior written notice to Seller. This twelve (12) month period shall not be extended as a result of a Force Majeure Event. Upon such termination, Seller shall pay Buyer, within thirty (30) days of receipt of the termination notice, a lump sum equal to the LD Amount. No other damages or remedy shall be available to Buyer on the basis of such failure to meet the Milestone set forth in Section 4.3(b)(v) or termination of this Agreement based on failure to achieve Commercial Operation within twelve (12) months of that Milestone deadline. 35 SANFRAN 90103 (2K) (d) The Parties agree that the liquidated damages set forth in Sections 4.3(h) and 7.4(c) are reasonable and represent a fair and genuine estimate of the damages Buyer will suffer upon the failure of Seller to achieve Commercial Operation by the agreed upon date(s). The Parties acknowledge that it would be impracticable or extremely difficult to fix Buyer's actual damages, and therefore have deemed the liquidated damages set forth above to be the amount of damage sustained by Buyer upon such a failure. The Parties further agree that payment of such amount shall be as liquidated damages and not as a penalty, and is therefore not subject to avoidance under California Civil Code section 1671. 7.5 Indemnification Seller and Buyer agree to defend, indemnify, and hold each other, and their respective officers, directors, employees and agents, harmless from and against all claims, demands, losses, liabilities, and expenses (including reasonable attorneys' fees) (collectively "Damages") for personal injury or death to persons and damage to each other's physical property or facilities or the property of any other Person to the extent arising out of, resulting from, or caused by the negligent or intentional and wrongful acts, errors, or omissions of the indemnifying Party. This indemnification obligation shall apply notwithstanding any negligent or intentional acts, errors or omissions of the indemnitees but the indemnifying Party's liability to pay Damages to the indemnified Party shall be reduced in proportion to the percentage by which the indemnitees' negligent or intentional acts, errors or omissions caused the Damages: Neither Party shall be indemnified for its Damages resulting from its sole negligence or willful misconduct. These indemnity provisions shall not be construed to relieve any insurer of its obligation to pay claims consistent with the provisions of a valid insurance policy. Buyer shall defend, indemnify and hold Seller and its officers, directors, employees and agents harmless from and against all claims, demands, losses, liabilities and expenses (including reasonable attorneys fees) arising out of or connected with the interaction with third parties in connection with WREGIS or any alternate accounting system(s) designated by Buyer. 7.6 Buyer's Right to Operate 36 SANFRAN 90103 (2K) If Seller (i) fails to maintain the Availability Threshold for a period of nine (9) months in any twelve (12) month period, or (ii) fails to generate Energy for sixty (60) consecutive days, then Buyer or its designee may, but shall not be obligated to, step-in and assume operational control from Seller of the Plant; provided that Buyer shall not be permitted to step-in and take control so long as Seller or any Lender(s) is using commercially reasonable efforts to remedy the failures described in (i) or (ii) above. Buyer, its employees, contractors and designees shall havethe unrestricted right to enter the Plant to the extent necessary to operate the Plant. Upon the exercise of this right, Buyer or its designee shall at all times operate the Plant using Prudent Utility Practice and shall comply, to the extent commercially practicable, with the terms of this Agreement. Notwithstanding the foregoing, Seller shall not be excused from any obligation or remedy available to Buyer as a result of Buyer's operation of, or election not to operate, the Plant. Buyer shall pay Seller the applicable rate for Output provided hereunder, less any costs incurred by Buyer to operate the Plant. Buyer shall indemnify and hold. Seller harmless from any liability to third parties arising out of Buyer's failure to operate the Plant using Prudent Utility Practice. Upon Buyer's satisfaction that Seller has the ability to operate the Plant in accordance with this Agreement, Seller shall resume operational control. Should Lender(s) refuse to finance the Plant, or materially condition such financing, solely as a result of this Section 7.6, and Seller gives Buyer written notice of such refusal to finance, Buyer shall have the following options: (1) terminate this Agreement without liability of one Party to the other Party; (2) renegotiate this Section 7.6 with Seller and Lender(s) in a manner mutually acceptable; (3) delete this Section 7.6 in its entirety (which deletion will not require Seller's additional consent); or (4) arrange for financing for the Plant under materially equivalent terms and conditions as the Lender(s) were prepared to provide but for this Section 7.6. If Buyer fails to elect and complete one of these' options within sixty (60) days of written notice from Seller, Seller shall have the right to terminate this Agreement without liability of one Party to the other Party. ARTICLE VIII REPRESENTATIONS AND WARRANTIES 37 SANFRAN 90103 (2K) 8.1 Seller's Representations and Warranties Seller represents and warrants to Buyer that as of the Effective Date: (1) Seller is duly organized and validly existing as a limited liability company under the laws of Delaware, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Seller is duly qualified in each jurisdiction wherein the nature of .the business transacted by it makes such qualification necessary; (ii) Seller has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder; all such actions have been duly authorized by all necessary proceedings on its part. As of the Effective Date, (a) the Plant shall on the Commercial Operation Date be a "qualifying small power production facility" as that term is defined in Section 3(17)(C) of the Federal Power Act, and will possess all of the exemptions from regulation provided in 18 CFR Sections 292.601(c) and 292.602; and (b) this Agreement is not required to be filed with FERC and no approval (except with respect to "qualifying small power production facility" status) with respect to this Agreement is required from FERC. In the event that the Plant is not a "qualifying small power production facility" on the Commercial Operation Date or any date thereafter, Seller shall make appropriate filings under the Federal Power Act within sixty (60) days so as to comply with applicable law, subject at all times to the provisions of Article IX of this Agreement; (iii) The execution, delivery and performance of this Agreement by Seller will not conflict with its governing documents, any applicable laws, or any covenant, agreement, understanding, decree or order to which Seller is a party or by which it is bound or affected; (iv) This Agreement has been duly and validly executed and delivered by Seller and, as of the date first set forth herein, constitutes a legal, valid and binding obligation of Seller, enforceable in accordance with its terms against Seller, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other 38 SANFRAN 90103 (2K) similar laws affecting the rights of creditors generally or by general principles of equity; and (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Seller, threatened in writing against Seller, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Seller, or to result in any impairment of Seller's ability to perform its obligations under this Agreement. 8.2 Buyer Representations and Warranties Buyer represents and warrants to Seller that as of the Effective Date: (i) Buyer is a chartered city and municipal corporation, duly organized and validly existing, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Buyer is duly qualified in each jurisdiction wherein the nature of the business transacted by it makes such qualification necessary; (11) Buyer has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder and all such actions have been duly authorized by all necessary proceedings on its part; (iii) The execution, delivery and performance of this Agreement by Buyer will not conflict with its governing documents, any applicable laws or any covenant, agreement, understanding, decree or order to which Buyer is a party or by which it is bound or affected; (iv) This Agreement has been duly and validly executed and delivered by Buyer and, as of the first date set forth herein, constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms against Buyer, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally or by general principles of equity; and 39 SANFRAN 90103 (2K) (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Buyer, threatened in writing against Buyer, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Buyer, or to result in any impairment of Buyer's ability to perform its obligations under this Agreement. ARTICLE IX NO CHANGE TO RATES, TERMS OR CONDITIONS The Parties intend that the standard of review for changes to any rate, charge, classification, term or condition of this Agreement at FERC shall be the most stringent standard permissible under applicable law. As to the Parties, it is understood that the standard is the "Mobile -Sierra public interest" standard of review, as stated by the United States Supreme Court in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Nos. 06-1457, 128 S.Ct. 2733 (2008), and consistent with the order of the Supreme Court in NRG Power Marketing, LLC, et al., v. Maine Public Utilities Commission et al., No. 08-674, 130 S.Ct. 693 (2010) ("NRG Order"). As to all other persons it is intended that the same standard, to the maximum degree as may be made applicable to other than the Parties, apply, to the maximum degree permitted under the NRG Order. ARTICLE X MISCELLANEOUS 10.1 Assignment The rights and obligations of this Agreement may not be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Seller may use subcontractors without Buyer's consent to comply with the terms of this Agreement, provided that, notwithstanding the use of subcontractors, Seller shall remain responsible for all of its obligations under this Agreement. Buyer may furthermore use any agent it so designates for scheduling and billing purposes, so long as Buyer remains responsible for all 40 SANFRAN 90103 (2K) of its obligations under this Agreement. Any purported assignment of this Agreement in the absence of the required consent, except as provided in Section 10.2, shall be void. 10.2 Financing Notwithstanding Section 10.1, Seller may, without the consent of Buyer, assign, transfer or hypothecate its rights under this Agreement to Lenders as collateral security in connection with any financing of the purchase or operation of the Plant, provided that such Lender(s) or its designee agree(s), in writing, that upon assuming any of Seller's prospective rights under this Agreement, such Lender also shall be bound by all of Seller's prospective obligations under this Agreement. Notwithstanding any such assignment, Seller's obligations under this Agreement shall continue in their entirety in full force and effect and Seller shall remain fully liable for all of its obligations under or relating to this Agreement. Each such collateral assignment and any purchaser or transferee shall be subject to Buyer's rights and defenses hereunder and under applicable law. Seller shall provide prior written notice to Buyer at least seven (7) days prior to any such collateral assignment. In order to facilitate the obtaining of financing of the Plant, Buyer shall execute, upon request, a commercially reasonable consent to assignment, with respect to a collateral assignment hereof to Lenders in connection with the documentation of the financing or refinancing for the Plant. Any assignment in violation of this Agreement shall be void, ab initio. Buyer shall consider in good faith any amendments to this Agreement proposed by Seller which relate to financing of the Plant or other amendments requested by Seller in order to receive or maintain financing from Lenders. 10.3 Notices Any notice, demand, request, or communication required or authorized by this Agreement shall be delivered either by hand, facsimile, overnight courier or mailed by certified mail, return receipt requested with postage prepaid, to: 41 SANFRAN 90103 (2K) City of Palo Alto 250 Hamilton Avenue, Seventh Floor Palo Alto, CA 94301 Attention: City Clerk Telecopier: (650) 328-3631 on behalf of Buyer; with a copy to: City of Palo Alto 250 Hamilton Avenue, Eighth Floor Palo Alto, CA 94301 Attention: Senior Assistant City Attorney / Utilities Telecopier: (650) 329-2646 and to: City of Palo Alto 250 Hamilton Avenue, Third Floor Palo Alto, CA 94301 Attention: Director of Utilities Telecopier: (650) 321-0651 and to: Northern California Power Agency 651 Commerce Drive Roseville, CA 95678 Attention: Power Contracts Administrator Telecopier: (916) 781-4255 and to: 42 SANFRAN 90103 (2K) Ameresco San Joaquin LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: General Counsel Telecopier: (508) 661-2201 Telephone: (508) 661-2200 with a copy to: Ameresco San Joaquin LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: Senior Vice President, Renewable Energy Telecopier: (508) 661-2201 Telephone: (508) 661-2200 on behalf of Seller. The designation and titles of the person to be notified or the address of such person may be changed at any time by written notice delivered in the manner set forth in this Section 10.3. Any such notice, demand, request, or communication shall be deemed received (i) if delivered by hand by a Party or sent by facsimile or (ii) upon receipt by the receiving Party if sent by courier or U.S. mail. 10.4 Captions All titles, subject headings, section titles and similar items are provided for the purpose of reference and convenience and are not intended to be inclusive, definitive or to affect the meaning of the contents or scope of the Agreement. 10.5 No Third Party Beneficiary No provision of the Agreement is intended to, nor shall it in any way, inure to the benefit of any customer, property owner or any other third party, so as to 43 SANFRAN 90103 (2K) constitute any such Person a third -party beneficiary under the Agreement, or of any one or more of the terms hereof, or otherwise give rise to any cause of action in any Person not a Party hereto. 10.6 No Dedication No undertaking by one Party to the other Party under any provision of the Agreement shall constitute the dedication of that Party's system or any portion thereof to the other Party or to the public or affect Seller as an independent entity and not a public utility. 10.7 Entire Agreement; Integration This Agreement, together with all appendices attached hereto, constitutes the entire agreement between the Parties and supersedes any and all prior oral or written understandings. No amendment, addition to or modification of any provision hereof shall be binding upon the Parties, and neither Party shall be deemed to have waived any provision or any remedy available to it, unless such amendment, addition, modification or waiver is in writing and signed by a duly authorized officer or representative of the Parties. 10.8 Applicable Law The Agreement is made in the State of California and shall be interpreted and governed by the laws of the State of California and/or the laws of the United States, as applicable. 10.9 Venue The Parties hereby submit to the exclusive jurisdiction of the federal courts for the Northern District of the State of California; provided, however, that if such federal courts sitting in the Northern District of the State of California refuse jurisdiction, the Parties agree to the exclusive jurisdiction of the state courts sitting in the County of San Francisco, State of California. 10.10 Nature of Relationship The duties, obligations and liabilities of the Parties are intended to be several and not joint or collective. The Agreement shall not be interpreted or 44 SANFRAN 90103 (2K) construed to create an association, joint venture, fiduciary relationship or partnership between Seller and Buyer or to impose any partnership obligation or liability or any trust or agency obligation or relationship upon either Party. Seller and Buyer shall not have any right, power or authority to enter into any agreement or undertaking for, or act on behalf of, or act as or be an agent or representative of or otherwise bind the other Party. 10.11 Good Faith and Fair Dealing; Reasonableness The Parties agree to act reasonably and in accordance with the principles of good faith and fair dealing in the performance of this Agreement. Unless expressly provided otherwise in this Agreement, (i) wherever the Agreement requires the consent, approval or similar action by a Party, such consent, approval or similar action shall not be unreasonably withheld or delayed, and (ii) wherever the Agreement gives a Party a right to determine, require, specify or take similar action with respect to matters, such determination, requirement, specification or similar action shall be reasonable. 10.12 Severability Should any provision of the Agreement be or become void, illegal or unenforceable, the validity or enforceability of the other provisions of the Agreement shall not be affected and shall continue in full force and effect. The Parties will, however, use their best endeavors to agree on the replacement of the void, illegal, or unenforceable provision(s) with legally acceptable clauses which correspond as closely as possible to the sense and purpose of the affected provision. 10.13 Confidentiality All information disclosed by Seller, including, without limitation, all engineering documents, designs, specifications and financial information, shall be kept confidential and shall not be disclosed to any third party except as provided in this Section 10.13. Buyer acknowledges Seller's request to hold all information regarding this Agreement confidential. Buyer shall disclose such information to third parties only to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Notwithstanding the foregoing, either Party may disclose this Agreement to San Joaquin County or its 45 SANFRAN 90103 (2K) representatives, NCPA or its representatives, or to Lender(s) or potential Lender(s) or its/their representatives; provided that prior to such disclosure, the recipient shall agree, in writing, to keep the material confidential under terms no less stringent than as set forth in this Section 10.13. Buyer also shall be permitted to disclose this Agreement and related information to the City Council of Palo Alto for the express purpose of obtaining approval to execute this Agreement; provided that in connection with such disclosure Buyer shall only disclose such information to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Each Party shall be bound by its obligations of confidentiality hereunder for a period of two (2) years from expiration or any earlier termination of this Agreement. Notwithstanding anything to the contrary in this Section 10.13, nothing in this Agreement shall restrict any Party from using or disclosing confidential information in any manner it chooses, which confidential information (i) is or becomes generally available to the public other than as a result of a disclosure directly or indirectly by the disclosing Party or its representative; (ii) was within the using or disclosing Party's possession prior to it being furnished hereunder, provided that such information is not subject to another confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, any other party with respect to such information; (iii) is rightfully obtained by a Party from third parties authorized to make such disclosure without restriction; or (iv) is legally required to be disclosed by judicial, administrative or other governmental action, as determined by such Party's attorney acting in good faith (including, but not limited to, the California Constitution, the California Public Records Act and the Brown Act), provided that prompt notice of said judicial or other governmental action shall have been given to the non - disclosing Party and that the non -disclosing Party shall, at its sole cost and expense, be afforded the opportunity (consistent with the legal obligations of the disclosing Party) to exhaust all reasonable legal remedies to maintain the confidential information in confidence. 10.14 Cooperation The Parties agree to reasonably cooperate with each other in the implementation and performance of the Agreement. Such duty to cooperate shall not require either Party to act in a manner inconsistent with its rights under the Agreement. 46 SANFRAN 90103 (2K) 10.15 Counterparts This Agreement may be executed in two or more counterparts and by different Parties on separate counterparts, all of which shall be considered one and the same agreement and each of, which shall be deemed an original. 10.16 Financing Notwithstanding anything to the contrary in this Agreement, Seller may terminate this Agreement at its sole discretion without liability of either Party to the other Party if Seller is unable to obtain financing, on terms satisfactory to Seller, for the (i) construction of the Plant, (ii) operations and/or maintenance of the Plant, and/or (iii) working capital or other ordinary business requirements for the Plant. [signature page follows] 47 SANFRAN 90103 (2K) IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the Effective Date. AMERESCO SAN JOAQUIN LLC By Areresco, Inc., its sole member THE CITY OF PALO ALTO APPROVAL AS TO FORM: By: By: Name: David J. Corrsin Title: Executive Vice President Name: Grant Kolling Title: Senior Assistant City Attorney Date: Date: p»'• i / 1, r CV 0 CITY OF PALO ALTO By: CITY OF PALO ALTO By: Name: Lalo Perez Title: Administrative Services Director Date: Name: Valerie 0. Fong Title: Utilities Director Date: CITY OF PALO ALTO By: Name: James Keene Title: City Manager Date: as SANFRAN 9010 (2K) COMMONWEALTH OF MASSACHUSETTS ) SS COUNTY OF MIDDLESEX On this day of , before me, the undersigned notary public, personally appeared , as the of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco San Joaquin LLC, a Delaware limited liability company, proved to me through satisfactory evidence of identification, which was , to be the person whose name is signed on the preceding document, and acknowledged to me that he signed the preceding document voluntarily for its stated purpose as of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco San Joaquin LLC, a Delaware limited liability company. My Commission expires Notary Public 49 SANFRAN 90103 (2K) APPENDIX A SITE DRAWINGS Seller shall provide to Buyer the final Site Drawings prior to the Commercial Operation Date. 50 SANFRAN 90103 (2K) APPENDIX B FORM OF ATTESTATION Ameresco San Joaquin LLC Environmental Attribute Attestation and Bill of Sale Ameresco San Joaquin LLC ("Ameresco") hereby sells, transfers and delivers to ("Customer") the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid (as such term(s) are defined in the (identify contract) (the "Contract') dated , 20_ between Ameresco and Customer) arising from the generation for delivery to the grid of the energy by the Facility described below: Facility name and location: Fuel Type: Capacity (MW): Operational Date: (for facility that has added renewable capacity, show operational date and amount of new capacity) As applicable: CEC Reg. no. Energy Admin. ID no. Q.F. ID no. Dates MWhrs generated 20 20 20 in the amount of one Environmental Attribute or its equivalent for each megawatt hour generated; and Ameresco further attests, warrants and represents as follows: i) to the best of its knowledge, the information provided herein is true and correct; ii) its sale to Customer is its one and only sale of the Environmental Attributes and associated Environmental Attribute Reporting Rights referenced herein; iii) the Facility generated and delivered to the grid the energy in the amount indicated as undifferentiated energy; and [check one:] iv) Ameresco owns the Facility. iv) to the best of Ameresco's knowledge, each of the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid have been generated and sold by the Facility. This serves as a bill of sale, transferring from Ameresco to Customer all of Ameresco's right, title and interest in and to the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the energy for delivery to the grid. Contact Person: tel: 1-508-661-2200; fax: 1-508-661-2201 WITNESS MY HAND, AMERESCO SAN JOAQUIN LLC By: Ameresco, Inc., its sole member By Its Date: B-1 51 SANFRAN 90103 (2K) APPENDIX C INSURANCE COVERAGES At its own expense, Seller shall secure and maintain during the Term the following insurance with the coverage amounts indicated for occurrences during and arising out of Seller's performance of this Agreement. Such insurance shall be placed with responsible and reputable insurance companies in compliance with Requirements of Law applicable to Seller. 1. Workers' Compensation/Employer's Liability. Seller shall maintain Workers' Compensation Insurance and Employer's Liability Insurance which comply with Requirements of Law applicable to Seller. 2. Automobile Liability. Seller shall maintain Automobile Liability Insurance in compliance with Requirements of Law applicable to Seller, including coverage for owned, non -owned and hired automobiles for both bodily injury (including death) and property damage, including automobile liability contractual endorsement and uninsured/underinsured motorist protection endorsements. 3. Third Party Liability. Seller shall maintain third party liability insurance in compliance with Requirements of Law applicable to Seller on a project -specific basis covering against legal responsibility to others as a result of bodily injury, property damage and personal injury arising from the operation and maintenance of the Plant. Such policy shall be written with a limit of liability not less than $10,000,000 and a deductible not to exceed $10,000. Such liability may be in any combination of primary and excess/umbrella. Coverage shall include, but not be limited to, premises/operations, explosion, collapse, underground hazards, broad form property damage and personal injury liability. Such coverage shall not contain exclusions for punitive or exemplary damages, unless prohibited by law. 52 SANHRAN 90103 (2K) APPENDIX D SCHEDULING PROTOCOLS 1. Prior to three (3) business days before the end of a month, Seller is to provide to NCPA and Buyer a monthly forecast of loads andlor generation for the following month. At a minimum, monthly forecasts will be hourly kilowatt (kW) values by weekday, Saturday, and Sunday/Holiday. 2. No later than 1400 hrs. each Thursday, Seller shall provide a forecast of loads andlor generation for the following week to the extent it is different from the monthly forecast in Paragraph 1. Weekly forecasts will be hourly kW values for each hour of the week. 3. Daily modifications to forecasts. Unless otherwise mutually agreed, Seller may make changes to the weekly forecast by providing such changes to NCPA prior to 0800 hrs. two (2) days before the active scheduling day. a. Example: For power that is scheduled for generation or delivery on Thursday, March 25, 2010, changes must be submitted to NCPA by no later than 0800 hrs. on Tuesday, March 23, 2010. 4. Hourly modifications to active schedules. Unless otherwise mutually agreed, Seller may make changes to active schedules by providing such changes to NCPA with a minimum of four (4) hours' notice before the active hour to be changed. Changes to active schedules are limited to two (2) changes per day, excluding forced outages, unless otherwise agreed to between the parties. One request for a schedule change, of one hour or multiple hours duration, constitutes one schedule change. a. Example: For power that is scheduled for generation or delivery in hour ending 1500 hrs. (for the period from 1401 hrs. to 1500 hrs.), changes must be submitted to NCPA no later than 1100 hrs. 5. NCPA is to be notified of all planned or forced generation outages. 6. At Seller's request, NCPA will modify generation and load schedules for unforeseen circumstances in accordance with the above scheduling timeline constraints and NCPA Schedule Coordination Agreement. 53 SANFRAN 90103 (2K) 7. All notices and schedules are to be submitted to NCPA by phone, fax or email to the following persons: Chief Dispatcher/Scheduler. 8. In the absence of forecasts and schedules as noted above, NCPA will utilize the most current information provided by Seller in the development and submission of schedules. 54 SANFRAN 90101 (2K) EXAMPLE FORM OF DAY -AHEAD SCHEDULE For: June , Hour Ended: Expected Capability 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Expected Daily Temperatures, F Low High Contact Information: Scheduling Coordinator: Facility: CITY: SANFRAN 90103 {2K) APPENDIX E PERFORMANCE TEST Seller shall coordinate and schedule, with Buyer, a performance test after completion of all equipment startup and commissioning activities. This performance test may be performed before completing punch list items. Buyer shall be permitted to witness the performance test, including access to and copies of control room logs, control system display screens, and instrumentation data for a reasonable period of time before, during and after the performance test, and may also concurrently conduct a site inspection of the Landfill and Plant and associated facilities, systems and equipment. Seller shall supply a written copy of the performance test results to Buyer within five (5) business days following the conclusion of the test. The performance test shall continue for one hundred twenty (120) consecutive hours (the "Test Period") to demonstrate the following: 1) Net Generator Output: The power output for each generator shall be recorded for the Test Period to verify the net initial capacities. This performance test shall be performed for all engine/generators simultaneously and will be considered successful if the average net output for the Test Period is equal to eighty percent (80%) of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) designated in this Agreement. All power measurements shall be based on a power factor of 0.90. 2) Compliance: The performance test shall also demonstrate the ability of the Plant to comply with all material safety, system reliability, environmental, and other requirements of its permits, this Agreement, any interconnection agreements, and the LFG Agreement. SANFRAN 90103 (2K) 56 APPENDIX F SELLER'S SAMPLE QUARTERLY FINANCIAL STATEMENT Balance Sheets December 31, 2006 and 2007 ASSETS Current assets: Cash and cash equivalents Restricted cash Accounts receivable Prepaid and other current assets Total current assets Other assets: Project assets, net Due from member Debit issuance costs, net Total other assets LIABILITY AND MEMBER'S EQUITY Current liabilities: Current portion of long-term debt Accounts payable Accrued expenses Total current liabilities Long-term liabilities: Long-term debt, less current portion Deferred tax liabilities Total long-term liabilities Member's equity SAWFRAN 90103 (2K) 57 Statements of Operations Years Ended December 31, 2006 and 2007 Revenues: Electricity Sales Costs of revenue: Operation and maintenance Depreciation of project assets Gross profit (loss) Operating expenses: Selling, general and administrative Operating income (loss) Interest and other financing costs Income (loss) before tax benefit (provision) Income tax benefit (provision) Net income (loss) SANFRAN 90103 (2K) Statements of Cash Flows Years Ended December 31, 2006 and 2007 Cash flows from operating activities: Net income (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Amortization of deferred issuance costs Deferred taxes Change in assets and liabilities: (Increase) decrease in: Accounts receivable Prepaid expenses Accounts payable Due to (from) member Net cash provided by operating activities Cash flows from investing activities: Accounts payable relating to construction activity Accrued expenses relating to construction activity Purchase of project assets Net cash used in investing activities Cash flows from financing activities: Increase in restricted cash Capital contributions Distributions to member Proceeds from debt issuance Debt issuance costs Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosure of cash flow information: Cash paid during the year for: Interest Income taxes Supplemental disclosure of noncash transactions: Accrued purchases of project assets SANFRAN 90103 (2K) APPENDIX G Buyer shall pay Seller $91.33 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, provided, however, if any Required Emission Controls are installed, prior to the later of the (i) Commercial Operation Date, and (ii) date that is sixty (60) days after the completion of stack tests that Seller is required to perform (in connection with the Plant) by Requirements of Law and/or any permit, then the price Buyer shall pay Seller per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection shall be $91.33 per MWh plus (a) $0.60 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection (the "Fixed Increase For Emission Controls"), plus (b) $0.0000055 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection for each $1.00 of Seller's costs and/or expenses associated with the design, engineering, equipment, installation and commissioning of any and all Required Emission Controls (the "Variable Increase For Emission Controls" and collectively with the Fixed Increase For Emission Controls, the "Increase For Emission Controls"). The Increase For Emission Controls shall not exceed a maximum of $10.01 per MWh. The entire price that Buyer shall pay Seller per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection ($91.33 per MWh plus any Increase For Emission Controls) shall be escalated at a rate of 1.5% (of the then -current price) annually on the anniversary of (i) the first day of the first full month following the Commercial Operation Date or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date. Prior to the later of the (i) Commercial Operation Date, and (ii) a date that occurs sixty (60) days after the completion of stack tests, that Seller is required to perform (in connection with the Plant) by Requirements of Law and/or any permit, Seller may terminate this Agreement without liability of either Party to the other Party, if Seller's costs and/or expenses associated with the design, engineering, equipment, installation and commissioning of the Required Emission Controls are estimated to exceed (and/or do exceed) one million eight hundred twenty thousand dollars ($1,820,000.00), and Seller first communicates such information to Buyer and Seller thereafter provides notice of termination to Buyer, in writing; provided, however, that Seller's notice of termination shall not become effective if Buyer, by written notice to Seller within fourteen (14) days following the receipt of Seller's written notice of termination, agrees to subsequently adjust the Price payable under Section 2.3 of this Agreement (and this Appendix G) and/or agrees to reimburse Seller a mutually agreed amount based upon the amount by which the costs andlor expenses associated with the design, engineering, equipment, installation and commissioning of the Required Emission Controls exceed one million eight hundred twenty thousand dollars ($1,820,000.00) and, within forty-five (45) days following Seller's receipt of Buyer's notice regarding its interest in a Price adjustment andlor reimbursement arrangement, the Parties, in writing, execute an amendment of this Agreement (in each Party's sole discretion), revising the Price payable under Section 2.3 of this Agreement (and this Appendix G) and/or agreeing to a reimbursement amount from Buyer to Seller. Buyer shall pay Seller $91.33 per MWh of Test Energy delivered or tendered to Buyer at the Point of Interconnection; provided, however, that the amount due and/or paid to Seller for Test Energy shall be adjusted (it can only be adjusted up) after the Seller provides Buyer with the Confirmation Notice as further set forth below. SANFRAN 90103 (2K) To, among other things, confirm the price (as set forth in Section 2.3 of the Agreement and this Appendix G) to be paid from Buyer to Seller in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, Seller will provide Buyer with a written notice setting forth twenty annual price rates (in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection) for the portion of the Term on and after the Commercial Operation Date (as each such annual price rate shall be escalated as set forth in, the penultimate sentence of the first paragraph in this Appendix G), starting with the first annual price rate which will be $91.33 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, plus, to the extent applicable, the Increase For Emission Controls (such notice being referred to as the "Confirmation Notice"). The Confirmation Notice shall be (a) provided to Buyer on or prior to the later of the (i) date ten (10) days after the Commercial Operation Date, and (ii) date that is seventy (70) days after the completion of stack tests.that Seller is required to perform (in connection with the Plant) by Requirements of Law and/or any permit; and (b) substantially in the form attached hereto in Appendix G-1 (with items in brackets modified and blank spaces filled -in as applicable). If Seller does not provide the Confirmation Notice to Buyer until after the Commercial Operation Date, then the price Buyer shall pay Seller (the price in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection) after the Commercial Operation Date shall be $91.33 per MWh (which shall be paid in accordance with the terms of .the Agreement) until the date of the Confirmation Notice to Buyer (at which point such price may increase); provided, however, that after the date of the Confirmation Notice, Seller shall, within sixty (60) days following such date, send a statement to Buyer setting forth any additional amount owed from Buyer to Seller under this Agreement for the time period (during the Term) prior to the date of the Confirmation Notice if the price (in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection) as set forth in the Confirmation Notice is more than $91.33. per MWh during the first year following (i) the first day of the first full month following the Commercial Operation Date or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date. The amount due from Buyer to Seller pursuant to such statement shall be the difference of (a) the product of the total price (in dollars per MWh) for such first year (as set forth in the Confirmation Notice) times the total MWhs of Energy (including Test Energy) delivered or tendered to Buyer at the Point of Interconnection prior to the date of the Confirmation Notice, minus (b) the product of $91.33 times the total MWhs of Energy (including Test Energy) delivered or tendered to Buyer at the Point of Interconnection prior to the date of the Confirmation Notice (nothing in this sentence shall impact Buyer's obligation to also pay Seller $91.33 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection prior to the date of the Confirmation Notice (the payment from Buyer to Seller of the amount set forth in the statement is additional)). Buyer shall pay\the amount set forth in such statement to Seller within thirty (30) days of Buyer's receipt of the statement. On and after the date of Confirmation Notice, Buyer shall pay Seller the applicable annual price rate, as set forth in the Confirmation Notice, per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection. Seller's failure to send Buyer a Confirmation Notice shall neither be an Event of Default by Seller nor shall it be cause for Buyer not to pay for Energy delivered or tendered to Buyer at the Point of Interconnection. SANFRAN 90103 (2K} APPENDIX G-1 [Letterhead] [DATE] [VIA ] City of Palo Alto 250 Hamilton Avenue, Seventh Floor Palo Alto, CA 94301 Attention: City Clerk Re: Power Purchase Agreement — Confirmation Notice Dear City Clerk: Reference is made to the Power Purchase Agreement (the "Power Purchase Agreement"), dated as of [ ], 2010, between the City of Palo Alto (`Buyer") and Ameresco San Joaquin LLC ("Seller"). Unless otherwise defined herein, capitalized terms used herein shall have the meanings given to such terms in the Power Purchase Agreement. In accordance with the terms of Section 2.3 and Appendix G of the Power Purchase Agreement, Seller hereby gives notice (the Confirmation Notice as defined in Appendix G of the Power Purchase Agreement) to Buyer that Seller [has/has not] installed Required Emission Controls [at a cost (including, without limitation, costs and/or expenses associated with the design, engineering, equipment, installation and commissioning of any and all Required Emission Controls) of [$ 1]. Therefore, in accordance with the terms of Section 2.3 and Appendix G of the Power Purchase Agreement, the price Buyer shall pay Seller in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection from the Commercial Operation Date until [the first anniversary of (1) the first day of the first full month following the Commercial Operation or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date (Year 1 as set forth in the chart below)] and for each year thereafter [(the final year (20) being a partial year if the Commercial Operation Date does not fall on the first day of the month)] through the remainder of the Term shall be as follows in the chart below: Year Price in dollars per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection SAIVFRAN 90103 (2K) 1 [this column is to be filled -in] 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Sincerely, Ameresco San Joaquin LLC [By: Ameresco, Inc., its sole member] By: Name: Title: Enclosures cc: City of Palo Alto, 250 Hamilton Avenue, Eighth Floor, Palo Alto, CA 94301, Attention: Senior Assistant City Attorney / Utilities (with enclosures and sent via ) City of Palo Alto, 250 Hamilton Avenue, Third Floor, Palo Alto, CA 94301, Attention: Director of Utilities (with enclosures and sent via ) Northern California Power Agency, 651 Commerce Drive, Roseville, CA 95678, Attention: Power Contracts Administrator (with enclosures and sent via ) SANFRAN 90103 (2K) Not Yet Approved ATTACHMENT H Resolution No. Resolution of the Council of the City of Palo Alto Approving the Long -Term Power Purchase Agreement (Landfill Gas Power) and Amendment No. 1 to Power Purchase Agreement with Ameresco Crazy Horse LLC for the Purchase of Electricity Generated by Landfill Gas Electric Generating Facilities WHEREAS, the City of Palo Alto (the "City"), a municipal utility and a chartered city is a member of the Northern California Power Agency ("NCPA"); WHEREAS, on March 5, 2007, the City approved eight electric portfolio planning and management guidelines to guide the development and management of the City's long-term electricity acquisition plan; one of the guidelines is to pursue target levels of new renewable resource energy purchases equal to thirty percent (30%) and thirty-three percent (33%) of the City's expected energy load by 2012 and 2015, respectively; WHEREAS, the City is interested in purchasing power generated by renewable resources for the benefit of its electric customers; WHEREAS, by purchasing these sources of renewable energy, the City will help reduce the production of greenhouse gases and assist in reducing volatile organic compound emissions; WHEREAS, Ameresco Crazy Horse LLC ("Ameresco") proposed its project in response to the City's Request for Proposals 134307 ("RFP") in November 2009, and it was deemed competitive with other RFP respondents; WHEREAS, the execution of this power purchase agreement with Ameresco (the "Crazy Horse PPA") is anticipated to enable the City to meet a three -percent portion of its goal of sourcing 33% of its energy needs from renewable electric energy; WHEREAS, the City is allocated a 100 percent share of the power from the initial project, amounting to 6.2 megawatts of plant net output; WHEREAS, the Crazy Hose PPA allows Ameresco to sell the City additional output, if developed, from engine heat recovery, at the contract price; and NOW, THEREFORE, the Council of the City of Palo Alto does hereby RESOLVE, as follows: SECTION 1. The Council hereby approves the City's execution of both the long-term Power Purchase Agreement (Landfill Gas Power) and the Amendment No. 1 to Power Purchase Agreement, made between Ameresco Crazy Horse LLC, as Seller, 100302 j 0073327 1 Not Yet Approved and the City of Palo Alto, as Buyer. The delivery term of the Power Purchase Agreement is twenty (20) years, commencing upon the Commercial Operation Date of the planned electric generation facility. Quantity is a 100 percent share of the plant's net output. Spending authority under the Power Purchase Agreement and the Amendment, No. 1 to Power Purchase Agreement is not to exceed one hundred eleven million three hundred thousand dollars ($111,300,000). The City Manager is hereby authorized to sign the Power Purchase Agreement and the Amendment No. 1 to Power Purchase Agreement with Ameresco Crazy Horse LLC, and the City Manager or his designee is authorized to sign any confirmations executed in connection with the Power Purchase Agreement and the Amendment No. 1 to Power Purchase Agreement on behalf of the City. SECTION 2. With respect to the Council's approval and award of the Power Purchase Agreement and the Amendment No. 1 to Power Purchase Agreement referred to in Section 1 above, the Council hereby waives the creditworthiness requirements of Palo Alto Municipal Code section 2.30.340(c), as it may apply to Ameresco Crazy Horse LLC. SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act and no environmental assessment is required. The Salinas Valley Solid Waste Authority will be the lead agency for the purposes of compliance with the requirements of the California Environmental Quality Act INTRODUCED AND PASSED: AYES: NOES: ABSENTIONS: ABSENT: ATTEST: APPROVED: City Clerk Mayor APPROVED AS TO FORM: Senior Asst. City Attorney City Manager Director of Utilities Director of Administrative Services 100302jb 0073327 2 ATTACHMENT I POWER PURCHASE AGREEMENT This Power Purchase Agreement is entered into this day of 2010 (the "Effective Date") by and between the City of Palo Alto, a California chartered municipal corporation and Ameresco Crazy Horse LLC, a Delaware limited liability company. RECITALS 1. Seller intends to develop, finance, build, own and operate a Landfill Gas electric generating facility to be located at the Crazy Horse Canyon Landfill (the "Landfill") located at 350 Crazy Horse Canyon Road, Salinas, California, on a site leased from Salinas Valley Solid Waste Authority, which owns the Landfill. 2. Buyer is engaged in the procurement and supply of electricity to residential and commercial customers in the City of Palo Alto. 3. Buyer wishes to purchase the Output of the Plant and intends to resell related Energy to its residential and commercial customers. 4. Buyer is willing to purchase, and Seller is willing to sell, the Output of the Plant, on the terms and conditions and at the prices set forth in this Agreement. 5. Seller may determine to incorporate heat recovery equipment to produce additional electrical output to be included and sold as Energy in accordance with the terms of this Agreement. 6. Seller may determine to expand the Plant in the future depending on the availability of Landfill Gas and other factors in accordance with the terms of this Agreement. 7. Buyer will have a right of first refusal to purchase Expansion Plant Output, such right to be exercisable as provided in this Agreement. NOW THEREFORE, in consideration of these premises and the mutual promises set forth below, the Parties agree, as follows. SANFRAN 90103 (2K) AGREEMENT ARTICLE I - DEFINITIONS Initially capitalized terms, whenever used in this Agreement, have the meanings set forth below unless otherwise herein defined. The term "including," when used in this Agreement, shall mean to include "without limitation." 1.1 Agreement: This Power Purchase Agreement, including all appendices, as it may be amended from time to time. 1.2 Availability Threshold: The mechanical availability of the Plant calculated as of the end of each calendar month during the Term as a percentage in accordance with the following: A = 100 x Available Hours Base Hours Where: A = Availability Threshold Available Hours = the number of hours during the prior twenty-four (24) months in which the Plant is capable of delivering Energy to the Point of Interconnection; provided that, to the extent' that the Plant is not capable of delivering all of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) in any hour, the Available Hours with respect to such hour shall be reduced pro rata to reflect the fraction of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) the Plant is capable of delivering in such hour. Base Hours = the number of hours during the same twenty-four (24) months period referred to in Available Hours; provided that, to 2 SANFRAN 90103 (2K) the extent that the Plant is partially or wholly incapable or otherwise unable to deliver Energy in any hour as a result of a Force Majeure Event or because of fuel unavailability in any hour due to no fault or negligence of Seller, that hour (or if the Plant's capacity is only partially constrained, the pro rata portion of that hour) shall be excluded from the Base Hours. There shall be no Availability Threshold during the first twelve (12) month period following the Commercial Operation Date. Starting with the thirteenth (13th) month after the Commercial Operation Date and continuing through the twenty-fourth (24th) month, the above formula will be used to determine the Availability Threshold with the exception that both Available Hours and Base Hours will be calculated, starting with the first hour of operation on the Commercial Operation Date and including all relevant hours thereafter to the end of the month relevant. Starting with the twenty-fifth (25th) month, the Availability Threshold shall be calculated on a rolling basis using the previous twenty-four (24) month period. 1.3 Buyer: The City of Palo Alto, a California chartered municipal corporation, and any successor or permitted assignee. 1.4 Commercial Operation: The condition of the Plant (in this instance, Plant shall not include equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is not then installed by Seller) whereupon it (a) is certified by Seller to be complete in accordance with manufacturers' recommendations except for punch list items, and (b) has passed the performance test set forth in Appendix E while synchronized with the LDC System or ISO transrnission grid. 1.5 Commercial Operation Date: The date upon which Commercial Operation first occurs. 1.6 Contractual Obligations: As to Seller, any material agreement, instrument or undertaking to which Seller is a party or by which it or any of its property is bound. 1.7 Effective Date: As defined in the first paragraph of this Agreement. SANFRAN 90103 (2K) 3 1.8 Energy: The electricity generated by the Plant and delivered to Buyer by the Seller, pursuant to this Agreement, respectively, at the Point of Interconnection, as expressed in units of kilowatt-hours (kWh) or megawatt - hours (MWh), including Test Energy. 1.9 Environmental Attributes: Any and all credits, benefits, emissions reductions, offsets, and allowances, howsoever entitled, attributable to the generation from the Plant or Expansion Plant(s), as the case may be, and its displacement of conventional energy generation. Environmental Attributes include but are not limited to: (1) any avoided emissions of pollutants to the air, soil or water such as sulfur oxides (SOx), nitrogen oxides (NOx), carbon monoxide (CO) and other pollutants; (2) any avoided emissions of carbon dioxide (CO2), methane (CH4) and other greenhouse gases (GHGs) that have been determined by the United Nations Intergovernmental Panel on Climate Change to contribute to the actual or potential threat of altering the Earth's climate by trapping heat in the atmosphere; and (3) the reporting rights to these avoided emissions such as Green Tag Reporting Rights. Green Tag Reporting Rights are the right of a Green Tag purchaser to report the ownership of accumulated Green Tags in compliance with federal or state law, if applicable, and to a federal or state agency or any other party at the Green Tag purchaser's discretion, and include without limitation those Green Tag Reporting Rights accruing under Section 1605(b) of The Energy Policy Act of 1992 and any present or future federal, state, or local law, regulation or bill, and international or foreign emissions trading program. Green Tags are accumulated on kWh basis and one Green Tag represents the Environmental Attributes associated with one (1) MWh of energy. Environmental Attributes do not include (i) any energy, capacity, reliability or other power attributes from the Plant or Expansion Plant(s), (ii) production tax credits associated with the construction or operation of the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, and other financial incentives in the form of credits, reductions, or allowances associated with the Plant, Expansion Plant(s), Landfill, or any other associated contract or right, that are applicable to a state or federal income taxation obligation, (iii) fuel -related subsidies or "tipping fees" that may be paid to Seller to accept certain fuels, or local subsidies received by the Seller or the owner of the Landfill for the destruction of particular pre-existing pollutants or the promotion of local environmental benefits, or (iv) emission reduction credits encumbered or used by the Plant or Expansion Plant(s) for compliance with local, state, or federal operating and/or air quality permits. SANFRAN 90103 (2K) 4 1.10 Environmental Attribute Reporting Rights: All rights to report ownership of the Environmental Attributes to any person or entity, under Section 1605(b) of the Energy Policy Act of 1992 or otherwise. 1.11 Environmental Law: Any federal, state and local laws, including statutes, regulations, rulings, orders, administrative interpretations and other governmental restrictions and requirements relating to the discharge of air pollutants, water pollutants or process waste water or otherwise relating to the environment or hazardous substances, as amended from time to time. 1.12 Expansion Plant: Any expansion of the Plant from its Initial Capacity, or any other electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Each such expansion of the Plant or additional facility shall be deemed to be an "Expansion Plant." 1.13 Expansion Plant Output: All capacity, energy, associated Environmental Attributes, ancillary services, contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes produced by Seller at any Expansion Plant. 1.14 FERC: Federal Energy Regulatory Commission and its successor organization, if any. 1.15 Force Majeure Event: Any act or event that delays or prevents a Party from timely performing obligations under this Agreement or from complying with conditions required under this Agreement to the extent that such act or event is reasonably unforeseeable and beyond the reasonable control of and without the fault or negligence of the Party relying thereon as justification for such delay, nonperformance, or noncompliance. Force Majeure Events typically include: (i) acts of God or the elements, extreme or severe weather conditions, explosion, fire, epidemic, landslide, mudslide, sabotage, lightning, earthquake, flood or similar cataclysmic event, acts of public enemy, war, blockade, civil insurrection, riot, civil disturbance or strike or other labor difficulty caused or suffered by a Party; (ii) any restraint or restriction imposed by law or by rule, regulation or other acts or omissions of governmental authorities, whether federal, state or local which by exercise of due diligence and in compliance with applicable law a Party could not reasonably have been expected to avoid SANFRAN 90103 (2K) 5 and to the extent which, by exercise of due diligence and in compliance with applicable law, has been unable to overcome (so long as the affected Party has not applied for or assisted such act by a governmental authority); and (iii) electric transmission interruptions or curtailments (not including any such event that results from a failure by Buyer to obtain firm transmission or similar rights, or otherwise to make congestion -related payments); provided that the term "Force Majeure Event" does not include (a) economic conditions that render a Party's performance of this Agreement at the Price unprofitable or otherwise uneconomic (including Buyer's ability to buy Energy or Environmental Attributes at a lower price, or Seller's ability to sell Energy or Environmental Attributes at a higher price, than the Price), (b) a governmental act by Buyer that delays or prevents Buyer from timely performing its, obligations under this Agreement, (c) a Plant Outage, including as a result of a failure or shortage of landfill gas, except, in any case, if caused by an event or circumstance that meets the requirements set forth in this Section 1.15 (other than as described in (iii) above), (d) failure or delay in grant of Permits, or (e) failures or delays by the LDC or the ISO in entering into all agreements with Seller contemplated by this Agreement. 1.16 Governmental Authority: Any federal, state or local government, or political subdivision thereof, including, without limitation, any municipality, township or county, or any entity or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, including, without limitation, any corporation or other entity owned or controlled by any of the foregoing. 1.17 Initial Capacity: The installed gross capacity of the Plant on the Commercial Operation Date, such capacity to be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection) and as further specified (and possibly increased from the installed gross capacity (which may increase the net at the Point of Interconnection) of the Plant on the Commercial Operation Date) pursuant to Section 4.3(c). 1.18 Interconnection: Construction, installation, operation and maintenance of all Interconnection Facilities. 1.19 Interconnection Agreement: The agreement between Seller and LDC pursuant to which Seller and LDC set forth the terms and conditions for SANFRAN 90103 (2K) 6 Interconnection of the Plant to the LDC System, as amended from time to time. 1.20 Interconnection Facilities: All the facilities installed for the purpose of interconnecting the Plant to the LDC System, including, but not limited to, transformers and associated equipment, relay and switching equipment and safety equipment. 1.21 ISO: The California Independent System Operator Corporation, or its functional successor. 1.22 kWh: kilowatt-hour. 1.23 Landfill Gas: The gas (and its constituent elements) generated from decomposition of materials deposited in the Landfill. 1.24 LD Amount: The Monthly LD Amount multiplied by 12 (twelve). 1.25 LDC: Pacific Gas and Electric Company, a California corporation. 1.26 LDC System: The electric power generation, transmission, substation and distribution facilities owned, operated and/or maintained by LDC, which shall include, without limitation, after construction and installation, the circuit reinforcements, extensions, and associated terminal facility reinforcements or additions required to interconnect LDC's facilities with the Plant. 1.27 Lender(s): Any Person(s) providing money or extending credit (including any capital lease) to Seller for (i) the construction of the Plant, (ii) the term or permanent financing of the Plant, or (iii) working capital or other ordinary business requirements for the Plant. "Lender(s)" shall not include trade creditors of Seller. 1.28 LFG Agreement: As defined in Section 4.2(d). 1.29 Monthly LD Amount: The product of (i) $7000 per MW, (ii) Buyer's Percentage Share and (iii) the Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering 7 SANFRAN 90103 (2K) waste heat is or is not installed by Seller)) specified under Section 4.3(c) (net at the Point of Interconnection). 1.30 MW: Megawatt. 1.31 MWh: Megawatt hour. 1.32 NCPA: The Northern California Power Agency, a joint action agency organized and existing under the laws of the State of California. 1.33 Outage: A physical state in which all or a portion of the Plant is unavailable to provide Energy to the Point of Interconnection, or in which any portion of the LDC System is unavailable to receive Energy, to the extent that the unavailability affects the LDC System's ability to accept delivery of Energy at the Point of Interconnection, whether planned or unplanned. 1,34 Output: All actual capacity of the Initial Capacity and associated Energy, as well as the following, as associated with the Initial Capacity and/or associated Energy: Environmental Attributes; ancillary services; contributions towards resource adequacy or reserve requirements (if any) and any other reliability or power attributes. 1.35 Parties: Buyer and Seller, and their respective successors and permitted assignees. 1.36 Party: Buyer or Seller, and each such Party's respective successors and permitted assignees. 1.37 Percentage Share: One Hundred percent (100%). 1.38 Permits: All material federal, state or local authorizations, certificates, permits, licenses and approvals required by any Governmental Authority for the construction, ownership, operation and maintenance of the Plant (in this instance, Plant shall not include the equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy to the extent such equipment is or is not installed by Seller). 8 SANFRAN 90103 (2K) 1.39 Person: An individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture, Governmental Authority or other entity. 1.40 Plant: The generation facility described in Recital 1 to be constructed and owned by Seller and located on the Site for the generation and delivery of electricity, including the step-up transformer, revenue quality meter and all other facilities up to the Point of Interconnection, but not including any Expansion Plant. At any time during the Term, Seller may, in Seller's sole discretion, construct and/or install and own equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Output (Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any such additional Output), provided that such equipment for recovering waste heat shall be become part of the Plant (including, after installation of such equipment, part of the definition of Plant) and shall not be considered an Expansion Plant. 1.41 Point of Interconnection: The point on the electrical system where the Plant is physically interconnected with the LDC System, which is anticipated to be at the high side of Seller's step-up transformers at the Plant. 1.42 Price: As defined in Section 2.3. 1,43 Production Incentives: Any and all tax credits, deductions, allowances and exemptions applicable to federal, state and local taxes and any other payment, credit, deduction, benefit, grant or monetary incentive provided by any Governmental Authority or any Person, and all air emission credits, reductions or offsets, whether now in effect or arising in the future, in each case arising from the activities contemplated by this Agreement, including the extraction, sale, purchase, processing and/or distribution of Landfill Gas and/or the generation and sale of electricity using Landfill Gas as a fuel, including "Renewable Energy Production Incentive Payments" from the U.S. Department of Energy, emission credits, reductions, offsets or any other similar benefits arising from the generation, collection, production, purchase, use, reduction, conversion, destruction or resale of Landfill Gas. Notwithstanding the foregoing, Production Incentives shall not include anything that qualifies as Output, but Production Incentives shall include Section 29 Credits and Section 45 Credits. 9 SANFRAN 90103 (2K) 1.44 Prudent Utility Practice: Those practices, methods and equipment, as changed from time to time, that: (i) when engaged in are commonly used in the United States of America in prudent electrical engineering and operations to operate landfill gas generation electric equipment and related electrical equipment lawfully and with safety, reliability, efficiency and expedition; or (ii) in the exercise of reasonable judgment considering the facts known, when engaged in could have been expected to achieve the desired result consistent with applicable law, safety, reliability, efficiency and expedition. Prudent Utility Practices are not limited to an optimum practice, method, selection of equipment or act, but rather are a range of acceptable practices, methods, selections of equipment or acts. 1.45 Reimbursement Amount: As defined in Section 4.1(h). 1.46 Requirements of Law: Collectively, any federal or state law, treaty, franchise, rule, regulation, order, writ, judgment, injunction, decree, award or determination of any arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon Seller or Buyer or any of their property or to which Seller or Buyer or any of their respective properties are subject. 1.47 Salinas Valley Solid Waste Authority: Salinas Valley Solid Waste Authority, a joint powers authority under the laws of the State of California with principal offices at 128 Sun Street, #101, Salinas, California 93901. 1.48 Section 29 Credits: Those tax credits available under Section 29 of Subtitle A, Chap. 1A, Part IV of the Internal Revenue Code of 1986, as amended, as of the Effective Date. 1.49 Section 45 Credits: Those tax credits available under Section 45 of Subtitle A, Chap. 1A, Part IV of the internal Revenue Code of 1986, as amended, or any other similar federal, state or local tax credits, deductions, payments or benefits arising from the purchase of Landfill Gas or the generation and sale of 10 SANFRAN 90103 (2K) electricity using Landfill Gas as a fuel, not including any Environmental Attributes. 1.50 Seller: Ameresco Crazy Horse LLC, a Delaware limited liability company, and any successor or permitted assignee. 1.51 Seller's Interconnection Costs: As defined in Section 4.1(h). 1.52 Site: The real property in Salinas, California on which the Plant is to be built and located, as more particularly described in Appendix A. 1.53 Site Control: The point at which Seller satisfies one or more of the following conditions: (1) Seller is (a) the lessee under a lease, or (b) the grantee under an exclusive easement, with the owner (or its subsidiary) of the Landfill that allows Seller to construct and operate the Plant at the Site during the Term in accordance with this Agreement; (2) Seller has a fee ownership of the Site; or (3) any other form of site control acceptable to Buyer in its reasonable discretion. 1.54 Term: The period of time during which the Agreement is in effect. 1.55 Test Energy: Energy generated by the Plant and delivered to the Point of Interconnection prior to the Commercial Operation Date. 1.56 WREGIS: Western Renewable Energy Generation Information System, or its successor; provided that the successor is capable of performing substantially similar functions and is acceptable to both Parties. 1.57 WREGIS Certificates: The meaning set forth in WREGIS Operating Rules. 1.58 WREGIS Operating Rules: The rules describing the operations of the Western Renewable Energy Generation Information System, as published by WREGIS and as may be amended from time to time. 11 SANFRAN 90103 (2K) ARTICLE II TERM, PURCHASE AND SALE 2.1 Term This Agreement shall be effective upon execution by authorized representatives of both Parties and, unless earlier terminated pursuant to an express provision of this Agreement, shall continue until the twentieth (20th) anniversary of the Commercial Operation Date. 2.2 Purchase and Sale of the Output (a) In accordance with the terms and conditions hereof, commencing on the Commercial Operation Date and continuing throughout the Term, Seller shall sell and deliver at the Point of Interconnection, and Buyer shall purchase, accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output produced during the Tenn pursuant to the terms of this Agreement. Prior to the Commercial Operation Date, Buyer shall purchase and accept from Seller at the Point of Interconnection and pay for, Buyer's Percentage Share of the Output relating to Test Energy pursuant to the terms of this Agreement. All Test Energy shall be scheduled in accordance with the procedures set forth in Appendix D. Seller shall not sell to any other party, and Buyer may claim credit for, Buyer's Percentage Share of the Output as may be available from time to time. (b) Throughout the Term, Seller shall sell and transfer to Buyer, and Buyer shall purchase and receive from Seller, all right, title and interest in and to the Environmental Attributes associated with Buyer's Percentage Share of the Output, if any, whether now existing or subsequently generated or acquired (other than by direct purchase from a third party) by Seller, or that hereafter come into existence, during the Term, as a component of the Output purchased by Buyer from Seller hereunder. Seller agrees to transfer and make such Environmental Attributes available to Buyer immediately to the fullest extent allowed by applicable law upon Seller's production or acquisition of the Environmental Attributes. If Seller receives any tradable Environmental Attributes based on the greenhouse gas reduction benefits or other emission offsets attributed to its fuel usage, it shall be entitled to retain sufficient Environmental Attributes to ensure that there are zero net emissions associated 12 SANFRAN 90103 (2K) with the production of electricity from such facility. Seller shall not assign, transfer, convey, encumber, sell or otherwise dispose of all or any portion of Buyer's Percentage Share of the Environmental Attributes to any Person other than Buyer. Seller makes no written or oral representation or warranty, either express or implied, regarding the current or future existence of any Environmental Attributes. (c) Seller shall use commercially reasonable efforts to use WREGIS to authenticate the transfer of "WREGIS Certificates" from Seller to Buyer in accordance with WREGIS reporting protocols and the terms of this Agreement. Seller shall use commercially reasonable efforts to register the Plant with WREGIS. After the Plant is registered with WREGIS, Seller agrees to use commercially reasonable efforts to transfer WREGIS Certificates to Buyer using the Forward Certificate Transfer method, as described in WREGIS Operating Rules and as designated by Buyer. Buyer shall be responsible for providing required information and taking any action that may be necessary for the registration of the Plant and for transfer of WREGIS Certificates to Buyer's WREGIS account. Except as the Parties may otherwise agree, in writing, in the event that WREGIS is not in operation, or WREGIS does not track Seller's transfer of WREGIS Certificates to Buyer, or its designees, on or before the 30th day of each calendar month, Seller shall document the production and transfer of Environmental Attributes under this Agreement by delivering to Buyer an attestation for the Environmental Attributes produced by the Plant, in whole MWh, in the preceding calendar quarter. The form of attestation shall be substantially in the form as set forth in Appendix B. Seller shall be responsible for the WREGIS expenses associated with registering the Plant, maintaining its account, paying the WREGIS Certificates' issuance fees, and transferring WREGIS Certificates to Buyer. Buyer shall be responsible for the WREGIS expenses associated with maintaining its account and subsequent transferring or retiring of WREGIS Certificates. Seller shall, as instructed by Buyer and at Buyer's cost, dispute data with WREGIS. Notwithstanding anything herein to the contrary, if Seller's cost (including labor billed at standard external rates) associated with WREGIS in connection with this Agreement or compliance with this Section 2.2 exceeds $2,500 in any calendar year, Buyer shall reimburse Seller for the amount in excess of $2,500; provided, however, Buyer may designate an alternate accounting system(s), at no cost to Seller, to document or otherwise 13 SANFRAN 90103 (2K) verify that transfer of RECs or other Environmental Attributes if Seller's WREGIS costs exceed $2,500 in any calendar year. The $2,500 amount shall be escalated at a rate of 1.5% annually, commencing on the first day of the January following the Commercial Operation Date and continuing every subsequent anniversary thereafter. For the purposes of this Section 2.2, "commercially reasonable efforts" shall exclude (i) making any changes to the Plant or any Expansion Plant or the method of operation thereof and (ii) expenditure of any funds other than nominal filing fees. (d) During the Term, Seller shall not report to any person or entity that the Environmental Attributes granted hereunder to Buyer belong to anyone other than Buyer, and Buyer may report under any program that such Environmental Attributes purchased hereunder belong to it. 2.3 Price Subject to the provisions of Section 4.1(k), Buyer shall pay Seller $92.08 per MWh of Energy delivered or tendered to Buyer at the Point of Interconnection, which price shall be escalated at a rate of 1.5% (of the then -current price) annually on the anniversary of (i) the first day of the first full month following the Commercial Operation Date or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date. The Price shall be the total compensation owed by Buyer for Output delivered or tendered to Buyer hereunder. 2.4 Tax Credits Buyer agrees and acknowledges that all Production Incentives shall be owned by Seller and/or the owner of the Landfill; provided, that to the extent Buyer pays in full for emission offsets and otherwise makes any additional payments pursuant to Section 4.3(j) in full, Seller shall pay Buyer the Percentage Share of up to one hundred percent (100%) of the net economic value (net of reasonable transaction fees) realized by Seller from the Section 45 Credits until Seller has reimbursed Buyer for all such payments made by Buyer pursuant to Section 4.3(j). Buyer shall not claim Production Incentives. Buyer agrees to cooperate with Seller and/or the owner of the Landfill as may be necessary to allow maximization of the value of, and realization of, all 14 SANFRAN 90103 (2K) Production Incentives; provided that Buyer shall not be required to incur additional costs or accept any diminution in value of its rights under this Agreement or of the Output purchased hereunder. In addition, Buyer shall not take any action (except as otherwise permitted under this Agreement), that would in any way reduce or eliminate the availability to Seller or the owner of the Landfill of any Production Incentive, including without limitation the Section 29 Credits, and Buyer shall forego any credits or benefits available to it (other than Environmental Attributes) to the extent necessary to allow Seller and the owner of the Landfill to obtain the full benefit of the Production Incentives, but in no event shall Buyer be required to forego receipt of Energy. 2.5 Right of First Refusal for Expansion Plant and Expansion Plant Output (a) Seller may in its sole discretion determine, from time to time, during the Term to develop, finance, construct and/or operate an Expansion Plant. Each time such a determination is made, Seller shall notify Buyer of such determination and shall offer in writing to sell the Percentage Share of the Expansion Plant Output to Buyer. The offer shall include the price to be paid by Buyer for the Percentage Share of the Expansion Plant Output, the term of the proposed power purchase agreement and the other principal terms and conditions of the proposed sale. If Buyer wishes to accept such offer to purchase all (but not less than all) of such Percentage Share of the Expansion Plant Output, Buyer shall so notify Seller within sixty (60) days of its receipt of such offer. Buyer and Seller shall promptly thereafter enter into good faith negotiation of a definitive power purchase agreement incorporating the terms of such offer. Until such an Expansion Plant power purchase agreement is executed, the Seller's proposal, accepted by Buyer (including any modifications agreed upon in writing by both parties), shall control all dealings between the Parties relating to the Expansion Plant. Should any issue arise that is not covered by such documentation, the terms of this Agreement shall apply. (b) If Buyer does not accept Seller's offer to purchase Buyer's Percentage Share of the Expansion Plant Output within sixty (60) days of receipt of Seller's offer, Seller shall be free to offer to sell that portion of the Expansion Plant Output to any third party at a price and on other terms and conditions which, taken as a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer. If Seller offers to break up Buyer's Percentage Share of the Expansion Plant Output to sell to 15 SANFRAN 90103 (2K) multiple independent buyers, Seller shall notify Buyer in writing of the terms and conditions of such offers and Buyer shall again have the right of first refusal consistent with the terms set forth above for each of the lesser amounts being offered to the third parties. If Buyer does not purchase its Percentage Share of the Expansion Plant Output and Seller sells such Expansion Plant Output to a third party, Seller shall promptly certify, in writing, to Buyer that the terms and conditions of sale of such Expansion Plant Output to such third party, taken as a whole, are at least as favorable to Seller as the price and other terms and conditions set forth in Seller's offer to Buyer, and Seller shall provide the relevant contract and any other supporting documentation for such certification. Upon the sale of such Expansion Plant Output in compliance with this Agreement, Buyer shall have no further rights to be offered or to purchase such Expansion Plant Output. Buyer's refusal of its Percentage Share of the Expansion Plant Output from one Expansion Plant shall not affect Buyer's right to purchase its Percentage Share of the Expansion Plant Output from a later Expansion Plant under the terms of this Agreement. Seller shall not sell or provide Buyer's Percentage Share of the Expansion Plant Output to any third party unless it can do so without compromising in any material way its ability to provide Buyer's Percentage Share of the Output to Buyer hereunder. The materiality of any such impact shall be determined by Buyer in its reasonable discretion. If Seller sells or provides Expansion Plant Output to any third party, Seller shall not employ Landfill Gas to fuel such Expansion Plant in any hour unless the Landfill Gas flow requirements of the Initial Capacity have been, and shall continue to be, met. 2.6 Option to Install Emission Controls Buyer may at its option, exercised from time to time, install emission controls on the Plant in connection with the Initial Capacity and on any Expansion Plant from which Buyer purchases Expansion Plant Output (so long as Buyer purchase all such Expansion Plant Output) beyond those then required to meet the Requirements of Law applicable to Seller or the Plant; provided that (a) Buyer shall (i) bear all costs and financial, regulatory and operational risks thereof, including, without limitation, the capital cost thereof and any increase in operation or maintenance expenses, and (ii) shall keep Seller whole in all respects, including for decreases in Output and other adverse effects on the Initial Capacity and the Expansion Plant and its performance, increases in operations and maintenance costs and failures of such emission controls to operate, and (b) Buyer shall not make any such changes to the Initial Capacity 16 SANFRAN 90103 (2K) or the Expansion Plant without the consent of Seller to the design and plan for implementation of such changes, such approval not to be unreasonably withheld. ARTICLE III METERING AND BILLING 3.1 Metering Requirements The transfer of Energy from Seller to Buyer shall be measured by revenue quality metering equipment at the Point of Interconnection. Such metering equipment, including any equipment required for communicating meter data (e.g., a dedicated data line) to Buyer or the ISO, shall be selected, provided, installed, owned, maintained and operated, at Seller's sole cost and expense, by Seller or its designee in accordance with applicable ISO rules. Seller shall exercise reasonable care in the maintenance and operation of any such metering equipment, and shall test and verify the accuracy of each meter at least annually. Seller shall inform Buyer upon at least ten (10) days' prior written notice of the time and date of these tests, and shall permit Buyer to be present at such tests and to receive the results of such tests. Subject to Buyer paying for its Percentage Share of the cost of any update or upgrade to such metering equipment pursuant to a new requirement of the ISO, the LDC or any other Governmental Authority adopted following the Commercial Operation Date, each of Seller's meters shall be accurate to the metering specifications then in effect for ISO meter accuracy. Seller shall further install and maintain all equipment and data circuits necessary to transmit all monitored real time supervisory control and data acquisition ("SCADA") system data and real time data from the ISO meter to the ISO and the NCPA, while adhering to both ISO and NCPA communications protocols. Seller shall provide a copy of each Certificate of Compliance, if any, issued by the ISO. Buyer and NCPA shall be provided access to all monitored SCADA points to be used at their discretion in real time monitoring. Buyer may further, at its sole cost and expense, install and maintain check meters and all associated measuring equipment necessary to permit an accurate determination of the quantities of Energy delivered under this Agreement provided that said equipment does not interfere with the Seller's metering equipment. Seller 17 SANFRAN 90103 (2K) shall permit Buyer or Buyer's representative access to its Plant for the purpose of installing and maintaining such check meters. Seller shall submit to the ISO, or allow the ISO to retrieve, any meter data required by the ISO related to the Plant output in accordance with the ISO's settlement and billing protocol and meter data tariffs. Buyer shall have reasonable access to relevant meters and associated facilities, as well as real time access to all meter data, as is necessary for Buyer or its agent to perform its duties as scheduling coordinator and comply with the requirements of the ISO tariff. 3.2 Billing Seller shall read the meter at the end of each calendar month of the Term, and provide to Buyer on or before the tenth (10th) day of the following month an invoice based upon the meter data for Energy delivered in such calendar month and the corresponding attestation pursuant to Section 2.2(c) (if such attestation is required). Such invoice may be transmitted electronically via e- mail to [*AcctsPayable@ncpa.com], or to any other email address designated in writing by Buyer, with a copy to follow via United States Mail to the notice address designated below. Should either Seller or Buyer determine at a later date, but in no event later than two (2) years after the original invoice date, that the invoice amount was incorrect, that Party shall promptly notify the other Party of the alleged error. If the amount invoiced was too low, Buyer shall, upon receiving verification of the error and supporting documentation from Seller, pay any undisputed portion of the difference within thirty (30) days of receipt of verification. If the amount invoiced was too high, Seller shall, upon receiving verification of the error and supporting documentation from Buyer, pay any undisputed portion of the difference within thirty (30) days. of receipt of verification. Any such amount shall be subject to the interest rate as designated in Section 3.3 running from the original due date of payment. 3.3 Payment For Energy delivered to Buyer pursuant this Agreement, Buyer or its agent shall pay Seller by electronic transfer of funds by the later of the twentieth (20th) day of the month or the tenth (10th) business day after the invoice is received in accordance with Section 3.2. If such due date falls on a weekend or legal holiday, such due date shall be the next day which is not a weekend or 18 SANFRAN 90103 (2K) legal holiday. Payments made after the due date shall be considered late and shall bear interest on the unpaid balance at an annual rate equal to two percent (2%) plus the average daily prime rate as determined from the "Money Rates" section of the West Coast Edition of The Wall Street Journal for the days of the late_paymentperiod multiplied by the number of days elapsed from and including the day after the due date, to and including the payment date. Interest shall be computed on the basis of a 365 -day year. In the event this index is discontinued or its basis is substantially modified, the Parties shall agree on a substitute equivalent index. Should Buyer in good faith dispute the amount of an invoice, Buyer or its agent may withhold such disputed amounts until the dispute is resolved by arbitration or other permissible method. Such disputed amounts shall bear interest at the interest rate described above. Failure of Buyer or its agent to withhold any amount is not a waiver of Buyer's right to challenge such amount. Both Parties shall maintain all payment records relating to this Agreement for a minimum of two (2) years, and shall permit the other Party, upon reasonable notice, to inspect and audit such records as the requesting Party deems reasonably necessary to protect its rights. ARTICLE IV SELLER'S OBLIGATIONS During the Term, Seller hereby agrees to perform the following affirmative obligations: 4.1 Development, Finance, Construction and Operation of the Plant Seller shall: (a) Develop, finance and construct the Plant. (b) Provide Buyer access to a "real time" Plant monitoring system (which, at a minimum, shall provide "real time" information regarding the net output of the Plant) that is anticipated to be internet-based and include alarms. (c) Seek, obtain, maintain, comply with and, as necessary, renew and modify from time to time, all Permits, certificates or, other authorizations 19 SANFRAN 90103 (2K) which are required by any Requirements of Law or Governmental Authority as prerequisites to engaging in the activities required of Seller by the Agreement and to meeting Seller's obligation to operate the Plant consistently with the terms of the Agreement. (d) Operate, maintain, and repair the Plant in accordance with this Agreement, all Requirements of Law applicable to Seller or the Plant, Contractual Obligations, Permits and in accordance with Prudent Utility Practice, including with respect to efforts to maintain availability of the Initial Capacity. (e) Obtain and maintain the policies of insurance in amounts and with coverages as set forth in Appendix C. (f) Operate and maintain in a manner consistent with Prudent Utility Practice the facilities it will own and otherwise cooperate with LDC in the physical interconnection of the Plant to the LDC System in accordance with the Interconnection Agreement. (g) By October 1st of each year of the Term, provide Buyer and NCPA with an annual projection of scheduled Outages for the following calendar year. Should Seller make any changes to such projection, it will notify Buyer and NCPA of such changes at least fourteen (14) days in advance of any newly scheduled or rescheduled Outage. If Buyer requests a change to the scheduled date of any Outage (including to a date set forth in a change notice from Seller), Seller shall consider such request in good faith and notify Buyer of its decision within seven (7) days. In no instance will Seller schedule Outages of more than twenty-four (24) hours between June 1st and September 30th during the Term. In connection with any Outage, whether it is a scheduled or unscheduled Outage, Seller shall notify Buyer and NCPA, as soon as practicable, of the percentage of Plant expected to be out of service and how long the Outage is expected to last. If the Outage is total (a one hundred percent (100%) Outage) and is due to a failure of the Plant rather than the transmission and distribution system beyond the Point of Interconnection, Seller shall give Buyer and NCPA at least four (4) hours notice before Seller commences re -energizing the Plant. In addition, Seller will comply with NCPA's reasonable scheduling protocols, as they may be changed from time to time. A copy of the current version of NCPA's scheduling protocols, which the Parties agree are reasonable, is attached as Appendix D. 20 SANFRAN 90103 (2K) (h) Negotiate and enter into an Interconnection Agreement with LDC to enable Buyer to transmit Energy received at the Point of Interconnection through the ISO -controlled grid. Seller shall be responsible for and pay all initial --non-recurring costs and charges arising under the Interconnection Agreement (even if not actually incurred) prior to the Commercial Operation Date in compliance with the Interconnection Agreement and associated rules and requirements in place as of the Commercial Operation Date (the "Seller's Interconnection Costs"); provided, however, if the Seller's Interconnection Costs are, in Seller's reasonable discretion estimated to exceed, and/or do exceed, one million two hundred fifty thousand dollars ($1,250,000.00), then Seller may terminate this Agreement without liability of either Party to the other by giving notice to Buyer in writing of such termination; provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees to adjust the Price payable under Section 2.3 of this Agreement and/or agrees to reimburse Seller more than the maximum Reimbursement Amount (as defined below), and within forty-five (45) days thereafter agrees with Seller in writing (each in their sole discretion) to an amendment of this Agreement revising the Price payable under Section 2.3 of this Agreement and/or revising the Reimbursement Amount. All other out-of-pocket costs and charges related to interconnection other than these initial non -recurring costs and charges will be reimbursed, on a pro rata, energy basis, by the purchasers of energy from the Plant. During the Term prior to any Expansion Plant becoming available for commercial service, Buyer will reimburse Seller for its Percentage Share of such other out-of-pocket costs and charges under the Interconnection Agreement paid or required to be paid by Seller to LDC or its successor; provided, however, Buyer shall be responsible for its Percentage Share of such other out-of-pocket costs and charges under the Interconnection Agreement only to the extent Buyer has approved in writing, in the sole discretion of Buyer, the Interconnection Agreement, including any amendments (which shall not include changes in relevant tariffs) from time to time. If Seller's Interconnection Costs are above three hundred thousand dollars ($300,000.00), then Buyer shall reimburse (and pay) Seller, on a dollar for dollar basis, an amount equal to the product of (a) the amount (in dollars) equal to the difference between Seller's Interconnection Costs and three hundred thousand dollars ($300,000.00), times (b) 1.5 (the product thereof being the "Reimbursement Amount"); provided, however, the maximum Reimbursement Amount that Buyer shall be obligated to reimburse (pay) to 21 SANFRAN 90103 (2K} Seller shall be one million four hundred twenty-five thousand dollars ($1,425,000.00). Notwithstanding anything to the contrary in the immediately previous sentence, Seller may terminate this Agreement without liability of either Party to the other Party if Seller's Interconnection Costs (calculated without taking into consideration any Reimbursement Amount) are estimated to exceed and/or do exceed one million two hundred fifty thousand dollars ($1,250,000.00) as provided above in this Section 4.1(h). Buyer shall pay Seller the. Reimbursement Amount within thirty (30) days after the Buyer receives an invoice from Seller for such Reimbursement Amount (Seller may send one invoice to Buyer for the entire Reimbursement Amount or Seller may send multiple invoices to Buyer which total the entire Reimbursement Amount). Seller shall not invoice Buyer for any of Seller's Interconnection Costs until Seller's Interconnection Costs have exceeded three hundred thousand dollars ($300,000.00) and Seller shall provide Buyer with evidence of Seller's Interconnection Costs such as the Interconnection Agreement and/or invoices. Upon completion of an Expansion Plant which uses the Interconnection Facilities, such other out-of-pocket costs and charges shall be prorated, on a Percentage Share of energy basis, and Buyer's share would be based on its Percentage Share of Energy compared to the energy of the Expansion Plant delivered to the Point of Interconnection. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. If this Agreement is terminated before the expiration of the Term (before the 20th anniversary of the Commercial Operation Date) by either Party and there is no Event of Default by Buyer (no Event of Default by Buyer at the time of the election to terminate (by either Party) through the effective date of the termination), then, to the extent Buyer has paid Seller any Reimbursement Amount prior to the effective date of such termination of this Agreement, Seller shall refund to Buyer a proportion of any such Reimbursement Amount paid by Buyer to Seller within thirty (30) days after the effective date of such termination of this Agreement as set forth in the following sentence in this paragraph. The proportion of the Reimbursement Amount that Seller shall refund to Buyer per the immediately previous sentence shall be an amount equal to the sum of the Reimbursement Amount (to the extent previously paid by Buyer to Seller) multiplied by a fraction, whose numerator is equal to the number of years and full months remaining in the Term, expressed in months, at the effective date of termination and whose denominator is equal to the full Term of the Agreement, expressed in months (or 240 months). 22 SANFRAN 90103 (2K) (i) Negotiate and enter into a Participating Generator Agreement and a Meter Service Agreement for ISO Metered Entities with the ISO, the load control area operator for the LDC System that is interconnected with the Plant. Buyer shall pay for or reimburse Seller for Buyer's Percentage Share of any such costs or charges associated with these agreements, except to the extent such cost or charge is required to be paid by Seller under Sections 3.1 and 4.1(h) of this Agreement. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (j) Coordinate all Plant start-ups and shut -downs, in whole or in part, with Buyer in accordance with ISO scheduling protocols and the reasonable protocols established by Buyer that are not inconsistent with the ISO tariff and ISO procedures. (k) Maintain an Availability Threshold of at least seventy percent (70%). Should Seller fail to maintain such an Availability Threshold, the Price applicable to Output sold and purchased during each month during which the Availability Threshold is below seventy percent (70%) shall be seven and one- half percent (7.5%) below the Price that would otherwise be in effect pursuant to Section 2.3 until the Availability Threshold is increased to at least seventy percent (70%). Except as otherwise expressly stated in Sections 6.4 and 7.6, the foregoing shall be Buyer's sole remedy for any shortfall of or failure to produce Output or failure to maintain any particular Availability Threshold. 4.2 General Obligations (a) Seller shall obtain in its own name and at its own expense any and all pollution or environmental credits or offsets necessary to operate the Plant in compliance with the Environmental Laws. (b) Seller shall keep complete and accurate operating and other records and all other data for the purposes of proper administration of the Agreement, including such records as may be required by any Governmental Authority or Prudent Utility Practice. (c) Seller shall continue to (i) preserve, renew and keep in full force and effect its organizational existence and good standing, and take all reasonable action to maintain all applicable Permits, rights, privileges, licenses and franchises necessary or desirable in the ordinary course of its business; and (ii) 23 SANFRAN 90103 (2K) comply with all Contractual Obligations and Requirements of Law applicable to Seller or the Plant. (d) Within ninety (90) days after the Effective Date, Seller shall make available for review by Buyer, and its representatives, at Seller's attorney's offices in San Francisco, California, a fully executed copy of its contract with Salinas Valley Solid Waste Authority, including all exhibits, attachments, and other supporting documents thereto, for the purchase of Landfill Gas (the "LFG Agreement"). Such contract may be redacted to remove pricing information. If (i) Seller does not fulfill its obligations under the first two sentences of this Section 4.2(d) within the time allowed, or (ii) Seller fulfills such obligations but Buyer in its reasonable discretion does not approve of the terms of the LFG Agreement, then Buyer may, as its sole remedy and without liability of one Party to the other Party, terminate this Agreement by written notice given no later than sixty (60) days after Seller has fulfilled, or failed to fulfill, as the case may be, such obligations under such first two sentences. Other than increasing the amount of fuel purchased thereunder, Seller shall not allow such contract to be amended or otherwise modified, nor shall it waive or fail to enforce any of its rights thereunder, without Buyer's prior written approval, whose approval shall not be unreasonably withheld. Seller shall make the LFG Agreement available to Buyer for review during normal business hours at Seller's attorney's offices in San Francisco, California throughout the Term within seven (7) days of receipt of a written request by Buyer. (e) Seller shall provide to Buyer such other information regarding the permitting, engineering, construction or operations of the Plant as Buyer may from time to time reasonably request, subject to licensing or other restrictions of Seller or a third party with respect to confidentiality, disclosure or use. (f) Seller shall enter into any agreements with the ISO required by the ISO for generators delivering power into the ISO -controlled grid. Except for such costs and charges as are expressly identified in this Agreement as Seller's costs, Buyer shall reimburse Seller for all costs and charges under such agreements. Seller shall cooperate with Buyer to minimize any such costs as are to be reimbursed by Buyer. (g) Seller shall provide Buyer with a copy of its ultimate corporate parent's audited financial statements as at the end of its accounting year prepared in 24 SANFRAN 90103 (2K) accordance with Generally Accepted Accounting Principles ("GAAP") consistently applied, no later than four (4) months after the end of such accounting year of such entity. Seller shall also provide, on a quarterly basis, an unaudited financial statement in the form of Appendix F, prepared in accordance with GAAP consistently applied for Seller and for Seller's ultimate corporate parent. Such financial statements shall be certified by an officer of Seller as fairly presenting the financial condition of the Seller subject only to what would typically be included in year-end audit adjustments and footnotes. If, from time to time, an audited year-end financial statement is prepared for Seller, Seller shall provide it to Buyer no later than four (4) months after the end of Seller's accounting year. 4.3 Construction Milestones (a) The Parties agree that time is of the essence and that certain milestones (individually, a "Milestone" and, collectively, the "Milestones") for the development, financing and construction of the Plant must be achieved in a timely fashion or Buyer shall suffer damages. Seller shall provide Buyer with documentation satisfactory to Buyer, in Buyer's reasonable discretion, to support the achievement of the Milestones by the dates set forth below. (b) The following events are all of the Milestones: (i) By the date ninety (90) days following the Effective Date, Seller shall have signed an LFG Agreement with Salinas Valley Solid Waste Authority and have obtained Site Control. (ii) By the date one hundred fifty (150) days following the date of the LFG Agreement between Seller and Salinas Valley Solid Waste Authority (the date of the LFG Agreement shall be the date the LFG Agreement is made and entered into and fully executed), Seller shall have completed to Seller's satisfaction a review of the Site and the results of such review shall be satisfactory to Seller (including, without limitation, a Phase I environmental site assessment, a Phase II environmental site assessment and/or any other environmental assessment/study), if Seller, decides, in Seller's sole discretion (at Seller's cost), to do such review of the Site. (iii) By the date twenty-six (26) months following the later of the (1) date that Buyer approves the LFG Agreement, and (2) date one hundred fifty (150) days following the date of the LFG 25 SANFRAN 90103 (2K) Agreement between Seller and Salinas Valley Solid Waste Authority (the date of the LFG Agreement shall be the date the LFG Agreement is made and entered into and fully executed), Seller shall (a) have obtained all Permits necessary, in final form, to commence construction of the Plant and (b) have entered into an Interconnection Agreement. (iv) By the date one (1) month following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(iii), and (b) entering into an Interconnection Agreement, Seller shall have arranged financing for construction of the Plant or otherwise made funds available to commence and complete construction. (v) By the date twelve (12) months following the later of (a) the finalization of all necessary Permits described in Section 4.3(b)(iii), and (b) entering into an Interconnection Agreement, Seller shall have commenced construction of the Plant. (vi) By the date eighteen (18) months following the arrangement of financing or availability of funds for construction, Seller shall have achieved the Commercial Operation Date. (c) Starting on the Effective Date, Seller shall provide to Buyer monthly progress reports concerning the progress towards completion of the Milestones. In addition, within five (5) business days of the completion of each Milestone, Seller shall provide a certification to Buyer along with any supporting documentation (if applicable), demonstrating the satisfaction of the Milestone. Seller shall provide to Buyer additional information concerning Seller's progress towards, or confirmation of, achievement of the Milestones, as Buyer may reasonably request from time to time. Within seven (7) days of the later of (i) obtaining the authority to construct for the Plant from the applicable air quality management district or (ii) Seller's receipt of the system impact and facility cost studies from the LDC, but in no event later than the date set forth in Section 4.3(b)(iii), Seller shall specify the Initial Capacity of the Plant (which shall be subject to the limits contained in Section 1.17); provided, however, Seller may (in Seller's sole discretion) increase the Initial Capacity of the Plant at any time during the Term by adding equipment for recovering waste heat from the prime mover engines of the Plant for purposes of utilizing such waste heat to produce additional Energy. If Seller decides to increase the Initial Capacity of the Plant during the Term (after Seller has originally specified the Initial Capacity of the Plant), then Seller shall provide 26 SANFRAN 90103 (2K) Buyer with written notice of the date of such increase, the amount of such increase, and the entire capacity of the Plant (as increased) as of such date. The new increased capacity of the Plant shall then become the Initial Capacity of the Plant from the date set forth in Seller's written notice until the end of the Term (the Initial Capacity of the Plant (as increased) shall be not less than 2.0 MW and not more than 6.6 MW (gross nameplate), and not less than 1.6 MW and not more than 6.2 MW (net at the Point of Interconnection). Seller makes no written or oral representation or warranty, either express or implied, regarding whether or not Seller will add equipment for recovering waste heat from the prime mover engines of the Plant and/or utilize that waste heat to produce additional Energy. (d) Upon becoming aware that it will, or is reasonably likely to, fail to achieve a Milestone by the required date, for any reason, including a Force Majeure Event, Seller shall so notify Buyer, in writing, as soon as is reasonably practicable. Such notice shall explain the cause of the delay, provide an updated date for achievement of the Milestone(s) and describe Seller's plan for meeting the Milestone. Seller's notice will also explain any impact such delay may or will have on any other Milestone, and measures to be taken to mitigate such impact. (e) In the event that a Force Majeure Event causes any delay to the achievement of the Milestones set forth in Sections 4.3(b)(iv), (v), or (vi), such Milestone's deadline may be extended, together with any Force Majeure Event extensions for other Milestones, for a period not to exceed six (6) months. The extension of the deadline for any Milestone shall extend the deadline for all subsequent Milestones, provided that in no event shall the combined extensions for Force Majeure Events for any or all of the Milestones exceed six (6) months. (f) In the event that Seller fails to meet the Milestones set forth in Section 4.3(b)(i) or (ii) for any reason, Buyer may terminate this Agreement, without liability of either Party to the other, by giving notice to Seller in writing of such termination at any time prior to Seller curing its failure. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(i) or (ii). (g) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(iii) for any reason, Buyer may terminate this Agreement, without 27 SANFRAN 96103 (2K) liability of either Party to the other, within ten (10) business days, after the Milestone date by giving notice to Seller in writing of such termination. If Seller meets the Milestone set forth in Section 4.3(b)(iii) prior to Buyer giving written notice of termination, this Agreement shall remain in full force and effect. If Buyer does not terminate this Agreement within ten (10) business days after the Milestone date, Seller shall continue to pursue satisfaction of the relevant Milestone, and Buyer must give Seller sixty (60) days' prior written notice to terminate this Agreement, during which period if Seller cures such defect and achieves the relevant Milestone, such termination shall be void and this Agreement shall remain in full force and effect. Such option to terminate shall be Buyer's sole remedy for any failure to meet the Milestone set forth in Section 4.3(b)(iii). (h) In the event that Seller fails to meet the Milestone set forth in Section 4.3(b)(v) within six (6) months after the relevant Milestone date for any reason (or up to twelve (12) months if also delayed by a Force Majeure Event), Seller may deposit an amount, per month, equal to the Monthly LD Amount into a segregated escrow account reasonably acceptable to Buyer by the first day of such month, for every month after such Milestone date until the Milestone is met. Such funds will be used towards any liquidated damages as set forth in Section 7.4(c), and shall be held in escrow until such time that liquidated damages, if any, become payable to Buyer. Should the amount in the escrow account exceed the final amount of liquidated damages, such excess funds shall be returned to Seller. Should Seller (i) at any time fail to make such monthly deposits or (ii) fail to satisfy the Milestone set forth in Section 4.3(b)(v) for more than twelve (12) months, Buyer may terminate this Agreement upon written notice to Seller of such termination. Upon such termination, Seller will pay to Buyer, within thirty (30) days of the termination notice, an amount equal to the LD Amount as liquidated damages. Seller's escrow option, Buyer's option to terminate, and liquidated damages shall be Buyer's sole remedies for any failure of Seller to meet the Milestones set forth in Section 4.3(b)(iv) or (v). (i) Seller covenants that it will diligently pursue all Milestones including the Commercial Operation Date, which Seller envisions will occur within thirty-five (35) months following the execution of this Agreement. (j) In the event that any of the approvals described in Section 4.3(b)(iii) are not obtained by the date specified in Section 4.3(b)(iii) for satisfaction of the 28 SANFRAN 90103 (2K) relevant Milestone or are obtained on a basis not reasonably satisfactory to Seller, including without limitation, in the case of the air permit (from the air pollution control district that has jurisdiction over construction and operation of the Plant), approval of construction and operation of the Plant on a basis not consistent with internal combustion engines without emission controls, pollution or environmental credits or offsets, Seller may terminate this Agreement without liability of either Party to the other Party by giving notice to Buyer, in writing, of such termination; provided that such notice must be given no later than fourteen (14) days following the earlier of (a) the date on which a given approval not satisfactory to Seller is received, in writing, or (b) the date specified in Section 4.3(b)(iii) for satisfaction of the relevant Milestone; further provided, that such notice and such termination shall not be effective if Buyer, by written notice to Seller within fourteen (14) days following such notice from Seller, agrees (i) to pay Seller with the first invoice following the Commercial Operation Date the reasonable all -in cost (including reasonable broker fees, if any) to purchase all such offsets sufficient to operate the Plant at full Initial Capacity (less reasonably projected scheduled Outages for maintenance) for the term of this Agreement, and (ii) to adjust the price payable under Section 2.3 of this Agreement and within thirty (30) days thereafter agrees with Seller (each in their sole discretion), in writing, to an amendment of this Agreement revising such price. Failure to provide notice of termination by the date specified above shall constitute a waiver of the right to terminate this Agreement as provided in this Section 4.3(j). In the event that Seller exercises such termination right, Buyer shall have a right of first refusal to purchase the output of any electricity generating facility owned or controlled by Seller or its affiliate(s) located at the Landfill and fueled by Landfill Gas. Such right of first refusal shall conform to the provisions of Section 2.5. The provisions of this Section 4.3(j) shall survive termination of this Agreement under this Section 4.3(j) for a period of five (5) years from the effective date of such termination. (k) In the event that Seller has not completed to Seller's satisfaction a review of the Site or the results of such review are not satisfactory to Seller as contemplated in Section 4.3(b)(ii), Seller may terminate this Agreement without liability of either Party to the other Party by giving notice to Buyer, in writing, of such termination, provided that such notice must be given no later than one hundred sixty-four (164) days following the date of the LFG Agreement between Seller and Salinas Valley Solid Waste Authority (the date of the LFG Agreement shall be the date the LFG Agreement is made and 29 SANFRAN 90103 (2K) entered into and fully executed). ARTICLE V BUYER'S OBLIGATIONS 5.1 Delivery and Transmission Except for Seller's obligations pursuant to Sections 3.1 and 4.1(h), Buyer shall be solely responsible for paying its Percentage Share of costs and charges associated with the receipt of Energy, under this Agreement, at the Point of Interconnection and for the transmission and delivery of the Energy from the Point of Interconnection to any other point downstream of the Point of Interconnection (including, without limitation, transmission costs and charges, competition transition charges, applicable control area service charges, transmission congestion charges, inadvertent energy flows, any other ISO charges related to the transmission of such Energy by the ISO and any charge assessed or collected in the future pursuant to any utility tariff or rate schedule, however defined, for transmission or transmission -related service rendered by or for any transmission -owning or operating entity). NCPA, acting on behalf of Buyer, shall be scheduling coordinator for the transmission of Energy from the Plant in accordance with applicable ISO rules. Buyer's duties as scheduling coordinator shall be limited to those duties as are specifically required of scheduling coordinators in the ISO tariff and the ISO protocols. Commercial arrangements for such transmission and delivery services will be coordinated and settled by NCPA directly with the ISO or other third parties. At the option of Buyer, the Plant may be included within NCPA's metered sub -system in connection with the scheduling of power over the ISO grid and related functions; provided that such inclusion shall have no adverse effect on Plant operations or Seller (or any such effect shall be fully mitigated by Buyer). Seller will do all things reasonably needed to allow Buyer to comply with any obligations, and minimize any potential liability, under the ISO tariff; provided, that if such actions require any actions beyond the giving of notice provided by Buyer, then Buyer shall reimburse its Percentage Share of all out- of-pocket costs and charges of such actions. If and to the extent that Seller fails to comply with the notice provision in Section 4.1(g) concerning Outages or with its obligations as outlined in the previous sentence, Seller shall be wholly responsible for all imbalances, deviations, or any other ISO charges or 30 SANFRAN 90103 (2K) penalties associated with such Outage or ISO tariff obligation. Buyer may replace NCPA as Scheduling Coordinator for the Plant. If NCPA ceases to be the Scheduling Coordinator for the Plant and Buyer is unable, within fourteen (14) business days of notice from Seller, to appoint a replacement Scheduling Coordinator, Seller shall have the right to appoint a replacement Scheduling__ Coordinator on Buyer's behalf, and Buyer shall enter into all reasonable and appropriate agreements with such replacement Scheduling Coordinator at its own cost. 5.2 Taxes Buyer shall pay and be fully responsible for any sales, use, gross receipts, utility or other taxes, assessments or fees, if any, incurred or imposed on the sale or transfer of Energy from Seller to Buyer under this Agreement. Buyer shall not be responsible for any taxes measured on the net income of Seller or ad valorem taxes paid by Seller or Salinas Valley Solid Waste Authority associated with the Site or the Landfill. 5.3 Notification of Transmission Outaies Buyer will exercise reasonable efforts to provide Seller with as much advance notice as practicable of any Outage on the LDC System or other transmission or delivery facilities which may adversely affect the delivery of Energy to Buyer. ARTICLE VI FORCE MAJEURE 6.1 Force Majeure Events It is understood that at times unavoidable delays or interruptions in delivery or performance may result from Force Majeure Events. The performance of each Party under this Agreement may be subject to interruptions or reductions due to a Force Majeure Event. Both Parties shall in good faith use such effort as is reasonable under all the circumstances known to that Party affected by the Force Majeure Event at the time to remove or remedy the cause(s) and mitigate the inability to perform. However, the obligation to use such reasonable 31 SANFRAN 90103 (2K) efforts shall not be interpreted to require resolution of labor disputes by acceding to demands of the opposition when such course is inadvisable in the discretion of the Party having such difficulty. 6.2 Remedial Action Subject to the limitation on extensions of Milestones set forth in Section 4.3(e), a Party shall not be liable to the other Party if the Party is prevented from performing its obligations hereunder due to a Force Majeure Event. The Party rendered unable to fulfill an obligation by reason of a Force Majeure Event shall take all action necessary to remove such inability with all due speed and diligence. The nonperforming Party shall be prompt and diligent in attempting to remove the cause of its failure to perform, and nothing herein shall be construed as permitting that Party to continue to fail to perform after said cause has been removed. Notwithstanding the foregoing, the existence of a Force Maj eure Event shall not excuse any Party from its obligations to make payment of amounts due hereunder. 6.3 Notice In the event of any delay or nonperformance resulting from a Force Majeure Event, the Party suffering the Force Majeure Event shall, as soon as practicable under the circumstances, notify the other Party in writing of the nature, cause, date of commencement thereof and the anticipated extent of any delay or interruption in performance. 6.4 Termination Due To Force Majeure Event Subject to Section 4.3(e), if a Party is prevented from performing its material obligations under this Agreement for a period of twelve (12) consecutive months or longer, the unaffected Party may terminate this Agreement, without liability of either Party to the other, upon thirty (30) days' written notice at any time during the Force Majeure Event. 32 SANFRPN 90103 (2K) ARTICLE VII DEFAULT/REMEDIES/TERMINATION 7.1 Events -of -Default -by Buyer The following shall each constitute an "Event of Default" by Buyer: (a) Buyer breaches any material obligation (other than one covered by Section 7.1(b) or (c) of this Agreement) and fails to cure such breach within thirty (30) days after the receipt of written notification of breach by Seller or such longer period as may be necessary to cure such breach as long as Buyer is exercising diligent efforts to cure such default. (b) Buyer fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Buyer under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Buyer of a voluntary proceeding under the bankruptcy or insolvency laws. 7.2 Events of Default by Seller (1) The following shall each constitute an "Event of Default" by Seller if Seller does not cure within the time set forth in clause (2), below: (a) Seller breaches any material obligation (other than ones covered by Sections 7.2(1)(b), (c), (d), (e) or (f) of this Agreement or for which a remedy is specified). (b) Seller fails to make any payment due under this Agreement within thirty (30) days after the receipt of written notice that such payment is due. (c) The initiation of an involuntary proceeding against Seller under the bankruptcy or insolvency laws, which involuntary proceeding remains undismissed for sixty (60) consecutive days, or in the event of the initiation by Seller of a voluntary proceeding under the bankruptcy or insolvency laws. 33 SANFRAN 90103 (2IC) (d) Seller sells or transfers Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof) or the right to Buyer's share of the Output (or any individual component thereof) or Expansion Plant Output (or any individual component thereof), to the extent that such Expansion Plant Output is purchased by Buyer, to any Person other than Buyer. (e) Seller fails to comply with the terms of Buyer's right of first refusal as described in Section 2.5 of this Agreement. (f) Subject to Section 7.4(c), Seller fails, for any reason, other than an unauthorized act or omission by Buyer, to achieve the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(vi), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e). (2) Time for Cure. Nothing described in any of Sections 7.2(1)(a), (d) or (e) above shall constitute an Event of Default if Seller cures the event, failure or circumstance within (30) days after the receipt of written notification by Buyer or such longer period as may be necessary to cure as long as Seller is exercising diligent efforts to cure. 7.3 Termination for Default (a) In the event the defaulting Party fails to cure the Event of Default within the period for curative action under Sections 7.1 or 7.2, as applicable, the non - defaulting Party may terminate the Agreement by notifying the defaulting Party in writing of (i) the decision to terminate and (ii) the effective date of the termination. (b) Upon termination of the Agreement by Buyer pursuant to Section 7.3(a) due to an Event of Default by Seller, (1) Buyer shall have no future or further obligation to purchase the Output of the Plant or to make any payment whatsoever under this Agreement, except for payments for obligations arising or accruing prior to the effective date of termination, and (ii) Seller shall, if Buyer has paid in full for emission offsets pursuant to Section 4.3(j), either (A) reimburse Buyer pro rata for any unused such offsets paid for by Buyer or (B) transfer to Buyer title to any unused such offsets paid for by Buyer. Upon termination of the Agreement by Seller pursuant to Section 7.3(a) due to an 34 SANYRAN 9011)3 (2K) Event of Default by Buyer, Seller shall have no future or further obligation to deliver the Output of the Plant to Buyer or to satisfy any other obligation of this Agreement, except for payments or other obligations arising or accruing prior to the effective date of termination. After the effective date of termination, ---the- Agreement shall not be construed to provide any residual value to either Party or any successor or any other Person, for rights to, use of or benefits from the Plant to any Person. 7.4 Damages (a) For all claims, causes of action and damages the Parties shall be entitled to the recovery of actual damages allowed by law unless otherwise limited by the Agreement. Neither the enumeration of Events of Default in Sections 7.1 and 7.2, nor the termination of this Agreement by a non -defaulting Party pursuant to Section 7.3(a), shall limit the right of a non -defaulting Party to rights and remedies available at law, including, but not limited to, claims for breach of contract or failure to perform by the other Party and for direct damages incurred by the non -defaulting Party as a result of the termination of this Agreement. (b) Except as otherwise specifically and expressly provided in the Agreement, neither Party shall be liable to the other Party under this Agreement for any indirect, special or consequential damages, including but not limited to loss of use, loss of revenues, loss of profit, interest charges, cost of capital or claims of its customers or members to which service is made. Except as set forth in Section 4.1(k) and except to the extent Seller violates its, undertaking not to provide or sell rights to part or all of the Output to a party other than Buyer, Seller shall not be liable to Buyer for failure to provide any specific amount of Output hereunder. (c) In the event that Seller fails to meet the Commercial Operation Date by the applicable Milestone deadline as set forth in Section 4.3(b)(vi), as such deadline may be extended as a result of a Force Majeure Event in accordance with Section 4.3(e), Seller shall be liable for liquidated damages in the amount, per month, equal to the Monthly LD Amount for each full month (with parts of a month pro rated) that Seller is late in satisfying the Milestone. So long as Seller is paying such liquidated damages on a monthly basis, up to twelve (12) months, Buyer shall not be permitted to terminate this Agreement. If after twelve (12) months following the relevant Milestone deadline Seller has failed 35 SANFRAN 90103 (2K) to achieve Commercial Operation, or if for any reason Seller fails to pay, or discontinues paying, the monthly liquidated damages provided for above, Buyer may terminate this Agreement upon thirty (30) days' prior written notice to Seller. This twelve (12) month period shall not be extended as a result of a Force -Majeure Event. Upon such termination, Seller shall pay Buyer, within thirty (30) days of receipt of the termination notice, a lump sum equal to the LD Amount. No other damages or remedy shall be available to Buyer on the basis of such failure to meet the Milestone set forth in Section 4.3(b)(vi) or termination of this Agreement based on failure to achieve Commercial Operation within twelve (12) months of that Milestone deadline. (d) The Parties agree that the liquidated damages set forth in Sections 4.3(h) and 7.4(c) are reasonable and represent a fair and genuine estimate of the damages Buyer will suffer upon the failure of Seller to achieve Commercial Operation by the agreed upon date(s). The Parties acknowledge that it would be impracticable or extremely difficult to fix Buyer's actual damages, and therefore have deemed the liquidated damages set forth above to be the amount of damage sustained by Buyer upon such a failure. The Parties further agree that payment of such amount shall be as liquidated damages and not as a penalty, and is therefore not subject to avoidance under California Civil Code section 1671. 7.5 Indemnification Seller and Buyer agree to defend, indemnify, and hold each other, and their respective officers, directors, employees and agents, harmless from and against all claims, demands, losses, liabilities, and expenses (including reasonable attorneys' fees) (collectively "Damages") for personal injury or death to persons and damage to each other's physical property or facilities or the property of any other Person to the extent arising out of, resulting from, or caused by the negligent or intentional and wrongful acts, errors, or omissions of the indemnifying Party. This indemnification obligation shall apply notwithstanding any negligent or intentional acts, errors or omissions of the indemnitees but the indemnifying Party's liability to pay Damages to the indemnified Party shall be reduced in proportion to the percentage by which the indemnitees' negligent or intentional acts, errors or omissions caused the Damages. Neither Party shall be indemnified for its Damages resulting from its sole negligence or willful misconduct. These indemnity provisions shall 36 SANFRAN 90103 (2K) not be construed to relieve any insurer of its obligation to pay claims consistent with the provisions of a valid insurance policy. Buyer shall defend, indemnify and hold Seller and its officers, directors, employees and agents harmless from and against all claims, demands, losses., liabilities and expenses (including reasonable attorneys fees) arising out of or connected with the interaction with third parties in connection with WREGIS or any alternate accounting system(s) designated by Buyer. 7.6 Buyer's Right to Operate If Seller (i) fails to maintain the Availability Threshold for a period of nine (9) months in any twelve (12) month period, or (ii) fails to generate Energy for sixty (60) consecutive days, then Buyer or its designee may, but shall not be obligated to, step-in and assume operational control from Seller of the Plant; provided that Buyer shall not be permitted to step-in and take control so long as Seller or any Lender(s) is using commercially reasonable efforts to remedy the failures described in (i) or (ii) above. Buyer, its employees, contractors and designees shall have the unrestricted right to enter the Plant to the extent necessary to operate the Plant. Upon the exercise of this right, Buyer or its designee shall at all times operate the Plant using Prudent Utility Practice and shall comply, to the extent commercially practicable, with the terms of this Agreement. Notwithstanding the foregoing, Seller shall not be excused from any obligation or remedy available to Buyer as a result of Buyer's operation of, or election not to operate, the Plant. Buyer shall pay Seller the applicable rate for Output provided hereunder, less any costs incurred by Buyer to operate the: Plant. Buyer shall indemnify and hold Seller harmless from any liability to third parties arising out of Buyer's failure to operate the Plant using Prudent Utility Practice. Upon Buyer's satisfaction that Seller has the ability to operate the Plant in accordance with this Agreement, Seller shall resume operational control. Should Lender(s) refuse to finance the Plant, or materially condition such financing, solely as a result of this Section 7.6, and Seller gives Buyer written notice of such refusal to finance, Buyer shall have the following options: (1) terminate this Agreement without liability of one Party to the other Party; (2) renegotiate this Section 7.6 with Seller and Lender(s) in a manner mutually acceptable; (3) delete this Section 7.6 in its entirety (which deletion will not require Seller's additional consent); or (4) arrange for financing for the Plant 37 SANFRAN 90103 (2K) under materially equivalent terms and conditions as the Lender(s) were prepared to provide but for this Section 7.6. If Buyer fails to elect and complete one of these options within sixty (60) days of written notice from Seller, Seller shall have the right to terminate this Agreement without liability of one -P- Party to the other Party. ARTICLE VIII REPRESENTATIONS AND WARRANTIES 8.1 Seller's Representations and Warranties Seller represents and warrants to Buyer that as of the Effective Date: (i) Seller is duly organized and validly existing as a limited liability company under the laws of Delaware, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Seller is duly qualified in each jurisdiction wherein the nature of the business transacted by it makes such qualification necessary; (ii) Seller has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder; all such actions have been duly authorized by all necessary proceedings on its part. As of the Effective Date, (a) the Plant shall on the Commercial Operation Date be a "qualifying small power production facility" as that term is defined in Section 3(17)(C) of the Federal Power Act, and will possess all of the exemptions from regulation provided in 18 CFR Sections 292.601(c) and 292.602; and (b) this Agreement is not required to be filed with FERC and no approval (except with respect to "qualifying small power production facility" status) with respect to this Agreement is required from FERC. In the event that the Plant is not a "qualifying small power production facility" on the Commercial Operation Date or any date thereafter, Seller shall make appropriate filings under the Federal Power Act within sixty (60) days so as to comply with applicable law, subject at all times to the provisions of Article IX of this Agreement; 38 SANFRAN 90103 (2K) (iii) The execution, delivery and performance of this Agreement by Seller will not conflict with its governing documents, any applicable laws, or any covenant, agreement, understanding, decree or order to which Seller is a party or by which it is bound or affected; (iv) This Agreement has been duly and validly executed and delivered by Seller and, as of the date first set forth herein, constitutes a legal, valid and binding obligation of Seller, enforceable in accordance with its terms against Seller, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally or by general principles of equity; and (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Seller, threatened in writing against Seller, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Seller, or to result in any impairment of Seller's ability to perform its obligations under this Agreement. 8.2 Buyer Representations and Warranties Buyer represents and warrants to Seller that as of the Effective Date: (i) Buyer is a chartered city and municipal corporation, duly organized and validly existing, and has the lawful power to engage in the business it presently conducts and contemplates conducting in this Agreement and Buyer is duly qualified in each jurisdiction wherein the nature of the business transacted by it makes such qualification necessary; (ii) Buyer has the legal power and authority to make and carry out this Agreement and to perform its obligations hereunder and all such actions have been duly authorized by all necessary proceedings on its part; (iii) The execution, delivery and performance of this Agreement by Buyer will not conflict with its governing documents, any applicable laws or any covenant, agreement, understanding, decree or order to which Buyer is a party or by which it is bound or affected; 39 SANFRAN 90103 (2K) (iv) This Agreement has been duly and validly executed and delivered by Buyer and, as of the first date set forth herein, constitutes a legal, valid and binding obligation of Buyer, enforceable in accordance with its terms -against Buyer, except to the extent that its enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the rights of creditors generally or by general principles of equity; and (v) There are no actions, suits, proceedings or investigations pending or, to the knowledge of Buyer, threatened in writing against Buyer, at law or in equity before any Governmental Authority, which individually or in the aggregate are reasonably likely to have a materially adverse effect on the business, properties or assets or the condition, financial or otherwise, of Buyer, or to result in any impairment of Buyer's ability to perform its obligations under this Agreement. ARTICLE IX NO CHANGE TO RATES, TERMS OR CONDITIONS The Parties intend that the standard of review for changes to any rate, charge, classification, term or condition of this Agreement at FERC shall be the most stringent standard permissible under applicable law. As to the Parties, it is understood that the standard is the "Mobile -Sierra public interest" standard of review, as stated by the United States Supreme Court in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish County, Nos. 06-1457, 128 S.Ct. 2733 (2008), and consistent with the order of the Supreme Court in NRG Power Marketing, LLC, et al., v. Maine Public Utilities Commission et al., No. 08-674, 130 S.Ct. 693 (2010) ("NRG Order"). As to all other persons it is intended that the same standard, to the maximum degree as may be made applicable to other than the Parties, apply, to the maximum degree permitted under the NRG Order. ARTICLE X MISCELLANEOUS 10.1 Assignment 40 SANFRAN 90103 (2K) The rights and obligations of this Agreement may not be assigned by either Party without the prior written consent of the other Party, which consent shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Seller may use subcontractors without Buyer's consent to comply with the terms of this Agreement, provided that, notwithstanding the use of subcontractors, Seller shall remain responsible for all of its obligations under this Agreement. Buyer may furthermore use any agent it so designates for scheduling and billing purposes, so long as Buyer remains responsible for all of its obligations under this Agreement. Any purported assignment of this Agreement in the absence of the required consent, except as provided in Section 10.2, shall be void. 10.2 Financing Notwithstanding Section 10.1, Seller may, without the consent of Buyer, assign, transfer or hypothecate its rights under this Agreement to Lenders as collateral security in connection with any financing of the purchase or operation of the Plant, provided that such Lender(s) or its designee agree(s), in writing, that upon assuming any of Seller's prospective rights under this Agreement, such Lender also shall be bound by all of Seller's prospective obligations under this Agreement. Notwithstanding any such assignment, Seller's obligations under this Agreement shall continue in their entirety in full force and effect and Seller shall remain fully liable for all of its obligations under or relating to this Agreement. Each such collateral assignment and any purchaser or transferee shall be subject to Buyer's rights and defenses hereunder and under applicable law. Seller shall provide prior written notice to Buyer at least seven (7) days prior to any such collateral assignment. In order to facilitate the obtaining of financing of the Plant, Buyer shall execute, upon request, a commercially reasonable consent to assignment, with respect to a collateral assignment hereof to Lenders in connection with the documentation of the financing or refinancing for the Plant. Any assignment in violation of this Agreement shall be void, ab initio. Buyer shall consider in good faith any amendments to this Agreement proposed by Seller which relate to financing of the Plant or other amendments requested by Seller in order to receive or maintain financing from Lenders. 10.3 Notices 41 SANFRAN 90103 (2K) Any notice, demand, request, or communication required or authorized by this Agreement shall be delivered either by hand, facsimile, overnight courier or mailed by certified mail, return receipt requested with postage prepaid, to: City of Palo Alto 250 Hamilton Avenue, Seventh Floor Palo Alto, CA 94301 Attention: City Clerk Telecopier: (650) 328-3631 on behalf of Buyer; with a copy to: City of Palo Alto 250 Hamilton Avenue, Eighth Floor Palo Alto, CA 94301 Attention: Senior Assistant City Attorney / Utilities Telecopier: (650) 329-2646 and to: City of Palo Alto 250 Hamilton Avenue, Third Floor Palo Alto, CA 94301 Attention: Director of Utilities Telecopier: (650) 321-0651 42 SANFRAN 90103 (2K) and to: Northern California Power Agency 651 Commerce Drive Roseville, CA 95678 Attention: Power Contracts Administrator Telecopier: (916) 781-4255 and to: Ameresco Crazy Horse LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: General Counsel Telecopier: (508) 661-2201 Telephone: (508) 661-2200 with a copy to: Ameresco Crazy Horse LLC c/o Ameresco, Inc. 111 Speen Street, Suite 410 Framingham, MA 01701 Attention: Senior Vice President, Renewable Energy Telecopier: (508) 661-2201 Telephone: (508) 661-2200 on behalf of Seller. The designation and titles of the person to be notified or the address of such person may be changed at any time by written notice delivered in the manner set forth in this Section 10.3. Any such notice, demand,. request, or communication shall be deemed received (i) if delivered by hand by a Party or sent by facsimile or (ii) upon receipt by the receiving Party if sent by courier or U.S. mail. 43 SANFRAN 90103 (2K) 10.4 Captions All titles, subject headings, section titles and similar items are provided for the purpose ofreferenceand convenience and are not intended to be inclusive, definitive or to affect the meaning of the contents or scope of the Agreement. 10.5 No Third Party Beneficiary No provision of the Agreement is intended to, nor shall it in any way, inure to the benefit of any customer, property owner or any other third party, so as to constitute any such Person a third -party beneficiary under the Agreement, or of any one or more of the terms hereof, or otherwise give rise to any cause of action in any Person not a Party hereto. 10.6 No Dedication No undertaking by one Party to the other Party under any provision of the Agreement shall constitute the dedication of that Party's system or any portion thereof to the other Party or to the public or affect Seller as an independent entity and not a public utility. 10.7 Entire Agreement; InteEration This Agreement, together with all appendices attached hereto, constitutes the entire agreement between the Parties and supersedes any and all prior oral or written understandings. No amendment, addition to or modification of any provision hereof shall be binding upon the Parties, and neither Party shall be deemed to have waived any provision or any remedy available to it, unless such amendment, addition, modification or waiver is in writing and signed by a duly authorized officer or representative of the Parties. 10.8 Applicable Law The Agreement is made in the State of California and shall be interpreted and governed by the laws of the State of California and/or the laws of the United States, as applicable. 44 SANFRAN 90103 (2K) 10.9 Venue The Parties hereby submit to the exclusive jurisdiction of the federal courts for the Northern District of the State of California; provided, however, that if such federal courts sitting in the Northern District of the State of California refuse — jurisdiction, the Parties agree to the exclusive jurisdiction of the state courts sitting in the County of San Francisco, State of California. 10.10 Nature of Relationship The duties, obligations and liabilities of the Parties are intended to be several and not joint or collective. The Agreement shall not be interpreted or construed to create an association, joint venture, fiduciary relationship or partnership between Seller and Buyer or to impose any partnership obligation or liability or any trust or agency obligation or relationship upon either Party. Seller and Buyer shall not have any right, power or authority to enter into any agreement or undertaking for, or act on behalf of, or act as or be an agent or representative of or otherwise bind the other Party. 10.11 Good Faith and Fair Dealing; Reasonableness The Parties agree to act reasonably and in accordance with the principles of good faith and fair dealing in the performance of this Agreement. Unless expressly provided otherwise in this Agreement, (i) wherever the Agreement requires the consent, approval or similar action by a Party, such consent, approval or similar action shall not be unreasonably withheld or delayed, and (ii) wherever the Agreement gives a Party a right to determine, require, specify or take similar action with respect to matters, such determination, requirement, specification or similar action shall be reasonable. 45 SANFRAN 90103 (2K) 10.12 Severability Should any provision of the Agreement be or become void, illegal or unenforceable, the validity or enforceability of the other provisions of the Agreement shall not be affected and shall continue in full force and effect. The Parties will, however, use their best endeavors to agree on the replacement of the void, illegal, or unenforceable provision(s) with legally acceptable clauses which correspond as closely as possible to the sense and purpose of the affected provision. 10.13 Confidentiality All information disclosed by Seller, including, without limitation, all engineering documents, designs, specifications and financial information, shall be kept confidential and shall not be disclosed to any third party except as provided in this Section 10.13. Buyer acknowledges Seller's request to hold all information regarding this Agreement confidential. Buyer shall disclose such information to third parties only to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Notwithstanding the foregoing, either Party may disclose this Agreement to Salinas Valley Solid Waste Authority or its representatives, NCPA or its representatives, or to Lender(s) or potential Lender(s) or its/their representatives; provided that prior to such disclosure, the recipient shall agree, in writing, to keep the material confidential under terms no less stringent than as set forth in this Section 10.13. Buyer also shall be permitted to disclose this Agreement and related information to the City Council of Palo Alto for the express purpose of obtaining approval to execute this Agreement; provided that in connection with such disclosure Buyer shall only disclose such information to the extent required by California law (including, without limitation, the California Constitution, the California Public Records Act and the Brown Act). Each Party shall be bound by its obligations of confidentiality hereunder for a period of two (2) years from expiration or any earlier termination of this Agreement. Notwithstanding anything to the contrary in this Section 10.13, nothing in this Agreement shall restrict any Party from using or disclosing confidential information in any manner it chooses, which confidential information (i) is or becomes generally available to the public other than as a result of a disclosure directly or indirectly by the disclosing Party or its representative; (ii) was within the using or disclosing Party's possession prior to it being furnished 46 SANFRAN 90103 (2K) hereunder, provided that such information is not subject to another confidentiality agreement with, or other contractual, legal or fiduciary obligation of confidentiality to, any other party with respect to such information; (iii) is rightfully obtained by a Party from third parties authorized tomakesuch disclosure without restriction; or (iv) is legally required to be disclosed by judicial, administrative or other governmental action as determined by such Party's attorney acting in good faith (including, but not limited to, the California Constitution, the California Public Records Act and the Brown Act), provided that prompt notice of said judicial or other governmental action shall have been given to the non -disclosing Party and that the non -disclosing Party shall, at its sole cost and expense, be afforded the opportunity (consistent with the legal obligations of the disclosing Party) to exhaust all reasonable legal remedies to maintain the confidential information in confidence. 10.14 Cooperation The Parties agree to reasonably cooperate with each other in the implementation and performance of the Agreement. Such duty to cooperate shall not require either Party to act in a manner inconsistent with its rights under the Agreement. 10.15 Counterparts This Agreement may be executed in two or more counterparts and by different Parties on separate counterparts, all of which shall be considered one and the same agreement and each of, which shall be deemed an original. 10.16 Financing Notwithstanding anything to the contrary in this Agreement, Seller may terminate this Agreement at its sole discretion without liability of either Party to the other Party if Seller is unable to obtain financing, on terms satisfactory to Seller, for the (i) construction of the Plant, (ii) operations and/or maintenance of the Plant, and/or (iii) working capital or other ordinary business requirements for the Plant. [signature page follows] 47 SANFRAN 90103 (2K) IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the Effective Date. AMERESCO CRAZY HORSE LLC B Ameresco, Inc., its sole member By: Name: David J. Corrsin Title: Executive Vice President R Date: Api.;/ /, .R _ 1O CITY OF PALO ALTO By: Name: Lalo Perez Title: Administrative Services Director Date: CITY OF PALO ALTO By: Name: James Keene Title: City Manager Date: SANFRAN 90103 (2K) THE CITY OF PALO ALTO APPROVAL AS TO FORM: Name: Grant 'Oiling Title: Senior Assistant City Attorney Date: CITY OF PALO ALTO By: Name: Valerie O. Fong Title: Utilities Director Date: 48 COMMONWEALTH OF MASSACHUSETTS COUNTY OF MIDDLESEX } ) SS } On this day of , before me, the undersigned notary public, personally appeared , as the of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco Crazy Horse LLC, a Delaware limited liability company, proved to me through satisfactory evidence of identification, which was , to be the person whose name is signed on the preceding document, and acknowledged to me that he signed the preceding document voluntarily for its stated purpose as of Ameresco, Inc., a Delaware corporation, the sole member of Ameresco Crazy Horse LLC, a Delaware limited liability company. My Commission expires Notary Public 49 SANFRAN 90103 (2K) APPENDIX A SITE DRAWINGS Seller shall provide to Buyer the final Site Drawings prior to the Commercial Operation Date. 50 SANFRAN 90103 (2K) APPENDIX B FORM OF ATTESTATION Ameresco Crazy Horse LLC Environmental Attribute Attestation and Bill of Sale Ameresco Crazy Horse LLC ("Ameresco") hereby sells, transfers and delivers to ("Customer") the. Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid (as such term(s) are defined in the (identify contract) (the "Contract') dated , 20_ between Ameresco and Customer) arising from the generation for delivery to the grid of the energy by the Facility described below: Facility name and location: Fuel Type: Capacity (MW):_ Operational Date: (for facility that has added renewable capacity, show operational date and amount of new capacity) As applicable: CEC Reg. no. Energy Admin. ID no. Q.F. ID no. Dates MWhrs generated 20 20 20 in the amount of one Environmental Attribute or its equivalent for each megawatt hour generated; and Ameresco further attests, warrants and represents as follows: i) to the best of its knowledge, the information provided herein is true and correct; ii) its sale to Customer is its one and only sale of the Environmental Attributes and associated Environmental Attribute Reporting Rights referenced herein; iii) the Facility generated and delivered to the grid the energy in the amount indicated as undifferentiated energy; and [check one:] iv) Ameresco owns the Facility. iv) to the best of Ameresco's knowledge, each of the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the indicated energy for delivery to the grid have been generated and sold by the Facility. This serves as a bill of sale, transferring from Ameresco to Customer all of Ameresco's right, title and interest in and to the Environmental Attributes and Environmental Attribute Reporting Rights associated with the generation of the energy for delivery to the grid. Contact Person: tel: 1-508-661-2200; fax: 1-508-661-2201 WITNESS MY HAND, AMERESCO CRAZY HORSE LLC By: Ameresco, Inc., its sole member By Its Date: B-1 51 SANERAN 90103 (2K) APPENDIX C INSURANCE COVERAGES At its own expense, Seller shall secure and maintain during the Term the following insurance with the coverage amounts indicated for occurrences during and arising out of Seller's performance of this Agreement. Such insurance shall be placed with responsible and reputable insurance companies in compliance with Requirements of Law applicable to Seller. 1. Workers' Compensation/Employer's Liability. Seller shall maintain Workers' Compensation Insurance and Employer's Liability Insurance which comply with Requirements of Law applicable to Seller. 2. Automobile Liability. Seller shall maintain Automobile Liability Insurance in compliance with Requirements of Law applicable to Seller, including coverage for owned, non -owned and hired automobiles for both bodily injury (including death) and property damage, including automobile liability contractual endorsement and uninsured/underinsured motorist protection endorsements. 3. Third Party Liability. Seller shall maintain third party liability insurance in compliance with Requirements of Law applicable to Seller on a project -specific basis covering against legal responsibility to others as a result of bodily injury, property damage and personal injury arising from the operation and maintenance of the Plant. Such policy shall be written with a limit of liability not less than $10,000,000 and a deductible not to exceed $10,000. Such liability may be in any combination of primary and excess/umbrella. Coverage shall include, but not be limited to, premises/operations, explosion, collapse, underground hazards, broad form property damage and personal injury liability. Such coverage shall not contain exclusions for punitive or exemplary damages, unless prohibited by law. 52 SANFRAN 90103 (2K) APPENDIX D SCHEDULING PROTOCOLS 1. Prior to three (3) business days before the end of a month, Seller is to provide to NCPA and Buyer a monthly forecast of loads and/or generation for the following month. At a minimum, monthly forecasts will be hourly kilowatt (kW) values by weekday, Saturday, and Sunday/Holiday. 2. No later than 1400 hrs. each Thursday, Seller shall provide a forecast of loads and/or generation for the following week to the extent it is different from the monthly forecast in Paragraph 1. Weekly forecasts will be hourly kW values for each hour of the week. 3. Daily modifications to forecasts. Unless otherwise mutually agreed, Seller may make changes to the weekly forecast by providing such changes to NCPA prior to 0800 hrs. two (2) days before the active scheduling day. a. Example: For power that is scheduled for generation or delivery on Thursday, March 25, 2010, changes must be submitted to NCPA by no later than 0800 hrs. on Tuesday, March 23, 2010. 4. Hourly modifications to active schedules. Unless otherwise mutually agreed, Seller may make changes to active schedules by providing such changes to NCPA with a minimum of four (4) hours' notice before the active hour to be changed. Changes to active schedules are limited to two (2) changes per day, excluding forced outages, unless otherwise agreed to between the parties. One request for a schedule change, of one hour or multiple hours duration, constitutes one schedule change. a. Example: For power that is scheduled for generation or delivery in hour ending 1500 hrs. (for the period from 1401 hrs. to 1500 hrs.), changes must be submitted to NCPA no later than 1100 hrs. 5. NCPA is to be notified of all planned or forced generation outages. 6. At Seller's request, NCPA will modify generation and load schedules for unforeseen circumstances in accordance with the above scheduling timeline constraints and NCPA Schedule Coordination Agreement. 53 SANFRAN 90103 (2K) 7. All notices and schedules are to be submitted to NCPA by phone, fax or email to the following persons: Chief Dispatcher/Scheduler. 8. In the absence of forecasts and schedules as noted above, NCPA will utilize the most current information provided by Seller in the development and submission of schedules. 54 SANFRAN 90103 (2K) EXAMPLE FORM OF DAY -AHEAD SCHEDULE For: June , Hour Ended: Expected Capability 1 2 3 4 5 6 7 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Expected Daily Temperatures, F Low High Contact Information: Scheduling Coordinator: Facility: CITY: SANFRAN 90103 (2K) APPENDIX E PERFORMANCE TEST Seller shall coordinate and schedule, with Buyer, a performance test after completion of all equipment startup and commissioning activities. This performance test may be performed before completing punch list items. Buyer shall be permitted to witness the performance test, including access to and copies of control room logs, control system display screens, and instrumentation data for a reasonable period of time before, during and after the performance test, and may also concurrently conduct a site inspection of the Landfill and Plant and associated facilities, systems and equipment. Seller shall supply a written copy of the performance test results to Buyer within five (5) business days following the conclusion of the test. The performance test shall continue for one hundred twenty (120) consecutive hours (the "Test Period") to demonstrate the following: 1) Net Generator Output: The power output for each generator shall be recorded for the Test Period to verify the net initial capacities. This performance test shall be performed for all engine/generators simultaneously and will be considered successful if the average net output for the Test Period is equal to eighty percent (80%) of the net Initial Capacity (in this instance, Initial Capacity shall not include any capacity of the Plant from equipment for recovering waste heat from the prime mover engines of the Plant to utilize that waste heat to produce additional Energy (to the extent such equipment for recovering waste heat is or is not installed by Seller)) designated in this Agreement. All power measurements shall be based on a power factor of 0.90. 2) Compliance: The performance test shall also demonstrate the ability of the Plant to comply with all material safety, system reliability, environmental, and other requirements of its permits, this Agreement, any interconnection agreements, and the LFG Agreement. SANFRAN 90103 (2K) 56 APPENDIX F SELLER'S SAMPLE QUARTERLY FINANCIAL STATEMENT Balance Sheets December 31, 2006 and 2007 ASSETS Current assets: Cash and cash equivalents Restricted cash Accounts receivable Prepaid and other current assets Total current assets Other assets: Project assets, net Due from member Debit issuance costs, net Total other assets LIABILITY AND MEMBER'S EQUITY Current liabilities: Current portion of long-term debt Accounts payable Accrued expenses Total current liabilities Long-term liabilities: Long-term debt, less current portion Deferred tax liabilities Total long-term liabilities Member's equity SANFAAN 90103 (2K} 57 Statements of Operations Years Ended December 31, 2006 and 2007 Revenues: ElectricitySales Costs of revenue: Operation and maintenance Depreciation of project assets Gross profit (loss) Operating expenses: Selling, general and administrative Operating income (loss) Interest and other financing costs Income (loss) before tax benefit (provision) Income tax benefit (provision) Net income (loss) SANFAAN 90103 (2A) Statements of Cash Flows Years Ended December 31, 2006 and 2007 Cash flows from operating activities: Netincome (loss) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization Amortization of deferred issuance costs Deferred taxes Change in assets and liabilities: (Increase) decrease in: Accounts receivable Prepaid expenses Accounts payable Due to (from) member Net cash provided by operating activities Cash flows from investing activities: Accounts payable relating to construction activity Accrued expenses relating to construction activity Purchase of project assets Net cash used in investing activities Cash flows from financing activities: Increase in restricted cash Capital contributions Distributions to member Proceeds from debt issuance Debt issuance costs Net cash provided by financing activities Net increase in cash and cash equivalents Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year Supplemental disclosure of cash flow information: Cash paid during the year for: Interest Income taxes Supplemental disclosure of noncash transactions: Accrued purchases of project assets SANFRAN 90103 (2K) ATTACHMENT J DRAFT UTILITIES ADVISORY COMMISSION MINUTES OF MARCH _31,_201 Q CALL TO ORDER Chair Melton called to order at 7:06 p.m. the special meeting of the Utilities Advisory Commission (UAC). Present: Commissioners Ameri, Eglash, Foster, and Keller Absent: Vice Chair Waldfogel, Commissioner Berry and Council Liaison Yeh ORAL COMMUNICATIONS None. APPROVAL OF THE MINUTES None. AGENDA REVIEW None, REPORTS FROM COMMISSION MEETINGS/EVENTS None. UTILITIES DIRECTOR REPORT None. UNFINISHED BUSINESS None. NEW BUSINESS ITEM 1: ACTION ITEM: Renewable Energy Contract with Ameresco San Joaquin LLC and Ameresco Crazy Horse LLC Tom Kabat, Utilities Senior Resource Originator made a presentation to the Commission outlining several background areas including Palo Alto's Renewable Portfolio Standard (RPS) and its history, progress toward meeting the Renewable Portfolio Standard (RPS) goals, Council and Finance Committee direction to staff on Energy Efficiency (EE) and renewables, integration of EE and renewables and a description of two Power Purchase Agreements (PPAs) negotiated variants from the set presented to Finance Committee on March 16, 2010. Kabat said that Palo Alto's RPS target is to have 33% renewables by the year 2015 with a retail rate impact of 1/2 cent per kilowatt-hour (kWh) or less. Current contracts are expected to supply 21% renewables by 2015. The %2 cent per kWh rate impact limit equals $5 Million dollars per year that could not be exceeded by the acquisition of renewable resources. Current contracts have consumed only $176,000 of the $5M allowance Utilities Advisory Commission Minutes Approved on: Page 1 of 10 due to their relatively low premiums over the cost of brown power. The multiple venue search for renewables was described noting that NCPA efforts have not yet produced any renewable projects despite continued effort. However, several NCPA renewable project efforts that are still ongoing may result in contract opportunities in the coming months including solar, wind and landfill gas, amounting to less than 3% of Palo Alto's energy needs. A geothermal project may be revived and could provide a chance to subscribe to about -6% of our -energy needs but at a yet unknown price. A chart of other utilities' progress - toward acquiring eligible renewables in 2008 and 2009 showed Palo Alto in the middle of the pack at about 20% while PG&E lagged at 15%. This was significant since PG&E's effort to meet their targets would require more than 150 times Palo Alto's volume of renewables based on PG&E's greater catch-up distance and 100 times larger size. Commissioner Eglash asked whether the green premium is recalculated over time as the price of brown power rises? Kabat replied "No." Eglash noted that if brown power prices continue to rise, the green premium can go to zero over time. Staff acknowledged that to be the case and explained that the "economic scoring" of the renewables contracts is based on a premium determined at the time the agreement is presented to Council and does not reflect the rise and/or fall of the value over time. Kabat described Palo Alto's renewables pursuit process and stated that Palo Alto issued its 5th Request For Proposals (RFP) for renewable resources in Fall 2009 and developed a scoring weight system including price and value, project viability, project environmental attributes and counterparty credit -worthiness. A 5 member team scored the 42 proposals on the criteria and the most attractive ones tuned out to be four from Ameresco that met the full volume staff was seeking. Other projects having less attractive scores could not be pursued under the City's purchasing procedures. Negotiations commenced with Ameresco leading to four 20 -year term landfill gas to energy (LFGTE) power purchase agreements (PPAs). Staff recommended Finance Committee recommend Council approve the four PPAs on March 16, 2010. The Finance Committee declined to recommend Council approval and instead directed staff to return at a future date to reexamine renewables policies and EE policies. Kabat mentioned the Committee's concerns with contract duration subjecting the City to technology risk that disruptive new green technologies could depress the market for green resources particularly after 10 years and that filling to the target in one move would not diversify our efforts across time. Kabat also mentioned that the Finance Committee had expressed concerns when approving the last renewable PPA in July 2009 that the renewables were very expensive compared to energy efficiency and brown power and that perhaps staff was not relying enough on EE programs. Kabat read the August 3, 2009 Council Direction to staff: "To work with the Utilities Advisory Commission (UAC) and report back to the Finance Committee with a re-examination of the policies and goals that are being used in the alternate energy program, including the energy efficiency plans and the electric acquisition policies and plans." Kabat explained staff's follow-up efforts including getting UAC approval for an EE plan that compared EE measures to the cost of green power resources leading to a doubling of EE goals and a significant increase in EE budget. The EE plan will be presented to the Committee for consideration on April 6, 2010. The doubled goals would reduce loads by another 37 GWh by 2020 reducing the need to procure 1/3 of that, or 12 GWh of renewables. Forecasted electric loads are essentially flat by the doubled EE effort. Staff used this reduced load forecast to analyze the need for additional renewables. During Kabat's discussion on the 10 -year Energy Efficiency (EE) proposed plan, Chair Melton reminded the Commission that the new plan, recommended by the UAC on March 9th for Council approval, doubles the Utilities Advisory Commission Minutes Approved on: Page 2 of 10 goals and incorporates green premiums in the evaluation of EE. Chair Melton also noted that under the proposed 10 -year EE plan, energy efficiency is sufficient to capture load growth through 2020. Kabat explained Ameresco's stated need to complete contracting efforts with Palo Alto by April 19 so Ameresco could still have time to move on to complete contracts with backup parties if Palo Alto declines the PPAs,all-focused-on-starting-construction-by the -end -of 2010 to qualify for -stimulus --funding. Kabat also mentioned staff's plan to update the Long-term Energy Acquisition Plan (LEAP) guidelines, including a discussion of the RPS goals, timing and allowable budget. Following UAC review, the LEAP update would then be considered by Finance Committee and the Council. The March 16, 2010 proposal to the Finance Committee was presented as well as the Committee's reaction stating concerns including: 1) staff had not yet completed the direction from the August 2009 to return to committee with review of policies and plans for acquiring renewable and energy efficiency resources, 2) technology risk of locking in prices for 20 years, 3) too much concentration with Ameresco in the portfolio, and 4) Ameresco's creditworthiness. Given the timing situation and Ameresco's willingness to continue negotiations, staff sought changes responsive to the concerns raised by the Committee. Namely, eliminating two of the projects, reducing the prices on the remaining two and negotiating terms of 20 years, 15 years and 12 years. These changes leave more room to buy other renewable supplies at potentially lower costs in the near to mid term future. Kabat stated that the City currently has contracts with Ameresco to provide 8.8% of City energy already and is proposing 2 new contracts that are expected to add 6.2% more. Conversely, Palo Alto is already contracted with 5 of Ameresco's 20 power projects, 3 of them sharing output with Alameda Municipal Power. Kabat stated out that the possibility of an Ameresco default is mitigated in several ways; by the free standing Limited Liability Corporations (LLCs), by the PPA structure only requiring Palo Alto to pay for energy after delivery, by the highly motivated lender's who would step in to run the projects if Ameresco fails and by the City having operational rights to step in if Ameresco or the lender fail to operate. Mr. Kabat pointed out that the last step is one we would only want to do if the contract was still attractive compared to the market. Kabat presented staffs new renegotiated and pared down proposal, recommending approval of San Joaquin and Crazy Horse PPAs for 15 -year terms at prices $2 and $4/MWh, respectively, lower than before and to prepay the interconnection charge toward the end of construction. Kabat described the 15 -year option as being responsive to the risk of green energy price declines but vulnerable to brown energy price increases exceeding 2% per year and vulnerable to green energy price premiums not reducing. He described the 12 -year proposals as being significantly higher priced than the 15 year option. Comparisons of the rates in the prepay and rate table versions of the interconnection cost pass through revealed that the prepay option has an internal rate of return of about 9% per year for the 15 -year PPAs and about 11 %/year for the 20 -year PPAs making prepayment the attractive alternative compared to the City's 4%/year investment portfolio. Kabat explained that there was a provision in the PPAs that would allow Palo Alto to get its money back if the projects were not built. Commissioner Eglash asked how the money would be returned, especially if the company was in bankruptcy. Eglash suggested that we would stand in line with other creditors in that case. Kabat agreed that this likely to be the case. Utilities Advisory Commission Minutes Approved on: Page 3 of 10 Commissioner Eglash asked whether analysis was done on the interconnection cost impact on the project costs. Utilities Assistant Director Jane Ratchye explained that for a 15 year contract, paying the interconnection costs upfront provides a 9% IRR. Commissioner Keller asked what assumed capacity factor was used. Ratchye replied that an 85% was assumed. Chair Meltonraisedthe-concernthatPG&E's control of interconnection- cost could result-inPG&E increasing interconnection costs for the projects so as to cause Ameresco to cancel its contract with Palo Alto. Were that to occur, PG&E could then step in and take over the project to achieve its own renewable goals. Commissioner Eglash noted that PG&E could not be so blatantly self-serving without facing legal consequences. Foster noted that the worst case scenario, complete failure of the project, would simply have Palo Alto shopping for new supplies once again. Keller asked whether there was a possibility for Ameresco to reduce its price on the Avenal project (the smallest but most expensive project proposed by Ameresco). Kabat indicated that the Avenal pricing was as low as it could be to still qualify for financing. Commissioner Keller asked how far the electric interconnection to the grid would be for the projects and asked whether there was a rule of thumb dollar per mile figure to help determine the exposure to interconnection costs. Kabat replied that the project developer was in a better position to determine the most efficient interconnection scheme and most economic costs. Commissioner Eglash asked whether the project premiums included amortization of prepayment for the interconnection costs. Kabat answered in the affirmative. Commissioner Ameri asked likelihood of emissions controls for San Joaquin. Kabat responded that he evaluated different scenarios but did not assign a probability. Kabat showed graphs of nominal energy prices from the past and quoted into the next six years and escalated at 2% per year after that. Also on those plots were carbon adders that would be charged according to proposed federal climate legislation and according to CPUC estimates. Also shown were the Market Price Referent (MPR) calculated by the CPUC and the price ranges for the proposed San Joaquin and Crazy Horse PPAs. The graphs showed that while the PPA rates were forecast to stay above the brown market rates, carbon emission fees could drive the cost of brown power above the rates in the PPAs in the outer years, especially if brown power escalates at more than 2% per year. Foster asked who provided the numbers for the price forecasts. Kabat replied that marketer quotes were obtained for the first five years, then the numbers were escalated by 2% per year, a conservative estimate, A thirty year view of the stacked bar renewable resource plot revealed many buying opportunities for renewables both to meet the 33% target the first time and to replace the PPAs that start expiring in 2021, 2028, and 2029. Several slides looked at several opinions of the "greenness" of Landfill Gas to Energy (LFGTE) power plants. The U.S. Environmental Protection Agency (the agency that administers the title 5 air permits for landfills and for LFGTEs strongly supports LFGTE. The Natural Resources Defense Council supports LFGTEs. The Sierra Club opposes LFGTEs unless the landfill is strictly managed to divert all organic wastes away and uses best management practices to minimize methane generation. The national Sierra Club supports the adoption of regulations to minimize methane emissions from landfills. Kabat explained that the two existing old landfill are EPA New Source Performance Standard compliant and will be even more stringently regulated by the California Air Resources Board new rules to reduce methane emissions from landfills. Utilities Advisory Commission Minutes Approved on: Page 4 of 10 In conclusion, Kabat stated that staff recommended UAC recommendation of 15 year PPAs for San Joaquin and Crazy Horse LFGTE projects and the waiving of the investment grade credit rating requirement of the Municipal Code for these PPAs.' Joe Saccio, Deputy -Director -for -Administrative Services, explained that he would be presenting the credit and risk issues in the absence of the Energy Risk Manager, Karl Van Orsdol. Saccio said that the presentation is almost the same as the one that Van Orsdol made to the Finance Committee on March 16, 2010. Saccio enumerated four key issues: 1) counterparty concentration (whether Palo Alto's renewable plans rely too much on Amersco?); 2) credit condition of Ameresco (whether Ameresco's financials provide sufficient assurance of long-term delivery?); 3) whether up -front payment of interconnection charges poses undue risk; and 4) whether 12, 15, or 20 year fixed -price contracting poses undue market risk. Saccio provided an overall summary of the positives and negatives of the proposed PPAs. The positives include Ameresco's strong history of project completion and performance, the proposals were the lowest priced proposals offered, each PPA is with a separate LLC, the city only pays for power deliveries, the company will invest significantly in project before power is generated, and a default by the LLC results in a lender take-over of the project. The negatives include high concentration with one supplier, the fact that renewable power costs more than brown power, long-term contracts at fixed prices are at risk of falling prices in the future, and political risk that the mandates for renewable power will change in the future. Commissioner Eglash asked how we know if any of the LLCs is operating at a loss. Saccio said that Van Orsdol looks at the company's financial information, but he didn't know if Van Orsdol looks at each LLC or only at the parent company. Saccio stated that Ameresco currently accounts for 42% of the City's renewable supplies and 9% of the City's total supplies. With the proposed PPAs, Ameresco would account for 56% of the renewable supplies and 16% of the total supplies (assuming a 95% capacity factor) and be the second largest supplier after the Western Area Power Administration. Regarding Ameresco's credit, Saccio explained that Ameresco has grown rapidly over the last 4 years and has $4 billion of projects under contract now. This growth has stressed Ameresco's finances as debt has doubled since 2005 and the cost of sales has increased by 50%. Based on the company's financial information, the expected default frequency for Ameresco increased in 2008 from 2007 and increased in the first three quarters of 2009. However, stresses on Ameresco are easing. Saccio also noted that if Ameresco defaulted, the project lenders could continue the project. Saccio discussed the risks and benefits of prepaying the interconnection costs. If the City paid upfront for the interconnection, but the project was not completed or the project stopped deliveries after a short period of time, then the City could lose the prepayment amount. However, Saccio stated that this risk was low since Ameresco would have invested over 50% of the project cost before the interconnection payment is made. He also noted that the prepayment would save money over using the price tables if the deliveries continued over the 12- ,15-, or 20 -year contract terms. Saccio explained that there is some risk that the costs of renewable power will fall and the PPAs will lock in the cost to Palo Alto at above the market cost of renewable power in the future. New technology could reduce renewable energy costs in the future. In addition, it is difficult to compare renewable power prices as there is no transparent forward price curve for renewable power except for the Market Price Referent that the CPUC calculates annually. Although there is currently a high demand for renewable energy, Utilities Advisory Commission Minutes Approved on: Page 5 of 10 political changes and economic or rate pressures could weaken the mandates and reduce demand, which could lead to lower prices for renewable power. In conclusion, Saccio stated that the PPAs appear to be at or below renewable energy market prices for the medium term. In the long-term, new technologies could reduce the cost of renewable energy, but carbon management issues -could -have an -upward -effect -on prices. ORAL COMMUNICATIONS ON THE AGENDA ITEM: David Coale from Palo Alto Cool Cities Team with Sierra Club complimented staff on the presentation and noted his disappointment with the earlier Finance Committee's recommendations. Coale further encourage the Commission to take a greater perspective on rates versus greenhouse gas emissions and pointed out that customers in Palo Alto pay far less for electricity than the average PG&E customer for far lesser greenhouse gas emissions. He stated that we would be misguided to think rates should not go higher and that the City has an obligation to reduce greenhouse gas emissions when Palo Alto has lower rates and the ability to pay more. Coale also spoke in support of landfill gas to energy projects because it is baseload renewable energy. He cautioned that landfill operators must be careful with leakage since methane is twenty times more lethal than carbon dioxide and noted that it was good to see the amount of work staff had done in researching the matter. Bruce Hodge, also with PA Cool Cities Team expressed his support of 33% renewables by 2015 goal. He stated that it is time to get ahead of the game particularly when competing with PG&E. He mentioned his attendance at the earlier Finance Committee meeting where he spoke in favor of staffs proposal which he thought made good sense. He noted his disappointment with a pared back proposal, stated his support of staffs recommendation, and said he would like to know next steps to hit the 33% goal. He expressed his opinion that it is not in the Finance Committee's purview to re -write the City Council recommendations on the renewable portfolio standard and urged the Commission to approve the contracts or even go further. Herb Borock mentioned an email sent to the UAC at 1:00 this afternoon reiterating his opinion that the issue being discussed was not in the Commission's and was contrary to action of the Finance Committee. He noted the discussion at the Finance Committee regarding the Commission's review of the Ameresco contracts where Fong said that contracts are not brought to the Commission because they are operational in nature and therefore not under the purview of the Commission. Borock gave an overview of the Finance Committee's motion. Borock also argued that the Market Price Referent is not a floor. Rather the price for power is determined by supply and demand, and that as technological advances occur, prices goes down. He argued that contrary to what Commissioner Eglash said, Borock did not agree that the City should lock in high priced green power now in anticipation of higher brown prices. Borock also stated that per City policy, the City cannot contract with Ameresco because its credit rating is too low. Borock opined that staff is only focused on the 33% goal and that staff is not looking at the future power market. Borock said that the contracts were being rushed through the approval process. Borock also likened the current process to the Cuban missile crisis noting that there are two conflicting messages and staff has chosen to ignore one (the normal approval process) in order to achieve the other (the 33% goal). Chair Melton began the Commission's deliberations by suggesting that the Commission consider the questions raised by the Finance Committee, He first reminded the Commission that governing Council adopted policy is to achieve 33% Renewable Portfolio Standard (RPS) by 2015, and that a change in that policy was not part of the meeting agenda, however, should the Council direct the Commission to reconsider the policy, it would do so at the appropriate time. Melton listed three items s for discussion and Eglash added two more as follows: Utilities Advisory Commission Minutes Approved on: Page 6 of 10 • Concentration of purchases with Ameresco and Ameresco's credit rating; • 15 -year versus 20 -year contract terms; • Political risk; • Environmental attributes of landfill gas to energy projects; • The role of energy efficiency. Chair Melton noted the Commission's review of the 10 -year EE Plan in March, and Commissioner Eglash added his observation that EE does not obviate need to purchase renewables if the City wants to meet RPS. Chair Melton noted that it would be important for the Commission to have a recommendation on whether it believes that landfill gas to energy (LFGTE) is a technology that is renewable in the same sense as solar, wind or other technologies available for renewables, and whether it would advise the Council to approve more LFGTE purchases. Commissioner Foster explained that he had spent some time looking into the issue. He noted first that it is clear that under applicable California policy, LFGTE is renewable (similar to solar, wind). He also mentioned that at least one Palo Alto resident expressed concerns about building new landfills just to build LFGTE, however, from his perspective, the issue was resolved for him based on the staff report. Further, he mentioned that he had contacted Ralph Cavanagh at NRDC who provided the following response: "We agree that landfill gas is an environmentally preferred fuel source for electric generation; NRDC should not be cited in opposition to such a contract." Foster noted that if landfill gas is not collected but seeps into the atmosphere, its far worse than turning it into electricity. Commissioner Foster asked staff who has responsibility for regulated landfills. Kabat replied that the Environmental Protection Agency is responsible for Title 5 landfills and the California Air Resources Board is also responsible in California. Foster confirmed that both the Federal and State governments are involved in the regulations and not the City of Palo Alto, Foster noted that he is comfortable with the consideration of landfills as a renewable source for energy. Commissioner Eglash, remarked that one can view the issue very simply as landfills already produce biomass and we are all much better off creating electricity from it rather than simply flaring it. He noted that even the Sierra Club's opposition is based on avoiding encouraging future landfills. Commissioner Keller indicated agreement with prior comments and added that the landfill is a good source of baseload energy with a tried and true technology. Chair Melton mentioned that he had been asked how much CO2 goes into atmosphere when methane is burned to create electricity and noted that the answer was included in the staff report. He summarized it by noting that flaring methane and using natural gas to produce the same amount of electricity puts more greenhouse gases into the atmosphere than creating LFGTE energy. Chair Melton introduced the topic of Ameresco as counterparty and asked the Commission to consider its level of concern about Ameresco as a counterpary. Commissioner Foster stated his belief that the issue is fairly minor in this instance, noting .that it would be very different if the City was prepaying for the energy or financing construction of plant, neither of which applies. He further noted that in the event of default by Ameresco, the City would purchase any shortfall from the market (although it might be brown power), and in any event, under the proposed contracts, the Utilities Advisory Commission Minutes Approved on: Page 7 of 10 City only pays for what is delivered. Lastly, he noted that each Ameresco project is a separate entity and each must achieve financing, so the odds are low that Ameresco will default, but even if it does„ the lights don't go out. Commissioner Eglash stated that the City is a customer of Ameresco, and not an investor in the company, and that it has six years of history with Ameresco where the City is already purchasing power. He described the relationship as a mutually beneficial relationship. Commissioner Ameri spoke in agreement noting that the City is not investing, that Ameresco has an established track record and that it has been performing. Commissioner Keller also spoke in agreement noting that failure to approve a deal with Ameresco forces the City to deal with an entity with which it has no track record and may have other unknown risks. Chair Melton asked that the minutes reflect that the Commission does not find there is undue risk in signing additional contracts with Ameresco given the nature of the contracts and the safeguards built into them. Chair Melton then raised the matter of the term (length) of the contracts and asked the Commission to consider the risks associated with either shorter or longer terms. The commissioners agreed that the 12 - year terms were not attractive because the prices were too high. Commissioner Eglash asked whether the contracts can be executed with either 15- or 20 -year terms at the same price and staff responded affirmatively. Commissioner Keller noted her preference for the 20 -year term because it was impossible to guess how much up or down prices might go in the future, the price is attractive now, and there is a need. Melton agreed that the prices are attractive, however, he noted a significant amount of the "green premium" is consumed by these contracts. Ratchye explained that the 0.5 cents/kWh cap could be accommodated if more power was available, up to the 33% amount, at the same prices as the proposed contracts, however, she conceded that the availability of comparably priced power was an uncertainty into the future. Commissioner Ameri noted that the common expectation is that the longer contract should result in a lower the price and asked why the prices for the 20 -year contract are not less expensive than those for the 15 - year contract. He noted that since there is no price benefit from the extra 5 years of commitment he would be inclined to stay with the 15 -year contract. Commissioner Foster indicated that it was his preference to support the 20 -year term, however, in an effort to address concerns raised by the Finance Committee over the length of the contract, and to provide the Finance Committee with something they could recommend to the Council, he would consider the 15 -year term. Commissioner Keller pointed out that PG&E is also in the market trying to get renewables, and given transmission limitations, and the limitations on wind and geothermal project developments, it makes sense to lock in a longer term. Commissioner Eglash stated that he has no doubt that brown power prices will continue to rise because fossil fuels are finite resources and, if one considers a booming economy in a few years, a forecast of 1% to 2% annual increases in brown power might be low. He suggested that at some point, increases in prices for brown power may outpace inflation. He also stated that he had no doubt that further investment and technology advances, will result in cheaper renewables (solar for instance), although he was less clear that wind or LFGTE would get cheaper since they are more mature technologies, but also stated that the price Utilities Advisory Commission Minutes Approved on: Page 8 of 10 of green power is not going to get below the price of brown power. Green power is a "substitution" technology that takes the place of brown power, so as brown power prices increase, even as there are technological advances, there's a floor for green energy set at the price of brown power plus a greenhouse gas adder plus another small adder for the green premium, so there will always be a positive green premium relative to brown, Eglash concluded that from a pricing trend point of view, he would have no problemrecommendinga- longer -contract. -He noted that these contracts represent a small part of the renewable portfolio going forward, that there will be more contracts to sign if the City chooses to meet the RPS, and that over time, more contracts will expire and more will be needed to maintain the RPS. Chair Melton noted that legislative actions in both Sacramento and Washington are unknowns, but agreed that it is unlikely that green power will ever sell for less than brown power. Commissioner Foster stated that the UAC was trying to make sure it is serving the Palo Alto ratepayer as well as possible, and with that in mind he made the following three points: (1) the most cost effective way to meet the 33% by 2015 goal is through these contracts; (2) he opined that down the road, the City will be glad it entered into these agreements; and (3) since the City is largely dependent on hydro power and brown power, the LFGTE power provides good portfolio diversification that is not dependent on the fossil fuel market or on hydrologic conditions. Commissioner Ameri asked whether a change in regulation that affects costs encountered by the company (Ameresco) would be passed through to Palo Alto. Kabat replied that the proposed PPAs contain only one continuing automatic pass -through charge, which is the interconnection costs and the costs of emissions controls equipment for the San Joaquin landfill project. Fong noted that changes in regulation would be a market -wide change. Chair Melton summarized the sense and votes of the commission as follows: 1. The Commission does not support the 12 -year contract term. 2. The Commission does support either the 15- or 20 -year PPA terms with three commissioners ,(Melton, Eglash, Keller) preferring and recommending the 20 -year term PPAs and two Commissioners (Ameri, Foster) preferring and recommending the 15 -year term PPAs. Additionally, Foster wanted the minutes to reflect that, while he voted for the 15 -year term, he did it in deference to the Finance Committee's position, he would support the 20 -year term. Ratchye noted a necessary change to staffs recommendation in the staff report as follows: "change 'for the acquisition of up to 52,000 MWh per year of energy over fifteen years at an estimated cost not to exceed..." to 'for the acquisition of up to 52,000 MWh per year of energy over fifteen years at cost not to exceed..." for both Item 1 (San Joaquin) and Item 2 (Crazy Horse) contracts. ACTION: Commissioner Foster made a motion recommending that the Utilities Advisory Commission (UAC) recommends that the Council: 1. Adopt a resolution approving a Power Purchase Agreement (PPA) with Ameresco San Joaquin LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy over fifteen years at a cost not to exceed $88.7 million or over twenty years at a cost not to exceed XXX, including, if required, a payment of up to $1.425 million for electric transmission interconnection costs; 2. Adopt a resolution approving a PPA with Ameresco Crazy Horse LLC, a Delaware limited liability company, for the acquisition of up to 52,000 MWh per year of energy over fifteen years at a cost Utilities Advisory Commission Minutes Approved on: Page 9 of 10 not to exceed $80.7 million or over twenty years at a cost not to exceed YYY, including, if required, a payment of up to $1.425 million for electric transmission interconnection costs; and 3. Waive the application of the investment -grade credit rating requirement of Section 2.30.340(d) of the Palo Alto Municipal Code, which applies to energy companies that do business with the City, as the Ameresco-companies are -not -rated -by -credit --agencies: The UAC requested that staff provide the XXX and YYY numbers to represent the appropriate not to exceed costs of the proposed PPAs for 20 -year terms since they were not available at the time of the UAC meeting. The Commission voted unanimously to support the motion. Commissioner Eglash thanked staff for the research and presentations. He then noted that the Commission must respect two conflicting issues: the need for lowest possible rates and care for the environment. He acknowledged Melton's earlier reminder that the City has an adopted RPS, and that even if it did not have its own RPS, it would be forced to comply with an RPS at some point. Therefore, as Commissioners, all are focused on trying to balance low rates and the environment, and do so as they consider long-term contracts, protections such contracts afford against future increases, and portfolio diversity, etc. Failure to execute the current contracts would likely force in higher cost contracts in the future. Keller, Foster and Melton all spoke in favor of recommending the contracts. ACTION: Chair Melton moved to designate Commissioners Foster and Egiash to represent the UAC at the Finance Committee on April 6, 2010 when this item is scheduled to be considered. Keller seconded the motion. The Commission voted unanimously to approve the motion. INFORMATIONAL REPORTS None, COMMISSIONER COMMENTS Commissioner Foster reported that he attended a community meeting organized by Bruce Hodge to discuss the electric portfolio and how to include additional resources to make it carbon neutral. Foster thanked attendees and thanked Bruce Hodge for organizing the event. Foster stated that he expected these issues to eventually be discussed by the UAC. He also stated that there was good representation of CPAU staff at the meeting. Meeting adjourned at 10:17p.m. Respectfully submitted, Marites Ward City of Palo Alto Utilities Utilities Advisory Commission Minutes Approved on: Page 10 of 10 ATTACHMENT K RENEWABLE ENERGY CONTRACTS WITH AMERESCO SAN JOAQUIN LLC AND AMERESCO CRAZY HORSE LLC Utilities Advisory Commission March 31, 2010 Presentation Outline • Background — Palo Alto's Renewable Portfolio Standard (RPS) — The search for renewables — Progress toward meeting the RPS — Council direction on energy efficiency and renewables — Integration with the 2010 10 -year Energy Efficiency Plan • Description of the two recommended Power Purchase Agreements (PPAs) • How green are Landfill Gas to Energy Projects? • Risk Analysis • Tonight's requested action — Recommend Approval of 2 Power Purchase Agreements 2 1 Palo Alto's Renewable Portfolio Standard • Adopted by Council in 2002'as part of the Long- term Electric Acquisition Plan (LEAP) guidelines — Meet 20% of electric load with renewables by 2015 while ensuring the retail rate impact does not exceed 0.5 cents per kilowatt-hour • LEAP guideline amended by Council in 2007 — Meet 20% of electric load with renewables by 2008 and 33% by 2015 still within the 0.5 cents per kilowatt-hour rate impact limit 3 Existing Renewable Energy Contracts Supplier Technology Date Contract Executed Actual or Estimated Online Date Annual Energy (Gwh) High Winds Iberdrola Wind Nov. 2004 Dec. 2004 51.8 Shiloh Iberdrola Wind Oct. 2005 June 2006 74.4 Santa Cruz Ameresco Landfill Gas Nov. 2004 Feb. 2006 11.2 Half Moon Bay Ameresco Landfill Gas Jan. 2005 Apr. 2009 40.8 Keller Canyon Ameresco Landfill Gas Aug. 2005 Aug. 2009 11.8 Subtotal - Operating 190.0 Butte County Ameresco Landfill Gas Nov, 2008 Sep. 2011 16.5 Johnson Canyon Ameresco Landfill Gas Aug. 2009 Oct. 2011 11.2 Subtotal — Under Construction 27.7 Total — All Executed Contracts 217.7 4 2 Palo Alto's Renewable Resources 400 350 300 250 s. 200 t7 150 - 100 - 50 0 RPS Goal: 20% (2008) Lig 19% 14% 10% 17% 16% RPS Goal: 30% (2012) 23% RPS Goal: 33% (2015) 22% 22% 21% 21% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Calendar Year 13Short-term Renawablas O Johnson Canyon LFG 0 Butte County LFG • Keller Canyon LFG ❑ Half Moon Bay LFG El Santa Cruz LFG ■ Shiloh Wind 0 High Winds 5 Green Premium for Existing Renewable PPAs Date Contract Executed Annual Energy (GWh) Levelized Project Cost ($1MWh) Adjusted' Brown Market Cost ($1MWh) Green Premium ($1MWh) Green Premium ($10001yr} High Winds Nov. 2004 51.8 57.60 55.0 2.56 132 Shiloh Wind Oct. 2005 74.4 62.95 69.5 (6.50) (484) Santa Cruz LFG Nov. 2004 11.2 62.32 59.3 2.97 33 Half Moon Bay LFG Jan. 2005 40.8 58.97 67.5 (8.55) (349) Keller Canyon LFG Aug. 2005 11.8 70.88 83.9 (13.00) (154) Butte County LFG Nov. 2008 16.5 98.66 78.6 22.11 365 Johnson Canyon LFG Aug. 2009 11.2 123.61 67.3 56.35 633 Total - All Committed Contracts 217.7 176 8 3 The Search for Renewables • Palo Alto Requests for Proposals (RFPs) — Fifth RFP for renewable energy released in Fall 2009 • 42 proposals evaluated • Two negotiated proposals being considered tonight • NCPA Green Power Project RFPs -- Several still in negotiation: 7 MW Solar, 0.7 MW Landfill, 5 MW Wind (fifth year and waiting) • NCPA New Projects available to all members — Example: 7MW Geothermal Geysers Ram Power Inc. 7 NGPP Projects Under Negotiation • Palo Alto participates in the NCPA Green Power Pool, which was anticipated to provide another venue for renewables acquisition for Palo Alto to partner with other agencies on larger project. • However, NGPP has not produced a project in its five year history • These projects could be available to Palo Alto if they ever get completed: S r�� gnti rye `two .#.aln ►lto o are, .. ti-7�til ) :=1 Z„:..3 -ec& .. ..-?S F6 `tZ"i ..«s. 4. F.-.�X' i�,.r s' .._ Y. Yy, x: .. L_ `. Solar PV Sunlight PPA 12.6 LFG 3 Landfill Gas Development 5.7 Livermore Wind Wind PPA 9.0 27.3 8 4 Renewables for some CA utilities (fraction of annual retail sales) 70% 60% 50% 40% 30% 20% 10% RPS Status in 2008 and 2009 California Eligible Renewables 4°,. Q�° •C 6- /' 9 Renewables Pursuit Decision Process • Palo Alto issued its 5th renewable energy RFP in Fall 2009 • Four of Ameresco's proposals ranked better than all 38 others on selection criteria • City negotiators included Utilities staff, Energy Risk Manager, and City attorneys. • Approval by Utilities Risk Oversight and Coordinating Committee in Winter 2009 • Not recommended for approval by Finance Committee on March 16, 2010 • Staff renegotiated with Ameresco and now has revised its recommendation for consideration by the UAC • Staff plans to return to Finance Committee on April 6 depending upon UAC's recommendation 10 5 Summary of Proposals Received in Response to Palo Alto's Fall 2009 RFP • Palo Alto received 43 proposals from its latest solicitation • Four of Ameresco's proposals for landfill gas to energy projects provided the best value for the price • Proposals included many technologies as shown in table below Technology S cF p N0 Pr;op�n Is ri CI°hf L !e iz �.. C st. S l ange of Gre¢n r . . ° emiuu'i i (S/MWh1 Landfill Gas Baseload 10 103-142 32-72 Solar PV Intermittent 29 106-216 47-142 Geothermal Baseload 1 119 87 Digester Gas Baseload 1 170 108 Wind Intermittent 2 106-115 70-76 11 Fall 2009 Renewable RFP Results: Green Premium Versus Project Size $140 $120 w 5100 $40 $20 Ameresco Avena► ♦ ♦ • ♦ ♦ Ameresco ♦♦ Crazy Horse IAvenal combined' Ameresco Crazy Horse. Ameresco San Joaquin • Ameresco Forward ♦ • • • ♦ • 10 20 30 40 00 Project Size (GWhlyear) B0 70 12 so 6 Second Best Proposals Received in Response to Palo Alto's Fall 2009 RFP Technology Sire zW Levelized Cost l �•Di+r.�71r/ Greer* kremium ,1�_`.;� cal , Caparaty9 �:A "° 0 oProposal ejectet u s r iP •�M, rs. *',..ki Landfill Gas 35 119 47 Yes Green premium too high; costs for interconnection and emissions controls would be extra Solar PV 36 123 47 No Green premium too high; project unlikely to be completed Landfill Gas 11 120 50 No Green premium too high Landfill Gas 11 135 59 Yes Green premium too high Wind 77 106 76 No Green premium too high; Transmission challenges; Wind is a bad fit for portfolio Solar PV 75 146 95 No Green premium too high 13 160 Green vs. Brown Prices I— ♦ Leu9IizedProject Cost LFG 140 — Adjusted Market Price - Johnson _ Canyon Wind Solar — — Market Price Referent Ram LFG San Geothermal ; Joaquin Geo 120 • P100 fiazy Horse i —.. lir --J---i+ . .. . .�., _ . ......._ . ....... . ... . .. . Keller 1 Canyon j 80 Santa LFG — ..�. .. .. .. . .. . .. .. . . .. . . Cruz ^^ ____. __.. .. __ . .__ . 0. /���LFFFG��—� ��—� IL Butte — cLFG I- �^^ I 2p -year BD " Shiloh Levelized• Wind U *`` Half - Ffgh Moon I— 40 Wnda . . ,. . . . . .. . . .. . .. .. .. .. .. .. .. .. .. .. . . .. .. .. . .. .. .. . . . .. .. .. .. .. .. . .. .. .. .. .. .. .. .. .. Bay ..... ....... .. .... ... .. ... ...... Current Market• LFG 20 Committed Projects Under Consideration Current Price Ranges Projects o . Jur-2004 JUI-2005 Jul -2006 Jul -2007 Jul -2008 Jul -2009 Jul -2010 • Market Prices es of Date of Project Commitment 31122010 14 7 Finance Committee Recommendation • Finance Committee recommended approval of the last renewable contract (Johnson Canyon) on July 21, 2009. • At same time, committee expressed concern about high cost of renewables and whether staff was appropriately valuing energy efficiency. • As recommended by the Finance Committee, on August 3, 2009 (CMR: 342:09) Council directed staff: "To work with the Utilities Advisory Commission (UAC) and report back to the Finance Committee with a re-examination of the policies and goals that are being used in the alternate energy program, including the energy efficiency plans and the electric acquisition policies and plans." 15 Staff Follow -Up • At the UAC's November 2009 meeting, staff discussed Council direction and explained that it would evaluate the cost-effectiveness of energy efficiency (EE) using the cost of renewable power as the marginal cost. — Meaning: Identify all cost-effective energy efficiency as compared to the cost of renewable power, not just to the lower cost of "brown", or market power. • The UAC agreed with this approach and staff evaluated electric EE potential using this methodology. • UAC reviewed the draft 2010 10 -year EE plan at its February meeting and recommended approval of the final plan March 9, 2010. • The 2010 10 -year EE plan is scheduled for Finance Committee consideration on April 6, 2010. 16 8 How are Renewables and Energy Efficiency Integrated into the Portfolio? • Based on 2009 Council direction, staff produced the 2010 Plan using the same Market Price Referent that renewables compete against to calculate the savings from EE. • The 2010 Plan doubles the EE goals from the 2007 Plan: cumulative EE savings of 7.2% by 2020 • Doubling EE effort is expected to reduce 2020 Toad by an additional 37 GWh relieving the need for 12 GWh of renewables 17 Electric Consumption Forecast and Planned Energy Efficiency Historic and Projected Annual Electric Loads Impact of Energy Efficiency Programs on Load Forecast 1,400,000 Annual Load (MWh) 1,200,000 • 1,000,000 800,000 600,000 400,000 200,000 --- Historic load + Forecast with 2010 EE plan goals -+- Forecast with 2007 EE Plan goals - - Forecast with no additional EE Progra 1990 1995 2000 2005 2010 2015 2021 9 Tight timelines • Ameresco has options - Ameresco said that missing planned April 19 date for Council approval of the contracts jeopardizes attractive pricing as it must start construction by end of 2010 to receive Federal stimulus finds. • Finance Committee direction not yet complete - Electric EE Plan: • Finance Committee scheduled to consider the 2010 10 -year EE Plan on April 6. • Staff used EE goals in the 2010 EE Plan to analyze the renewable energy opportunities - Long-term Energy Acquisition Plan (LEAP): • An update to LEAP planned for UAC review in August 2010 • The LEAP update may revise the PaloAltoGreen program and will revisit the EE and RPS guidelines • The LEAP update will be informed by Council approval of these contracts. • LEAP update will be presented to Finance Committee and Council following UAC review. 19 Staff's Original Finance Committee At Expected Sizing and Proposal to on March 95% capacity factor 16 L t s^ v 7 �; ...: .. s r � z. � �� . .� "' �' f � � �) c ��'� r t31 s ' j re nip _( w .. ` ` 11ii►n(y'e`.ar Forward 38 9.900 87.6 1.40 San Joaquin 36 10.334 86.9 1.40 Avenal 12 12.335 33.2 0.81 Crazy Horse (without Avenal) 36 9.608 80.9 1.40 Crazy Horse (with Avenal) 36 9.108 76.8 1.20 All Projects 122 10.033 284.5 4.81 All Projects (except Avenal) 110 9.95 255.4 4.00 At Maximum Sizing and 95% capacity factor e - e `r --'bJg� c � �� z �� r� ., .. . ,. �z' 'a[]ntpm s� �g iiY ') _Fi tY _ i .`Qiitt §'' os F :YfEI CF'4°. f Maxl ium .a-' -0 .a i$ 11 i's iVR iiium x gfIeV4Va�i� £`.:: P =($Miilli4pi`.7i' �4 Forward 47 9.900 108.6 1.7 San Joaquin 52 10.334 124.7 2.1 Avenal 16 12.335 45.1 1.1 Crazy Horse (without Avenal) 52 9.608 116.1 2.1 Crazy Horse (with Avenal 52 9.108 110.1 1.8 All Projects 166 10.022 388.5 6.7 All Projects (except Avenal) 151 9.952 349.4 5.9 10 Finance Committee's Reaction on March 16 to Staff's_ Recommendation Committee did not support the recommendation • Staff has yet not completed the direction from August 2009 to return to committee with review of policies and plans for acquiring renewable and energy efficiency resources • Technology risk of locking in prices for 20 years • Too much concentration with Ameresco in the portfolio • Questions about Ameresco's creditworthiness 21 Staff's response to Finance Committee's Concerns • Staff conducted further negotiations with Ameresco — Ameresco provided prices for lesser terms — 12- and 15 -year terms in addition to 20 -year term — City got price concessions for 15- and 20 -year terms for the San Joaquin and Crazy Horse projects — Ameresco removed Avenal and Forward projects from further consideration by City — Ameresco requires that City execute a PPA with the San Joaquin project, or with both the San Joaquin and Crazy Horse projects — Ameresco has indicated that they will find another counterparty for output from the San Joaquin and Crazy Horse projects if City doesn't execute PPAs by April 19 • Staff developed a new recommendation — For consideration by the UAC tonight — To return to the Finance Committee on April 6 (depending on UAC recommendation); and — For consideration by the Council on April 19 (depending on Finance Committee recommendation). 22 11 Commitments with Ameresco Electric Energy Supplies in 2015 Lne Su lien r fl Percent,of 2015 Needs Western Area Power Administration (hydroelectric supplies) 37.0% Calaveras Hydroelectric Project 13.0% Iberdrola (wind power) 14.0% Ameresco existing contracts (landfill -gas -to -energy projects) 8.8% Ameresco proposed new contracts (landfill -gas -to -energy projects) 6.2% Total supplies locked in with contracts 79.0% Ameresco's Landfill -Gas -to -Energy Plants Aswitb ale,Alto Plants Operating 13 4 3 Plants under construction Plants in design and permitting 4 stage TOTAL 20 (50:50 share with Alameda) 3 1 0 2 2 7 5 23 What if Ameresco Goes Bankrupt? 1. All existing and proposed PPAs with Ameresco are LLCs — the project lenders require each project to "stand alone". A default by one LLC should not precipitate a default by another LLC. 2. Palo Alto only pays for the energy delivered. If no deliveries, no payments. 3. If Ameresco defaults on an LLC (doesn't deliver the energy), the project lenders have the right to step in and operate the plants and must adhere to the terms of the PPAs. 4. If both Ameresco and the project lenders default, the City has the right to step in and operate the plants. 24 12 Staff's New Proposal Recommendation: • Approve PPAs with the San Joaquin and Crazy Horse landfill projects • PPAs with terms of 15 years • Prepay the interconnection costs Result: • RPS moves from 22% to 28% in 2013 -- still 5% to go to meet a 33% RPS goal • 2 new PPAs cost about $2.3 million/year more than brown power starting in 2013. Rate impact increases to 0.23 ¢/kWh starting in 2013 25 Original San Joaquin Landfill Proposal First -Year Prices and Pay -Ahead Cost 20 -year term ' rr Jd `: missions, Controls •Lm1 on s Con Not 4 uare < . h} + ` 011. _ ono. •1 , -0 � 9 r 4 ow* � _. ' . 1: :,„,,,N.,:,-, E. � >_ $1,250,000 , $1,425,000 Up to $103.34 $93.33 $1,000,000 $1,050,000 ' Up to $103.34 $93.33 $750,000 $675,000 Up to $103.34 $93.33 $500,000 $300,000 Up to $103.34 $93.33 Up to $300,000 $0 Up to $103.34 $93.33 26 13 Revised San Joaquin Landfill Proposal $2 lower than original proposal for 15- and 20 -year terms 15- and 20 -year terms i 3: i n' ayny fyll� # : W With Prepayment < . s s iar5t Y 1 P x r00Y111ent c ' o �4 PG&E a' % - 1 I1tet nnectjon Cost c y i Inie1' X cone Section 1 �F Pay' ii - ; ' �_ )N'imaa Ik IBS 1 '� t"o F Re $ L' Ei s3Ions �b xa '� 'iEm itoiis y 1 f A j 4 patrol R uireda k ¢ Emissi n3 ontro Tat Re aired >= $1,250,000 $1,425,000 Up to $101.34 $91.33 Up to $106.54 $97.03 $1,000,000 $1,050,000 Up to $101.34 $91.33 Up to $105.17 $95.51 $750,000 $675,000 Up to $101.34 $91.33 Up to $103.80 $94.02 $500,000 $300,000 Up to $101.34 $91.33 Up to $102.43 $92.52 Up to $300,000 $0 Up to $101.34 $91.33 Up to $101.34 $91.33 12 -year term >= $1,250,000 $1,425,000 Up to $112.42 $102.41 Up to $117.62 $108.11 $1,000,000 $1,050,000 Up to $112.2 $102.41 Up to $116.25 $106.59 $750,000 $675,000 Up to $112.42 $102.41 Up to $114.88 $105.10 $500,000 $300,000 Up to $112.42 $102.41 Up to $113.51 $103.60 Up to $300,000 $0 Up to $112.42 $102.41 Up to $112.42 $102.41 14 Original Crazy First -Year Horse Landfill Proposal with Pay Ahead Costs 20 -year term -Prices . .. `Cra Horse andtrlI ?V thont ' A th '. $ t 'Co i to terconnection ea OS >_ $1,250,000 $1,425,000 $96.08 $91.08 $1,000,000 $1,050,000 $96.08 $91.08 $750,000 $675,000 $96.08 $91.08 $500,000 $300,000 $96.08 $91.08 Up to $300,000 $0 $96.08 $91.08 29 Revised Crazy Horse Landfill Proposal $4 lower than original proposal for 15- and 20 -year terms 15- and 20 -year terms Crazy $r'"i en itl ate� , 'rep 4++e irsgtl. i _� IMWh 0C�nec1ioit o t a nfppVp £ C©r9� Y_ � h� , fir, >= $1,250,000 $1,425,000 $92.08 $97.19 $1,000,000 $1,050,000 $92.08 $95.83 $750,000 $675,000 $92.08 $94.47 $500,000 $300,000 $92.08 $93.10 Up to $300,000 $0 $92.08 $92.08 12 -year term >=$1,250,000 $1,425,000 $99.08 $104.19 $1,000,000 $1,050,000 $99.08 $102.83 $750,000 $675,000 $99.08 $101.47 $500,000 $300,000 $99.08 $100.10 Up to $300,000 $0 $99.08 $99.08 30 15 Crazy Horse: 2 options on Interconnect Payment )Lon$ 1 �4 , :. 101m. � ., �qst` f .% a ^. , 'i � � Interco •j. / E��r x$1,250,000 $1,425,000 $92.08 $1,000,000 $1,050,000 $92.08 $750,000 $675,000 $92.08 $500,000 $300,000 $92.08 Up to $300,000 $0 $92.08 Hi a 5 dflh1 Non RCCoin tindad D in = fi 1 h io ir,aync tt ' . s n ectro toi i' Oki ear Price ` >-_ $1,250,000 $0 $97.19 $1,000,000 $0 $95.83 $750,000 $0 $94.47 $500,000 $0 $93.10 Up to $300,000 $0 $92.08 Summary of the Options for the Two Projects Given the Most Likely Plant Sizing and Expected Plant Output a r I Ct 4 {Term of first Yea Eip Celt n , a IBC } dug�el (�PPI ; er Cons# Cnntr 2 Os t} ( S W ; lwn ,, 'i $ 1 I l[ k '• X1[8liglb ;1 i' i A m sla olta San 20 106.54 78.9 1.30 Joaquin 32 15 12 106.54 117.62 56.9 49.1 1.28 1.66 Crazy 20 97.19 72.0 1.22 Horse 32 15 12 97.19 104.19 51.9 43.5 1.21 .1.45 � w�. . ; .. �; � a ��s a E � Ei '• San 20 101.34 76.5 1.15 Joaquin 32 15 12 101.34. 112.42 55.6 48.4 1.17 1.57 20 92.08 69.6 1.08 Crazy 32 15 92.08 '; 50.6 1.10 Horse 12 99.08 42.8 1.37 16 Brown Market & MPR vs. Crazy Horse Price $200 $180 $160 $140- E$120 4$100 a $80 . . .. . . . 15 r — 20Years $60 " $20 .. .. .. T i e r�p, .......MPR Crazy Horse (high). Crazy Horse (low) so tcp P4 c(§ e0, �� td ��� r c0 r b t^� r, cfi2 t� �rt'� c� c42 ,b0 c ry P4 P4 P4 PQ P4 PQ P4 PQ P4 P4 FQ P4 P4 P4 P4 P4 FQ 34 17 Brown Market & MPR vs. San Joaquin Price $200 20Years $180- $160 $940 g $120 - cu $80- r a j.�rff 15... . —o $60 $40 - $20 ' "' tilt, I iipitl ... . .. .. ... .... .. .... ... . .. .. ' — —Actual and Projected Brown Power — — Brown Power+ CPUC GHG adder $o co O7 O N 1e}- CO CO 0 - N CO CO 0 N V co co O N N N N N N '7 c") ¢ 0. ¢ ¢ ¢ 0. ¢ 0. O. ¢ O. 35¢ Summary of the Two Proposed PPAs (15 -year Term) Expected plant size and likely (85%) capacity factor 1 € 17 ' E first' e ; iy { 4$fM 1 h _ ',, !♦ (fit ($mil ho : € I I 1'� - FF San Joa I ain 32 101.34 55.6 1.2 Cra Horse 32 92.08 50.6 1.1 Both Projects 64 96.71 106.2 2.3 Maximum plant size and high 95%) capacity factor rojet � ` a { ;, ' C't hlyr)• 1 ( � Maximum¢ ��, i �cnevx4bilc C t romiiutn San Joaquin 52 101.34 88.7 1.9 Crazy Horse 52 92.08 80.7 1.8 Both Projects 104 96.71 169.4 3.7 36 18 Committed and Proposed Resources Delivery Begins Annual Generation (GWh) Levelized Project Price Adjusted Brown Market Cost* Green Premium Total Annual Green Premium Dec -2004 51.8 $ 57.60 $ 62.95 $ 62.32 $ 58.97 $ 70.88 $ 98.66 $ 55.0 $ 69.5 Jen-2006 74.4 .10 40) 4004) Feb -2006 11.2 59.3 2 97; Apr -2009 Aug -2009 Sep -2011 40.8 67.5 11.8 $ 83.9 $ 76.6 00) ('.54) 16.5 661 Oct -2011 11.2 $ 123.61 $ 67.3 217.7 Total Committed Green Premium: 7� Jan -2013 32.0 $ 115.33 $ 106.13 77.2 Jan -2013 32.0 69.2 281.7 Total Green Premium with Two New Projects: 37 RPS Goal: ..33% (20:15). RPS Coal 30% (2012) ®Johnson Canyon LFG © Butte County LFG IN Keller Canyon LFG ClHalf Moon Bay LFG O Santa Cruz LFG ■Shiloh Wind E3 High Winds 19 Technology and Contracts • Landfills emit methane which must be burned to protect the environment • Landfill gas (LFG) power plants burn the LFG in large engines to spin generators making "renewable" electricity that is put on the grid for delivery credited to City • Power Purchase Agreements (PPAs) allow City to purchase and pay for only the delivered output. 39 Facts about the two existing landfills • Crazy Horse Canyon in Salinas — Opened 1935 Closed 2009 -- Operated by Salinas Valley solid Waste Authority — Subject to NSPS regulation and is NSPS compliant • San Joaquin (Foothill) Landfill — Opened 1966 Est. Close in 2059 — Operated by San Joaquin County — Subject to NSPS regulation and is NSPS compliant — Required Gas collection system installed in 2006 and is flaring gas. 40 20 According to the U.S. EPA On NSPS listed sites Do LFG energy projects reduce greenhouse gas emissions? • The decomposition of organic wastes generates methane, a greenhouse gas and a primary component of LFG. • Many landfills with LFG energy projects are subject to Clean Air Act regulations (40 CFR part 60 subpart WWW) known as the New Source Performance Standards (NSPS) and are required to install and operate LFG collection and control systems. • According to LMOP's database as of April 2009, there are approximately 450 landfills with LFG energy projects in place. Of these sites, approximately 60 percent are subject to the collection and control requirements of the NSPS. For the landfills with LFG energy projects in place that are not subject to the NSPS, the presence of an LFG energy project represents the voluntary collection and control of LFG. This results in the reduction of emissions beyond what is required by EPA standards. 41 According to the U.S. EPA on waste diversion Do LFG energy projects conflict with waste diversion? • The promotion of LFG energy is not in conflict with promotion of waste diversion and does not compete with waste reduction, recycling, and composting. • LFG energy projects use methane that is generated from waste that has not been successfully diverted from landfills. • The goal of LFG energy projects is to promote beneficial utilization of LFG collected from MSW landfills that have already disposed waste. • It is possible to support the diversion of the organic fraction of discards from landfills so that uncontrolled methane is not generated and also support LFG energy projects that utilize methane generated from organic waste already disposed in landfills. The two positions are not in conflict. Additionally, the diversion of waste from landfills may not always result in a comparative reduction in greenhouse gas emissions. 42 21 According to the U.S. EPA On landfill fugitive emissions How do flaring LFG and LFG energy projects compare with regard to controlling fugitive emissions? • The NSPS requires that landfills above a specified size and emission level collect and control LFG emissions, measure and report emissions, and meet other operational standards. These landfills must install and operate a gas collection and control system per the design submitted to the appropriate air regulatory agency. • Additionally, these landfills must conduct quarterly surface (fugitive) emission monitoring evaluations to determine if excessive amounts of fugitive organic gases are present. If a surface emission monitoring event shows elevated fugitive emissions, the landfill must adjust or modify its gas collection and control system to increase the amount of LFG recovered from the landfill and to meet the surface emission criteria required by the NSPS. • These requirements are the same, regardless of whether LFG is flared or an LFG energy facility is present. Therefore, at landfills regulated by the NSPS, the presence of an LFG energy project does not have an effect on the control of fugitive methane emissions. • However, landfills with LFG energy projects are more likely to employ greater efforts to maximize collection efficiencies than landfills which only flare the gas to meet NSPS emission requirements. Given the level of capital investment for an LFG energy project, it is inherently in the project developer's interest to collect and utilize as much LFG as possible to make the project financially successful. Thus, a landfill with an LFG energy facility, if subject to the NSPS rule, will likely have the same or lower amounts of fugitive emissions than a similar landfill that is simply flaring the gas. 43 Natural Resources Defense Council (NRDC) priorities regarding LFG • Avoid LFG by avoiding landfills. The first priority must be increased resource reduction and recycling. Biomass -- especially paper -- is easily recycled or composted. If there is no biomass in landfills, then there will be no LFG. • Burn all LFG that is produced. Even if we could close all landfills today, they would continue to produce LFG for years to come. Combusting LFG in an engine, a turbine, or simply in a flare has tremendous benefits in terms of reduced toxicity and reduced greenhouse gases. Sixty one percent of LFG is generated at landfills with no collection system and at least 25 percent of LFG at landfills with collection systems simply escapes. Collecting all of this gas and burning it -- preferably for energy, but at least in a flare -- should be a priority nearly equal to avoiding landfills. • Use LFG for energy production. While there are instances where the use of LFG for energy can increase the amount of certain pollutants, the balance of benefits is in favor of using LFG for energy. Generally turbines are cleaner than engines, though less efficient. However the benefits of LFGE are greatest if we also increase air pollution regulations and energy efficiency so that we displace coal plants instead of gas plants. 44 22 Sierra Club Policy • The Sierra Club opposes establishment of new Landfill Gas to Energy (LFGTE) except at facilities which: — have completed the process of separating all organic materials from the waste stream going to the landfill, — permanently covered the cells being used to generate energy, and — adopted best management practices to minimize methane generation. • Supports the adoption of regulations to minimize methane emissions from landfills. • Supports the adoption of regulations to require diversion of organic materials from the waste stream for landfills. 45 Staff Recommendation • UAC recommend approval of two PPAs with terms of 15 years with: — Ameresco San Joaquin LLC — Ameresco Crazy Horse LLC • UAC recommend Council waive the application of the investment -grade credit rating requirement in the Municipal Code 48 23 Risks of executing the recommended PPAs Renewable Replacement Cost for Palo Alto Law Cost Future High Cost Future 47 24