HomeMy WebLinkAbout1998-04-13 City Council (12)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
ATTENTION: FINANCE COMMITTEE 1
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:APRIL 13, 1998 CMR:190:98
SUBJECT:PROPOSED LAY-OFF OF A PORTION OF THE CITY’S
ENTITLEMENT TO THE CALIFORNIA-OREGON TRANSMISSION
PROJECT
REPORT IN BRIEF
This report requests that Council approve the lay-off of up to 4 percent (approximately 50
Megawatts of the City’s share of the Transmission Agency of Northern California’s
(TANC) entitlement in the California-Oregon Transmission Project’s (COTP). The lay-off
is for 20 years with an option to terminate no earlier than 2002. An economic analysis
(Attachment 1) shows that the lay-off will have a net present value to the City of $2.1 to
$2.9 million. The UAC approved this report at their April 1, 1998 meeting.
CMR: 190:98 Page 1 of 3
RECOMMENDATION
Staff recommends that the City Council approve an Agreement between the City of Palo Alto
and (TANC) providing for the lay-off up to 4 percent of the City’s share of .TANC’s
entitlement of the COTP.
BACKGROUND
In the early eighties, TANC, a joint action agency comprised of 17 municipal utilities and
irrigation districts, was formed for the sole purpose of constructing transmission projects to
provide its members with access to supply resources: The COTP is a 339 mile long
transmission project connecting southern Oregon to central California. TANC owns
approximately 80 percent of the COTP capacity. The City’s share of TANC is 4 percent.
Currently, the City pays for its share of the project obligation and makes use of the project
capacity to deliver power from the Northwest.
DISCUSSION
In the early eighties, when construction of the COTP was being contemplated, Palo Alto’s
access to the Northwest’s inexpensive hydroelectric supplies was very limited. Consequently,
the City’s investment in the COTP was very beneficial even when the project was under
utilized. In today’s deregulated environment, access to the Northwest is no longer an issue,
only the price to get the access. Therefore, at the right price, the City is better off selling its
share of the COTP to an entity that must have continuous access to Northwest, then purchase
that access only during the times when it is needed.
The attached analysis compares the cost that the City currently pays to meets its obligation
to TANC to the cost that the City might pay to acquire access from the market. The
difference is the reduction in cost to acquire access to the Northwest. The analysis also
compares the expected revenue from the layoff to the revenue realized provided that the City
elects to rum over control of its project share to the California Independent System Operator
(ISO), a public agency responsible for operating the California transmission grid. Staff also
considered the risks associated with a long-term (20 year) commitment in a dynamic,
deregulated market for transmission. The operation of the California electricity grid may
change substantially under the ISO control. It is possible that transmission congestion into
Califomia from the Northwest might increase within a few years due to availability of Pacific
Northwest hydro energy combined with higher California loads. The ISO is expected to
formulate a new transmission access charge policy within two years of its start of operations.
A market is also expected to develop for trading in firm transmission rights.
CMR: 190:98 Page 2 of 3
Due to these considerations, staff included an option to terminate the layoff after four years,
by which time staff would be able to study and evaluate further the developments in the
transmission market.
RESOURCE IMPACT
As shown in Attachment 1, this layoff agreement will result in a net revenue for the Electric
Utility of $2.1 to 2.9 million over a four year period. Staff will leverage existing personnel
resources in the City and TANC to administer and operate this layoff.
POLICY IMPLICATIONS
Staff recommendations are consistent with the existing policy of optimizing the value of the
City’s generation and transmission resources.
TIME LINE
If the City Council approves staff’s recommendations, transmission service may begin as
early as June 1, 1998.
ENVIRONMENTAL REVIEW
This program does not constitute a project for the purposes of the California Environmental
Quality Act.
ATTACHMENTS
Attachment 1: Economic Analysis
Attachment 2: Agreement between the City and TANC and between TANC and Purchaser.
Attachment 3: Draft minutes of UAC meeting
PREPARED BY:Shishir Mukherjee, Resource Planner
Tom Kabat, Senior Resource Planner
Girish Balachandran, Supply Resources Group Manager
~D~VARD J. Mt~ZEK
Director of Utilities
CITY MANAGER APPROVALS. ~__
EMILY HARRISON
Assistant City Manager
CMR:190:98 Page 3 of 3
ATTACHMENT 1
ECONOMIC ANALYSIS SHOWING VALUE OF COTP LAY-OFF
Actual Cost of 43.47 MW of COTP (debt service, O&M, A&G etc.) :$4.845 million
(A) Potential Cost to displace COTP by Market. Capacity:$ 2.446 million - $3.212 million
Cost Reduction:$1.633 million - $2.399 million
(B) Revenues from lay-off:$ 5.329 million
Potential Revenues from ISO (2000-2002)$ 2.423 million
(C) Value of lay-off = (B) - (A) =$2.117 million - $2.883 million
AGREEMENT BETWEEN
THE PURCHASER
AND THE
TRANSMISSION AGENCY OF NORTHERN CALIFORNIA
FOR LAYOFF TO
THE PURCHASER
OF ENTITLEMENT IN THE
CALIFORNIA.OREGON TRANSMISSION PROJECT
PARTIES
This Agreement is made this ~ day of ~, 1998, by and between the Purchaser, hereinafter.
referred to as the Purchaser, represented by the officer executing this Agreement or a duly
appointed successor, and the Transmission Agency of Northern California, a joint powers agency,
duly organized and existing under and by virtue of the laws of the State of California, hereinafter
referred to as TANC, its successors and assigns; hereinafter also referred to individually as "Party"
or collectively as "Parties."
RECITALS
This Agreement is made with reference to the following facts, among others:
2.1 TANC is a participant in.the California-Oregon Transmission Project (Project) and is the
Project Manager; .
2.2 The California-Oregon Transmission Project Interim Participation Agreement (IPA) was
executed by TANC and other Project participants on September 30, 1991 and is expected
to be in force throughout the full term of tiffs Agreement;
2.3 The Purchaser has a need for transmission capability beginning ~ 1, 1998 and
extending through December 31, 2018;
2.4 TANC is willing to provide a Layoff of transmission capability in the Project to the
Purchaser in specified percentage shares of TANC’s Entitlement share of the Project
Operational Transfer Capability (OTC), and the Purchaser is williug to purchase such
Layoff transmission capability;
2.5 The City of Palo Alto (Palo Alto) has a four (4) percent participation percentage share of
TANC’s Entitlement share of the Project; and
AGREEMENT
The Parties agree to the terms and conditions set forth herein.
EFFECTWE DATE, TERM. TERMTNA~ON. AND EFFECTS OF TERMINATION
4.1 This Agreement shall become effective upon its execution by both Parties, subject to
satisfaction of the condition of Section 6.1, and shall terminate in accordance with
Sections 4.1.1, 4.1.2, 4.1.3, or4.1.4 below.
4.1.1
4.1.2
4.1.3
4.1.4
TANC may terminate this Agreement upon ninety (90) days advance written
notice if the Purchaser assigns the rights and/or obligations under this Agreement
to any entity, either public or private, if in TANC’s sole opinion that assignment
would jeopardize the tax exempt status of TANC’s Project fin.anclng.
This Agreement may be terminated prior to December 31, 2018, on the
termination date of the IPA, only if the termination of the II~A renders this
Agreement unenforceable.
This Agreement may be terminated on or after May 31, 2002, by either Party
with no less than six (6) months advance written notice to the other Party.
This Agreement may be terminated by either Party, upon six months (6) written
notice, if TANC decides to turn its Entitlement to the Project over to the
Independent System Operator, or its successor operator of the California
transmission system.
4.2 Upon termination of this Agreement, all rights associated with this Layoff shall revert to
TANC and the Purchaser’s payment obligations associated therewith shall cease;
provided that any obligations previously incurred in accordance with this Agreement,
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including any obligations incurred prior to termination, to pay money shall be preserve
until satisfied.
DEFINITIONS
Whenever used in this Agreement, the various terms, when inkially capkalized, shall have the
following meanings. The singular of any definition shall include the plural and the plur£ shaU
include the singular.
5.1 Additions
New facilities together with the associated land rights, other than a Betterment or a
Replacement that is added to the Project.
5.2 Applicable_Entitlement
The percentage share of TANC’s Entklement share of the Project that defines the
proportion of the Purchaser’s rights and responsibilities wkh respect to TANC’s
Entklement share of the Project, as may be updated from time to time by mutual consent
among TANC; Palo Alto and the Purchaser, shown in Appendix A.
5.3 Betterments
Capkalized improvements that increase the Project’s Rated Project Tl;ansfer Capability.
5.4 Entitlement
A-Participant’s right to use ks portion of the Project OTC, expressed as a percent (%), as
defined and set forth in the IPA.
5.5
That charge against unpaid amounts due and owing, assessed at an interest rate
compounded monthly, equal to the lesser of the following amounts: (a) two percent (2%)
plus the applicable first of the month reference rate 0fthe Bank of America N.T. & S.A.,
San Francisco, California, or ks successor, corresponding to the period (measured in days)
during which the payment is overdue; or (b) the maximum interest rate permitted by law.
5.6
5.7
5.8
5.9
5.10
5.11
5.12
Any voluntary temporary transfer of any rights or obligations to Entitlement in the
Project.
Monthly Charge
That charge to be paid by the Purchaser on a monthlj, basis and calculated in accordance
with Appendix B, attached hereto and made a part hereof.
Operational Transfer Capability (OTC)
The transfer capability of the Project, determined consistent with Prudent Utility
Practice. From time to time, the OTC may be less than the Rated Project Transfer
Capability (RTC) due to a system emergency, loading condition, outage or other physical
limitation beyond the reasonable control of a Party, including, but no~ limited to, stability
limits, or loop flow.
Participant
A signatory to the IPA.
The California-Oregon Transmission Project, consisting of land rights, transmission lines,
substations, and related hcilities, includingi but not limited to, the following major
elements plus all Replacements, Additions, and Betterments: Northern segment, Olinda
Substation, CVP upgrade segment, Maxwell Compensation Station, Tracy Substation
expansion, Tesla By-Pass segment, and metering and communication facilities.
Prudent U~ility Practice
Those practices methods and procedures which are generally used by electric utilities
having a membership in the Western States Coordinating Council (WSCC) to design,
construct, operate and maintain an electric system dependably, reliably, s~ely, efficiently
and economically, with due regard for applicable laws, manufacturers’ warranties, and
requirements of governmental agencies of competent jurisdiction.
Rated Pl:oject Transfer...Gapaboility
The maximum capability of the Project to transfer electric energy in a prudent and
reliable manner. The RTC shall be established in accordance with the procedures of the
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WSCC or with an industry standard which replaces such procedures. The RTC, in
December 1997, is 1,600 Megawatts.
Replac.eme~t~
Capitalized replacements of equipment required to restore or maintain the Project’s Rated
Project Transfer Capability.
LAYOFF FROM TANC TO THE PURCHASER
As soon as practicable upon execution of this Agreerr:ent, TANC shall make a Layoff of
Applicable Entitlement amounts as per Appendix A to the Purchaser. Such Layoff shall entitle
the Purchaser to use an Applicable Entitlement share of TA.NC’s Entitlement share of the Projec~
OTC. Such Layoff shall be made in accordance with this Section 6 and shall comply with the
requirements of the
6.1 This Layoff is conditioned upon, and shall become effective only upon, the Purchaser
receiving the consent of the other Participants, if required, in accordance with the ~A.
6.2 TANG shall transfer to the Purchaser, and the Purchaser shall assume, all rights and
obligations associated with the Layoff of the Applicable Entitlement in consideration for
the Purchaser making payments for the Monthly Charge.
6.3 The Parties anticipate that there may be times when TANG may have additional
Entitlements available, on a monthly basis, for Layoff to other entities. In such cases,
TANG and the Purchaser may, upon mutually acceptable terms and conditions, enter
into agreements, on a monthly basis, for Layoffs of such Entklements.
CHARGES: The Purchaser shall pay a Monthly Charge for the Layoff furnished hereunder.
Such charge shall be calculated in accordance with Appendix B attached hereto.
BILLING AND PAYMENT: On or before the fifth (5th) day of each month, TANG shall
render an invoice for the Monthly Charge to the Purchaser for the Layoff provided hereunder.
The Purchaser shall make payment in full of such invoice on or before the first (lst) day of the
succeeding month regardless of any dispute which may exis~ as to any part of such invoice.
8.1 Amounts which are not paid when due shall include the Late Charge. Any amounts owed
and not paid in full bythe due date shall thereafter accrue a Late Charge from the date the
payment is due until the date such payment is made. The provisions of this Section shall
survive expiration of this Agreement until satisfied.
8.2 If all or any portion of a bill is disputed, the entire amount of the bill shall be paid when
due, and TANC shall be concurrently provided written notice of the disputed amount
and the basis for the d~spute. TANC shall reimburse any amount determined to have
been correctly disputed.
8.3 Bills shall be submitted by TANC to the Purchaser at the following address:
Purchaser
Street
P.O. Box
Purchaser, CA
Attention:
Resource, Planning and Development Manager
8.4 The Purchaser shall make remittance to TANC at the following address:
Transmission Agency of Northern California
P. O. Box 15830
Sacramento, California 95852-1830
8.5 Either Party may at any time, by written notice to the other Party, change the address
specified in this Section 8.
8.6 Disputed Billings
The Purchaser may dispute any invoice rendered in accordance with Section 8. In any
¯event, the Purchaser shall pay the full amount of such bill and notify TANC of the
amount of the dispute and the reason therefor. TANC and the Purchaser shall meet
within ten (10) business days to resolve such dispute. If the billing is found in error, the
Parties areParties shall reconcile any overpayment or underpayment promptly, l.f the ~
unable to resolve such dispute, the dispute shall first be brought before both the Chairman
of TANC and the General Manager of the Purchaser for resolution, l.f the Chairman of
TANC and the General Manager of the Purchaser are unable to resolve the dispute within
ninety (90) days~ the Parties shall have the right to pursue resolution of the dispute by any
other means including, but not limited to, arbitration or litigation.
MONETARY DEFAULT
The Purchaser shall be in monetary default of this Agreement when and if it fails to make
payments in accordance with Section 8.
9.1 To the extent the Purchaser does not cure, or is unable to cure, a monetary default within
the first sixty (60) days following the date that payment is due in accordance with Section
8, the Purchaser’s rights and obligations in accordance with this Agreement shall be
suspended except for the Purchaser’s obligation to pay costs incurred prior to suspension.
9.2 To the extent the Purchaser does .not cure, or is unable to cure, a monetary default withi~n~
the first one-hundred eighty (180) days following the date payment is due in accordance
with Section 8, the Purchaser’s rights in accordance with this Agreement, except its
obligations to pay all monies-related to the monetary default incurred prior to its
termination, shall revert to TANC.
10.SEVERABILITY
In the event .that any term, covenant, or condition of this Agreement or the application of any
such term, covenant, or condition shall be held invalid as to any person, entity, or circumstance
by any court or agency having jurisdiction, such term, covenant, or condition shall remain in
force and effect to the maximum extent permitted by law, and all other terms, covenants, and
conditions of this Agreement and their application shall not be affected thereby b[tt shall remain
in force and effect unless a court or agency holds that such provisions are not separable from all
other provisions of this Agreement.
11.
11.1 Except for damage Or loss resulting from willful misconduct, gross negligence, or breach
of fiduciary obligation in connection with this Agreement, neither Party, its members,
directors, members of its governing body, officers, or employees shall be liable to the
other Party for any loss or damage in connection with this Agreement.
11.2 Each Party shall be responsible for the consequences of its own willful misconduct, gross
negligence, or breach of fiduciary obligation in connection with this Agreement, and in
connection with any work undertaken in accordance with this Agreement, and shall
indemnify, defend, and hold harmless the other Pa’,~y, their members, directors, members
of their governing bodies, officers, and employees from the consequences thereof to the
extent allowed by law. Nothing in this Section 11 shall require ekher Party to obtain
insurance coverin~ the willful action, gross negligence, or breach of fiduciary obligation
of the other Party.
11.3 The provisions of this Section 11 shall not be construed to relieve arty ~surer of its
obligation to pay any insurance proceeds in accordance with the terms and conditions of
valid and enforceable insurance policies.
11.4 The provisions of this Section 11 do not in any way diminish the Purchaser’s obligations
under Sections 6, 7, 8, and 9 of this Agreement.
12.WA~rERS
Any waivers at any time by either Party to this Agreement of its rights with respect to a default
Or any other’matter arising under or in connection with this Agreement shall not be deemed a
waiver with respect to any subsequent default or matter.
13.COVENANT.. AGAINST ¢ONTINGElX~ FEES
The Parties warrant that no person or selling agency has been employed or retained to solicit or
secure this Agreement upon an agreement or understanding for a commission, percentage,
brokerage, or contingent fee, excepting bona fide employees or bona fide established commercial
or selling agencies maintained by the parties for the purpose of securing business. For breach or
violation of this warranty, the Purchaser shall have the right to withdraw from this Ag
without liability or, in its discretion, to deduct from the contract price or consideration the fiall
amount of such commission, percentage, brokerage, or contingent fee.
14.INTEGRATION
This Agreement constitutes the complete and final expression of the agreement between the
Parties and is a complete and exclusive statement of the terms of their agreement, and supersedes
all prior and contemporaneous offers, promises, representations, negotiations, discussions, and
communications which may have been made in connection with the subject matter of this
Agreement. This Agreement is the product of negotiations and nekher ambiguities nor
uncertainties shall, therefore, be Eonstrued in a manner which is prejudicial to either Party.
Appendix A entitled "Applicable Entitlement Associated with the TANC/Purchaser Layoff
Agreement"and Appendix B entitled "Monthly Charges Associated with the TANC/Purchaser
Layoff Agreement" are incorporated into this Agreement ~-d made a part hereof.
15.GOVERNING LAW
This Agreement is made and entered into in the State of California. Interpretation of this
Agreement, and performance and enforcement thereof, shall be determined in-accordance with
California law to the extent applicable, and otherwise in accordance with federal law, as if
performed within the State of California.
16.NOTICES
Any notice, demand or request in accordance with this Agreement shall be in writing and shall
be deemed property served, given, or made if delivered in person or sent by first class Uni(ed
States mail, postage prepaid, by a confu’med electronic facsimile, or by prepaid commercial courier
service to the other Party.
17.NO PRECED]SNTS.
Nothing contained in this Agreement shall be construed to establish any precedent for any other
agreement, or to grant any rights to or impose any obligations on either Party, beyond the scope
and term of this Agreement.
18.AUDIT
Either Party shall have the right to audit and to examine any cost, payment, settlement or
supporting documentation related to any cost incurred or payment or credit given pursuant to this
Agreement. Any such audit shall be at the requesting Party’s expense and undertaken by such
Party or its representatives at reasonable times and in conformance with generally accepted
auditing standards, the right to audit shall extend for a period of three (3) years following the
renderin~ of a bill or the payment or crediting of the cost incurred in accordance with this
Agreement. Consistent with the requirements of keeping Project records, each Party shall retain
all necessary records or documentation for the. entire length of the audit period.
19.ASSIGNMENTS
TANC and/or the Purchaser may assign the rights and/or obligations under this Agreement to
any entity, either public or private so long as TANC is satisfied that such assignment would not
jeopardize the tax exempt status of TANC’s Project financing.
20.COUNTERPARTS
This Agreement may be executed in any number of counterparts, and each executed
counterpart shall have the same force and effect as an original instrument and as if all the
Parties to all of the counterparts had signed the same instrument. Ariy signature page of this
Agreement may be detached from any counterpart to this Agreement without impairing the
legal effect of any signatures thereon, and may be attached to another counterpart of this
Agreement identical in form hereto but having attached to it one or more signature pages.
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21.SIGNATUILE CLAUSE
The signatories to this Agreement represent that they have been appropriately authorized to enter
into this Agreement on behalf of the Part), for whom they sign.
By:
Its:
Purchaser
By:
Tide:
Date:
Address:
By:
Its:
TRANSMISSION AGENCY
OF NORTHERN CALIFORNIA
By:
Title:Chairman
Date:
Address: P. O. Box 15129
Sacramento. CA 95851-0129
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APPENDIX A
APPLICABLE ENTITLEMENT
ASSOCIATED WITH THE TANC/Purchaser LAYOFF AGREEMENT
Applicable Entitlements will equal the value listed next to the starting date from that date until changed
to the next level indicated as in this Appendix A which can be modified by mutual agreement.
Starting Date Applicable Entitlement
June 1, 1998 3.4262%
Approximate
Applicable Entitlement MW
based on TANC’s 79.3022 %
Enti.tlement to the Project
at a 1600 MW
Rated Transfer Capability
43.47 MW
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APPENDIX B
MONTHLY CHARGES
ASSOCIATED ,,WITH THE TANC/PURCHASER L.~YOFF AGREEMENT
TANC shall bill the Purchaser on a monthly basis in accordance with the foli6wing formula which can
be modified by mutual agreement:
’The Purchaser Monthly Bill =A ’: ( B + C + D +E ) * ( 1 + F )
where: ,A --The Purchaser’s Applicable Entitlement share of TANC’s Entitlement
share of the Project.
B =TANC’s total monthly cost of principal and interest related to the
investment in the Project.
C ~-TANC’s total monthly charges for operations and maintenance associated
with TANC’s Entitlement share of the Project.
D --TANC’s total monthly charges for administrative and general expenses
associated with TANC’s Entitlement share of the Project.
E ~ TANC’s total monthly cost for additions and betterments associated with
TANC’s share of Project Entitlement.
F --10%; a factor to compensate for lost ownership opportunity and risks
associated with the transfer of an Applicable Entitlement share of Palo
Alto’s rights to TANC’s Entitlement share of the Project.
The cost components, B, C, D, and E as described above, may be updated each month and billed
accordingly.
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AGREEMENT NO. 1 BETWEEN
THE TRANSMISSION AGENCY OF NORTHERN CALIFORNIA
AND THE CITY OF PALO ALTO
REGARDING COTP TRANSMISSION CAPABILITY ¯
PREAMBLE
This Agreement is made and entered into as of May ~, 1998, by and between the Transmission Agency
of Northern California, hereinafter referred to as "TANC"; and the City of Palo Alto ("Palo Alto").
TANC, and Palo Alto, are referred to individually as "Par~y" or collectively as "Parties."
C°
E0
~CITALS
On December 10, 1984, TANC was duly established as a joint powers agency, pursuant
to Section 6500 et seq. of the California Government Code, by an agreement among its
Members entitled "Joint Powers Agreement, Transmission Agency of Northern
California" (Joint Powers’Agreement or JPA); and
TANG is a participant in the Californla-Oregon Transmission Project (COTP) and is the
project manager; and
TANC, as a COTP participant, has the Entitlement in the COTP; and
One or more TANC members ("Purchaser") has requested a COTP Applicable
Entitlement from TANC; and
TANC has agreed to provide an Applicable Entitlement of varying percentages outlined
in Appendix A of this Agreement to Requesting Member pursuant to the terms and
conditions of an agreement between TANC and Purchaser ("TANC/Purchaser
Agreement"), dated May_._.1998, ; and
The purpose of this Agreement is to set forth the arrangements under which Palo Alto
’ will provide a portion of its Participation Percentage to TANC so as to expedite TANC’s
provision of the Applicable Entitlement to Purchaser.
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NOW, TI-IEREFOtLE, the Par~ies agree as follows:
AGKEEMENT
The Parties agree to the terms and conditions set forth herein.
DEFINTTIONS
Whenever used in this Agreement, the various terms, when initially capitalized, shall have the
following meanings. The singular of any definition shall includethe plural and the plural shall
include the singular.
2.1 Applicable Entitlement
The percentage share of the TANC’s Entitlement to the Project that defines the
proportion of Purchaser’s rights and responsibilities with respect to TANC’s Entitlement
to the Project as updated from time to time by mutual consent as set forth in the TANG/
Purchaser Agreement of May __, 1998 and in Appendix A.
2.2 Entitlement
A participant’s right to use its portion of the rated COTP transfer capability, as set forth
in the California-Oregon Transmission Project Interim Participation Agreement (IPA)
which was executed by TANG, and other COTP participants on September 30, 1991.
2.3 . Monthly Payment
The payment that TANG shall.pay P£o Alto on a monthly basis, which shall consist of
the revenue that TANG receives from its agreement with Purchaser pursuant to the
TANG/Purchaser Agreement.
2.4 Participation Percentage
That percentage of TANC’s Entitlement to transfer capability which an individual
Member of TANG has the right to use as set forth in the agreement, entitled
"Transmission Agency of Northern Californi~ Project No. 3 for the California-Oregon
Transmission Project Agreement (PA-3), which was executed by TANG and certain
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2.5
TANC Members.
The California-Oregon Transmission Project, consisting of land rights, transmission lines,
substations, and related facilities, including, but not limited to, the following major
elements plus all Replacements, Additions, and Betterments: Northern Segment, Olinda
Substation, CVP Upgrade Segment, Max’well Compensation Station, Tracy Substation
Expansion, Tesla By-Pass Segment, and metering and Communication Facilities.
TERM ANDTERMINATION
This Agreement shall become effective upon the execution of the Parties and shall remain in full
force and effect through December 31, 2018 unless terminated in accordance with Sections 3.1,
3.2, or 3.3 below.
3.1.Palo Alto may terminate this agreement on or after May 31, 2002 with no less than six
(6) months advance written notice to TANC.
3.2 TANC may terminate this Agreement upon thirty (30) days written notice to Palo Alto
provided that TANC has already provided notice to Purchaser to terminate the TANC/
Purchaser Agreement in accordance with that agreement’s provisions. TANC agrees that
its decision to terminate the TANC/Purchaser Agreement shall be conditional upon the
prior written concurrence by Palo Alto to such a termination.
3.3 TANC may terminate this Agreement upon thirty (30) days written notice to Palo Alto
provided that Purchaser has already provided notice to TANC to terminate the TANC/
Purchaser Agreement.
TRANSMISSION CAPABIZITY TO BE PROVIDED
For the purpose and term of this Agreement, Palo Alto shall provide to TANC the -Applicable
Entitlement(s) shown in Appendix A. Palo Alto may elect to change its respective Applicable
Entitlement shown in Appendix A by mutual agreement with TANC. TANC hereby agrees
that, upon agreement to a change by Palo Alto, TANC’s Chairman shall, as soon as practicable,
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notify Purchaser that TANC will change the Entitlement provided under the TANC/Purchaser
Agreement, effective on the same date as the effective date for change for this Agreement.
BILLING ,,AND PAYMENT
The TANC Treasurer shah make a Monthly Payment to Palo Alto in an amount equat to
Purchaser’s payment to TANC as pei- the TANC/Purchaser Agreement. The Parties recognize
that the Parties may agree t0 implement net billing arrangements for the Monthly Payment.
Payments to Palo Alto shall be made by either:
Wire Transfer:
Bank of America, San Francisco, CA
Account Title: City of Palo Alto
Account Number: 14936-50109
ABA Number: 1210-0035-8
Attn.: SF Government Services # 1427
Check:
City of Palo Alto Utilities
Resource Management Division
250 Hamilton Avenue, 8th Floor
Palo Alto, CA 94301
Attn.: Assistant Director of
Utilities, Resource Management
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SI.GNATLU~ CLAUSE
The signatories to this Agreement represent that they have been appropriately authorized to enter
into this Agreement on behalf of the Party for whom they sign.
TRANSMISSION AGENCY OF NORTHERN CALIFORNIA
By:
Date:
¯APPROVED AS TO FORM:
By:
City Attorney
Date:
APPROVED.
By:
Director of Utilities
Date:
By:
Date:
Director of Administrative Services
By:
Date:
City Manager
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APPENDIX A
~PPLI~ABLE ENTITLEMENT
ASSOCIATED WITH THE TANC/PU’RCHASER_ TRA[NSMISSION AGREENF.ENT
Applicable Entitlements will equal the value listed next to the starting date from that date until changed
to the next level indicated as in this Appendix A which clm be modified by mutual agreement.
Starting Date Applicable Entitlement
June 1, 1998 3.4262%
Approximate
Applicable Entitlement MW
based on TANC’s 79.3022 %
Entitlement to the Project
at a 1600 MW
Rated Transfer Capability
43.47 MW
EXCERPT, UAC MEETING
April 1, 1998
7. a. Layoff of up to 43.47 MW of the City’s Share of COTP Transmission
Capacity
Mr. Habashi: Tom Kabat of the Supply Resource Group will introduce this
item.
Mr. Kabat: What you have before you is a request for a UAC recommendation
that you recommend council approval of a contract to lay off up to all of
Palo AIto’s current share of the California-Oregon Transmission Project
(COTP) at a price of cost plus 10%. We are currently in negotiation with one
party, with others in the wings, and we are not sure how many megawatts will
go, so we have left it somewhat flexible. Based on staff’s market
view for the value of transmission, we think that this will work out to be a
beneficial arrangement. It takes two parties to make atransaction like
this. There must be a buyer who thinks the opposite way.
Chairman Sahagian: Is the 3.4 some percent our entire piece of that
transmission?
Mr. Kabat: Yes, that is the remaining part, aside from a portion that we
have laid off to the City of Roseville through 2004. So it is all that we
currently hold for our own use. But there is another piece on the order
of seven megawatts or so out at the City of Roseville now. That is getting
100% of cost now.
Chairman Sahagian: You say in the report that the layoff will include an
option to terminate after four years. Precisely what does that mean?
Mr. Kabat: There is a termination clause where either party can terminate
the contract for any reason after four years.
Chairman Sahagian’. Would ownership revert back and we would keep the money
and still own the --?
Mr. Kabat: Right. We would get the asset back, we would no longer get the
income from the layoff, and we would continue making the payments. The way
the layoff would work is that we would lay the asset off, get income
from it, and make payments and have net income left over.
Chairman Sahagian: So if the cost of transmission goes up, we would probably
terminate the contract..If the cost of t~ransmission goes down, we would
still own it.
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Mr. Kabat: That is correct.
Chairman Sahagian: What was the reason for doing that? Are we in discussion
with a third party at this point?
Mr. Kabat: I believe the four-year termination is something that is in Palo
Alto’s interest, having a market view but not wanting to bet the whole farm
on it. At some point, the world may change, but as Tom mentioned,
it is hard to commit to anything five years out. We have left ourselves a
way out if we want it.
Chairman Sahagian: You also say, "Turn over City of Palo AIto’s share to ISO
and obtain revenues from access charge and usage charge." You have an
estimate of revenue -- 4.845. Is that a published tariff? What was the
underpinning for that number?
Mr. Kabat: That would be with the ISO paying full cost. Under one of the
ISO proposals, they would pay everyone’s revenue requirements. That would be
our cost.
Chairman Sahagian: That would be the cost. How are people going to derive
any profit from their transmission assets?
Mr. Habashi; As I understand it, they are the company’s revenue requirements
plus return on investment. The assumption here for municipal utilities, if
we end up turning our transmission to the ISO, they will just give
us our revenue requirements. Since we do not have any return on investment
for the COTP, then the assumption is that they will give us no return. They
will just give us our money back.
Chairman Sahagian: That is a very important issue here. I am trying to put
this in simple terms. We have a certain debt that we have to pay on this
asset, and that is. our cost. The motivation behind laying off this as
set I assume is going to be to eliminate its potentially becoming some kind
of a stranded investment for us. Is that correct?
Mr. Habashi: What we assume today is that the value of the transmission line
to us today, given the number of hours and the number of days that we use’ it,
is not as variable as it is to others, so you are correct, we thi
nk it is a stranded cost to us at this point.
Chairman Sahagian: If it were turned over to the ISO, is the ISO the
customer? Are they the customer you are referring to? Are you talking about
a third party that would then own it and then be able to either use it or
turn it over to the independent system operator?
Mr. Habashi: We are saying that turning it over to the ISO is just another
alternative to this contract, so we have two alternatives here. One of themhas not been realized yet, which is turning it over to the ISO. One
is being realized, which is the negotiations that we are having with thisparty. We are saying that if we did not negotiate and we did not have this
contract with this party, another possibility is that we can turn it o
ver to the ISO in perhaps six months or a year, a year-and-a-half from now.
If we do so, we will get our money back.
Chairman Sahagian: Is there a pretty high probability of that being
available to us? What I am wondering is, does that represent another option?
You were somewhat silent on that. It wasn’t a no-go, but it wasn’t a go
either. I looked at the range of options you had, and I thought that one
might be an interesting way to hang onto the asset and still minimize our
exposure in terms of stranded cost.
Mr. Habashi: Do you mean, turn it over to the ISO?
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Chairman Sahagian: Yes.
Mr. Habashi: If we turned it over to the ISO, we would no longer have any
rights to it, so we would not hold on to that access anymore. It becomes an
ISO-operated system, and we would just become like everyone else. We
would have to go to them and buy the access on a daily market or on a weekly
market, etc.
Chairman Sahagian: And it would float with the market?
Mr. Habashi: Yes.
Chairman Sahagian: The inference here is that it is above market, compared
to, say, PG&E’s capacity.
Mr. Habashi: Correct.
Chairman Sahagian: You state here "Rent ISO Grid (PG&E) capacity at $1.64
per kilowatt month." Can you explain what that means exactly?
Mr. Kabat: I believe that that estimate is the cost of just renting the
capacity during the times that we need it and paying congestion charges in
the (b), (c) and (d) cases that are in the notes below, showing the numbe
r of congested hours and the congestion, rate per hour.
Chairman Sahagian: So what you are basically saying is that we can rent this
transmission capacity from PG&E cheaper than we can use our own. Is that
about what this says?
Mr. Kabat: Yes.
Mr. Habashi: Just a reminder that it is no longer PG&E. It is now the
independent system operators.
Chairman Sahagian: They have put all of their transmission assets in the
hands of the ISO, as well?
Mr. Habashi." Yes.
Commissioner Gruen: You have given a number of scenarios here about the
number of hours per year that one might need this transmission. What are we
currently running at now? How many hours per year, and how is that rel
ated to which people we are getting power from?
Mr. Kabat: The hours listed in here are not necessarily just our hours of
use. They are the coincident hours between our hours of use and the hours of
heavy, systemwide use that results in congestion charges. So we do
use the line in many other hours, but it has no congestion relief value in
those other hours. There is not a large basis difference between the Oregon
border and the Tracy southern terminus of the line. The congestion,
I believe, has been on the order of 200 hours a year recently. I was not too
involved in that part of the city, but I believe the recent congestion has
been on the low end.
Commissioner Gruen: Is that for
what?
power or citywide power or
Mr. Kabat: Those are some of the resources we were bringing in over that
line. Also Power X, Seattle City Light, Bonneville Power are some of the
things we brought in across the line. Also some market purchases that we
may we would bring in across the line.
Commissioner Gruen: And is it the theory that we will be buying less of
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those things?
Mr. Kabat: We may buy less’of those with the potential call-back of some of
the Western allocation that you saw earlier in the quarterly report being
discussed. So it is definitely a possibility. Also, with direct acce
ss, if loads are not going up, if they were to go down, we might buy less in
the northwest.
Commissioner Eyerly: I do not have any questions on the analysis of the
financial situation, but in looking back, we got into this transmission line
to connect Bonneville’s resources. Is that correct?
Mr. Habashi: Yes, it is.
Commissioner Eyerly: We were having problems getting transmission from PG&E
to the Oregon border.
Mr. Habashi: Yes, back in the early 1980s, it was not an issue of how much
you paid. It was that there simply was no transmission to the northwest, no
matter how much money you had. That was why the munis got into the
COTP.
Commissioner Eyerly: With the ISO and the new deregulation setup, we feel
comfortable that if there is anything we want to buy out of the northwest
where we already have some type of contract, we can get it down here all
right.
Mr. Habashi: It is no longer a matter of access. It is a matter of price.
Commissioner Eyerly: Yes, so I do not have any problem with what you are
doing. You are preserving the capacity, and you have made a short-term
contract to 2002. That sounds good to me.
MOTION: Commissioner Gruen: I move that we recommend this action.
SECOND: By Commissioner Eyerly.
MOTION PASSES: Chairman Sahagian: We have a motionand second that we
recommend to the City Council that they approve the layoff of the COTP
transmission capacity. That motion passes on a vote of 3-0 with
Commissioners
Grimsrud and Johnston absent.
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