HomeMy WebLinkAboutStaff Report 4671
City of Palo Alto (ID # 4671)
Finance Committee Staff Report
Report Type: Action Items Meeting Date: 5/6/2014
City of Palo Alto Page 1
Council Priority: Environmental Sustainability
Summary Title: Hayworth Solar Renewable Power Purchase Agreement
Title: Approval of a Power Purchase Agreement with 65HK 8me LLC for up to
60,000 Megawatt-hours Per Year of Energy Over 34 Years for a Total Not to
Exceed Amount of $130 Million
From: City Manager
Lead Department: Utilities
Recommendation
Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee
recommend that the City Council adopt a Resolution (Attachment A) to take the following
actions:
1. Approve a Power Purchase Agreement (PPA) with 65HK 8me LLC (Hayworth), a
Delaware limited liability company, for the acquisition of up to 60,000 Megawatt -hours
(MWh) per year of energy over a maximum of thirty-four years at a total cost not to
exceed $130 million; and
2. Delegate to the City Manager or his designee, the authority to execute on behalf of the
City the PPA with Hayworth, the two contract term extensions available to the City
under the PPA, and any documents necessary to administer the agreements that are
consistent with the Palo Alto Municipal Code and City Council approved policies.
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 Hayworth will provide a $1.875 million letter of credit as a
development assurance deposit, and a subsequent $2.5 million letter of credit as a
performance assurance deposit.
4. Waive the application of the anti-speculation requirement of Section D.1 of the City’s
Energy Risk Management Policy as it may apply to surplus electricity purchases resulting
from the City’s participation in the Hayworth PPA, including during the 2017-2020 time
frame, due to the variability of the City’s hydroelectric resources and the potential
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uncertainties associated with the timeliness and viability of the renewable energy
projects in the City’s portfolio that are still under development.
Executive Summary
As part of ongoing efforts to meet the City’s Renewable Portfolio Standard (RPS) of at least 33%
of sales from qualifying renewable resources by 2015, staff issued a request for proposals (RFP)
for renewable resources in the fall of 2013 and evaluated the proposals based on p rice, value,
viability and compatibility with the City’s needs. After thorough review, staff concluded that
the Hayworth solar photovoltaic (PV) project proposal had the best total score.
When it begins operating in mid-2015, the 25-megawatt (MW) project1 will provide about 6
percent of the City’s annual energy needs, and will be sited on low productivity, water -
constrained agricultural land in Kern County. The project was proposed by a team comprising
8minutenergy, a California-based solar PV project development company with a portfolio of
more than 2,000 MW of solar PV projects, and Saferay Inc. (Saferay), a German independent
solar power producer that was spun off from the panel manufacturer Q -Cells International in
2010.
The Hayworth PPA (Attachment B) is structured as a 27-year initial term, followed by a three-
year extension term option that can be exercised by either party and a four-year extension
term option that can only be exercised by Palo Alto. The project’s pricing (which equates to a
levelized price of $68.72 per MWh if both extension term options are exercised) is slightly lower
than the prices of the three solar PV project PPAs that were approved by the Council last year.
As with these three prior contracts, Palo Alto will make no upfront payments under the
Hayworth PPA; energy will be paid for only after it is delivered.
In addition, the Hayworth project will be a “fully deliverable” project and is to be located in
what is currently a local capacity requirements (LCR) area, as defined by the California
Independent System Operator (CAISO). This means that the City will be able to count
Hayworth’s capacity towards its LCR, which provides significant value that many renewable
energy projects are not able to provide, at no additional cost.
On March 26, 2014, the UAC reviewed the proposed PPA and unanimously approved staff’s
recommendation.
Background
Per the Council-approved Long-term Electric Acquisition Plan (LEAP) Objectives and Strategies,
updated in April 2012 (Staff Report 2710), the City’s RPS target is to procure at least 33% of its
retail sales volume from qualifying renewable resources by 2015, and to continue procuring
1 Under the terms of the PPA, the Hayworth project will be sized between 24 and 27 MW, with an expected size of
25 MW. All references to the Hayworth project’s 25 MW size in this report should be understood to capture that
range.
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renewable resources as long as the cumulative rate impact of all of the City’s renewable
resources is not more than 0.5 cents per kilowatt-hour (¢/kWh).
In addition, California’s Senate Bill (SB) X1-2, passed in 2012, requires all electric utilities in the
state, including Palo Alto’s municipal utility, to procure increasing amounts of renewable
resources in order to serve their retail customers. Utilities must procure at least an average of
20% of their retail sales volume from renewable resources in calendar years (CY) 2011 -2013, at
least 25% by CY 2016, and at least 33% by CY 2020 (and each year thereafter).
Finally, in March 2013, Council approved the City’s Carbon Neutral Plan for the electric supply
portfolio, to be achieved starting in 2013 (Staff Report 3550). In the early years of the Carbon
Neutral Plan, the City expects to achieve carbon neutrality primarily by purchasing renewable
energy certificates (RECs) to offset the emissions associated with its wholesale market power
purchases. Ultimately the City’s goal is to achieve carbon neutrality entirely through the
acquisition of additional “hard resources” that supply the City with both energy and
environmental attributes so that REC purchases can be minimized.
Current Status of Renewable Resources in Palo Alto’s Electric Portfolio
The City has executed six PPAs for new renewable resources that are currently delivering
energy to Palo Alto. These resources include two wind projects and four landfill -gas-to-energy
(LFGTE) projects. An additional five PPAs have been executed for projects that are still under
development. These resources include one LFGTE project that is expected to begin operating
within the next two months, and four solar PV projects that are expected online in 2015 or
2016. The City has also executed PPAs for three other resources but subsequently terminated
those agreements after the suppliers ran into problems developing the projects and requested
unacceptable contractual concessions. Summary information for all 11 currently contracted
RPS resources is provided in Table 1 below.
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Table 1 – Palo Alto’s Existing Renewable Energy Contracts
Project Supplier Technology
Date
Contract
Executed
Actual or
Estimated
Online Date
Annual
Energy
(GWh)
High Winds Iberdrola Wind Nov. 2004 Dec. 2004 48.9
Shiloh Iberdrola Wind Oct. 2005 Jun. 2006 71.4
Santa Cruz Ameresco Landfill Gas Nov. 2004 Feb. 2006 11.2
Half Moon Bay Ameresco Landfill Gas Jan. 2005 Apr. 2009 40.7
Keller Canyon Ameresco Landfill Gas Aug. 2005 Aug. 2009 11.8
Johnson Canyon Ameresco Landfill Gas Aug. 2009 May 2013 10.4
Subtotal – Operating 194.4
San Joaquin Ameresco Landfill Gas May 2010 Apr. 2014 30.3
Brannon Solar Trina Solar Solar PV Nov. 2012 Aug. 2014 50.7
Elevation Solar C sPower Solar PV July 2013 Dec. 2016 80.0
Western Antelope
Blue Sky Ranch B sPower Solar PV July 2013 Dec. 2016 50.0
Frontier Solar Ridgeline Energy Solar PV July 2013 Dec. 2016 52.5
Subtotal – Under Development 263.5
Total – All Executed Contracts 457.4
In addition, through its contract with the Western Area Power Administration and through its
ownership share of the Calaveras Hydroelectric Proje ct, the City receives a small amount of
energy from “small” hydroelectric projects that qualify under the state’s RPS standard. These
resources that can be counted towards the City’s RPS requirements together account for about
1% of the City’s sales in normal water years.
Lastly, Palo Alto Clean Local Energy Accessible Now (CLEAN), a local solar PV feed-in tariff
program, was launched in April 2012 (Staff Report 2548). Under the revised program design
approved in February 2014 (Staff Report 4378), the Palo Alto CLEAN program may provide up to
0.5% of Palo Alto’s electric energy needs by 2015.
Together, when all of the renewable facilities under contract reach commercial operating
status, and assuming Palo Alto CLEAN provides 0.5% of the City’s total ene rgy supply by 2015,
the City’s RPS is expected to be about 30.8% of total energy supply needs in 2015 as shown in
Figure 1 below.
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Figure 1 – Palo Alto’s Committed Renewable Resources
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Large Solar
PA CLEAN
RECs
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Figure 1 shows actual energy deliveries through 2013 and estimated deliveries after that date.
Discussion
This section of the report will cover the following topics:
A. The Market for Renewable Resources in California
B. Results of Palo Alto’s Renewable Resource Request for Proposals (Fall 2013 RFP)
C. Hayworth Solar Farm Summary
D. Contract Mechanisms for Mitigating Project Risks
E. Energy Risk Manager’s Assessment
F. Palo Alto’s Renewable Resource Portfolio with Hayworth
A. The Market for Renewable Resources in California
California’s aggressive RPS goals for electric utilities resulted in a supply-demand imbalance in
the renewables market that drove prices up, particularly between 2007 and 2011. However, in
the past three years renewable energy prices have plummeted – largely due to an influx of low-
cost solar panels into the market. Prior to 2011, solar was generally the most expensive type of
renewable energy technology; now it is generally the least expensive.
Furthermore, in the past three years supply and demand factors have shifted decidedly in favor
of buyers like Palo Alto. This is due to the fact that a large number of renewable energy
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developers have entered the market in recent years—reacting to the then-high renewable
energy contract prices and the large appetites of the state’s large investor -owned utilities
(IOUs) seeking to meet their RPS procurement requirements. But as of now the IOUs have
contracted for enough renewable energy to meet their mid-term needs and thus have
dramatically slowed down their procurement efforts. This has left a large pool of project
developers competing with each other to win contracts with a relatively small pool of buyers.
As a result, renewables prices—particularly for solar—have been driven down recently to near
parity with long-term brown market prices.
However, a number of factors appear poised to push renewable energy prices back up in the
mid- to long-term. Among them are:
a) The scheduled expiration, at the end of 2016, of federal tax incentives for renewable
energy projects—including the 30% Investment Tax Credit (ITC) and accelerated
depreciation rules;
b) The state’s three large IOUs are expected to re -start their large-scale RPS procurement
efforts around 2017 or 2018 in order to meet the 33% RPS requirement for 2020 and
beyond;
c) The possibility—suggested repeatedly by the Governor—that the state will raise its RPS
requirement to 40% (or perhaps 50%); and
d) The possibility that other western states, or the federal government, will institute an
RPS requirement or impose a cost on carbon-emitting resources.
All of the above factors suggest that now is a good time to lock in long-term commitments at
historically low prices in order to help the City meet its carbon neutrality goals and its post -
2020 RPS requirements.
B. Results of Palo Alto’s Renewable Resource Request for Proposals (Fall 2013 RFP)
The City typically contracts for renewable power by independently issuing RFPs, the most
recent of which was released in September 2013. In response to that RFP, the City received 92
project proposals, the same number of proposals received in respons e to the City’s fall 2012
RFP. The 92 proposals represented a total capacity of 2,300 MW and 6,000 gigawatt -hours per
year (GWh/year) of energy from a variety of technologies. The proposed projects included 65
solar PV projects, 16 wind projects, three small hydro projects, three biomass projects, three
LFGTE projects, one geothermal project, and one municipal solid waste project.
The proposals were evaluated based on price and value, project/contract viability, and
compatibility with Palo Alto’s electric portfolio. The results of the evaluation process were
extremely close, but ultimately the Hayworth proposal received the highest overall score.
In evaluating the price and value of different offers staff takes into account:
The daily and seasonal shape of the energy output;
The location of the output;
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The structure of the output in terms of meeting legislated criteria (i.e., satisfying
limitations on the use of the three categories of renewable resources defined by the
state’s RPS law);
The likely capacity value of the output;
The likely interconnection cost to get the output onto the grid;
The proposed start date; and
The green premium, which is calculated for each proposal as the proposal cost minus
the cost of buying the equivalent amount of non-renewable resource output. (See
Attachment C for details on how the green premium is calculated for each proposal and
Table 2 below showing the green premiums of the City’s existing renewable energy
contracts.)
Figure 2 is a scatter plot of green premiums versus project start dates for the proposals
received from the fall 2013 RFP. The green premiums of these projects were generally fairly
similar to those of the project proposals received through the fall 2012 RFP.
Further, the viability of each proposed project/contract was evaluated in terms of accomplished
and remaining project development steps, along with the financial standing and development
experience of the project developer.
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Figure 2 – Green Premiums and Project Start Dates of RFP Proposals
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Jan-2014 Jul-2014 Dec-2014 Jul-2015 Dec-2015 Jun-2016 Dec-2016
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Solar PV
Wind
Biomass
LFG/Biomethane
Small Hydro
Geothermal
RFP
Finalist
C. Hayworth Solar Farm Summary
Hayworth Solar Farm – operating under the legal name 65HK 8me LLC – is a 25 MW project,
with annual energy deliveries of 60,000 MWh (approximately 6% of the City’s energy needs) in
the first year of the contract term. As with an y solar PV plant, the annual output is expected to
decline at a rate of about 0.5% per year due to solar panel degradation effects. The project is
expected to begin commercial operations by June 30, 2015, and will interconnect to the CAISO
grid as a Full Capacity Deliverability Status (FCDS) resource, which means that the City will be
able to claim capacity value from the project. The project will be sited on former agricultural
land about 12 miles east of the City of Bakersfield in Kern County. The proj ect will interconnect
at the Lamont Substation, which is currently located in a CAISO -designated local capacity area,
which means that the City will be able to claim valuable local capacity credit from the project.
There is a risk, however, that the CAISO could redefine the boundaries of the local capacity area
such that the project would no longer contribute to the City’s LCR, which would likely result in
the City having to purchase replacement local capacity from another resource. This risk applies
to all projects located in local capacity areas, and is by no means particular to the Hayworth
project.
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The Hayworth PPA is structured as a 27 -year base contract term, followed by a three-year
extension term option (First Option) that can be exercised by either party and a four-year
extension term option (Second Option) that can only be exercised by Palo Alto. The negotiated
price for the PPA is $68.72 per MWh for the first 13 years, $68.22 per MWh for years 14
through 27, then $70.33 per MWh for the two ex tension terms (years 28 through 34). The
project’s pricing (which equates to a levelized price of $68.72 per MWh if both extension term
options are exercised) is slightly lower than the prices of the three solar PV project PPAs that
were approved by the Council last year.
The unusual stair-step pricing structure of this PPA is an arrangement that was negotiated when
the supplier informed staff that in order for the contract to go to 30 or 34 years, they needed to
include what’s known in the industry as a “residual test.” Essentially, in order for the supplier
(rather than the City) to be considered the owner of the project for tax purposes (and thus be
eligible for the federal investment tax credit, or ITC), the total term of the contract must be less
than 80% of the “useful life” of the equipment, per IRS rules. Most estimates of the useful life
of today’s PV panels are about 35 years. As a result, the supplier claims that it cannot sign a
contract that contains a base term longer than 27 years, beca use if it did, it would not be able
to get the project financed because no investor would want to take the risk of not receiving the
ITC. Over a full 34-year contract term, the levelized price of this stairstep pricing arrangement
is the same price that the supplier proposed in the RFP. If the residual test is not passed, or if
either of the extension term options is not exercised, the levelized price of the contract will be
slightly lower than what the supplier proposed in the RFP.
As of today, the green premium for a 34-year contract term is significantly lower than that of a
27 or 30-year term. For this reason, and assuming the development of the project proceeds
according to plan, it appears likely that the City will want to exercise both contract te rm
extension options. Staff therefore seeks specific Council authorization to exercise the First
Option and the Second Option, which would extend the 27 -year base contract to a full 34-year
contract term for the City. Staff also requests that Council delegate authority to the City
Manager to exercise both of the extension term options, so that the City may act expeditiously
if staff determines that it is in the City’s best interest to exercise each option near the end of
the then-current contract term. Delegation of such authority to the City Manager is permissible
under section 2.30.290 of the Palo Alto Municipal Code.
The Hayworth PPA proposal was submitted by the joint partnership of 8minutenergy, a
wholesale solar PV development company focusing on utility-scale projects in the U.S., and
Saferay, an independent solar power producer based in Germany. Each company owns 50% of
the project and they have been working together since 2011 to co-develop it. 8minutenergy is
primarily responsible for site control, permitting, and utility interconnection and transmission
with the support from Saferay. Saferay is primarily responsible for design of the generating
facility, financing, and construction. This includes conceptual design of the PV system, PV
module support structures, utility interconnections, and transmission, power purchase
agreement and financing. In addition, Saferay is the lead partner for procurement of the large
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system components including the PV modules, structural steel, inverters, etc. Saferay has
already developed and financed 500 MW of solar PV around the world.
This project is also at an advanced stage of development and received one of the highest scores
of all projects proposed in the RFP for overall viability and development pro gress. To date, the
project is under full site control for the entire term of the proposed PPA, has executed a Large
Generator Interconnection Agreement with PG&E and has completed its Phase I and Phase II
Interconnection Study reports with the CAISO. It is currently expecting to receive its
Conditional Use Permit from Kern County in Q2 2014.
D. Contract Mechanisms for Mitigating Project Risks
With any new electric generation resource there is a risk that the project will not be built, will
come online later than scheduled, or will stop performing at some point after it comes online.
To mitigate these risks, the City has negotiated the inclusion of a development and
performance assurance deposit in this PPA. And given recent challenges the City has
experienced with other PPAs coming to fruition, staff placed greater weight on project viability
in this RFP process than it did in prior RFPs, and also negotiated higher development and
performance assurance amounts.
For this project, a development assurance deposit of $1.875 million (in the form of a letter of
credit), or $75/kW of installed capacity, would be available to the City, and withheld from the
developer, if the project misses the commercial operation timing milestone. The development
deposit provides an incentive to the developer to complete the project on time. It also
provides compensation to the City should the project suffer unexcused delays or fail to
materialize.
After the start of commercial operations, the developer would provide a $2.5 mi llion
performance assurance deposit (in the form of a letter of credit), or $100/kW of installed
capacity, which will be available to the City, and withheld from the operator, if certain
performance measures are not met. Like all of Palo Alto’s other renewable PPAs, this
agreement is structured so that the City pays only for metered output from the project after it
has been delivered each month. This structure minimizes the City’s exposure to operational,
maintenance and counterparty default risks in the contract. The performance deposit provides
an added incentive for the operator to maintain the project output and provides compensation
to the City should performance be less than expected, which would require the City to secure
replacement renewable energy.
In addition to risks related to project development, operations, and counterparty default, it
should also be noted that there is a risk that in the future the CAISO could impose additional
fees on the owners or off-takers of resources with highly intermittent output such as these
three projects. As more solar and wind resources are added to the generation mix in the
coming years to meet the state’s 33% RPS mandate, the cost of managing the intermittency of
these resources and ensuring the stability of the electric grid will likely increase, and it is
City of Palo Alto Page 11
possible that this additional cost will be passed on to the owners of the resources that are
driving the cost increases. However, it is also possible that these cost increases would be
spread evenly across all CAISO load-serving entities, regardless of the level of intermittency of
their generation portfolios. While it is important to acknowledge the potential for future cost
increases as a result of executing these three agreements, it should also be not ed that it is
highly unlikely that these cost increases would be great enough to make the Hayworth project
less attractive to the City than a non-intermittent alternative (i.e., a geothermal, biomass, or
landfill gas project) based on the response to the City’s recent renewable energy RFP.
E. Energy Risk Manager’s Assessment
The Energy Risk Manager was involved in the RFP process that selected the Hayworth proposal
as the finalist. Part of this involvement included performing a credit assessment of the
company providing the financial support for this proposal (as well as the companies backing the
other shortlisted proposals). The proposed PPA would be entered into with an individual
project-level Limited Liability Company (LLC), which is being supported by S aferay Holding
GmbH, a privately held, Berlin-based independent solar power producer.
The Energy Risk Manager assessed the expected default frequency (EDF) of Saferay using
Moody’s credit measure tool, which extracts credit signals by combining information from the
equity markets with the company’s debt structure as reported on its financial statements. This
analysis yielded an EDF of 1.3 percent (meaning that there is an estimated one in 77 chance of
default by the company within the next year).
The risks to the City of entering into the proposed PPA are that the supplier defaults or is
unable to perform according to the terms of the contract. If this occurs, the City might need to
buy renewable energy from another supplier in order to meet its RPS obligations under State
law or to meet the City’s RPS goals. These risks are minimized by the following terms of the
proposed PPA:
The City is not at risk for paying for output that is not delivered. The City will make no
payments under the PPA unless and until energy from the project is delivered to the City;
The supplier’s development assurance deposit funds provide some degree of assurance that
the project will be completed. If it is not, then the City would be able to access the
development deposit funds of up to $1.875 million to help offset the cost of procuring
replacement renewable energy.
Once the project becomes operational, the balance of the development deposit funds will
be returned to the project-level LLC. At the same time, a new performance assurance
deposit will be posted by the LLC and can be used by the City to cover operational and
performance risk. Staff believes this amount is sufficient to cover these risks given that the
operating costs for solar plants are much lower than their opera ting revenues; thus project
owners tend to keep their projects operating.
In general, businesses in the renewable industry lack extensive financial and operational track
records, and because of the capital-intensive nature of these projects, they tend to be highly
City of Palo Alto Page 12
leveraged as well. The company reviewed here is not investment grade and has a higher
projected default rate than the City’s regular electric and gas suppliers.
However, under the terms of the PPA, if the project does not come to fruition acc ording to the
construction start and commercial operation date milestones set forth in the PPA or if the
supplier defaults at any time during the term of the agreement, the City can access the then -
current development assurance funds provided by the letter of credit. For these reasons, 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:343:09, CMR:226:10, Staff Report 3223, and Staff Report 3845).
F. Palo Alto’s Renewable Resource Portfolio with Hayworth
The City has made commitments to renewable resources projected to provide 30.8% of its
energy from qualified renewable resources by 2015. If the Hayworth Solar Farm is added to the
City’s renewables portfolio, Palo Alto’s renewable resources would be expected to provide
about 33.9% of total sales in 2015, and 55.7% in 2017. As the City’s older PPAs begin to expire
(beginning in 2021), the addition of this project to the City’s portfolio would enable it to exceed
the state’s 33% RPS mandate until 2030.
Figure 3 illustrates the City’s existing renewable resource commitments, with the Hayworth
project included as a “pending” resource. Also shown is a reference line indicating the level of
renewables that would produce a carbon neutral electric supply portfolio. (The volume of
renewable energy certificates (RECs) that need to be procured each year in order for the City to
achieve a 100% carbon neutral electric supply portfolio is shown as well. The large volume of
RECs required in 2013 and 2014 is due to the impacts of the current drought on the ou tput of
the City’s two hydroelectric resources.) This reference line indicates that the inclusion of
Hayworth in the City’s renewable resources portfolio would enable the City to achieve 100%
carbon neutrality through long-term renewable and hydro resources from 2017 through 2020,
even under moderately dry hydrological conditions.
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Figure 3 – Palo Alto’s Renewable Resources with Hayworth
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100% Carbon
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As indicated in Figure 3, staff projects that adding the Hayworth PPA to the City’s renewables
portfolio would result in a surplus of carbon neutral electric supplies from 2017 through 2020.
However, this will be true only if hydrologic conditions are close to (or greater than) the long -
term average level and all five of the renewable resources that the City has contra cted for that
are still under development (plus the Hayworth project) are completed on -time and deliver the
expected amount of energy to the City. As the year 2013 and 2014 data points on the carbon
neutral reference line indicate, “dry hydro” years are n ot uncommon in northern California, and
they can have a tremendous negative impact on the output of the City’s hydroelectric
resources. In such years, even the addition of the Hayworth PPA and all five of the other
contracted resources that are still under development would not be sufficient to achieve a
carbon neutral supply portfolio without the purchase of RECs. Also, it is the City’s experience
that some renewable energy projects that are contracted for experience significant
development delays, or end up not being built at all. The City’s experience in this regard is
consistent with the broader renewables market. The California Energy Commission, for
instance, has estimated the failure rate for renewables contracts to be between thirty and forty
percent.2
2 According to the CEC: “Data from the Energy Commission’s [Investor Owned Utility] contract database indicates
that since the start of the RPS Program, about 30 percent of long-term RPS contracts (10 years or more) approved
by the California Public Utilities Commission (CPUC) have been cancelled. The contract failure rate increases to
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If, however, the City’s carbon neutral electric supply portfolio exceeds the amount of
generation needed to achieve carbon neutrality in any given year, the City would have the
ability to either “bank” the RECs associated with that generation for use in a later time period,
or sell the surplus into the short-term markets. Prices for short-term REC sales are currently
expected to be fairly advantageous for the City over the long -term, so these surplus positions
would likely result in little if any financial loss for the City.
Section D.1 of the City’s Energy Risk Management (ERM) Policy prohibits speculative buying and
selling of energy products. Under the ERM Policy, “speculation” is defined as “buying energy
not needed for meeting forecasted load or selling energy that is not owned.” Because
Hayworth has the potential to lead to surplus electric purchases, including during the 2017 -
2020 time period, staff and the UAC recommend that the Finance Committee recommend that
Council waive application of the ERM Policy’s anti-speculation requirement to the City’s
participation in the Hayworth PPA. Staff’s recommendation is based on the information set
forth above, including the variability of the City’s hydroelectric resources and potential
uncertainties associated with the viability and timeliness of renewable energy projects in the
City’s portfolio that are currently under development.
Table 2 provides a summary of renewable energy project volumes and the associated annual
green premium amounts for the City’s committed renewable energy supplies as well as the PPA
under consideration. As shown in the table, the annual green premium for the Hayworth PPA is
estimated at $330,000. If Council approves the PPA, there would still be approximately $2.9
million per year of green premium remaining—indicate that the City would still have the ability
to pursue additional renewable resources within the 0.5¢/kWh rate impact limit.
about 40 percent when also considering contracts that have been delayed.” California Energy Commission. 2011
Integrated Energy Policy Report. Publication Number: CEC-100-2011-001-LCF. 2011.
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Table 2 – Summary of the City’s Current Renewable Energy Supplies and Proposed Proj ects
Delivery
Begins
Annual
Generation
(GWh)
Levelized
Price
($/MWh)
Adjusted
Brown
Market
Price
($/MWh)
Green
Premium
($/MWh)
Total
Annual
Green
Premium
($1000)
Small Hydro Before 2000 10.0 N/A N/A 0 0
High Winds Dec. 2004 48.9 57.6 55.0 2.6 125
Shiloh Wind June 2006 71.4 63.0 69.5 (6.5) (464)
Santa Cruz Feb. 2006 9.9 62.3 59.3 3.0 29
Ox Mountain April 2009 43.9 59.0 67.5 (8.5) (375)
Keller Canyon Aug. 2009 14.9 70.8 83.9 (13.0) (194)
Johnson Canyon March 2013 10.4 123.6 67.3 56.3 586
San Joaquin June 2013 30.3 118.1 75.6 42.4 1,286
Brannon Solar Dec. 2014 50.7 77.0 60.1 16.9 857
Elevation Dec. 2016 80.0 68.8 72.7 (4.0) (317)
W. Antelope Dec. 2016 50.0 68.8 69.2 (0.4) (22)
Frontier Solar Dec. 2016 52.5 69.0 67.1 1.9 98
Total Committed Projects 473 Total Committed Green Premium 1,610
Hayworth June 2015 60 68.6 63.1 5.5 330
Total with Hayworth 533 Total Green Premium
with Hayworth 1,940*
* The annual green premium associated with a rate impact of 0.5¢/kWh is equal to $4.9 million
Commission Review and Recommendation
On March 26, 2014, the UAC reviewed staff’s recommendation that Council approve the
proposed PPA with 65HK 8me LLC, delegate execution authority to the City Manager or his
designee, and waive the City’s investment-grade credit rating requirement and anti-speculation
requirement as they may apply to this agreement.
The UAC discussed the risk that at some point the project’s capacity may no longer count
towards the City’s LCR, and asked how staff would learn of such a change. T he UAC also asked
about the mechanics of the City’s collection of development and performance assurance funds,
and whether any of these funds have ever been retained by the City as a means of assessing
liquidated damages. The UAC also asked about the time horizon for banking Renewable Energy
Certificates (RECs) from the project, in the event that the City has a surplus of carbon neutral
electric supply in a given year.
After discussion, the UAC unanimously (5-0) recommended that Council approve the PPA as
presented by staff. The excerpted draft minutes from the UAC’s discussion of the PPA at its
March 26, 2014 meeting are presented as Attachment D.
City of Palo Alto Page 16
Resource Impact
The cost of renewable energy supplies from Hayworth is expected to be up to $130 million over
the 34-year term of the agreement. The annual expected cost is up to $4.2 million. Approval of
the PPA would result in a retail rate impact from all renewable resources, including the three
new projects, of up to 0.20¢/kWh, beginning in 2017. The expect ed future cost for procuring
renewable resources to meet the City’s RPS goal is already included in the current five -year
financial forecast.
Policy Implications
Approval of the proposed PPA is in conformance with the City’s Long-term Energy Acquisition
Plan (LEAP), specifically the City’s Renewable Portfolio Standard to meet at least 33% of the
electric sales from renewable energy by 2015. Approval of the proposed PPA would also
further the City’s efforts to achieve a carbon neutral electric supply portfolio entirely through
the acquisition of additional “hard resources” that supply the City with both energy and
environmental attributes (Staff Report 3550).
Environmental Review
Approval of this agreement does not meet the definition of a project under th e California
Environmental Quality Act (CEQA), pursuant to Public Resources Code Section 21065. However,
the City intends to receive output from a project that will constitute a project for the purposes
of CEQA. The project developer will be responsible f or acquiring necessary environmental
reviews and permits on the project to be developed.
During the development phase of the project, the City will become a “responsible agency”
under the CEQA proceedings. As such, the PPA allows for the City to review th e project CEQA
documents and issue a notice of determination with respect to its review of the projects. Staff
anticipates working with the City Attorney’s Office and the Planning Departmen t to undertake
this assessment.
Attachments:
Attachment A: Resolution to Approve PPA with 65HK 8me LLC (PDF)
Attachment B: Power Purchase Agreement with 65Hk 8me LLC (PDF)
Attachment C: Green Premium Calculation (PDF)
Attachment D: Excerpted Draft Minutes of the March 26, 2014 UAC Meeting (PDF)
Attachment E: Contract Justification Form (PDF)
* NOT YET APPROVED *
140318 dm 6053003 1
Resolution No. _________
Resolution of the Council of the City of Palo Alto Approving a Long
Term Power Purchase Agreement with 65HK 8me LLC for the
Purchase of Solar Electricity
R E C I T A L S
A. On April 12, 2011, the Governor approved Senate Bill (“SB”) X1-2, which requires
that all retail sellers of electricity in California, including publicly-owned utilities, serve 33
percent of their retail electricity sales with renewable energy by 2020.
B. On April 16, 2012, Council approved an update to the Long-term Electric
Acquisition Plan’s (LEAP) strategy related to the Renewable Portfolio Standard (RPS). The
updated strategy specifies that the City’s objective is to reduce the carbon intensity of the
electric portfolio by pursuing a minimum level of renewable purchases of at least 33 percent of
retail electricity sales by 2015.
C. On March 4, 2013, Council approved a Carbon Neutral Plan, which enabled the
City to achieve a carbon neutral electric supply portfolio starting in calendar year 2013.
D. The City is interested in purchasing power generated by renewable resources for
the benefit of its electric customers.
E. By purchasing renewable energy resources, the City will help reduce the
production of greenhouse gases, will meet its RPS requirements under SB X1-2 and LEAP, and
will meet its Carbon Neutral Plan goals.
F. 65HK 8me LLC (“Hayworth”) through its parent companies, 8minutenergy
Renewables LLC and Saferay Inc., proposed its project in response to the City’s Request for
Proposals 151223 (“RFP”) in October 2013. Its proposal is highly competitive with other RFP
respondent proposals.
G. The execution of a power purchase agreement (“PPA”) with Hayworth is
anticipated to enable the City to meet a six-percent portion of its goal of sourcing 33 percent of
its electric needs from renewable resources and its goal to implement the Carbon Neutral Plan.
H. Under the terms of this PPA, the City is allocated a 100 percent share of the
power from Hayworth’s solar project located in Kern County, California, which will yield
approximately 25 megawatts of plant net output.
I. The PPA is for a twenty-seven year base contract term and will allow the City or
Hayworth to extend the PPA at either party’s option for an additional three-year term (First
Option). After the First Option is exercised, the PPA allows the City to extend the PPA at its sole
option for an additional four-year term (Second Option).
* NOT YET APPROVED *
140318 dm 6053003 2
J. The City’s participation in the Hayworth PPA may result in surplus electric
purchases that are inconsistent with the anti-speculation requirement of Section D.1 of the
City’s existing Energy Risk Management Policy, including during the 2017-2020 time frame, due
to variability of the City’s hydroelectric resources, and potential uncertainties associated with
the timeliness and viability of the renewable energy projects in the City’s portfolio still under
development.
The Council of the City of Palo Alto does RESOLVE as follows:
SECTION 1. The Council approves the Power Purchase Agreement (PPA) between
65HK 8me LLC, as seller, and the City of Palo Alto, as buyer. The delivery term of the PPA is up
to thirty-four (34) years, commencing upon the commercial operation date of the planned
electric generation facility, which date is expected to be no later than June 30, 2015. The City
will receive a 100 percent share of the facility’s net output. Spending authority under the PPA
shall not exceed one hundred thirty million dollars ($130,000,000).
SECTION 2. The Council delegates to the City Manager, or his designee, the authority
to execute the PPA with 65HK 8me LLC on behalf of the City, and the authority to execute any
documents necessary to administer the PPA that are consistent with the Palo Alto Municipal
Code and City Council approved policies.
SECTION 3. As permitted by section 2.30.290 of the Palo Alto Municipal Code, the
Council delegates to the City Manager, or his designee, the authority to exercise the First
Option and Second Option as defined herein , to extend the twenty-seven year base contract to
a full thirty-four year contract term for the City.
SECTION 4. With respect to the Council’s award of the PPA referred to in Section 1
above, the Council waives the creditworthiness requirements of Palo Alto Municipal Code
Section 2.30.340(c), as that requirement may apply to 65HK 8me LLC.
SECTION 5. With respect to the Council’s award of the PPA referred to in Section 1
above, the Council waives the anti-speculation requirement of Section D.1 of the City’s existing
Energy Risk Management Policy, as that requirement may apply to surplus electricity purchases
caused by the City’s participation in the Hayworth PPA.
SECTION 6. The Council’s approval of this PPA does not meet the definition of a
project under the California Environmental Quality Act (CEQA), pursuant to Public Resources
Code Section 21065. However, the City intends to receive output from a project that will
constitute a project for the purposes of CEQA. The project developer will be responsible for
acquiring necessary environmental reviews and permits on the project to be developed. During
the development phase of the project, the City will become a “responsible agency” under the
CEQA proceedings. As such, the PPA allows for the City to review the project CEQA documents
and issue a notice of determination with respect to its review of the projects. Staff anticipates
* NOT YET APPROVED *
140318 dm 6053003 3
working with the City Attorney’s Office and the Planning Department to undertake this
assessment and make a determination.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
___________________________ ___________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
___________________________ ___________________________
Senior Deputy City Attorney City Manager
___________________________
Director of Utilities
___________________________
Director of Administrative Services
Attachment B
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OHSUSA:756031452.7
POWER PURCHASE AGREEMENT
Between
The City of Palo Alto
and
65HK 8me, LLC
Dated as of _____________, 2014
TABLE OF CONTENTS
Page
- 2 -
OHSUSA:756031452.7
ARTICLE I DEFINITIONS ...................................................................................... 4
ARTICLE II TERM, PURCHASE AND SALE ........................................................ 15
2.1 Term ....................................................................................................... 15
2.2 Purchase and Sale of the Output ............................................................ 15
2.3 Price........................................................................................................ 17
2.4 Tax Credits and Incentives ..................................................................... 17
2.5 Right of First Refusal for Expansion Plant and Expansion Plant
Output ..................................................................................................... 17
2.6 Refurbishment of Plant ........................................................................... 18
ARTICLE III METERING AND BILLING ................................................................ 18
3.1 Metering Requirements ........................................................................... 18
3.2 Billing ...................................................................................................... 19
3.3 Payment .................................................................................................. 20
ARTICLE IV SELLER'S OBLIGATIONS ................................................................ 21
4.1 Development, Finance, Construction and Operation of the Plant ........... 21
4.2 General Obligations ................................................................................ 23
4.3 Construction Milestones .......................................................................... 24
4.4 Obligation to Schedule and Deliver ......................................................... 26
ARTICLE V BUYER’S OBLIGATIONS .................................................................. 28
5.1 Delivery and Transmission ...................................................................... 28
5.2 Taxes ...................................................................................................... 29
5.3 Notification of Transmission Outages ..................................................... 29
ARTICLE VI FORCE MAJEURE ............................................................................ 29
6.1 Force Majeure Events ............................................................................. 29
6.2 Remedial Action ...................................................................................... 29
6.3 Notice ...................................................................................................... 30
6.4 Termination Due To Force Majeure Event .............................................. 30
ARTICLE VII DEFAULT/REMEDIES/TERMINATION ............................................. 30
7.1 Events of Default by Buyer ..................................................................... 30
7.2 Events of Default by Seller ...................................................................... 31
7.3 Termination for Default, Etc .................................................................... 31
7.4 Damages ................................................................................................ 33
7.5 Indemnification ........................................................................................ 33
7.6 Buyer’s Right to Operate ......................................................................... 34
ARTICLE VIII REPRESENTATIONS AND WARRANTIES ...................................... 35
8.1 Seller’s Representations and Warranties ................................................ 35
8.2 Buyer Representations and Warranties .................................................. 37
TABLE OF CONTENTS
Page
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OHSUSA:756031452.7
ARTICLE IX DEVELOPMENT AND PERFORMANCE ASSURANCE ................... 37
9.1 Forms of Assurance ................................................................................ 37
9.2 Managing Assurances ............................................................................ 38
9.3 Development Liquidated Damages ......................................................... 38
9.4 Performance Liquidated Damages ......................................................... 39
ARTICLE X MISCELLANEOUS ............................................................................ 40
10.1 Assignment ............................................................................................. 40
10.2 Financing ................................................................................................ 40
10.3 Notices .................................................................................................... 41
10.4 Captions .................................................................................................. 42
10.5 No Third Party Beneficiary ...................................................................... 42
10.6 No Dedication ......................................................................................... 42
10.7 Entire Agreement; Integration ................................................................. 42
10.8 Applicable Law ........................................................................................ 43
10.9 Venue ..................................................................................................... 43
10.10 Nature of Relationship ............................................................................ 43
10.11 Good Faith and Fair Dealing; Reasonableness ...................................... 43
10.12 Severability ............................................................................................. 43
10.13 Confidentiality ......................................................................................... 44
10.14 Cooperation ............................................................................................ 45
10.15 Mobile Sierra Doctrine ............................................................................ 45
10.16 Counterparts ........................................................................................... 45
10.17 Immunity Waiver ..................................................................................... 45
10.18 Debt Liability Disclaimer .......................................................................... 45
EXHIBITS
A-1 Plant Site Description
A-2 Site Drawings
B Environmental Attribute Transfer from Seller to Buyer
C Insurance Coverages
D Scheduling Protocols
E COD Certification
F-1 Form of Letter of Credit
F-2 Form of Escrow Agreement
G Expected Annual Net Energy Production
Attachment B
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OHSUSA:756031452.7
POWER PURCHASE AGREEMENT
This Power Purchase Agreement (the “Agreement”), dated as of
________________, 2014 (the “Effective Date”), is entered into by and between the
City of Palo Alto, a California chartered municipal corporation (“Buyer”), and 65HK 8me,
LLC, a Delaware limited liability company (“Seller”) (individually, a “Party” and,
collectively, the “Parties”).
RECITALS:
1. Seller intends to develop, finance, build, own and operate a solar photovoltaic
electric generating facility (the “Plant”), to be located at the Site.
2. Buyer is engaged in the procurement and supply of electricity to residential and
commercial customers in Palo Alto, California.
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. Buyer is purchasing this Output to meet Buyer’s needs at a known price and
timing.
NOW THEREFORE, in consideration of the recitals above and the following
covenants, terms and conditions, the Parties agree:
AGREEMENT:
ARTICLE I
DEFINITIONS
The following initially capitalized terms, whenever used in this Agreement, not otherwise
defined in the preamble or herein, have the meanings set forth below, unless the
context of their use otherwise indicates. The terms “includes” and “including” mean to
include, “without limitation.”
AC: Alternating current.
Agreement: Has the meaning set forth in the preamble, and includes all exhibits and
appendices thereto, as may be amended from time to time.
Buyer: The City of Palo Alto and any successor or permitted assignee.
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OHSUSA:756031452.7
Buyer CEQA Approval Deadline: Has the meaning set forth in Section 10.19.
CAISO: The California Independent System Operator Corporation, or its functional
successor.
Calculation Period: The twenty-four (24) month periods (i.e., two full Contract Years)
ending on (and including) each anniversary of the Commercial Operation Date,
commencing at the second anniversary of the Commercial Operation Date.
Calculation Period Deemed Delivered Energy Amount: For each Calculation Period,
an amount expressed in MWh equal to the sum of (i) the total Energy actually delivered
by Seller to the Point of Interconnection in such Calculation Period plus (ii) the Seller
Excused Energy Amount for such Calculation Period.
CARB: Has the meaning set forth in the definition of EA Agency.
CEC: Has the meaning set forth in the definition of EA Agency.
CEQA: The California Environmental Quality Act.
CEQA Deadline: Has the meaning set forth in Section 10.19.
CEQA Disapproval: Has the meaning set forth in Section 10.19.
Change in Law: The enactment or issuance of any new law or regulation, the
amendment, alteration, modification or repeal of any existing law or regulation or any
authoritative interpretation of any existing law or regulation issued by a competent court,
tribunal or Governmental Authority contrary to the existing official interpretation thereof,
in each case coming into effect after the date of this Agreement and which must be
complied with in order for the Plant to be constructed and operated lawfully.
Change of Control: Any circumstance in which the Ultimate Parents Ownership
Percentage ceases to be equal to or greater than fifty percent (50%).
COD Certification: Seller’s certification of Commercial Operation in the form set forth
in Exhibit E, duly executed by Seller and the licensed professional engineer.
Commercial Operation: The condition of the Plant, whereupon (a) it is certified by
Seller to be complete in accordance with manufacturers’ recommendations except for
punch list items and (b) Seller has delivered to Buyer the COD Certification.
Commercial Operation Date: The date upon which Commercial Operation first
occurs, as notified to Buyer in the COD Certification in accordance with Section 4.3(h).
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OHSUSA:756031452.7
Commercially Reasonable Efforts Standard: Has the meaning set forth in Section
7.6.
Compliance Costs: All reasonable out-of-pocket costs and expenses necessary to
incur by Seller and payable to third parties in order to maintain ERR status for the Plant
arising out of any new or changed Requirements of Laws after the Effective Date.
Construction Start Date: The date on which Seller delivers to Buyer a copy of the
Notice to Proceed that Seller has delivered to the EPC Contractor for the Plant.
Contract Year: Successive periods of twelve (12) consecutive months, with the first
such period (i.e., the first Contract Year) beginning at 12:00 a.m. on the day
immediately following the Commercial Operation Date and ending at 11:59:59 p.m. on
the anniversary of the Commercial Operation Date, and ea ch successive twelve (12)
consecutive month period thereafter until the end of the Term.
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 .
Costs: With respect to a non-defaulting Party, (a) brokerage fees, commissions and
other similar third party transaction costs and expenses reasonably incurred by such
Party either in terminating any arrangement entered into pursuant to this Agreement or
entering into new arrangements which replace this Agreement (including, in the case of
Seller as the Non-Defaulting Party, tax recapture costs) and (b) all reasonable
attorneys’ fees and expenses incurred by the non -defaulting Party in connection with
the termination of this Agreement.
CEQA Deadline: Has the meaning set forth in Section 10.19.
County: Has the meaning set forth in Section 10.19.
CPUC: Has the meaning set forth in the definition of EA Agency.
CUP or Conditional Use Permit: Has the meaning set forth in Section 10.19.
CUP Issuance Date: Has the meaning set forth in Section 10.19.
Daily LD Amount: For each day for which delay liquidated damages are payable
under Section 9.3, an amount equal to the following: (i) for t he first 182 days for which
such damages are payable, $2,565 per day, (ii) for the next 182 days for which such
damages are payable, $7,695 per day, and (iii) for the next 1 day for which such
damages are payable, $7,680 per day.
Development Assurance: The amount to be posted or deposited by Seller in
accordance with Article IX of this Agreement, which amount shall be equal to
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OHSUSA:756031452.7
$1,875,000.00 (determined by taking the product of $75.00 per kW AC and 25,000 kW,
the expected Initial Capacity as of the Effective Date).
Discretionary Curtailment: Has the meaning set forth in Section 4.4(c).
Dispatch Down Period: The period of curtailment of delivery of Energy from the Plant
resulting from (a) curtailment ordered by the CAISO (whether directly or throug h a Plant
Scheduling Coordinator or the Participating Transmission Owner), for any reason,
including, but not limited to, any system emergency as defined in the CAISO Tariff
(“System Emergency”), any warning of an anticipated System Emergency, or any
warning of an imminent condition or situation which could jeopardize the CAISO’s or
Participating Transmission Owner’s electric system integrity or the integrity of other
systems to which the CAISO or Participating Transmission Owner is connected; (b)
curtailment ordered by the Participating Transmission Owner or distribution operator (if
interconnected to distribution or sub-transmission system) for reasons including, but not
limited to, (i) any situation that affects normal function of the electric system incl uding,
but not limited to, any abnormal condition that requires action to prevent circumstances
such as equipment damage, loss of load, or abnormal voltage conditions, (ii) any
warning, forecast or anticipation of conditions or situations that jeopardize t he
Participating Transmission Owner’s electric system integrity or the integrity of other
systems to which the Participating Transmission Owner is connected; (c) curtailment
ordered by the Participating Transmission Owner or distribution operator (if
interconnected to distribution or sub-transmission system) as a result of scheduled or
unscheduled maintenance or construction on the Participating Transmission Owner’s
transmission facilities or distribution operator’s facilities (if interconnected to distribu tion
or sub-transmission system) that prevents the delivery or receipt of Energy to or at the
Point of Interconnection; or (d) curtailment in accordance with Seller’s obligations under
its interconnection agreement with the Participating Transmission Owner or distribution
operator. Notwithstanding the foregoing, Dispatch Down Periods shall not include
periods of curtailment of delivery of Energy from the Plant resulting from circumstances
commonly referred to as economic curtailment (“Economic Curtailment”), where Buyer
or its designee (as the Scheduling Coordinator) submits an economic or similar bid in
the applicable CAISO market that results in otherwise available Energy not being
scheduled or awarded in such CAISO market.
EA Agency: Any local, state or federal entity, or any other Person, that has
responsibility for or jurisdiction over a program involving transferability of Environmental
Attributes, including, without limitation, the Clean Air Markets Division of the United
States Environmental Protection Agency (the “EPA”), the California Energy Resources
Conservation and Development Commission (the “CEC”), the California Public Utilities
Commission (the “CPUC”), the California Air Resources Board (“CARB”), and any
successor commission or agency thereto.
Early Termination Date: Has the meaning set forth in Section 7.3.
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OHSUSA:756031452.7
Economic Curtailment: Has the meaning set forth at the end of the definition of
Dispatch Down Period.
Effective Date: Has the meaning set forth in the preamble of this Agreement.
Eligible CEQA Delay: Has the meaning set forth in Section 10.19.
Eligible Renewable Energy Resource or ERR: Has the meaning set forth in California
Public Utilities Code Section 399.12 and California Public Resources Code Section
25741, as either code provision is amended or supplemented from time to time.
Energy: The electricity generated by the Plant and delivered to Buyer by the Seller,
pursuant to this Agreement, at the Point of Interconnection , as expressed in units of
kilowatt-hours (kWh) or megawatt-hours (MWh), including Test Energy.
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, without limitation, Renewable Energy
Credits, and all of the following: (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 t he 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) or (ii) tax credits associated with
the construction or operation of the Plant, Expansion Plant(s), or any other associated
contract or right, and other financial incentives in the form of credits, rebates,
reductions, or allowances associated with the Plant, Expansion Plant(s), or any other
associated contract or right, that are applicable to a state or federal income taxation
obligation.
Environmental Attributes 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.
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OHSUSA:756031452.7
Environmental Laws: Any and all 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.
EPA: Has the meaning set forth in the definition of EA Agency.
EPC Contract: The Seller’s engineering, procurement and construction contract with
the EPC Contractor.
EPC Contractor: An engineering, procurement, and construction contractor, or if not
utilizing an engineering, procurement, and construction contractor, the entity having
lead responsibility for the management of overall construction activities, selected by
Seller, with substantial experience in the engineering, procurement, and construction of
utility-scale solar photovoltaic power plants.
Event of Default: Has the meaning set forth in Article VII.
Expansion Plant: Any expansion of the Plant from its Initial Capacity, or any other
electricity generating facility owned or controlled by Seller or its affiliates, located at the
Site. Each such expansion of the Plant or additional facility shall be deemed to be an
“Expansion Plant.”
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.
Expected Annual Net Energy Production: For each period of two successive
Contract Years, it is the sum of the expected annual net energy production in AC
Megawatt-hours for such two Contract Years, including the effects of first year 0.5%
panel performance degradation and subsequent 0.5% panel annual performance
degradation, as represented in Exhibit G.
Extension Term: Has the meaning set forth in Section 2.1.
Fair Market Value: Has the meaning set forth in Section 2.1.
FERC: The Federal Energy Regulatory Commission and its successor organization, if
any.
Final CEQA Approval: Has the meaning set forth in Section 10.19.
First Extension Term: Has the meaning set forth in Section 2.1.
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OHSUSA:756031452.7
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 Par ty 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 govern mental
authority); and
(iii) electric transmission interruptions or curtailments (not including any such
interruption or curtailment that results from the negligence or contractual breach of the
Party affected);
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
equipment failure, except any such failure caused by an event or circumstance that
meets the requirements set forth in this “Force Majeure Event” definition; (d) failure or
delay in grant of Permits, except, in any case, if caused by an event or circumstance
that meets the requirements set forth in this “Force Majeure Event” definition; or (e)
failures or delays by the Participating TO or the CAISO in entering into, or performing
under, any agreements with Seller contemplated by this Agreement, except, in any
case, if any such failure of performan ce is caused by an event or circumstance that
meets the requirements set forth in this “Force Majeure Event” definition.
Forecasting Service: Has the meaning set forth in Section 4.4(d).
FPA: Has the meaning set forth in Section 8.1.
Full Capacity Deliverability Status: Has the meaning set forth in the CAISO Tariff.
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GAAP: Generally Accepted Accounting Principles.
Gains: With respect to a Party, an amount equal to the present value of the economic
benefit to it, if any (exclusive of Costs), resulting from the termination of the Agreement
for the remainder of the Term, determined in a commercially reasonable manner.
Factors used in determining economic benefit may include reference to information
supplied by one or more third parties, including quotations (either firm or indicative) of
relevant rates, prices, yields, yield curves, volatilities, spreads or other relevant market
data in the relevant markets, market price referent, market prices for a comparable
transaction, forward price curves based on economic analysis of the relevant markets,
settlement prices for a comparable transaction at liquid trading hubs (e.g., NYMEX), all
of which should be calculated for the remainder of the Term to determine the value of
the Output. A Party shall use commercially reasonable efforts to obtain third party
information in order to determine Gains and shall use information available to it
internally for such purpose only if it is unable, after using commercially reasonable
efforts, to obtain relevant third party information.
Governmental Authority: Any federal or state 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.
Incentives: Any and all tax credits, deductions, allowances, depreciation and
exemptions applicable to federal, state and local taxes and any other payment, credit,
deduction, benefit, grant or monetary incentive provided by any federal, state or local
governmental authority or any Person, whether now in effect or arising in the future, in
each case arising from the activities contemplated by this Agreement, including any
“Renewable Energy Production Incentive Payments” from the U.S. Department of
Energy and any “Energy Investment Tax Credit” described in Section 48 of the Internal
Revenue Code of 1986, as it may be amended o r supplemented from time to time.
Notwithstanding the foregoing, Incentives shall not include anything that qualifies as
Output as defined herein (including any Environmental Attributes).
Indemnified Party: Has the meaning set forth in Section 7.5.
Indemnifying Party: Has the meaning set forth in Section 7.5.
Initial Capacity: The installed capacity of the Plant, determined as of the Commercial
Operation Date, which shall not to be less than 24 MW AC or more than 27 MW AC,
and shall be determined based upon the sum of the nameplate ratings (AC) of all Plant
inverters.
Initial Term: Has the meaning set forth in Section 2.1.
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Interconnection: Construction, installation, operation and maintenance of all
Interconnection Facilities.
Interconnection Agreement: The agreement to be entered into among Seller (and
one or more of its affiliates), the Participating TO and CAISO pursuant to which Seller
(and one or more of its affiliates), the Participating TO and CAISO set forth the terms
and conditions for interconnection of the Plant to the Participating TO’s system, as
amended from time to time. The Parties acknowledge that the Interconnection
Agreement capacity is for more MWs than the Plant will require, and may serve as an
interconnection agreement for generating projects in addition to the Plant.
Interconnection Facilities: All of the facilities installed for the purpose of
interconnecting the Plant to the Participating TO System, including, without limitation,
transformers and associated equipment, relay and switching equipment and safety
equipment.
Lender(s): Any Person(s) providing money or extending credit (including any capital
lease) to Seller, including in the form of debt or tax equity, 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 any trade
creditor(s) of Seller.
Losses: With respect to a Party, an amount equal to the present value of the economic
loss to it, if any (exclusive of Costs), resulting from the termination of this Agreement for
the remainder of the Term, determined in a commercially reasonable manner. Factors
used in determining the loss of economic benefit may include r eference to information
supplied by one or more third parties, including quotations (either firm or indicative) of
relevant rates, prices, yields, yield curves, volatilities, spreads or other relevant market
data in the relevant markets, market price referent, market prices for a comparable
transaction, forward price curves based on economic analysis of the relevant markets,
settlement prices for a comparable transaction at liquid trading hubs (e.g. NYMEX), all
of which should be calculated for the remainde r of the Term to determine the value of
the Output. A Party shall use commercially reasonable efforts to obtain third party
information in order to determine Losses and shall use information available to it
internally for such purpose only if it is unable, after using commercially reasonable
efforts, to obtain relevant third party information. If the non -defaulting Party is the
Seller, then in addition to lost payments for Output pursuant to this Agreement, “Losses”
shall also include any associated loss of investment tax credits and other lost tax
benefits.
Milestones: Has the meaning set forth in Section 4.3.
MW: Megawatt (AC).
MWh: Megawatt-hour (AC).
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NCPA: The Northern California Power Agency, a California joint powers agency.
Notice to Proceed: The notice provided by Seller to the EPC Contractor following
execution of the EPC Contract between Seller and such EPC Contractor and
satisfaction of all conditions to performance of such contract, by which Seller authorizes
such EPC Contractor to begin construction of the Project without any delay or waiting
periods.
Operations Assumption Notice: Has the meaning set forth in Section 7.6.
Option Exercise Notice: Has the meaning set forth in Section 2.1.
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 Participating TO
System is unavailable to receive Energy, to the extent that the unavailability affects the
Participating TO System’s ability to accept delivery of Energy at the Point of
Interconnection, whether planned or unplanned.
Output: All actual capacity of the Initial Capacity, and all 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.
Participating TO or Participating Transmission Owner: Pacific Gas & Electric
Company, a California corporation, or any successor thereto acting as transmission
provider from the Site to the CAISO grid.
Participating TO System: The transmission system owned by the Participating TO.
Parties: Buyer and Seller, and their respective successors and permitted assignees.
Party: Buyer or Seller, and each such Party’s respective successors and permitted
assignees.
Performance Assurance: The amount to be posted or deposited by Seller in
accordance with Article IX of this Agreement, which amount shall be equal to the
product of $100.00 per kW AC and the expected Initial Capacity spec ified under Section
4.2(h).
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, incl uding any such permits or approvals
required under CEQA.
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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.
PIRP: Has the meaning set forth in Section 4.4(a).
Plant: The power generation facilities described in the Recitals 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.
Point of Interconnection: The point on the electrical system where the Plant is
physically interconnected with the Participating TO System, which is anticipated to be at
PG&E’s Lamont Switching Station.
Price: The price set forth in Section 2.3.
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 solar photovoltaic
plant 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.
QF: Has the meaning set forth in Section 8.1.
REC or Renewable Energy Credit: Has the meaning set forth in California Public
Utilities Code Section 399.12(h) and CPUC Decision 08-08-028, as may be amended
from time to time or as further defined or supplemented by applicable law.
Requirements of Laws: Collectively, any federal, state or local law, treaty, franchise,
rule or regulation, or any order, writ, judgment, injunction, decree, award or
determination of any arbitrator or court or other Governmental Authority, in each case
applicable to or binding upon Seller or Buyer or any of its property or to which Seller or
Buyer or any of its respective properties are subject.
Residual Test: Has the meaning set forth in Section 2.1.
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Saferay: Has the meaning set forth in the definition of Ultimate Parents.
SCADA: Has the meaning set forth in Section 3.1.
Scheduling Coordinator: NCPA or any agent or successor thereof, or such other
scheduling coordinator as may be designated by Buyer in accordance with this
Agreement.
Second Extension Term: Has the meaning set forth in Section 2.1.
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
state, federal or local tax credits, deductions, payments or benefits arising from the
generation and sale of electricity using qualifying renewable resources, not including
any Environmental Attributes.
Section 48 Credits: Those tax credits available under Section 48(a)(3)(A)(i) and
48(a)(5) of the Internal Revenue Code of 1986, as amended, or any other similar state,
federal or local tax credits, deductions, payments or benefits arising from the investment
in qualifying energy properties, not including any Environmental Attributes.
Seller: 65HK 8me, LLC, a Delaware limited liability company, and any successor or
permitted assignee.
Seller Excused Energy Amount: Means, for each Calculation Period, an amount
expressed in MWh, equal to the aggregate amount of reduction(s) in delivered Energy
during such Calculation Period as a result of Dispatch Down Periods, Discretionary
Curtailments, Economic Curtailments, Force Majeure Events, Buyer’s breach or default
hereunder or failure to accept delivered Energy, or outages to the local transmission or
distribution system. No less frequently than quarterly during each year, Seller shal l
calculate and provide notice to Buyer of the then cumulative amount of the Seller
Excused Energy Amount for such year, along with an explanation in reasonable detail of
the calculation thereof based on historical Plant data, meteorological data, output
projections (including by the CAISO, if applicable) and other relevant data. The
calculation shall be subject to review and approval by Buyer.
Shortfall: Has the meaning set forth in Section 9.4.
Site: The real property on which the Plant is to be built and located in/near Kern
County as more particularly described in Exhibit A, or such other real property selected
by Seller to which Buyer consents in writing which consent shall not be unreasonably
withheld. Notwithstanding the foregoing, the Parties acknowledge and agree that the
Site described on Exhibit A as of the Effective Date is only the approximate size
required by the final Plant design and is in the vicinity of other lands under the control of
Seller or its affiliates. At or prior to the financial closing of Seller’s construction financing
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for the Plant, Seller shall update Exhibit A (and rearrange the boundaries of the Site) by
notice to Buyer providing an updated version of Exhibit A. Such final Site boundaries
shall include sufficient real property for the Plant, plus sufficient additional real property
(approximately one acre) in order to accommodate any potential future build out of
storage facilities as may be mutually agreed by the Parties pursuant to Section 4.2(i).
Station Service Power: The energy used by Seller to operate the Plant.
System Emergency: Has the meaning set forth in the definition of Dispatch Down
Period.
Term: Has the meaning set forth in Section 2.1.
Termination Payment means, with respect to the non-defaulting Party, the sum of (a)
the Losses or Gains, and Costs, expressed in U.S. Dollars, which such Party incurs as
a result of the termination of this Agreement pursuant to Section 7.3 plus (b) all amounts
then owed to the non-defaulting Party by the defaulting Party. If the non-defaulting
Party’s aggregate Gains exceed its aggregate Losses and Costs, if any, resulting from
such termination of this Agreement, the amount for preceding clause (a) shall be zero.
Test Energy: Energy (to the extent available) generated by the Plant and delivered to
the Point of Interconnection prior to the Commercial Operation Date.
Two Year Minimum Production Threshold: For each Calculation Period, an amount
(in MWhs) equal to eighty percent (80%) of the Expected Annual Net Energy Production
for such Calculation Period (i.e., for the avoidance of doubt, the sum of 80% of the
Expected Annual Net Energy Production for the first Contract Year of such Calculation
Period plus 80% of the Expected Annual Net Energy Production for the second Contract
Year of such Calculation Period).
Ultimate Parents: means: (a) 8minutenergy Renewables, LLC, a Delaware limited
liability company (“8me”), (b) Saferay Inc., a Delaware corporation (“Saferay”) and (c)
any successor entity to 8me or Saferay with which or into which 8me or Saferay (as
applicable) is merged, consolidated or combined, or which acquires all or substantially
all of the assets of 8me or Saferay (as applicable).
Ultimate Parents Ownership Percentage: means the percentage of the outstanding
equity interests (inclusive of both voting and economic rights) in Seller that are owned
individually or jointly by the Ultimate Parents (together, in the aggregate), directly or
indirectly through one or more intermediate entities; provided that in calculating such
percentage owned by the Ultimate Parents, for all purposes of the foregoing:
(i) any ownership interest in Seller held by one or both Ultimate Parents
indirectly through one or more intermediate entities shall be counted towards
such Ultimate Parents’ ownership interest in Seller only if such Ultimate Parents
(together, in the aggregate) directly or indirectly own fifty percent (50%) or more
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of the outstanding equity voting and economic interests in each such
intermediate entity; and
(ii) ownership interests in Seller owned directly or indirectly by any Lender
(including any tax equity provider) shall be excluded from the total outstanding
equity interests in Seller.
Valuation Consultant: Has the meaning set forth in Section 2.1.
Valuation Consultant Report: Has the meaning set forth in Section 2.1.
WECC: Has the meaning set forth in the definition of WREGIS.
WREGIS: The Western Renewable Energy Generation Information System, an
independent, renewable energy tracking system for the region, administered by the
Western Electricity Coordinating Council (“WECC”). WREGIS tracks renewable energy
generation from units that register in the system using verifiable data and creates RECs
for this generation. WREGIS was developed through a collaborative process between
the Western Governors’ Association, the Western Regional Air Partnership, and the
CEC.
8me: Has the meaning set forth in the definition of Ultimate Parents.
ARTICLE II
TERM, PURCHASE AND SALE
2.1 Term
(a) This Agreement shall be effective upon its execution by authorized
representatives of the Parties and, unless earlier terminated pursuant to an
express provision of this Agreement, shall continue until the twenty -seventh
(27th) anniversary of the Commercial Operation Date (“Initial Term”). Either
Party shall have the option to extend the Initial Term for one additional three (3)
year extension term following the Initial Term (a “First Extension Term”).
Additionally, Buyer (but not Seller) shall have a second option to extend the First
Extension Term for another four (4) year extension term following the First
Extension Term (a “Second Extension Term”), provided that, subject to this
Section 2.1, any exercise of an option for the First or Second Extension Term
shall be effective only if (i) such extension would not cause the overall Term to
exceed 80% of the Plant’s “estimated useful life” from the beginning of the Initial
Term and (ii) the estimated value of the Plant at the end of the First Extension
Term (in the case of the exercise of an option for the First Extension Term), and
at the end of the Second Extension Term (in the case of the exercise of an option
for the Second Extension Term), after subtracting the estimated cost to Seller for
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removal and delivery of the Plant to the Seller, is (in 2015 (or such other year as
the Commercial Operation Date occurs) dollars) at least 20% of the original cost
of the Plant (such requirements ((i) and (ii) together), the “Residual Test”). The
Residual Test shall be performed in accordance with Section 2.1(c).
(b) Subject to this Section 2.1, a Party desiring to extend this Agreement into
the First Extension Term or Second Extension Term, as the case may be, shall
exercise such option by a written notice (“Option Exercise Notice”) delivered to
the other Party by not later than eighteen (18) months prior to the end of the
Initial Term or the First Extension Term, as the case may be.
(c) If any extension option is exercised under Section 2.1(a) and (b), then
promptly following the date of the Option Exercise Notice, Buyer shall designate
a recognized appraisal and valuation consultant for approval by Seller (such
approval not to be unreasonably withheld) (such approved consultant, the
“Valuation Consultant”) and such Valuation Consultant shall by the date that is
one hundred twenty (120) days following the date of the Option Exercise Notice
determine (1) whether such extension would violate the above Residual Test,
and (2) the estimated fair market value of the Plant (including all tangible and
intangible related assets) as at the end of the current Term (the “Fair Market
Value”). The Valuation Consultant shall provide to bo th Parties a reasonably
detailed written report summarizing the Valuation Consultant’s assumptions and
conclusions as to the Residual Test and Fair Market Value determinations (the
“Valuation Consultant Report”). If the Residual Test is not satisfied, then the
exercise of the option to extend this Agreement for the First Extension Term or
Second Extension Term (as the case may be) shall be deemed ineffective and
this Agreement shall expire at the end of the Initial Term or First Extension Term
(as the case may be), and Section 2.1(d) below shall apply.
(d) If this Agreement expires under Section 2.1(c) as a result of a failure of the
Residual Test (following the exercise of an extension option), then Buyer shall
have a purchase option to purchase the Plan t (including all tangible and
intangible related assets) from Seller at the end of the then current Term for a
purchase price equal to the Fair Market Value (as determined by the Valuation
Consultant Report), which option shall be exercisable in Buyer’s di scretion by
written notice delivered to Seller on or before the date that is 90 days following
the date of the Valuation Consultant Report. If such purchase option is so
exercised, then the Parties shall cooperate to cause the Plant (including all
tangible and intangible related assets) to be sold from Seller to Buyer on the last
day of the Term for the Fair Market Value purchase price and otherwise on
customary terms and conditions.
(e) The Initial Term, together with any First Extension Term and Second
Extension Term is referred to herein as the “Term.” For the avoidance of doubt,
the maximum Term shall not extend past the thirty -fourth (34th) anniversary of
the Commercial Operation Date.
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2.2 Purchase and Sale of the Output
(a) Commencing on the Commercial Operation Date and continuing during
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, the
entire 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, the Output relating to any Test
Energy pursuant to the terms of this Agreement; provided that the decision to
produce and deliver Test Energy hereunder shall be at the sole discretion of the
Seller. All Test Energy shall be scheduled in accordance with the procedures set
forth in Exhibit D. Seller shall not sell to any other party, and Buyer may claim
credit for, the Output, as may be available to Buyer from time to time.
(b) During 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 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. Selle r shall not assign,
transfer, convey, encumber, sell or otherwise dispose of all or any portion of the
Environmental Attributes to any Person other than Buyer. Seller makes no
written or oral representation or warranty, either express or implied, regardin g the
current or future existence of any Environmental Attributes.
(c) 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.
(d) Seller will document the production of Environmental Attributes under this
Agreement by delivering with each invoice to Buyer such attestations or other
documents as may be required by Exhibit B. Exhibit B shall be updated or
changed by the Parties, as necessary, to ensure that Buyer receives full and
complete title to, and the ability to record with any EA Agency as its own, all of
the Environmental Attributes purchased hereunder. At Buyer’s request, the
Parties, each at their own expense, shall execute all such documents and
instruments in order to transfer the Environmental Attributes, specified in this
Agreement, to Buyer or its designees, as Buyer may reasonably request. In the
event of the promulgation of a scheme involving Environmental Attributes
administered by an EA Agency, upon notification by an EA Agency that any
transfers contemplated by this Agreement will not be recorded, the Parties shall
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promptly cooperate in taking all reasonable actions necessary so that such
transfer can be recorded. Each Party shall promptly give the other Party copies
of all documents it submits to the EA Agency to effectuate any transfers.
(e) As between the Parties, Seller shall be deemed to be in exclusive control
(and responsible for any damages or injury caused thereby) of all Energy prior to
the Point of Interconnection, and Buyer shall be deemed to be in exclusive
control (and responsible for any damages or injury caused thereby) of all Energy
at and from the Point of Interconnection. Seller shall deliver all Energy and other
Output free and clear of all liens created by any Person other than Buyer. Title to
and risk of loss as to all Energy shall pass from Seller to Buyer at the Point of
Interconnection.
2.3 Price
Subject to any performance related adjustments under the provisions of Section
9.4, during the period of delivery of any Test Energy and the entire Term, for
Energy delivered or tendered to Buyer at the Point of Interconnection, Buyer shall
pay Seller a price per MWh of Energy (“Price”) equal to (i) for all Test Energy
and during Contract Years 1-13, inclusive, Sixty-Eight and 72/100 Dollars
($68.72) per MWh, (ii) during Contract Years 14-27, inclusive, Sixty-Eight and
22/100 Dollars ($68.22) per MWh and (iii) during any applicable First Extension
Term or Second Extension Term, Seventy and 33/100 Dollars ($70.33) per MWh.
The Price shall be the total compensation owed by Buyer for the Output delivered
or tendered to Buyer during the period of delivery of any Test Energy and during
the Term.
2.4 Tax Credits and Incentives
Buyer agrees and acknowledges that all Incentives shall be owned by Seller.
Buyer shall not claim Incentives. Buyer agrees to cooperate with Seller, as may
be necessary to allow maximization of the value of, and realization of, and all
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 of any Incentives, including the Section 48
Credits, and Buyer shall forego any credits or benefits available to it (other than
Environmental Attributes), including rights to purchase of Test Energy, to the extent
necessary to allow Seller to obtain the full benefit of the Incentives, but in no event
shall Buyer be required to forego receipt of Output after the Commercial Operation
Date.
2.5 Right of First Refusal for Expansion Plant and Expansion Plant Output
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(a) During the Term, Seller may, in exercising its sole discretion, determine,
from time to time, 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 Expansion Plant Output to
Buyer. The offer shall include the price to be paid by Buyer for 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 the Expansion Plant Output,
Buyer shall so notify Seller within ninety (90) 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
a power purchase agreement for an Expansion Plant is executed, 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 i s not covered by such
documentation, the terms of this Agreement shall apply.
(b) If Buyer does not accept Seller’s offer to purchase the Expansion Plant
Output within ninety (90) days of receipt of Seller’s offer, Seller shall be deemed
authorized to offer to sell that portion of the Expansion Plant Output to one or
more third parties 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 disaggregate the
Expansion Plant Output for the purpose of selling the same 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 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, subject to any confidentiality restrictions, Seller shall
provide the relevant final 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, in writing, of the
Expansion Plant Output from one Expansion Plant shall not affect Buyer’s right to
purchase the Expansion Plant Output from a subsequently developed Expansion
Plant under the terms of this Agreement. Seller shall not sell or provide the
Expansion Plant Output to any third party, unless Seller can do so without
compromising in any material way its ability to provide the Output to Buyer
hereunder. The materiality of any such impact shall be determined by Buyer,
acting in its reasonable discretion.
2.6 Refurbishment of Plant
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During the Term, Seller may refurbish the Plant, alter components of the Plant,
replace components of the Plant, add additional solar modules or inverters, or
replace solar modules or inverters with more powerful solar modules or inverters,
etc. in order to increase the Plant estimated peak AC capability up to the lesser
of the Initial Capacity or to the amount allowed by the Interconnection
Agreement. However, Seller may not perform any refurbishment to increase
capacity higher than the Initial Capacity without the prior consent of Buyer, and
Buyer has the right, in its sole discretion, to accept or decline to permit any such
refurbishment that may increase the Initial Capacity.
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, the Site or another nearby
location reasonably acceptable to Buyer. Such metering equipment, including
any equipment required for communicating meter data (e.g., a dedicated data
line) to Buyer or the CAISO, shall be selected, pr ovided, installed, owned,
maintained and operated, at Seller’s sole cost and expense, by Seller or its
designee in accordance with applicable CAISO 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 in advance 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 the cost of any update or upgrade to such metering
equipment pursuant to a new requirement of the CAISO, the Participating TO or
any other Governmental Authority, adopted after the Commercial Operation
Date, each of Seller’s meters shall be acc urate to the metering specifications
then in effect for CAISO 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 CAISO meter to the CAISO and Scheduling Coordinator, while
adhering to both CAISO and Scheduling Coordinator’s communications
protocols. Seller shall provide Buyer with a copy of each certificate of
compliance issued by CAISO, if any.
Buyer and Scheduling Coordinator shall be provided access to all monitored
SCADA points to be used at their discretion in real time monitoring. Buyer, at its
sole cost and expense, may 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 the referenced
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equipment does not interfere with Seller’s metering equipment. Seller shall
permit Buyer or Scheduling Coordinator or its agent access to Seller’s Plant for
the purpose of installing and maintaining such check meters. Seller shall submit
to the CAISO, or allow the CAISO to retrieve, any meter data required by the
CAISO related to the Plant output in accordance with the CAISO’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 Scheduling Coordinator o r its agent to
perform its duties as scheduling coordinator and comply with the requirements of
the CAISO Tariff.
3.2 Billing
Seller shall provide to Buyer on or before the tenth (10 th) day of each month an
invoice for the prior month based upon meter data for Energy delivered in such
calendar month (taking into account any line losses to the Point of
Interconnection), enclosing reasonably appropriate supporting CAISO
documentation and any corresponding attestation that may be required pursuant
to Section 2.2(d). Such invoice may be transmitted by e-mail to
settlements@ncpa.com, or to any other e-mail address designated, in writing, by
Buyer, with a copy to be delivered in the mail of the United States Postal Service
or other entity 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, in writing, the other Party of the error. If the amount invoiced was
lower than the amount that should have been invoiced, then 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 higher than the amount that should have
been invoiced, then 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 adjusted
amount owing by Seller or Buyer 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 to this Agreement, Buyer or its agent
shall pay Seller by electronic transfer of funds by the later of the 20 th day of the
month or the 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 does not fall on 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 per cent (2%) plus
the average daily prime rate as determined from the "Money Rates" section of
The Wall Street Journal for the days of the late payment period multiplied by the
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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 mediation, 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 shall not constitute a waiver of Buyer’s right to challenge such amount.
Both Parties shall maintain all records relating to the other Party or this
Agreement for a minimum of two (2) years after the expiration or earlier
termination of the Term, 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
4.1 Development, Finance, Construction and Operation of the Plant
During the Term, Seller shall:
(a) Develop, finance and construct the Plant.
(b) Provide Buyer with 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 protocol-based and include any applicable
alarms required by Prudent Utility Practice.
(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 Laws or Governmental Authority as
prerequisites to Seller’s performance of this Agreement and to meeting Seller's
obligation to operate the Plant consistently with the terms of the Agreement.
Seller shall provide to Buyer reasonable assistance and shall cooperate with
Buyer’s compliance with CEQA, including the performance of the Buyer’s review
and other obligations under Section 10.19 of this Agreement.
(d) Operate, maintain, and repair the Plant in accordance with this
Agreement, all Requirements of Laws applicable to Seller or the Pla nt, Permits
and in accordance with Prudent Utility Practice, including with respect to efforts
to maintain availability of the Initial Capacity subject to normal system wear -and-
tear and panel degradation factor.
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(e) Obtain and maintain the policies of insurance in amounts and with
coverages as set forth in Exhibit C.
(f) Operate and maintain in a manner consistent with Prudent Utility Practice
the facilities it will own and otherwise cooperate with the Participating TO in the
physical interconnection of the Plant to the Participating TO System in
accordance with the Interconnection Agreement.
(g) By October 1st of each year of the Term, provide each of Buyer and
Scheduling Coordinator 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 Scheduling Coordinator 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 of receipt of Buyer’s
request. In no instance other than Saturdays, Sundays and federal holidays
during the period of reliability accounting (initially the period between June 1 st
and September 30th but subject to changes selected at Buyer’s discretion for
conforming to CAISO availability assessment) will Seller sched ule Outages of
more than twenty-four (24) hours during the Term. In connection with any
Outage in excess of one (1) MW of Plant capacity, whether a scheduled or
unscheduled Outage, Seller shall notify Buyer and Scheduling Coordinator, as
soon as practicable, of the percentage of Plant (based on percentage of Energy
loss) expected to be out of service and how long the Outage is expected to last.
If the Outage is total and is due to failure of the Plant rather than the transmission
and distribution system beyond the Point of Interconnection, Seller shall give
Buyer and Scheduling Coordinator at least four (4) hours’ prior notice before re -
energizing the Plant. In addition, Seller will comply with Scheduling
Coordinator’s scheduling protocols, as may be chan ged from time to time. A
copy of the current version of Scheduling Coordinator’s scheduling protocols,
which the Parties agree are reasonable, is attached as Exhibit D; provided,
during the Term, Buyer shall provide Seller with any revised scheduling prot ocols
to the extent Scheduling Coordinator provides the same to Buyer.
(h) Negotiate and enter into an Interconnection Agreement with the
Participating TO to enable Seller to transmit Energy to the Point of
Interconnection and into the CAISO-controlled grid. Seller shall be responsible
for and pay all costs and charges arising under the Interconnection Agreement in
compliance with the Interconnection Agreement and associated rules and
requirements. As of the Effective Date, it is expected that the Plant will receive
Full Capacity Deliverability Status on or around December, 2015. Seller shall
ensure that the Interconnection Agreement provides that the Plant shall receive
Full Capacity Deliverability Status, and shall take all commercially reasonable
actions to cause such status to be obtained as soon as reasonably possible
following the Commercial Operation Date.
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(i) Negotiate and enter into a Participating Generator Agreement and a Meter
Service Agreement for CAISO Metered Entities with the CAISO, the load control
area operator for the Participating TO System, to which the Plant is
interconnected. Buyer shall pay for or reimburse Seller for 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 this Agreement in Sections 3.1 and
4.1(h). 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 CAISO scheduling protocols and the reasonable
protocols established by Buyer that are not inconsistent with the CAISO Tariff
and CAISO procedures.
(k) Fund and maintain the Development Assurance to assure Seller’s timely
development of the Plant, including the performance of all construction tasks,
and fund and maintain the Performance Assurance to assure Seller’s delivery of
the Output to Buyer in accordance with Article IX.
(l) During the Term, Seller shall take all actions reasonably n ecessary to
maintain the Plant’s status as an Eligible Renewable Energy Resource, provided
that Seller’s obligation (including expenses incurred) to maintain such ERR
status shall be subject to a cap on Seller’s Compliance Costs (i) during each
calendar year in an amount equal to $10,000 per MW multiplied by the Initial
Capacity, and (ii) in the aggregate during the Term of the Agreement in an
amount equal to $50,000 per MW multiplied by the Initial Capacity. Seller shall
be obligated to take actions to maintain the Plant’s ERR status (due to new or
changes in Requirements of Laws) in excess of such amounts only to the extent
Buyer elects to pay (and pays) such additional costs.
(m) For the avoidance of doubt, and notwithstanding the foregoing, if existing
Requirements of Laws relating to ERR status (or relating to any applicable
renewable portfolio standards) are repealed or cease to be effective or it
becomes impossible to bring the Plant into compliance with any changes in
Requirements of Laws relating to ERR status, Buyer shall remain obligated to
purchase (and Seller shall remain obligated to sell) the Output (including all
available Environmental Attributes) at the full Price in accordance with terms and
conditions hereof, although the Parties shall meet and confer in good faith to
consider amendments to this Agreement that may be acceptab le to each Party
(and to each Lender) in its sole good faith discretion.
4.2 General Obligations
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(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; (ii) comply wit h all
Requirements of Laws applicable to Seller or the Plant; and (iii) comply with all
Contractual Obligations related to the operation and maintenance of the Plant
that are set forth in contracts or agreements related to the operation and
maintenance of the Plant, it being acknowledged (for the avoidance of doubt) that
this clause (iii) does not apply to contracts or agreements that are not primarily
related to the operation and maintenance of the Plant, including for example
Plant debt and tax equity financing contracts.
(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; provided,
nothing herein will limit Buyer’s right to agree to confidentiality or sign a
confidentiality agreement in connection therewith before acquiring knowledge of
such information.
(f) Seller shall enter into any agreements with the CAISO required by the
CAISO for generators delivering power into the CAISO-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) Within thirty (30) days after execution of this Agreement, Seller shall
provide to Buyer a copy of Seller’s ultimate corporate parent’s most current
annual audited financial statements, prepared in accordance with GAAP.
Thereafter, from time to time at the request of Buyer (no more frequently than
annually), Seller shall provide to Buyer a copy of Seller’s ultimate corporate
parent’s most current annual audited financial statements, prepared in
accordance with GAAP. Additionally, by no later than thirty (30) days after the
end of each fiscal quarter, Seller shall also provide an unaudite d quarterly
financial statement of Seller prepared in accordance with GAAP consistently
applied for Seller. Such quarterly financial statements shall be certified by an
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officer of Seller as fairly presenting the financial condition of 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.
(h) Within fifteen (15) days of the later of (i) obtaining the authority to
construct for the Plant from the applicable Governmental Authority or (ii) Seller’s
receipt of the system impact and facility cost studies from the Participat ing TO,
Seller shall specify the then expected Initial Capacity of the Plant (which shall be
subject to the limits set forth in the definition of Initial Capacity). At that time,
Seller shall provide to Buyer a letter stating then expected Initial Capacit y of the
Plant in MW AC and specifying other material key Plant design details.
(i) At the request of Buyer at any time during the Term, Seller shall in good
faith evaluate and consider proposals for adding a battery storage unit to the
Plant, provided that Seller shall not be required to add any such storage unit to
the Plant unless and until Seller, Buyer and any Lenders each (in their sole and
absolute discretion) approves the technical details of such unit and appropriate
amendments to this Agreement related to such unit, including additional
compensation related to such unit.
4.3 Construction Milestones
(a) The Parties agree that time is of the essence in the performance of
Seller’s obligations under this Agreement, and certain milestones (“Milestones”)
for the development and construction of the Plant must be achieved in a timely
fashion or Buyer shall suffer damages which are difficult to estimate with
reasonable certainty. Seller shall provide Buyer with documentation satisfactory
to Buyer, acting in the reasonable exercise of its discretion, to support the
achievement of Milestones by the dates set forth below.
(b) The following events are all of the Milestones:
(i) By March 31, 2015 Seller shall have achieved the Construction
Start Date.
(ii) By June 30, 2015, Seller shall achieve Commercial Operation.
(c) Starting on the Effective Date, Seller shall provide to Buyer written
monthly progress reports concerning the progress towards completion of the
Milestones which shall be in form and substance as required by Buyer in its sole
discretion. 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 Seller’s achievement or satisfaction of the
Milestone. Seller shall provide to Buyer additional information concerning Seller’s
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progress towards, or confirmation of, achievement of the Milestones, as Buyer
may reasonably request from time to time.
(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 Force Majeure Event,
Seller shall so notify Buyer, in writing, as soon as is reasonably practical. Such
notice shall provide information regarding the cause of the delay, provide a
revised date for achievement of the Milestone(s), and otherwise describe Seller’s
plan for meeting the Milestone(s). Seller’s notice will also explain any impact
such delay may or will have on any other Milestone, an d measures to be taken to
mitigate such impact.
(e) In the event that:
(1) a Force Majeure Event causes any delay to the achievement
of any Milestone;
(2) there is a delay in or failure of completion of Interconnection
Facilities (through no fault of Seller, and provided that Seller has been
working in good faith to meet its obligations under its Interconnection
Agreement) beyond May 15, 2015; or
(3) there is an Eligible CEQA Delay;
then, and in any such case, each Milestone deadline shall be extended, in the
case of (1) above by that number of days the applicable Force Majeure Event
actually delays completion of such Milestone, in the case of (2) above by the
number of days elapsed between May 15, 2015 and the date of completion of all
applicable Interconnection Facilities, and in the case of (3) above by the number
of days of Milestone extension provided for under Section 10.19(e). For the
avoidance of doubt, any such extension of the deadline for the Construction Start
Date Milestone for a specified number of days shall extend the deadline for the
Commercial Operation Milestone for the same number of days. Notwithstanding
the foregoing, (i) in no event shall the combined extensions under this Section
4.3(e) for any individual Milestone arising from any individual cause listed above
(i.e., (1) Force Majeure Events, (2) a failure to complete Interconnection Facilities
(through no fault of Seller) or (3) Eligible CEQA Delays) exceed eight (8) months
in the aggregate, (ii) in no event shall the combined extensions under this
Section 4.3(e) for any individual Milestone from all causes in the aggregate (i.e.,
(1) Force Majeure Events, (2) a failure to complete Interconnection Facilities
(through no fault of Seller) and (3) Eligible CEQA Delays) exceed twelve (12)
months in the aggregate and (iii) if on any given day two or more events cause
delay to a Milestone at the same time (i.e., occur concurrently), Seller shall only
be entitled to one day of delay for such day.
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(f) For the avoidance of doubt, any reference herein to any Milestone date or
Milestone deadline shall be interpreted to mean such Milestone date or Milestone
deadline as may be extended under this Agreement, whether or not such
extension is expressly referenced.
(g) Seller covenants that it will diligently pursue to completion all Milestones
as set forth in Section 4.3(b).
(h) Seller shall provide written notice to Buyer thirty (30) days i n advance of
the anticipated Commercial Operation Date, and shall provide Buyer with
reasonable written weekly updates thereafter on the status of Seller’s progress in
achieving Commercial Operation until the week preceding the Commercial
Operation Date. On the Commercial Operation Date, Seller shall deliver to Buyer
by facsimile, with originals to follow by hand-delivery, courier or mail service, the
COD Certification signifying achievement of Commercial Operation.
4.4 Obligation to Schedule and Deliver
(a) Scheduling. During the Term, Buyer shall provide (or cause to be
provided), at its own expense, all Scheduling Coordinator services necessary for
both the delivery and receipt of Energy (from the Plant) at the Point of
Interconnection in accordance with all applicable CAISO and related protocols.
For the avoidance of doubt, during the Term (x) Buyer (and its Scheduling
Coordinator) shall have the exclusive right to schedule the Plant into the CAISO
grid in any manner reasonably determined from time to time by Buyer (and its
Scheduling Coordinator) consistent with the terms of this Agreement, CASIO and
related protocols, and the operational characteristics set forth in Exhibit D;
provided that if the manner in which the Plant is scheduled results in oth erwise
available Plant Energy not being scheduled, awarded or delivered in such CAISO
market, then the amount of such Energy shall be treated as Economic
Curtailment for all purposes of this Agreement, and (y) subject only to Sections
3.1, 4.1(h), 4.1(i) and 4.4(d), Buyer shall be solely responsible for all CAISO and
related costs and expenses associated with scheduling and the delivery of
Energy to and from the Point of Interconnection. Seller shall sign and deliver
documentation, if any, that are required to:
(i) designate and otherwise verify that Buyer or its designee is
Scheduling Coordinator on behalf of Seller for the Plant; and
(ii) allow Buyer to perform its various Scheduling Coordinator duties,
including, but not limited to, scheduling Plant output in accordance
with CAISO’s Participating Intermittent Resource Program (“PIRP”)
or successor programs.
Buyer shall appoint NCPA to act as Scheduling Coordinator for Buyer but
reserves the right to substitute any other qualified entity as Scheduling
Coordinator for the Plant upon reasonable advance notice to Seller.
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(b) General Confirmations. The Parties acknowledge their general
understanding and intent, subject to the terms and conditions of this Agreement,
as follows:
(i) Seller shall use all reasonable efforts consistent with Prudent Utility
Practice to maximize the output of Energy from the Plant;
(ii) Subject to Buyer’s role as Seller’s Scheduling Coordinator and the
other provisions hereof, Seller shall be responsible to arrange for,
and shall bear all risks associated with, delivery of all Plant Energy
to the Point of Interconnection;
(iii) Buyer shall be obligated to pay for all Energy delivered to the Point
of Interconnection; and
(iv) Buyer shall be responsible to arrange for, and shall bear all risks
associated with, acceptance and transmission of Energy at and
from the Point of Interconnection.
(c) Buyer Curtailment Rights.
(i) Mandatory Dispatch Down Periods. Seller shall reduce delivery
amounts as directed by the CAISO, Participating TO, or any
successor thereof during any Dispatch Down Period.
(ii) Discretionary Curtailments and Economic Curtailment.
(A) Buyer may require Seller to curtail deliveries of Energy from
the Plant to the Point of Interconnection for any reason in Buyer’s
discretion (a “Discretionary Curtailment”) by delivering a dispatch
notice to Seller, provided that (1) such Discretionary Curtailments
shall be limited to a quantity of not more than 10% of the Expected
Annual Net Energy Production in each Contract Year; and (2) the
dispatch notices shall be consistent with the operational
characteristics set forth in Exhibit D. Seller shall reduce the Plant’s
delivered Energy by the amount and for the period set forth in each
dispatch notice.
(B) In addition to paying Seller for all Energy actually delivered
hereunder, Buyer shall pay Seller, on the date payment would
otherwise be due in respect of each month in which any
Discretionary Curtailment or Economic Curtailment occurred, an
amount equal to the product of (1) the amount of Energy that Seller
could reasonably have delivered to Buyer but for such Discretionary
Curtailment and/or Economic Curtailment and (2) the Price.
(iii) Failure to Comply. If Seller fails to comply with a dispatch notice
that meets the requirements for a Discretionary Curtailment, then,
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for the amount of Energy (in MWhs) that the Plant delivered in
contradiction to the dispatch notice, Seller shall pay Buyer the
greater of: (A) 200% of the aggregate Price for such MWhs plus
any penalties or other charges actually incurred resulting from
Seller’s failure to comply with the dispatch notice; and (B) the
CAISO’s Real-Time Market (as defined in the CAISO Tariff) price
for the applicable PNode for such MWhs plus any penalties or other
charges actually incurred resulting from Seller’s failure to comply
with the dispatch notice.
(d) Forecast Fee. The Parties acknowledge that PIRP or its successor
program, by means of a contract with a forecasting service (the “Forecasting
Service”) develops high quality forecasts for day-ahead and/or hour ahead
scheduling for CAISO operations. Buyer, or Scheduling Coordinator, shall bear
forecast fees imposed by CAISO for use of the Forecasting Service, up to
$0.10/MWh. If such fees exceed this amount, the Parties will each be
responsible for 50% of such excess.
With respect to the Energy to be sold under this Agreement:
(i) If requested, Seller agrees to provide the Forecasting Service with
sufficient data to support a reasonably accurate and unbiased
forecast; and
(ii) Buyer, as part of its Scheduling Coordinator services, will use the
forecasts developed by the Forecasting Service, which are most
applicable to the Plant as the Plant’s “Energy Schedule” for the
CAISO Day-Ahead and/or Hour-Ahead markets.
ARTICLE V
BUYER’S OBLIGATIONS
5.1 Delivery and Transmission
Except for Seller’s obligations pursuant to Sections 3.1, 4.1(h), 4.1(i) and 4.4(d),
Buyer shall be solely responsible for paying costs and charges associated with
the delivery and receipt of Energy under thi s Agreement at the Point of
Interconnection and for the transmission and delivery of 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 CAISO charges related
to the transmission of such Energy by the CAISO and any charge assessed or
collected in the future pursuant to any utility tariff or rate schedule, however
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OHSUSA:756031452.7
defined, for transmission or transmission-related service rendered by or for any
transmission-owning or operating entity). Buyer shall be responsible for the
Scheduling Coordinator function. The NCPA, acting on behalf of Buyer, shall be
Scheduling Coordinator for the transmission of Energy from the Plant in
accordance with applicable CAISO rules. Buyer’s duties as Scheduling
Coordinator shall be limited to those duties as are specifically requir ed of
scheduling coordinators in the CAISO Tariff and the CAISO protocols.
Commercial arrangements for such transmission and delivery services will be
coordinated and settled by the Scheduling Coordinator directly with the CAISO 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
CAISO grid and related functions; provided that such inclusion shall have no
adverse effect on the Plant’s 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
CAISO Tariff; provided, that if such actions require any actions beyond the giving
of notices, then Buyer shall reimburse Seller for all reasonably incurred out -of-
pocket costs and charges of such actions. If and to the extent that Seller fails to
comply with the notice provisions 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 CAISO charges or
penalties associated with such Outage or CAISO Tariff obligation (it being
understood, however, that all such charges and penalties (if any) shall be borne
by Buyer if Seller has not failed to comply with such provisions or obligations).
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 Output 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 that are associated with Seller’s rights and privileges relating
to the Site.
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 Participating TO System or other
transmission or delivery facilities which might result in a Dispatch Down Period.
ARTICLE VI
FORCE MAJEURE
6.1 Force Majeure Events
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It is understood that at times unavoidable delays or interruptions in construction,
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 from
performing its obligations hereunder due to a Force Majeure Even t. 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 non-performing 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
Following the Commercial Operation Date, if a Party is prevented in a material
respect from performing any material obligations under this Agreement due to a
Force Majeure Event lasting for a period of twelve (12) consecutive months or
longer, the unaffected Party may terminate this Agreement, wi thout liability of
either Party to the other, upon thirty (30) days’ prior written notice at any time
following expiration of such period of twelve (12) consecutive months.
ARTICLE VII
DEFAULT/REMEDIES/TERMINATION
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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 written notification of breach by Seller or, if the breach cannot be
cured within thirty (30) days, such longer period as may be necessary to cure
such breach as long as Buyer is exercising diligent efforts to cure such breach.
(b) Buyer fails to make any payment due under this Agreement within thirty
(30) days after 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 unresolved
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
The following shall each constitute an “Event of Default” by the Seller:
(a) Seller breaches any material obligation (other than ones covered by
Sections 7.2(b), (c), (d), (e) or (f) of this Agreement or for which a remedy is
specified) and fails to cure such breach within thirty (30) days after written
notification of breach by Buyer or, if the breach cannot be cured within thirty (30)
days, such longer period as may be necessary to cure such breach as long as
Seller is exercising diligent efforts to cure such breach.
(b) Seller fails to make any payment due under this Agreement within thirty
(30) days after 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 unresolved
for sixty (60) consecutive days, or in the event of the initia tion by Seller of a
voluntary proceeding under the bankruptcy or insolvency laws.
(d) Seller sells or transfers the Output (or any individual component thereof)
or Expansion Plant Output (or any individual component thereof) or the right to
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.
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(f) Subject to Section 7.4(c) and 9.3, 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)(ii), as
such deadline may be extended in accordance with Section 4.3(e).
7.3 Termination for Default, Etc.
(a) Declaration of Early Termination Date. If an Event of Default with respect
to a defaulting Party shall have occurred and be continuing, the non -defaulting
Party shall have the right (a) to send notice, designating a day, no earlier than
ten (10) days after the day such notice is deemed to be received and no later
than twenty (20) days after such notice is deemed to be received, as an early
termination date of this Agreement (“Early Termination Date”), (b) to terminate
this Agreement and end the Term effective as of the Early Termination Date and
collect the Termination Payment, which shall be calculated in accordance with
Section 7.3(b) below or as otherwise expressly provided in this Agreement; (c)
withhold any payments due to the defaulting Party under this Agreement; (d)
suspend performance; and (e) exercise any other right or remedy available at law
or in equity to the extent otherwise permitted under this Agreement.
(b) Calculation of Termination Payment. The non-defaulting Party shall
calculate, in a commercially reasonable manner, a Termination Payment as of
the Early Termination Date. Third parties supplying information for purposes of
the calculation of Gains or Losses may include dealers in the relevant markets,
end-users of the relevant product, information vendors and other sources of
market information. If the non-defaulting Party uses the market price for a
comparable transaction to determine the Gains or Losses, such price should be
determined by using the average of market quotations provided by three (3) or
more bona fide unaffiliated market participants. If the number of available quotes
is three, then the average of the three quotes shall be deemed to be the market
price. Where a quote is in the form of bid and ask prices, the price that is to be
used in the averaging is the midpoint between the bid and ask price. The quotes
obtained shall be: (a) for a like amount, (b) of the same Output, (c) at the same
(or a reasonably equivalent) Pnode (as defined in the CAISO Tariff), and (d) for
the remainder of the Term, or in any other commercially reasonable manner.
The Gains and Losses shall be calculated as the difference, plus or minus,
between the economic value of the remainder of the Term of the Agreement and
the equivalent quantities and relevant market prices for the same term that either
are quoted by a bona fide market participant, a s provided above, or which are
reasonably expected to be available in the market for a replacement contract for
the Agreement. The Termination Payment shall be the sole and exclusive
remedy available to the non-defaulting Party in connection with its termination of
this Agreement and shall not include consequential, incidental, punitive,
exemplary, indirect or business interruption damages; provided that, if Seller is
the defaulting Party, Buyer terminates this Agreement, and Buyer has paid for
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interconnection capital costs arising under the Interconnection Agreement
pursuant to Section 4.1(h) for which Buyer has not received reimbursement
under Section 4.1(h), then Seller shall also reimburse Buyer pro rata for any such
costs paid for by Buyer (assuming twenty-five (25) years of Plant operations).
The non-defaulting Party shall not have to enter into replacement transactions to
establish a Termination Payment.
(c) Notice of Termination Payment. As soon as practicable after delivery of a
notice of termination, notice shall be given by the non -defaulting Party to the
defaulting Party of the amount of the Termination Payment due from the
defaulting Party to the non-defaulting Party, if any. The notice shall include a
written statement explaining in reasonable detail the calculation of such amount
and the sources for such calculation. The Termination Payment shall be made to
the non-defaulting Party, as applicable, thirty (30) days after such notice is
effective.
(d) Disputes Regarding Termination Payment. If the defaulting party disputes
the non-defaulting Party’s calculation of the Termination Payment, in whole or in
part, the defaulting Party shall, within fifteen (15) days of receipt of the non -
defaulting Party’s calculation of the Termination Payment, provide to the non-
defaulting Party a detailed written explanation of the basis for such dispute.
Following delivery of such a notice, disputes regarding the Termination Payment
shall be resolved in accordance with Section 10.9.
7.4 Damages
(a) Except as otherwise provided herein, the rights and remedies of a Party
pursuant to this Article VII shall be cumulative and in addition to the rights of the
Parties otherwise provided in 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, without limitation, 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 Article
IX 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 extended under Section 4.3), Seller shall
pay Buyer liquidated damages as set forth in Article IX.
(d) The Parties agree that the Termination Payment above, and the
liquidated damages set forth in Sections 9.3 and 9.4, are reasonable and
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represent a fair and genuine estimate of the damages that either Party will suffer
upon the termination of this Agreement or 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 actual
damages in such circumstances, and therefore they have deemed the liquidated
damages set forth above to be the amount of damage sustained by Buyer or
Seller upon the occurrence of such circumstances. The Parties further agree
that payment of such amounts shall be as and for liquidated damages and not as
a penalty (and are a sole and exclusive remedy upon a termination hereof, and
under Sections 9.3 and 9.4 hereof), and are therefore not subject to avoidance
under California Civil Code section 1671.
7.5 Indemnification
(a) Up to and including the Commercial Operation Date, the Seller shall
indemnify, defend, and hold harmless the Buyer, its officers, agents and
employees from any claim, liability, loss, injury or damage arising out of, or in
connection with, the negligence, willful misconduct or violation of applicable law
by Seller and/or its agents, employees or sub -contractors, excepting only loss,
injury or damage caused by the negligence, willful miscon duct or violation of
applicable law of personnel employed by the Buyer to the extent caused by such
negligence, willful misconduct or violation of applicable law of Buyer’s employed
personnel.
(b) After the Commercial Operation Date, each Party (“Indemnifying Party”)
shall defend, indemnify and hold harmless the other Party and its officers,
directors, employees, agents, affiliates and representatives (each, an
“Indemnified Party”) from and against any and all losses, including but not
limited to losses arising from personal injury or death, or damage to property, but
only to the extent such losses result from or arise out of the negligence, willful
misconduct or violation of applicable law by the Indemnifying Party, its
employees, subcontractors or agents. If an Indemnified Party determines that it
is entitled to defense and indemnification under this Article, such Indemnified
Party shall promptly notify the Indemnifying Party in writing of the losses, and
provide all reasonably necessary or useful information, and authority to settle
and/or defend the losses. No settlement that would impose costs or expense
upon the Indemnified Party shall be made without such Party’s prior written
consent.
7.6 Buyer’s Right to Operate
(a) Subject to Section 7.6(b), if, following the Commercial Operation Date, Seller
(i) fails to maintain Seller’s Two Year Minimum Production Threshold or (ii)
fails to generate Energy for sixty (60) consecutive days, then Buyer or its
designee may, but shall not be obligated to, assume operat ional control of the
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Plant from Seller; provided that Buyer shall not be permitted to take control so
long as Seller or any of Seller’s Lenders are using commercially reasonable
efforts to remedy the failures described in (i) or (ii) above consistent with
Prudent Utility Practice (the “Commercially Reasonable Efforts Standard”).
Buyer, its officers, employees, agents, contractors and designees shall have
the unrestricted right to enter the Plant to the extent necessary to operate the
Plant in accordance with the foregoing. 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 reasonable
satisfaction that Seller has the ability to operate the Plant in accordance with
this Agreement, Seller shall resume operational control.
(b) Prior to exercising any rights under this Section 7.6 (including taking any
action to assume operational control of the Plant), Buyer shall first provide at
least twenty (20) days prior written notice to Seller (and Lenders) identifying in
reasonable detail the reasons why Buyer believes that neither Seller (nor the
Lenders) have satisfied the Commercially Reasonable Efforts Standard to
remedy Plant failures (an “Operations Assumption Notice”). If, prior to the
expiration of such twenty (20) day (or longer) period, either Seller or its
Lenders responds to Buyer’s Operations Assumptions Notice and states in
reasonable detail reasons why Seller or it Lenders dispute Buyer’s assertion
that Seller and its Lenders have not satisfied the Commercially Reasonable
Efforts Standard, then Buyer shall refrain from exercising any rights under this
Section 7.6 until such dispute is resolved in writing by bo th Parties mutually,
or Buyer has obtained a court confirmation of its position in the manner
contemplated by Section 10.9.
(c) Should Seller’s Lender(s) refuse to finance the Plant, or materially condition
such financing, solely as a result of this Sectio n 7.6, and Seller gives Buyer
reasonable prior written notice of such refusal to finance, Buyer shall have the
following options: (1) renegotiate this Section 7.6 with Seller and Lender(s) in
a manner mutually acceptable; (2) 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; (3) delete this Section 7.6 in its entirety (which
deletion will not require Seller’s additional consent); or (4) terminate this
Agreement without liability of one Party to the other. 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. To the extent that Seller fails to accomplish
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financing, and such failure causes delays to the achievement of the
Milestones set forth at Section 4.3(b), and such delays are attributable to the
discussion and negotiation with Lender(s) of this Section 7.6, then Seller shall
be entitled to such reasonable time to arrange for the financing of the Plant
upon final resolution of matters related to this Section 7.6.
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 contempla tes conducting in this
Agreement, and Seller is duly qualified in California and 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, either: (1) (a) the Plant shall on the Commercial Operation
Date be a "qualifying small power production facility" (“QF”) as that term is
defined in Section 3(17)(C) of the Federal Power Act (“FPA”) and will be
entitled to all of the exemptions from regulation provided in 18 CFR §§
292.601(c) and 292.602 applicable to a QF with the capacity of t he Plant;
and (b) no approval (except with respect to "qualifying small power
production facility" status and market-based rate authorization under
Section 205 of the FPA) with respect to this Agreement is required from
FERC; or (2) (a) Seller shall on the Commercial Operation Date be an
"exempt wholesale generator" as that term is defined in Section 1262(6) of
the Public Utility Holding Company Act of 2005, and (b) no approval
(except with respect to "exempt wholesale generator" status and market
based rate authorization under Section 205 of the FPA) with respect to
this Agreement is required from FERC. In the event that the Plant is not a
"qualifying small power production facility" that is exempt from Sections
205 and 206 of the FPA on the Commercial Op eration 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 Section 10.15 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
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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 Effective Date, 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 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;
(ii) Buyer has the legal power and authority to make and carry ou t 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 Effective Date, 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
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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
DEVELOPMENT AND PERFORMANCE ASSURANCE
9.1 Forms of Assurance
Seller shall maintain the Development Assurance and the Performance Assurance as
follows:
(a) The Development Assurance shall be deposited by electronic transfer
to Buyer’s designated account with Wells Fargo NA or posted in the
form of a letter of credit or escrow account (in substantially the form of
agreements set forth on Exhibit F-1 and F-2 hereto) with Wells Fargo
NA or such other banking institution reasonably acceptable to Buyer,
as security for the timely development of the Plant. The transfer or
posting shall occur within thirty (30) days after the Effective Date, and
the Development Assurance will be maintained to and including the
Commercial Operation Date.
(b) The Performance Assurance shall be deposited by electronic transfer
to Buyer’s designated account with Wells Fargo NA or otherwise
posted in the form of a letter of credit or escrow account (in
substantially the form of agreements set forth on Exhibit F-1 and F-2
hereto) with Wells Fargo NA or other banking institution reasonably
acceptable to Buyer, as security for the performance o f the Seller to
meet its obligations during the period commencing one day after the
Commercial Operation Date and ending at the expiration of the Term.
The Performance Assurance shall be deposited or posted within thirty
(30) days after the Commercial Operation Date and shall be
maintained until the end of the Term.
9.2 Managing Assurances
Within ten (10) days after the occurrence of the Commercial Operation Date
Buyer shall notify Seller’s banking institution that the Development Assurance
(which shall be the full amount of the Development Assurance, plus interest
under the applicable account, less any undisputed liquidated damages incurred
under this Agreement) shall be returned to Seller. Buyer may either make, or
request Seller’s banking institution to make, withdrawals from the Development
Assurance and Performance Assurances in accordance with this Agreement and,
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if applicable, the terms of the letter of credit or escrow agreement. Seller shall
provide additional funds (or availability thereof) in order to maintain such
assurance (at the amounts thereof set forth in the definitions of Development
Assurance and Performance Assurance, as applicable) at all times during when
Seller must maintain Development Assurance and Performance Assurance, as
specified in Section 9.1. Such additional deposits or availability shall occur within
fifteen (15) days of any withdrawals from such accounts causing the account
balance to fall below said amounts. Within thirty (30) days after the expiration or
earlier termination of this Agreement, Buyer will return to Seller any undisputed
amount of the Development Assurance and/or Performance Assurance, as the
case may be.
9.3 Development Liquidated Damages
In the event that Seller fails to meet the Construction Start Date or Commercial
Operation Date by the applicable Milestone deadline, as set forth in Sections
4.3(b)(i) and (ii), as such deadlines may be extended in accordance with Section
4.3(e), Seller shall be liable for liquidated damages in the amount equal to the
Daily LD Amount for each day that Seller is late in satisfying the Milestone. So
long as Seller is paying such liquidated damages on a monthly basis after failing
to meet the relevant Milestone deadline (as such Milestone deadline may have
been extended per Section 4.3(e)), Buyer shall not be permitted to terminate this
Agreement for up to twelve (12) months. If after twelve (12) months following the
relevant Milestone deadline (as such Milestone may have been extended per
Section 4.3(e)) Seller has failed to achieve the relevant Milestone, or if for any
reason Seller fails to pay, or discontinues paying, the liquidated damages
provided for above, Buyer may terminate this Agreement by written notice to
Seller. This twelve (12) month period shall not be further extended as a result of
a Force Majeure Event. Within thirty (30) days of the receipt of the termination
notice, Seller shall pay Buyer a lump sum equal to the amount of the
Development Assurance minus any Daily LD Amounts, if any, previously paid to
Buyer. No other damages or remedy shall be available to Buyer on the basis of
such failure to meet the Milestones set forth in Sections 4.3(b)(i) and (ii) or
termination of this Agreement based on Seller’s failure to achieve Commercial
Operation within twelve (12) months of that Milestone deadline. If Seller
achieves Commercial Operation on or before the Milestone deadline as set forth
in Section 4.3(b)(ii), as such deadline may be extende d in accordance with
Section 4.3(e), Buyer shall promptly refund all Daily LD Amounts previously
received as a result of Seller’s failure to meet the Construction Start Date
Milestone deadline as set forth in Section 4.3(b)(i).
9.4 Performance Liquidated Damages
Seller guarantees that the Calculation Period Deemed Delivered Energy Amount
for each two-year Calculation Period shall be no less than the Two Year
Minimum Production Threshold for such Calculation Period, all in accordance
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with this Section 9.4. If, for any Calculation Period, the Calculation Period
Deemed Delivered Energy Amount is less than the Two Year Minimum
Production Threshold (any such shortfall, in MWh, a “Shortfall”), then Seller may
cure such Shortfall by paying or crediting Buyer liquidated damages based on the
amount of such Shortfall in an amount equal to the product of (i) the amount of
such Shortfall multiplied by (ii) the greater of (a) the per MWh Price in this
Agreement and (b) the average CAISO Day-Ahead price for energy in the
Existing Zone Generation Trading Hub which corresponds to the Existing Zone of
SP15 (as such terms are defined in the CAISO Tariff) over the applicable
Calculation Period multiplied by (iii) one-half (0.50). Except as otherwise
expressly stated in Sections 6.4 and 7.6, the foregoing shall be Buyer’s sole
remedy for any Shortfall or failure to produce the Output or failure to maintain any
specified Two Year Minimum Production Threshold. If for any two -year
Calculation Period Seller is obligated to pay or credit any Shortfall damages
hereunder, then, for purposes of calculating the Calculation Period Deemed
Delivered Energy Amount for the immediately succeeding Calculation Period, the
amount of the Calculation Period Deemed Delivered Energy Amount for the fir st
year in such succeeding Calculation Period shall be deemed to be equal to the
greater of (a) the actual Calculation Period Deemed Delivered Energy Amount for
such first year and (b) eighty percent (80%) of the Expected Annual Net Energy
Production for such first year.
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. Any Change of Control of Seller (whether
voluntary or by operation of law) will be deemed an assignment and will require
the prior written consent of Buyer, 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 those 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 10.2, shall be void. In determining
whether to provide its consent to any proposed assignment of this Agreement or
Change of Control, Buyer may request Seller to provide financial statements of
the proposed assignee or new controlling party, or other relevan t information, as
the case may be.
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10.2 Financing
Notwithstanding Section 10.1, Seller may, without the consent of Buyer,
collaterally assign its rights under this Agreement to Lender(s) as collateral
security in connection with any financing of the constr uction, 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(s) 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 ten (10) business 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. If Seller elects to enter into a sale lease -back
financing of the Plant, Buyer shall reasonably cooperate to provide such
consents and related documents as may be reasonably and cus tomary to carry
out such financing.
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:
City of Palo Alto
250 Hamilton Avenue, 8th Floor
Palo Alto, CA 94301
Attention: Senior Deputy Assistant City Attorney / Utilities
Telecopier: (650) 329-2646
on behalf of Buyer;
with a copy to:
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City of Palo Alto
250 Hamilton Avenue, 3rd Floor
Palo Alto, CA 94301
Attention: Director of Utilities
Telecopier: (650) 329-2946
and to:
Northern California Power Agency
651 Commerce Drive
Roseville, CA 95678-6411
Attention: Power Contracts Administrator
Telecopier: (916) 783-7693
and to:
[Seller]
[Seller’s address]
Attention: [Seller’s point of contact]
Email: [Seller’s email address]
Telephone: [Seller’s phone]
with a copy to:
[Seller’s legal counsel]
[Seller’s legal counsel address]
Attention: [Seller’s legal counsel]
Email: [Seller’s legal counsel email address]
Telephone: [Seller’s legal counsel phone]
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 email or (ii) upon receipt by the receiving Party if sent by
courier or U.S. mail.
10.4 Captions
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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 und er 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 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 exhibits and 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 made, 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 Santa Clara, State of California.
10.10 Nature of Relationship
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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.
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 forc e 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 affect ed
provision.
10.13 Confidentiality
(a) The Buyer is a public agency subject to the disclosure requirements of the
California Public Records Act (“CPRA”). If Seller’s proprietary information is
contained in documents or information submitted to Buyer, and Seller claims that
such information falls within one or more CPRA exemptions, Seller must clearly
mark such information “CONFIDENTIAL AND PROPRIETARY,” and identify the
specific lines containing the information. 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 A ct and the
Brown Act).
(b) In the event of a request for such information, the Buyer will make best
efforts to provide notice to Seller prior to such disclosure. If Seller contends that
any documents are exempt from the CPRA and wishes to prevent disclo sure, it is
required to obtain a protective order, injunctive relief or other appropriate remedy
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from a court of law in Santa Clara County before the Buyer’s deadline for
responding to the CPRA request. If Seller fails to obtain such remedy within
Buyer’s deadline for responding to the CPRA request, Buyer may disclose the
requested information. Seller further agrees that Buyer shall have no liability to
Seller arising out of any disclosure by Buyer of any Seller information.
(c) Notwithstanding the foregoing, either Party may disclose this Agreement
to its representatives (or any affiliate), the Northern California Power Agency or
its representatives, or to any Lender(s) or potential Lender(s) or Plant investors
or 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 the expiration or earlier termination of this Agreeme nt.
(d) Notwithstanding anything to the contrary in this Section 10.13, nothing
shall restrict any Party from using or disclosing confidential information in any
manner it chooses which (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
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).
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 Ag reement.
10.15 Mobile Sierra Doctrine
Notwithstanding any other provision of this Agreement, the Parties intend that the
standard of review for changes to any rate, charge, classification, term or
condition of this Agreement proposed by a Party shall be the “Mobile-Sierra
public interest” standard of review, as stated by the United States Supreme Court
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in Morgan Stanley Capital Group Inc. v. Public Utility District No. 1 of Snohomish
County, 554 U.S. 1164 (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”). Any modifications
proposed by a non-contracting third party or FERC acting sua sponte shall be the
most stringent standard permissible under applicable law.
10.16 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 o riginal.
10.17 Immunity Waiver
Each Party will comply with all applicable lawful federal, state and local laws,
ordinances, resolutions, rate schedules, rules and regulations that may affect its
rights and obligations under this Agreement. Buyer warrants and covenants that
with respect to its contractual obligations hereunder and performance thereof, it
will not claim immunity on the grounds of sovereignty or similar grounds with
respect to itself or its revenues or assets from (a) suit, or (b) jurisdiction of court
(including a court located outside the jurisdiction of its organization).
10.18 Debt Liability Disclaimer
For the avoidance of doubt, the Buyer, including, but not limited to, any source of
funding for Buyer, any General Fund or any special self insurance program, is
not liable for any debts, liabilities, settlements, liens, or any other obligations of
the Seller or its heirs, successors or assigns. The Buyer shall not be liable for
and shall be held harmless and indemnified by Seller for (a) any claims or
damages arising out of any other contract to which Seller is a party, and (b),
subject to 7.5(b), any tortious action or inaction, negligent error in judgment, act
of negligence, intentional tort, negligent mistakes or other acts taken or not taken
by the Seller, its employees, agents, servants, invitees, guests or anyone acting
in concert with or on behalf of the Seller.
10.19 CEQA
(a) CEQA Condition. The Parties acknowledge that their respective
obligations under this Agreement to proceed with the Plant remain subject
to the completion of environmental review under CEQA, which review
shall be conducted by Kern County (“County”) as “Lead Agency” under
CEQA and the Buyer as a “Responsible Agency” under CEQA. Such
CEQA review shall be deemed complete (“Final CEQA Approval”) when
(i) the County has approved a conditional use permit (the “CUP” or
“Conditional Use Permit”) and filed a Notice of Determination (as defined
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OHSUSA:756031452.7
under CEQA) with respect to the CUP under CEQA authorizing the
construction and operation of the Plant, (ii) the period for judicial appeals
of, and for the filing of a legal challenge to, the CUP and the EIR
certification pursuant to CEQA have expired without any such appeals or
legal challenges having been made or filed, (iii) the Buyer has filed a
Notice of Determination with respect to its review of the Plant under CEQA
and (iv) the judicial appeals period, and the period for the filing of a legal
challenge, under CEQA with respect to the Buyer’s Notice of
Determination shall have expired, without any such appeals or legal
challenges having been made or filed. If the Final CEQA Approval has not
occurred by December 31, 2016 (the “CEQA Deadline”), then this
Agreement may be terminated by either Party by delivery of written notice
to the other Party stating that this Agreement is terminated for failure to
satisfy the condition set forth in this Section 10.19.
(b) Buyer CEQA Review. Buyer retains full discretion as a responsible
agency under CEQA to determining whether to approve the Plant or
terminate this Agreement in accordance with Section 10.19(c) based on
the final CEQA documentation prepared by the County and any additional
CEQA environmental review conducted by Buyer. Buyer agrees to
comply with the requirements of CEQA Guideline Section 15096 in
connection with its review and approval of the Plant or termination of this
Agreement. The Buyer shall review the CUP and related CEQA
documentation (including an environmental impact report if applicable),
and issue and file its Notice of Determination in the manner necessary to
implement the shorter period of limitations set forth in Public Re source
Code 21167(b) or (e) and Guideline Section 15112(c)(1), or shall issue a
disapproval of the Plant under CEQA, within thirty-five (35) days after the
CUP is issued by the County.
(c) Termination. Buyer may terminate this Agreement if Buyer determ ines,
based on the CEQA review conducted by the County or by Buyer, that the
Plant causes significant adverse environmental impacts that are not
adequately mitigated or for which there are no overriding conditions
favoring approval of the Plant (the “CEQA Disapproval”). If, as a result of
CEQA review, the Buyer imposes conditions upon the construction or
operation of the Plant that are materially different from those imposed
under other Permits, or that require material modification of the design,
operation, location or other aspects of the Plant, then by notice to Buyer
given within thirty (30) days after the Final CEQA Approval (but not later
than the CEQA Deadline), Seller may terminate this Agreement. If Seller
accepts the modifications to the Plant that are included in the Final CEQA
Approval and the CUP, Seller may accept such changes by notice to
Buyer.
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(d) Effect of Termination. Any termination under this Section 10.19 shall be
“no-fault”, neither Party shall have any liability arising out of suc h
termination, and Buyer shall promptly return to Seller all Development
Assurance.
(e) Milestones. The Milestones shall be extended on a day-for-day basis for
each day after July 1, 2014 that the County issues the CUP (the “CUP
Issuance Date”), and each day after August 1, 2014 (the “Buyer CEQA
Approval Deadline”) that the Buyer issues its approval of the Plant under
CEQA, in the form of a Notice of Determination (as defined under CEQA).
The Buyer CEQA Approval Deadline shall also be extended on a day -for-
day basis for each day after July 1, 2014 that the County issues the CUP.
Seller shall provide Buyer with at least 14 days prior written notice of the
anticipated CUP Issuance Date. If the Buyer does not file its Notice of
Determination pursuant to California Public Resources Code §21152(a),
and CEQA Guidelines (14 Cal CCR §15112(c)(1)), within five (5) days
after approving the Plant under CEQA to achieve the thirty (30) day period
of limitations set forth in Pub. Resources Code §21167, the Milestones
shall be extended to a date that is one -hundred eighty (180) days after the
date on which the Buyer approves the Plant under CEQA after issuance of
the CUP by the County. Additionally, if, following the date of CUP
approval and certification of the EIR by the County, any lawsuit or other
action is filed that challenges the approval of the CUP or certification of
the EIR, each Milestone shall be extended on a day-for-day basis from
such approval date until the date on which such legal challenge is fully
and finally resolved allowing the Plant to proceed. All Milestone
extensions provided for under this Section 10.19(e) are herein collectively
referred to as “Eligible CEQA Delays.”
[signature page follows]
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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly
executed as of the day and year first above written.
SELLER
__________________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
BUYER
CITY OF PALO ALTO
APPROVAL AS TO FORM:
By:
Name:
Title: Senior Deputy City Attorney
Date:
CITY OF PALO ALTO
APPROVAL BY ADMINISTRATIVE
SERVICES DIRECTOR
By:
Name: Lalo Perez
Title: Administrative Services Director
Date:
CITY OF PALO ALTO
APPROVAL BY UTILITIES DIRECTOR
By:
Name: Valerie Fong
Title: Utilities Director
Date:
CITY OF PALO ALTO
APPROVAL BY CITY MANAGER
By:
Name: James Keene
Title: City Manager
Date:
CITY OF PALO ALTO
APPROVAL BY MAYOR:
By:
Name:
Title: Mayor
Date:
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EXHIBIT A-1
PLANT SITE DESCRIPTION
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EXHIBIT A-2
SITE DRAWINGS
Seller shall provide to Buyer final Site Drawings prior to the Commercial Operation
Date.
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EXHIBIT B
Environmental Attribute Transfer from Seller to Buyer
Participation in the Western Renewable Energy Generation Information System. Seller
shall, at its sole expense take all actions and execute all documents or instruments
necessary to ensure that all WREGIS Certificates associated with all Renewable Energy
Credits corresponding to all delivered Energy are issued and tracked for purposes of
satisfying the applicable requirements of the California Renewables Portfolio Standard and
transferred in a timely manner to Buyer for Buyer’s sole benefit. Seller shall comply with
all applicable laws, including, without limitation, the WREGIS Operating Rules, regarding
the certification and transfer of such WREGIS Certificates to Buyer and Buyer shall be
given sole title to all such WREGIS Certificates. Seller shall be deemed to have satisfied
the warranty in this EXHIBIT B, paragraph (viii) provided that Seller fulfills its obligations
under this EXHIBIT B, paragraphs (i) through (vii) below. In addition:
(i) Prior to the initial Energy delivery date, Seller shall register the
Plant with WREGIS and establish an account with WREGIS (“Seller’s WREGIS Account”),
which Seller shall maintain until the end of the Term. Seller shall transfer the WREGIS
Certificates using “Forward Certificate Transfers” (as described in the WREGIS Operating
Rules) from Seller’s WREGIS Account to the WREGIS account(s) of Buyer or the
account(s) of a designee that Buyer identifies by Notice to Seller (“Buyer’s WREGIS
Account”). Seller shall be responsible for all expenses associated with registering the
Plant with WREGIS, establishing and maintaining Seller’s WREGIS Account, paying
WREGIS Certificate issuance and transfer fees, and transferring WREGIS Certificates
from Seller’s WREGIS Account to Buyer’s WREGIS Account.
(ii) Seller shall cause Forward Certificate Transfers to occur on a
monthly basis in accordance with the certification procedure established by the WREGIS
Operating Rules. Since WREGIS Certificates will only be created for whole MWh amounts
of Energy generated, any fractional MWh amounts (i.e., kWh) will be carried forward until
sufficient generation is accumulated for the creation of a WREGIS Certificate.
(iii) Seller shall, at its sole expense, ensure that the WREGIS
Certificates for a given calendar month correspond with the delivered Energy for such
calendar month as evidenced by the Plant’s metered data.
(iv) Due to the ninety (90) day delay in the creation of WREGIS
Certificates relative to the timing of invoice payment under Article 3, Buyer shall make an
invoice payment for a given month in accordance Article 3 before the WREGIS Certificates
for such month are formally transferred to Buyer in accordance with the WREGIS
Operating Rules and this EXHIBIT B. Notwithstanding this delay, Buyer shall have all right
and title to all such WREGIS Certificates upon payment to Seller in accordance with Article
3.
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(v) A “WREGIS Certificate Deficit” means any deficit or shortfall in
WREGIS Certificates delivered to Buyer for a calendar month as compared to the
delivered Energy for the same calendar month (“Deficient Month”), after taking into
account applicable delays in the issuance of WREGIS Certificates referenced in the prior
paragraph or otherwise arising under WREGIS Operating Rules. If any WREGIS
Certificate Deficit is caused, or the result of any action or inaction, by Seller, then Seller
shall take all actions reasonably necessary to remedy such circumstances and failure to
do so shall be a breach hereunder by Seller.
(vi) Without limiting Seller’s obligations under this EXHIBIT B, to
the extent a WREGIS Certificate Deficit is caused by an error or omission of WREGIS, the
Parties shall cooperate in good faith to cause WREGIS to correct its error or omission.
(vii) If WREGIS changes the WREGIS Operating Rules after the
Effective Date or applies the WREGIS Operating Rules in a manner inconsistent with this
EXHIBIT B after the Effective Date, the Parties promptly shall modify this EXHIBIT B as
reasonably required (a) to cause and enable Seller to transfer to Buyer’s WREGIS
Account a quantity of WREGIS Certificates for each given calendar month that
corresponds to the delivered Energy in the same calendar month or (b) as may otherwise
be reasonably appropriate to address such inconsistency.
(viii) Seller warrants that all necessary steps to allow the renewable
energy credits transferred to Buyer to be tracked in the Western Renewable Energy
Generation Information System will be taken prior to the first delivery under this
Agreement.
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EXHIBIT C
INSURANCE COVERAGES
At its own expense, Seller shall secure and maintain during the Term the followi ng
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
Laws 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 Laws applicable to Seller.
2. Automobile Liability. Seller shall maintain Automobile Liability Insurance in
compliance with Requirements of Laws applicable to Seller, including
coverage for owned, non-owned and hired automobiles for both bodily
injury (including death) and property damage, including automobile liabilit y
contractual endorsement and uninsured/underinsured motorist protection
endorsements.
2. Third Party Liability. Seller shall maintain third party liability insurance in
compliance with Requirements of Laws 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. To the extent available on
commercially reasonably terms (as reasonably determined by Buyer), such
coverage shall not contain exclusions for punitive or exemplary damages.
4. Property Insurance. Seller shall maintain third party prope rty insurance on a
project-specific basis covering cost of repairing Plant and or Interconnection equipment
to operational condition. Such policy shall be written with coverage sufficient to replace
and rebuild the Plant. Coverage shall include, but not be limited to, fire, storm damage,
equipment failure, damage to equipment precluding operation under prudent utility
practice, premises/operations, explosion, collapse, underground hazards, broad form
property damage.
Upon the request from Buyer, Seller shall provide Buyer with applicable insurance
certificates confirming the insurance coverages required above.
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EXHIBIT D
SCHEDULING PROTOCOLS
Following the Effective Date, the Parties will agree on Exhibit D (Scheduling Protocols),
which shall be consistent with the CAISO Tariff, any applicable PIRP rules and
procedures, customary industry practice, and the Plant’s operational parameters
(including as to levels and timing of curtailments), such agreement not to be
unreasonably withheld by either Party.
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EXHIBIT E
COD CERTIFICATION
Commercial Operation Date: [______]
This certification (“Certification”) of Commercial Operation is delivered by ___________
(“Seller”) to The City of Palo Alto (“Buyer”) in accordance with the terms of that certain
Power Purchase Agreement dated as of the Execution Date (“Agreement”) by and
between Seller and Buyer. All capitalized terms used in this Certification but not
otherwise defined herein shall have the respective meanings assigned to such terms in
the Agreement. Seller hereby certifies and represents to Buyer the following:
1. The Plant equipment representing _________ MW AC of Initial Capacity has
been installed, tested and is capable of generating energy in accordance with the
manufacturer’s specifications.
2. The Plant is substantially complete and capable of delivering Energy as
described in the Agreement.
3. The CAISO has provided notification of Commercial Operation in accordance
with the CAISO Tariff, and documentation of such notification is attached h ereto
or shall be provided to Buyer promptly upon Seller’s receipt thereof.
EXECUTED by SELLER this ________ day of _____________, 20__.
By: _________________________________
Name: ______________________________
Title: ______________________________
The undersigned, a licensed professional engineer, hereby certifies that, to its current
knowledge, the foregoing is substantially true and correct.
[LICENSED PROFESSIONAL ENGINEER]
By: _________________________________
Name: ______________________________
Title: ______________________________
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EXHIBIT F-1
FORM OF LETTER OF CREDIT
If Seller elects to deliver Development Assurance or Performance Assurance in the form
of a letter of credit pursuant to Section 9.1 of this Agreement, such letter of credit shall
be a standby letter of credit in a form which is customary in the U.S. banking industry
and reasonably acceptable to Buyer (such acceptance not to be unreasonably
withheld).
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EXHIBIT F-2
FORM OF ESCROW AGREEMENT
If Seller elects to deliver Development Assurance or Performance Assurance in the form
of an escrow agreement pursuant to Section 9.1 of this Agreement, such escrow
agreement shall be in a form which is customary in the U.S. banking industry and
reasonably acceptable to both Parties (such acceptance not to be unreasonably
withheld by either Party).
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EXHIBIT G
EXPECTED ANNUAL NET ENERGY PRODUCTION
Contract Year Expected Annual Net Energy Production (in MWh)
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Note: The above amounts for Expected Annual Net Energy Production assume an Initial
Capacity of 25 MW AC. If the Initial Capacity of the Plant as of the Commercial
Operation Date is greater or less than 25 MW AC, then the amounts above shall be
proportionally adjusted.
Attachment C
Page 1 of 1
Green Premium Calculation
To conform to the City’s RPS policy rate impact limitation of 0.5¢/kWh on average, staff
compares the total cost of each renewable resource to the wholesale market price of non -
renewable energy at the time that the contract for the resource is executed. For each resource
the levelized1 cost impact ($/year) is calculated as:
Green Premium = (PPA cost + transmission charges – capacity value) – brown power cost,
where “PPA cost” is the renewable energy cost adjusted for its time -of-delivery2; “transmission
charges” are any costs Palo Alto would incur to get the energy delivered to CAISO territory;
“capacity value” is any system or local capacity value provided by the resource; and “brown
power cost” is the wholesale market price quote for non-renewable energy delivered to
Northern California for an equivalent term.
As shown in Table 2 in the report, for the 11 existing renewable energy contracts, the total
green premium that is expected to be paid annually once all projects are ge nerating (expected
by 2017) is $1.61 million, which corresponds to a rate impact of about 0.17¢/kWh. This means
that there is still room (almost $3.2 million per year) to acquire additional renewable energy
within the 0.5¢/kWh rate impact limit.
1 Levelizing is a process of taking nominal cash flows, discounting them to present value, summing the present
values, and amortizing the present value into uniform annual payments like a mortgage. The discounting and the
amortizing are both performed with the user’s discount rate or time value of money.
2 In general, solar PV projects deliver energy during the on-peak hours when energy deliveries are more valuable;
thus solar PV project prices are discounted slightly in the green premium calculation. The op posite adjustment is
usually true of wind projects.
Utilities Advisory Commission Minutes Approved on: Page 1 of 2
EXCERPTED DRAFT MINUTES OF THE MARCH 26, 2014
UTILITIES ADVISORY COMMISSION SPECIAL MEETING
NEW BUSINESS
ITEM 1: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend
that the City Council Adopt a Resolution Approving a Power Purchase Agreement with 65HK
8me LLC for up to 60,000 Megawatt-hours Per Year of Energy Over 34 Years for a Total Not to
Exceed Amount of $130 Million
Senior Resource Planner Jim Stack summarized the written report. He noted that the proje ct
will bring the City to 99% carbon neutral by 2017 through long-term hydro supplies and long-
term renewable energy contracts. He said that 92 project proposals were received in the Fall
2013 request for proposals (RFP). Stack explained that the evaluat ion criteria included price
and value as well as project viability and indicated a preference for earlier start dates.
Stack described the Hayworth Solar Farm Power Purchase Agreement (PPA) as having a
capacity of 25 megawatts (MW), which would generate 6% of the City’s annual electric supply
and would have an online date of June 30, 2015. The levelized price is $68.72 per megawatt -
hour (MWh) over the 34-year term of the PPA and the project is located in Kern County near
Bakersfield. Stack discussed the risks of the proposed PPA and the risk mitigation measures
that are part of the PPA, which include having the project developer post development and
performance assurance deposits in amounts that are significantly greater than those that have
been posted for all of the other renewable energy PPAs the City has executed.
Stack stated that the proposed PPA will deliver more energy than the City needs in 2017
through 2020 in the event that all the other solar projects that the City has contracted with are
completed and the hydroelectric generation is average or better. He noted that in 2021, earlier
renewable PPAs expire creating the need for more renewable energy.
Stack said that the electric portfolio is highly affected by hydro conditions and that, in wet
hydro conditions, surplus renewable energy would be sold in the market, but that the RECs
could be banked to meet Renewable Portfolio Standard (RPS) goals as well to maintain carbon
neutrality.
DRAFT
Utilities Advisory Commission Minutes Approved on: Page 2 of 2
Stack explained that the green premium for the Hayworth project is estimated at $330,000 per
year, and that this commitment would bring the City’s total committed green premium level for
all renewable energy projects to $1.9 million, which is equal to a rate impact of about 0.2
cents/kWh.
Commissioner Hall asked why the green premium in the presentation is different from the
number shown in the report. Stack indicated that he refreshed the numbers in the
presentation with a new estimate of brown market prices , resulting in a slight increase in the
estimated green premium relative to the number shown in the report. Hall stated that the
Bakersfield area is currently deemed to be capacity deficient, which benefits Palo Alto in that
the Hayworth project would count toward the City’s local capacity requirements , but that this
could change in the future. Stack indicated that the California Independent System Operator
(CAISO) undertakes studies of the grid on an annual basis and that the boundary lines are
changed periodically designating capacity constrained areas. He noted that staff monitors the
situation every year already and the situation could change such that, if the project’s
classification as a local capacity resource changes, the City might need to purchase additional
local capacity to replace it.
Commissioner Hall asked if a performance bond is posted up front, or at the time when the
non-performance event occurs. Stack stated that in this PPA, as in the City’s other solar PPAs,
the developer posts the performance bond at the time the project begins operating – in
advance of any performance related issues.
Chair Cook asked how long the City can bank RECs for RPS rules. Senior Resource Planner Jon
Abendschein stated that the State's RPS rules allow RECs to be banked indefinitely at least
through the end of the RPS compliance period (2020). Stack stated that in terms of banking
RECs for meeting the City’s Carbon Neutral electric portfolio goals, the City can set its own
banking limits.
Chair Cook asked if we have collected any development or performance assur ances for the
current PPAs for not hitting milestones. Stack said that all of the developers of the City’s solar
PPAs have posted development assurances in the form of cash or letters of credit, but so far we
have not had to draw on those funds because th e developers have so far been meeting their
development milestones. Director Fong noted that with one landfill gas to energy project that
needed to extend its commercial operation date (COD), we negotiated liquidated damages in
exchange for the extension of the COD.
ACTION:
Commissioner Eglash made a motion to approve the staff’s recommendation. Commissioner
Melton seconded the motion. The motion passed unanimously (4 -0) with Commissioners
Chang, Foster, and Waldfogel absent.
The contract for this project is a power purchase agreement (PPA), wherein a contractor (65HK 8me, LLC – whose
ultimate parents are 8minutenergy Renewables, LLC and Saferay, Inc.) will design, permit, finance, construct, and
operate a 25 MW(ac) solar photovoltaic generating facility (the Hayworth Solar Farm), and the City will receive
and pay for all of the electric output produced by the project during the contract term. The facility is expected to
be sited on low productivity, water-constrained agricultural land in Kern County, and to begin operating no later
than June 30, 2015. The PPA is structured as a 27-year base contract term, followed by a three-year extension
term option that can be exercised by either party and a four-year extension term option that can only be
exercised by Palo Alto. The negotiated price for the PPA is $68.72 per MWh for the first 13 years, $68.22 per
MWh for years 14 through 27, then $70.33 per MWh for the two extension terms (years 28 through 34).
This is an agreement to purchase power. Payments will be made only for power received. See Project Summary.
A Request for Proposals (RFP) for renewable electric power was issued by the Purchasing Department in
September 2013. The RFP was out for bid for approximately four weeks. A total of 92 proposals – representing a
variety of different renewable energy technologies, locations, contract terms, and prices – were submitted in
response to the RFP. These 92 proposals came from 38 different respondents. Staff evaluated the 92 proposals
based on their price and the value they could provide, their viability, and their compatibility with Palo Alto’s
existing electric supply portfolio. After thorough review of all proposals, staff concluded that the Hayworth Solar
Farm project proposal had the best total score.
The City of Palo Alto has never awarded a contract to the contractor (65HK 8me, LLC) or its ultimate parents
(8minutenergy Renewables, LLC and Saferay, Inc.).
The contractor’s parent companies, 8minutenergy Renewables, LLC and Saferay, Inc., have been awarded PPAs
for solar photovoltaic projects by numerous other utilities. 8minutenergy currently has a portfolio of more than
2,000 MW of solar photovoltaic projects in development in California, and recently completed the development
of the 200 MW Mount Signal project in Imperial County. And to date, Saferay has built more than 700 MW of
solar photovoltaic projects on five continents.
The PPA is structured as a 27-year base contract term, followed by a three-year extension term option that can
be exercised by either party and a four-year extension term option that can only be exercised by Palo Alto. Thus
the total contract term is up to 34 years.
The negotiated price for the PPA is $68.72 per MWh for the first 13 years, $68.22 per MWh for years 14 through
27, then $70.33 per MWh for the two extension terms (years 28 through 34). The PPA price was proposed by the
contractor through the RFP discussed above. The contractor arrived at this price by calculating its costs of
developing, financing, constructing and operating the project.
Staff does not anticipate the need for any amendments to the agreement at this time.
Staff requests that Council waive the application of the investment-grade 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
Hayworth will provide a $1.875 million letter of credit as a development assurance deposit, and a subsequent
$2.5 million letter of credit as a performance assurance deposit.
Staff also requests that Council waive the application of the anti-speculation requirement of Section D.1 of the
City’s Energy Risk Management Policy as it may apply to surplus electricity purchases resulting from the City’s
participation in the Hayworth PPA, including during the 2017-2020 time frame, due to the variability of the City’s
hydroelectric resources and the potential uncertainties associated with the timeliness and viability of the
renewable energy projects in the City’s portfolio that are still under development.