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HomeMy WebLinkAbout1997-01-21 City Council (15)TO: FROM: City of Palo Alto C ty Manager’s Report HONORABLE CITY COUNCIL 1.0 CITY MANAGER DEPARTMENT: UTILITIES DATE:January 21, 1997 CMR:115:97 SUBJECT:Bond Financing of the Termination Payment for the Washington Water Power Contract This is a request for CounCil approval ofPalo Alto’s participation in a short-term tax-exempt bond financing agreement through the Northern California Power Agency (NCPA). The proceeds from this financing will be used to fund the payment associated with termination of the Washington Water Power (WWP) power purchase contract. Staff is also requesting Council approval of a Budget Amendment Ordinance (BAO) to transfer funds from the power purchase account to the debt service account and to return power savings to reserves. Staff recommends that Council approve the attached Resolution for Financing Electric Capacity with the Northern California Power Agency. Staff also recommends Council appro~ie the att~hed BAO establishing the transfer of $170,000 from the power purchase account to the debt service account and the transfer of $67,000 from the power purchase account to reserves. There are no policy implications associated with this bond financing. NCPA has executed an agreement to terminate the power supply contract with WW-P in order to produce a net savings of $5.3 million ($670,000 for Palo Alto over five years with $67,000 occurring in FY 96-97). Termination of the power supply contract requires an upfront termination payment of $17,369,020 to W-WP ($2,188,496 f~m Palo Alto). Palo Alto’s share of the termination payment can be funded either with the proceeds from tax-exempt bonds issued by NCPA or from Palo Alto’s reserves. The majority of WWP participants at NCPA [92.6 % including City of Palo Alt0 Utilities (CPAU)] are interested in using tax-exempt bonds to fund their share of the termination payment CMR:115:96 Page I of 2 ($16,083,713). Bond issuance fees ($363,023) plus additional proceeds (up to $653,264) and debt service reserve ($1,900,000) raise the par amount to $19,000,000 (up to $2,585,330 for Palo Alto). Participation in NCPA’s issuance of tax-exempt bonds to fund the termination payment, rather than drawing from the utility reserve, allows the utility reserve to continue to earn .interest in excess of the bond interest payments. The preserved interest earnings are expected to exceed the bond interest payments by $50,000-$85,000 depending on short term U.S. Treasury interest rate levels averaging between 5.5 percent and 6.3 percent respectively over the four year bond life. EISCALIMPAC~ As a result of terminating the power supply contract with WWP, $67,000 in supply savings will be returned to reserves in 1996-97. Staff is requesting to move $170,000 in budgeted dollars from the power purchase account to the debt service account which has no fiscal impact. In addition, Staff expects to preserve $50,000 to $85,000 in interest earnings over the four year life of the bond issue. ENVIRONMENTAL ASSESSMENT ~ Financing contract termination costs and transfedng funds between accounts do not constitute a project for the purpose of the California Environmental Quality Act. ATTACHMENTS * Debt Service Table BAO for the transfer of $170,000 from power purchase account to debt service account and for the transfer of $67,000 from power purchase account to reserves Agreement for Financing Electric Capacity Resolution of the Council of the City of Palo Alto Approving and Authorizing the Mayor to Execute the Agreement for Financing Electric Capacity with the Northern California Power Agency. PREPARED BY: Raveen Maan, Resource Planner Tom Kabat, Senior Resource Planner DEPARTMENT HEAD APPROVAL: CITY MANAGER APPROVAL: CMR:115:96 Page :2 of ?2 Total PA share Due Date ’ Principle Interest Due (13.607%) $$$$ 1-Jun-97 1,000,000 248,570 1,248,570 169,893 1-Dec-97 354,855 354,855 48,285 1-Jun-98 31535,000 354,855 3,889,855 529,293 1-Dec-98 287,690 287,690 39,146 1-Jun-99 3,750,000 287,690 4,037,690 549,408 1-Dec-99 212,690 212,690 28,941 1-Jun-00 3,975,000 212,690 4,187,690 569,819 1-Dec-00 129,215 129,215 17,582 1-Jun-01 6,010,000 129,215 6,139,215 835,363 Total 18,270,000 2,217,470 20,487,470 2,787,730 ORDINANCE NO. ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO AMENDING THE BUDGET FOR THE FISCAL YEAR 1996-97 TO RECOGNIZE AND IMPLEMENT BOND FINANCING OF THE TERMINATION PAYMENT FOR THE WASHINGTON WATER POWER CONTRACT WHEREAS, pursuant to the provisions of Section 12 of Article III of the Charter of the City of Palo Alto, theCouncil on June 24, 1996 did adopt a budget for fiscal year 1996-97; and WHEREAS, the Northern California Power Agency (NCPA) has executed an agreement to terminate the power supply contract with Washington Water Power (WWP), an electric power supplier to NCPA agencies including the City of Palo Alto; and WHEREAS, the agreement to terminate the power supply contract with WWP will result in savings to the City of Palo Alto of $670,000 over five years; and WHEREAS, the City of Palo Alto is required to make a contract termination payment to WWP through NCPA; and WHEREAS, by using proceeds from tax exempt bonds instead of using Electric Fund cash reserves, the City will preserve between $50,000 to $85,000 in interest earnings; and WHEREAS, City Council authorization is needed to transfer budgeted funds from the utilities purchased for resale account; and WHEREAS, City Council authorization is needed to amend the 1996-97 budget as hereinafter set forth. NOW, THEREFORE, the Council of the City of Palo Alto does ORDAIN as follows: ~. The sum of One Hundred Seventy Thousand Dollars ($170,000) is hereby transferred from the Utility Purchases account to the General Expense account in the Functional Area Resource Management of the Electric Fund. The sum of $67,000 is hereby reduced from the Electric Fund’s Utility Purchases~ account and the Rate Stabilization Reserve is correspondingly increased. ~~h!__~. This transaction will increase Stabilization Reserve from $15,876,000 to $15,943,000. the Rate ~C~.~_~. As specified in Section 2.28.080(c) (i) of the Palo Alto Municipal Code, a majority vote of the City Council is required to adopt this ordinance. SECTION 5. The Council of the City of Palo Alt0 hereby finds that the enactment of this ordinance is not a project under the California Environmental Quality Act and, therefore, no environmental impact assessment is necessary. SECTION 6. As provided in Section 2.04.350 of the Palo Alto Municipal Code, this ordinance shall become effective upon adoption. INTRODUCED AND PASSED: AYES: NOES: ABSTENTIONS: ABSENT : ATTEST:APPROVED: City Clerk Mayor APPROVED AS TO FORM:City Manager Senior Asst. City Attorney Deputy City Manager, Administrative Services Department Director of Utilities ¯RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO APPROVING AND AUTHORIZING THE MAYOR TO EXECUTE THE AGREEMENT FOR FINANCING ELECTRIC CAPACITY WITH THE NORTHERN CALIFORNIA POWER AGENCY WHEREAS, the Northern California Power Agency ("NCPA") has entered into that certain WWP-NCPA 20-Year Power Sale Agreement ("Power Sale Agreement") effective as of October I0, 1991, between NCPA and The. Washington Water Power Company ("WWP") pursuant to which NCPA has acquired, as agent for those members of NCPA executing the Third Phase Agreement mentioned below 50 MW of firm electric capacity and associated energy; and WHEREAS, NCPA has entered .into that certain Northwest Resource Third Phase Agreement (the "Third Phase Agreement"), dated as of October ii, 1991, among NCPA and the City of Alameda, the~ City of Healdsburg, the City of Lodi, the City of Lompoc, the City of Palo Alto (the ""City"), the City of Roseville ("Roseville"), the Turlock Irrigation District and the City of Ukiah (collectively, the "Project Beneficiaries"), pursuant to which NCPA has sold the electric capacity and associated energy purchased under the Power Sale Agreement to the Project Beneficiaries and each of the Project Beneficiaries is obligated to pay its respective share of the costs incurred by NCPA in connection with the Power Sale Agreement, including the cost of capacity thereunder; and WHEREAS, the City and Roseville have entered into that certain agreement entitled "AGREEMENT BETWEEN THE CITIES OF PALO ALTO AND ROSEVILLE FOR THE ASSIGNMENT OF CAPACITY IN THENORTH FORK STANISLAUS RIVER HYDROELECTRIC DEVELOPMENT PROJECT AND OTHER ELECTRIC RESOURCES," dated June 14, 1991, to transfer a portion of the City’s rightsland obligations with respect to the WWP purchase and other resources to Roseville; and WHEREAS, NCPAand the Project Beneficiaries have determined ¯ there are significant economic savings by paying WWP a one-time payment equalto the present value of all unpaid fixed charges with respect to the capacity purchased under the Power Sale Agreement to June 30, 2001 (the "Capacity Payment") and to terminate the Power Sale Agreement including the obligations thereunder with respect to fixed charges for transmission under the Transmission Agreement (as defined in the Power Sale Agreement); and WHEREAS, the City has requested NCPA to issue its bonds for the purpose of financing the City’s share of the Capacity Payment; 1970109 syn 0071108 WHEREAS, NCPA is to undertake the financing of the City’s share of the Capacity Payment as provided in the Agreement for Financing Electric Capacity between NCPA and the City of Palo Alto (such agreement in the form presented to this meeting with such changes, insertions and deletions as are made pursuant to this resolution being referred to herein as the "Agreement"); and WHEREAS, there has been prepared and submitted to this meeting a form of the Agreement; NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as follows: SECTION I. The Agreement, in the form submitted to this meeting and made a part hereof as though set forth in full herein, be and the same is hereby approved. The Mayor is hereby authorized and directed to execute and deliver the Agreement in the form presented to this meeting w~ith such changes, insertions and deletions, which deletions may include the proviso clause at the end of Section 7(a) of the Agreement, as may be approved by the Mayor, whose execution of the Agreement will be conclusive evidence of such approval. SECTION 2. The Council of the City of Palo Alto does hereby find and determine that there are significant public benefits in financing the City’s share of the Capacity Payment through the issuance of bonds by NCPA as contemplated by the Agreement in that there are demonstrable savings in effective interest rate, bond preparation, bond underwriting and bond issuance costs that can be achieved through such financing. SECTION 3. The Mayor and ~any other proper officer of the City, acting singly, be and each of them hereby is authorized and directed to execute and deliver any and all documents or instruments and to do and perform any and all acts and things ~ necessary or proper for carrying out the transactions contemplated by the Agreementland by this Resolution. SECTION 4. The approval of the Agreement does not constitute a~project under the California Environmental Quality Act, and no environmental assessment is necessary. III III III III III III III III III III 2 970109 ~n 0071108 SECTION 5. In accordance with Section 2.04.350(a) (6) of the Palo Alto Municipal Code, this Resolution shall take effect immediately upon its adoption. INTRODUCED AND PASSED: AYES: NOES: ABSENT ABSTENTIONS: ATTEST:APPROVED: City Clerk APPROVED AS TO FORM: Senior Asst. City Attorney Mayor City Manager Director of Utilities Deputy City Manager, Administrative Services 3970109 syn 0071108 AGREEMENT FOR FINANCING ELECTRIC CAPACITY Dated as of January 1, 1997 By and Between NOR~ CALIFORNIA POWER AGENCY and CITY OF PALO ALTO LA1-158~5~.1 2. 3. 4. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. Definitions ......................................3 Purpose ........................................5 Financing of the City’s Share of the Capacity Payment ...........6 Sale of Capacity and Energy under Power Sale Agreement ........6 City Payments ....................................6 City Covenants ....................................7 NCPA Covenants ..................................8 Payments to Trustees for Bonds .........................8 Payments to NCPA ............................¯ .....~8 Events of Default ..................................9 Remedies .......................................9 City Direction ....................................10 Term ..........................................I0 Amendments .............~ .......................10 Bonds, Limited Obligations of NCPA .....................10 Indemnification ...................................10 Tax Covenant .. ; .................................12 Notices ........................................12 Third Phase Agreement ..............................12 Miscellaneous ........................... ..........12 APPENDIX A - Addresses for Notices APPENDIX B - Form of Opinion of Counsel APPENDIX C - Description of Project LA1-15~53.1 AGREEMENT FOR FINANCING ELECTRIC CAPACITY This Agreement for Financing Electric Capacity, dated as of January 1, 1997, by and between Northern California Power Agency, a joint powers agency of the State of California ("NCPA"), and the City of Palo Alto, California (the "City"), a municipal corporation duly created, organized and existing under and pursuant to the laws of the State of California, WITNESSETH: WHEREAS, the City is a party to the Joint Powers Agreement (capitalized terms used herein and not otherwise defined shall have the meanings given such terms pursuant to Section 1 hereof) pursuant to which NCPA has been duly established as a public agency in accordance with the provisions relating to the joint exercise of powers found in the Joint Powers Act; and ~S, NCPA as agent on behalf of the Project Beneficiaries, including the City, has entered into the Power Sale Agreement with WWP pursuant to which NCPA has acquired 50 MW of firm electric capacity, the energy associated with such capacity and certain rights with respect to. the transmission of such electric power to the California-Oregon border using the facilities of the BPA, in each case for a term of twenty years ending September 30, 2010; and WHEREAS, the Project Beneficiaries have entered into the Third Phase Agreement with NCPA pursuant to which NCPA has sold to each of the Project .Beneficiaries its Participation Percentage (as defined in the Third Phase Agreement) of the capacity, and associated energy acquired under the Power Sale Agreement, pursuant to which each of the Project Beneficiaries is obligated to pay its respective share of the costs incurred by NCPA in Connection with the Power Sale Agreement; and WHEREAS, to provide transmission to the California-Oregon border of the electric power purchased under the Power Sale Agreement,. WWP has entered into the ~smission Agreement with BPA pursuant to which WWP is obligated to make certain fixed payments to BPA; and WHEREAS, under the Power Sale Agreement, NCPA is obligated to make certain fixed payments for the capacity purchased thereunder and to pay WWP an mount equal to the fixed-transmission charges payable by WWP to BPA under the Transmission Agreement; and , W!iEREAS, NCPA and the Project Beneficiaries have determined that significant savings can be achieved by terminating NCPA’s obligations under the Power Sale Agreement with respect to the fixed transmission charges payable to BPA under the Transmission Agreement; and LA1-158353.1 WHEREAS, the Transmission Agreement is subject to termination upon the termination of the Power Sale Agreement; and WHEREAS, the Power Sale Agreement is subject m termination at the option of either party thereto, upon the notice specified therein, on and after June 30, 2001; and WHEREAS, WWP is willing to terminate the Power Sale Agreement prior to June 30, 2001 upon the payment by NCPA to WWP of the present value of all unpaid fixed charges with respect to the capacity purchased under the Power Sale Agreement to June 30, 2001 and, upon such termination of the Power Sale Agreement, to terminate the Transmission Agreement with BPA; and WHEREAS, by letter agreement dated October 21, 1996 NCPA and WWP have agreed to terminate the Power Sale Agreement, effective upon the acceptance without change or condition by the Federal Energy Regulatory Commission of WWP’s termination filing and NCPA has agreed to make a one-time payment to WWP, within fifteen days following the termination of the Power Sale Agreement and no later than February 28, 1997, of the present value of all unpaid fixed charges with respect to the capacity purchased under the Power Sale Agreement to June 30, 2001, which amount is specified in said letter agreement as $17,369,020 ff paid in December 1996, $17,111,839 if paid in January 1997; and $16,853,158 if paid in February 1997; and WHEREAS, WWP on October 29, 1996 terminated the ~smission Agreement with BPA; and WHEREAS, each of the Project Beneficiaries is obligated to pay to NCPA its Participation Percentage of the amount to be paid by NCPA to WWP with respect to the unpaid fixed charges with respect to the capacity purcha~ under the Power Sale Agreement pursuant to the terms of the aforementioned letter agreement; and WHEREAS, the Project Participants have requested NCPA to fiance their respective shares of the unpaid fixed charges with respect to the capacity purchased under the Power Sale Agreement pursuant to the terms of the aforementioned letter agreement; and WHEREAS, NCPA is authorized to issue its bonds to finance capacity rights pursuant to Article 4 of the Joint Powers Act; and ~S, the City desires to finance its Share of the Capacity Payment with NCPA Bonds on terms and conditions sufficient to provide funds to pay the principal of, premium, if any, and interest on such Bonds, as herein provided; and WHEREAS, NCPA and the City now desire to enter into this Agreement to provide for the financing of the City’s Share of the Capacity Payment and the security for the Bonds to be issued by NCPA for such purpose; LA1-158353.1 2 NOW ~ORE, the parties hereto do agree as follows: 1. DeFinitions. The following terms shall, for all purposes of this Agreement, have the following meanings: "Agreement" means this Agreement for the Financing of Electric System Capacity by and between NCPA and the City, dated as of January 1, 1997, as modified or amended in accordance with the terms hereof. "Authorized City Representative" means each member of the City Council of the City, the Mayor of the City and any other officer, employee or agent of the City designated in a resolution adopted by the City Council of the City and delivered to NCPA and each Trustee, which resolution shall be deemed to continue in full force and effect until a copy of any amendment or rescission of such resolution has been delivered to NCPA and each Trustee. "Bond Resolution" means an instrument providing for the issuance of Bonds and the terms thereof and may be a resolution, indenture of trust, order, agreement, or other instrument. "Bonds" means bonds, notes or other evidences of indebtedness of NCPA issued or entered into at the request of the City pursuant to this Agreement to finance the City’s Share of the Capacity Payment, and shall include that portion of an issue of NCPA bonds, notes or other evidences of indebtedness issued to finance the Capacity Payment, which portion is specifically identified as Bonds for purposes of this Agreement in the applicable Bond Resolution (including, without limitation, contracts relating to letters of credit or other credit or liquidity enhancement devices, interest rate swap and other agreements relating to interest rate or other cash-flow exchanges such as those authorized by the Public Finance Contracts Law, and other contracts which are characterized as debt by NCPA entered into at the request of the City in connection with the Bonds or the City’s Share of the Capacity Payment), including refunding bonds issued to refinance the City’s Share of the Capacity Payment, For purposes of this Agreement, Bonds shall be considered outstanding as of any date if such Bonds have not been paid, or if provision for the payment of the principal, premium, if any, and interest on such Bonds has not been made in accordance with the Bond Resolution pursuant to which such Bonds have been authorized. "BPA" m~s the Bonneville Power Administration~ "Capacity Payment" means the amount of the one-time payment to be made by NCPA to WWP pursuant to that certain letter agreement dated O~tober 21,. 1996 relating to the Power Sale Agreement representing thcpre~nt value of the unpaid fixed charges for the capacity purchased by NCPA under the Power Sale Agreement to June 30~ 2001 which amount shall be equal to $17,111,839 if paid in January 1997 and $16,853,158 ifpald in February 1997. "Code" means the Internal Revenue Code of 1986, as amended, and the appficable regulations thereunder and sh~ include any successors to such statute and regulations. LA1-158353.1 "Commission" means the Commission which is the governing body of NCPA established pursuant to the Joint Powers Agreement. "Debt Service" means, with respect to any period, the aggregate of the amounts required by each Bond Resolution to be paid during said period into any fund or account created by each such Bond Resolution for the sole purpose of paying or providing reserves for paying the principal (including sinking fund installments) of and premium, if any, and interest on all the Bonds from time to time outstanding and shall include any amounts payable under letters of credit or other credit or liquidity enhancement devices, interest rate swap and other agreements relating to interest rate or other cash-flow exchanges such as those authorized by the Public Finance Contracts Law and other contracts which are characterized as debt by NCPA entered into at the request of the City in connection with the Bonds or the City’s Share of the Capacity Payment. "Electric System" means, with respect to the City, all properties and assets, real and personal, tangible and intangible, of the City now or hereafter existing, used or pertaining to the generation, transmission, transformation, distribution and sale of electric capacity and energy, including all additions, extensions, expansions, improvements and betterments thereto and equipment thereof; provided, however, that to the extent the City is not the sole owner of an asset or property or to the extent that an asset or property is used in part for the above described electric purposes, only the City’s ownership interest in such asset or property or only the part of the asset or property so used for electric purposes shall be considered to be part of its Electric System. "Fiscal Year" means the then current fiscal year of NCPA, .which on the date of this Agreement is the period from July 1 to the next succeeding June 30. "Interconnection Agreement" means the Interconnection Agreement among Pacific Gas and Electric Company, NCPA, and certain members of NCPA, .as the same may be amended and supplemented from time to time, and including any successor agreement. "Joint POWerS Act" means Chapter 5, Division 7, Title 1 of the Government Code of the State of California. "Joint Powers Agreement" means the Northern California Power Agency Joint Powers Agreement, dated as of July 19, 1968, as amended and supplemented. "Power Sale Agreement" means the "WWP-NCPA 20-YEAR POWER SALE AGREEMENT", effective as of October 10, 199.1 between WWP and NCPA. "Project" means right to capacity purchased from WWP under the Power Sale Agreement to June 30, 2001. "Project Beneficiaries,’ means, collectively, the City of Palo Alto, the City of Healdsburg, the City of Lodi, the City of Lompoc, the City of Palo Alto, the City of Roseville, the Turlock Irrigation District and the City of Ukiah. "Project Participants" means, collectively, the City of Palo Alto, the City of Lodi, the City of Palo Alto, the City of Roseville, and the Turlock Irrigation District. "Public Finance Contracts Law" means Chapter 12 of Division 6 of Title 1 of the Government Code of the State of California, as the same may be amended and supplemented from time to time and shall include any successors to such statute. "Revenues’, means, withrespect tothe City, all income, rents, rates, fees, charges, and other moneys derived by the City from the ownership or operation of its Electric System, including, without limiting the generality of the foregoing, (i) all income, rents, rates, fees, charges or other moneys derived from the sale, furnishing, and supplying of electric capacity and energy and other services, facilities, and commodities sold, furnished, or supplied through the facilities of its Electric System, (ii) the earnings on and income derived from the investment of such income, rents, rates, fees, charges or other moneys to the extent that the use of such earnings and income is limited by or pursuant to law to its Electric System and (’fii) the proceeds derived by the City directly or indirectly from the sale, lease or other disposition of all or a part of the Electric System as permitted hereby, but the term "Revenues" shall not include (y) customers’ deposits or any other deposits subject to refund until such deposits have become the property of the City or (z) contributions from customers for the payment of costs of construction of facilities to serve them. "Share of the Capacity Payment,, means, with respect to the City of Palo.Alto, a twelve and six tenths percent (12.60%) share of the Capacity Payment. "Third Phase Agreement" means that certain Northwest Resource Third Phase Agreement, dated as of October 11, 1991 by and among NCPA and the City of Palo Alto, the City of Healdsburg, the City of Lodi, the City of Lompoc, the City of Palo Alto, the City of Roseville, the Turlock Irrigation District and the City of Uldah. "Transmission Agreement" means the Intertie and Network Transmission Agreement between WWP and BPA referred to as the "Transmission Agreement" in the Power Sale Agreement. Resolution. "Trustee" means the entity or entities, if any, acting as the trustee under any Bond "WWP" means The Washington Water Power Company, a corporation organized and existing under the laws of the State of Washington. 2. Purpose. The purpose of this Agreement is to set forth the terms and conditions of (i) the financing of the City’s Share of the Capacity Payment; (ii) the undertaking LAI-158353.1 ~ by NCPA to issue Bonds to make the proceeds thereof available to pay the City’s Share of the Capacity Payment; and (fii) the undertaking of the City to make payments with respect to, among other things,. Debt Service on the Bonds. 3. Financing of the City’s Share of the Capacity Payment. NCPA will use its best efforts to cause or accomplish the financing of the City’s Share of the Capacity Payment, including obtaining all necessary authority and rights therefor and performing all things necessary or convenient in connection therewith. In order to provide funds to pay the City’s Share of the Capacity Payment, NCPA shall use its best efforts to sell, issue and deliver Bonds as soon as practicable after the execution and delivery of this Agreement in an amount sufficient to pay the City’s Share of the Capacity Payment and the costs of issuance of such Bonds, providing capitalized interest on such Bonds, funding any debt service or other reserves required by the applicable Bond Resolution. NCPA shall cause each applicable Bond Resolution to provide that the Bond proceeds, and any other monies, held under such Bond Resolution for. such purpose, shall be made available to pay the City’s Share of the Capacity Payment, upon appropriate requisitions by NCPA therefor, submitted pursuant to the terms of such Bond Resolution; provided, however, that nothing herein contained shall restrict the authority of any Trustee to apply funds held under a Bond Resolution to the payment of Debt Service on Bonds or maintaining reserves therefor in accordance with the terms of such Bond Resolution. Monies held under each Bond Resolution representing Bond proceeds, payments by the City or interest on either thereof shall be invested, to the extent permitted by the applicable Bond Resolution, at the direction of NCPA to the applicable Trustee, in such investments as may be permitted under such Bond Resolution and, to the extent not required to be rebated to the United States Treasury, interest or other investment earnings on such monies shall be applied pursuant to such Bond Resolution to reduce payments that would otherwise be required to be made by the City thereunder and hereunder. 4. Sale of Capacity and Energy under Power Sale Agreement. Pursuant to the terms of the Third Phase Agreement, NCPA has heretofore sold and transferred the City’s Participation Percentage (as defined in the Third Phase Agreement) of the capacity and energy purchased by NCPA under the Power Sale Agreement. 5. City Payments. (a) In consideration of the financing of the City’s Share of the Capacity Payment by NCPA, the City shall pay an amount equal to the Debt Service on the Bonds, all other payments relating to the Bonds required to be made under the Bond Resolutions and any other costs incurred by NCPA in connection with the City’s Share of the Project and this Agreement, including amounts payable pursuant to Section 16 hereof. (b) The obligation of the City to make any and all payments hereunder is a special obligation of the City payable solely from Revenues, and does not constitute a debt of the City or of the State of California or of any political subdivision thereof within the meaning of any constitutional or statutory debt limitation or restriction, nor a pledge of the full faith and credit and taxing power of the City or any other entity. Nothing herein shall be construed as prohibiting the City from using any other funds and revenues for purposes of satisfying any LA1-158353.1 6 provisions of this Agreement, or from entering into contracts or incurring other obligations payable from Revenues on a parity with the City’s obligation to make payments hereunder. (c) The obligations to make payments with respect to Debt Service and other payments required to be made under the Bond Resolutions pursuant to subsection (a) of this Section 5 are incurred by the City for the benefit of future owners of Bonds, and shall be absolute and unconditional. The City shall make payments under this Agreement whether or not any electric capacity or energy from the Project is made available or furnished to the City at all times or at all, and notwithstanding the suspension, interruption, interference, reduction or curtailment, in whole or in part, for any reason whatsoever of any facility from which Project capacity is to be made available or the sale, assignment, Wansfer or other disposition of its Participation Percentage of the capacity and energy purchased by NCPA under the Power Sale Agreement by or on behalf of the City or the termination of the Power Sale Agreement. Such payments shall be absolutely net, free of any deductions, and are not subject to any reduction, whether by offset, recoupment, counterclaim or otherwise. The City shall make all such payments notwithstanding the occurrence of any act or circumstances that may constitute failure of consideration, destruction of or damage to any facility from which Project capacity is to be made available, commercial frustration of purpose, any sale, assignment, transfer or other disposition of its Participation Percentage of the capacity and energy purchased by NCPA under the Power Sale Agreement by or on behalf of the City or the termination of the Power Sale Agreement or any change in the tax or other laws of the United States of America or of the State of California, or any political subdivision or either of these, or any failure of NCPA or a Trustee to perform and observe any covenant, whether express or implied, or any duty, liability or obligation arising out of or connected with this Agreement, a Bond Resolution or any other agreement; provided, that nothing contained in this Section 5 shall constitute a waiver of the City’s right to commence an action to enforce its rights under this Agreement. (d) Any payments required .to be made by, or costs incurred by, NCPA or the City pursuant to Section 9.5 of the Intercolmection Agreement shaft not be made under this Agreement. 6. City Covenants. (a) The City covenants and agrees that it shall, at alltimes, operate the properties of the Electric System and the business in connection therewith in an efficient and economical manner and at reasonable cost and shall maintain the Electric System in good repair, working order and condition; provided, however, that nothing in this Agreement shall prevent the City, in its sole and exclusive, discretion, from permitting other parties to sell electricity to retail customers within the area currently served by its Electric System. - (b) The City covenants and agrees to estabfish and collect rates and charges for the services and commodities provided by the Electric System sufficient to provide Revenues adequate to meet its obligations under this Agreement and to pay all other amounts payable from, and .all lawful charges against or liens upon, the Revenues; ~, that the obligation of the Cityto make payments under this Agreement shaU not constitute a legal or equitable pledge, lien or encumbrance upon any property of the City or upon any of its income, receipts or revenues; and ~ ~, that neither the City nor the State of California or any agency or political subdivision thereof shall ever be obligated or compelled to levy ad valorem taxes to make the payments provided for in this Agreement, 7. NCPA Covenants. NCPA covenants and agrees to pledge and assign this Agreement or all of its right, title and interest in, to and under this Agreement (excluding NCPA’s right to indemnification payments pursuant to Section 16), including without limitation NCPA’s rights to receive all orany portion of the payments hereunder from the City and to enforce the City’s obligations hereunder, to secure the payment of Bonds, Such pledge and assignment by NCPA shall be made effective for such time as shall be provided in the applicable Bond Resolution, The City consents to such pledge and assignment. 8. Payments to Trustees for Bonds, To the extent required byany Bond Resolution, the City shall make all payments due hereunder with respect to Debt Service and other payments required to be made under such Bond Resolution directly to the Trustee under the applicable Bond Resolution at such times as shall be specified in such Bond Resolution, which payments to the Trustee shall satisfy, ~discharge and release the City’s obligations hereunder to the extent of such payments. 9. Payments to NCPA~ A billing statement prepared by NCPA will be sent to the City not later than the fifteenth (15th) day of each calendar month showing the amount payable to NCPA by.the City: (i) to the extent not required to be paid to a Trustee.pursuant to Section 8, for amounts due under this Agreement with respect to Debt Service and other payments required to be made under the Bond Resolutions in the next succeeding calendar month; and (ii) for amounts due under this Agreement, other than payments relating to Debt Service.or other payments required to be made under.the Bond Resolutions, for the preceding calendar month, and the amount of any credits or debits as a result of any appropriate adjustments; ~, however, that the failure of NCPA to so bill for amounts due with respect to Debt Service or other payments required to be made under the Bond Resolutions, or any errors in such billings, shall not relieve the City of its obligations to make such payments at the times and in the amounts required by the Bond Resolutions. Amounts shown on the billing statement are due and payable thirty (30) days after the date of the billing statement, except that any invoice coming due on a Friday, holiday or weekend shall be adjusted by NCPA to come due on the closest following workday, as appficable. Any amount due and payable but not paid by the CiW wi~ ~ (30) days following the date of the billing statement shall bear interest at the Reference .Rate publicly announced from time to time by the Bank of America National Trust and Savings Association, then in effect, plus two percent per annum, computed on a daily basis until paid. Such computation shall be made on a simple basis without compounding. NCPA shall mail all billing statements within 24 hours of the billing statement date thereon. The postmark date on the envelope containing payment by check shall be used to determine timeliness of payment, except that payments received later than seven days after the due date shall be declared late without regard to postmark date. LA1-158353.1 8 Payment via wire transfer is the preferred method of making payments to NCPA. For wire transfers, the transaction date shall be used to determine the timeliness of payments. If the City questions or disputes the correctness of any bilfing statement by NCPA, it shall pay NCPA the mount claimed when due and shall within thirty (30) days of the receipt of such billing statement request an explanation from NCPA. Upon the request and at the expense of the City, NCPA shall make available for inspection and copying by the City or its duly authorized representative, during normal business hours and subject to such security and safety provisions as NCPA shall reasonably determine, allof its books and records pertaining to the Project, the Bonds, this Agreement, and amounts billed by NCPA pursuant to this Agreement. If the bill is determined to be incorrect, NCPA will issue a corrected bill and refund any amount which may be due the City, which refund shall bear interest from the date NCPA received the excess payment from the City until the date of the refund. The rate of interest shall be the Reference Rate publicly announced from time to time by.the Bank of America National Trust and Savings Association, computed on a simple basis without compounding, for the period the excess is outstanding. If NCPA and the City fail to agree on the correcmess of a bill within thirty (30) days after the City has requested an explanation, the parties shall promptly submit the dispute to arbitration under section 1280 et ~, of the California Code of Civil Procedure. 10. Events of Default. The following shall constitute events of default under this Agreement: (a) the failure of the City to make any payment with respect to Debt Service or other payments required to be made under a Bond Resolution in full when due as required by this Agreement; and (b) the failure of either party to perform any of its other obligations hereunder, which failure is not remedied within sixty (60) days from the date of defivery of written notice of such failure to the defaulting .party by the other party, a Trustee or, to the extent provided in a Bond Resolution, Bondowners; ~, however, ff any such failure, (other than a failure of the City described in clause (a), or to otherwise pay any amounts when due under this Agreement), is not remedied within such sixty (60) day period but the defaulting party shall have instituted remedial action within such period and is diligently pursuing correction, then no event of default shall be deemed to exist for so long as such defaulting party is continuing to diligently take reasonable steps to effect such remedy. 11. Remedies, Subject to the provisions of this Agreement, a non-defaulting ~ may pro~t and enforce its rights hereunder by suit or suits in equity or at law, whether for the specific performance of any covenant herein or for damages or in aid of the execution of any power granted herein or any other remedy available under any provision of applicable law. No remedy by the terms of this Agreement conferred upon or reserved to the non-defaulting party is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to every other remedy given under this Agreement or at law ¯ or in equity or by statute whether now in existence or established after the effective date of this Agreement. ~2. City Direction. In order to provide funds to finance the City’s Sh~ of the Capacity Payment, NCPA, as soon as practicable after the execution of this Agreement, shall use its best effort to issue Bonds to finance the City’s Share of the Capacity Payment and, if requested by the City, to issue refunding Bonds as provided in this Agreement; provided, ~, that NCPA shall not adopt or enter into a Bond Resolution or a contract for the sale of Bonds without the prior written approval of the City. NCPA agrees to follow all lawful directions of the City with respect to the purchase or redemption of Bonds and any other action under the terms of the applicable Bond Resolution within the.control of NCPA. Any request, approval, authorization, direction or consent of the City for purposes of this Agreement shall be deemed properly made or given ff such request, approval, authorization, direction or consent is contained in a writing signed by an Authorized Representative of the City. 13. Term. This Agreement shall take effect upon the execution hereof by the authorized representatives of the parties hereto, and shall remain in full force and effect until the date on which no Bonds remain outstanding; ~, however, that in no event shall the term of this Agreement with NCPA as a party extend beyond the date of termination of NCPA. This Agreement shall notbe subject to termination by any party under any circumstances prior to the term specified in this Section 13, whether based upon the default of the other party under this Agreement or for any other cause whatsoever so long as any Bonds are outstanding under a Bond Resolution. 14. Amendments. So long as any Bonds are outstanding, this Agreement shall not be amended, modified or otherwise changed or rescinded by agreement of the parties without the consent of each Trustee for Bonds whose consent is required under the applicable Bond Resolution. 15. Bonds, Limited Obligations of NCPA. NCPA shall not be obligated to pay the principal of, or premium, if any, or interest on the Bonds, except from amounts paid by the City pursuant to this Agreement or other moneys, ff any, otherwi~ available for such payment pursuant to the applicable Bond Resolution. The City hereby acknowledges that NCPA’s sole source of moneys to repay the Bonds will be provided by the payments made by the City pursuant to this Agreement, together with other moneys, if any, held by the Trustee under the applicable Bond Resolution, and hereby agrees that if the payments to be made hereunder shall ever prove-insufficient to pay all principal of, and premium, if any, and interest on the Bonds as the same shall become due (whether by maturity, redemption, acceleration or otherwise), then upon notice from the applicable Trustee, the City shall pay such amounts as are required from time to time to prevent any deficiency or default in the payment of such principal, premium or interest, including, but not limited to, any deficiency caused by acts, omissions, nonfeasance or malfeasance on the part of the Trustee, the City, NCPA or any third party. 16. Iudenmification, The City releases NCPA from arid agrees arid covenants that NCPA shall not be liable for, and covenants and ~ to indemnify and hold harmless NCPA and its officers, employ~ and agents and each other member of NCPA (collectively, the "Indemnified P.arties") from and against, any and all losses, claims, damages, liabilities or expenses, of every conceivable kind, character and nature whatsoever arising out of, resulting from, or in any way connected with (1) the Power Sale Agreement; (2) the Capacity Payment; O) the issuance of any Bonds or any certifications or representations made in connection therewith (in each case other than statements made in or omissions from offering documents relating to the Bonds, which shall be governed exclusively by clause (4) below) and the carrying out of any of the transactions contemplated by the Bonds, any Bond Resolution, or this Agreement; or (4) any untrue statement or alleged untrue statement of any material fact relating to the City or omission or alleged omission to state a material fact relating to the City necessary .... to make the statements made, in light of the circumstances under which they were made, not misleading, in any official statement or other offering circular approved in writing by the City utilized by any underwriter or placement agent in connection with the sale of any Bonds except that the City shall notbe liable for any such loss, claim, damage, liability or expense that results from the willful misconduct on the part of the Indemnified Party seeking such indemnity. The City further covenants and agrees to pay or to reimburse each Indemnified Party for any and all costs, reasonable attorneys fees, liabilities or expenses incurred in connection investigating, defending against or otherwise in connection with any such losses, claims, damages, liabilities, expenses or actions, except to the extent that.the same arise out of the willful misconduct of the Indemnified Party claiming such payment or reimbursement. This indemnity agreement shall not be construed as a limitation on any other liability which the City may otherwise have to any Indemnified Party; provided, that in no event shall the City be obligated for double indemnification. An Indemnified Party shall, promptly after the receipt of notice of any action against such Indemnified Party in respect of which indemnification may be sought against the City, notify the City in writing, but the omission to notify the City of any such action shall not relieve the City from any liability which it may have to such Indemnified Party under the indemnity agreement contained herein except to the extent that the City is prejudiced thereby. In case any action shall be brought against an Indemnified Party and such Indemnified Party shall notify the City of the commencement thereof, the City may, or if so requested by such Indemnified Party shall, participate therein or assume the defense thereof, with counsel satisfactory to such Indemnified Party, and after notice from the City to such Indemnified Party of an election soto assume the defense thereof, the City will not be liableto such Indemnified Party under this Section 16 for any legal or other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof other than the costs of reasonable investigation. If the City shall not have employed counsel to have charge of the defense of any such action or if an Indemnified Party shall have reasonably concluded that there maybe defenses available to it or them which are different from or additional to those available to the City (in which case the City shall not have the right to direct the defense of such action on behalf of such Indemnified Party), such Indemnified Party shall have the right to retain legal counsel of its own choosing and reasonable legal and other expenses incurred by such Indemnified Party shall be borne by the City; ~, that in no event shall the City be obligated to pay more than one firm of lawyers with respect to the defense of any Indemnified Party. The City shall not be liable for any settlement of any such action effected without its consent by any Indemnified Party, but ff settled with the consent of the City or ff by a final judgment for the plaintiff in any such action against the City or any Indemnified Party, with or without the consent of the City, the City agrees m indemnify and hold harmless such Indemnified Party to the extent provided herein. The provisions of this Section 16 shall survive the retirement oftbe Bonds and the termination of this Agreement. 17 ....Tax Covenant. Notwithstanding any other provision of this Agreement, neither NCPA nor the City shall transfer, assign, sell or exchange any portion of the Project or any other interest in the Project, directly or indirectly, in any manner, or shall take, otto the extent it can control the same permit to be taken, any other action or actions, which would adversely affect the exclusion of the interest on any of the Bonds from gross income for federal income tax purposes under Section 103 of the Code, including without limitation, by reason of the classification of any Bond as a "private activity bond" within the mea_~-~ing of said Code. 18. Notices. Any notice or demand to NCPA under this Agreement shall be deemed properly given, if delivered by.hand, sent by certified or registered marl postage prepaid and return receipt requested, or sent via facsimile or other electronic media and confirmed by telephone or in writing within twenty-four (24) hours, addressed to the General Manager of NCPA at the address shown in Appendix A. Any notice or demand to the City under this Agreement shail be deemed properly given ff sent by certified or registered mail postage prepaid and return receipt requested, or sent via facsimile or other electronic media and confirmed by telephone or in writing within twenty-four (24) hours, addressed to the initial signatory for the City shown on the signature pages hereof at the address shown in Appendix A. The designation of the name, the address and any of the telephone or telecopier numbers to which any such notice or demand to any party is to be directed may be changed at any time and from time to time by any party to this Agreement by such party’s giving notice of change to the other party hereto as above provided in this Section 18 and to each Trustee under the Bond Resolutions at the addresses set forth in such Bond Resolutions~ In computing any period of time from such notice, such period shall commence on the date received or, if sent via facsimile or other electronic media, on the date sent. 19. Third Phase Agreement. Upon the first issuance of Bonds, the Third Phase Agreement shall be terminated and of no force and effect and shall be super~ed and replaced in its entirety by this Agreement. ¯ 20. Miscellaneous, The headings of the sections hereof are inserted for ~nvenience only and shatl not be deemed a part of this Agreement. This Agreement may be amended, changed, waived or modified only by written agreement executed by the City and NCPA. The City shall, if requested by NCPA in connection with the issuance of any Bonds, cause an opinion or opinions in substantially the form attached hereto as Appendix B to be delivered by an attorney or firm of attorneys ~acting as counsel for the City. This Agreement shall be construed in accordance with the laws of the State of California. If any one or more of the covenants or agreements provided in this Agreement to be performed should be determined to be invalid or contrary to law, such covenant or agreement shall be deemed and construed to be severable from the remaining covenants and agreements herein contained and shall in no way affect the validity of the remaining provisions of this Agreement. Whenever the Agreement requires the payment of interest and the interest rate specified herein is in excess of the amount of interest that may legally be charged in the circumstances, then such interest rate shall be changed to the maximum interest rate permitted by law. Notwithstanding the foregoing, each of the parties hereto acknowledges and agrees that (a) NCPA’s willingness to enter into this Agreement and make proceeds of Bonds available to the City was induced upon the City’s purchase of the Project pursuant to the Third Phase Agreement as confirmed in this Agreement and (b) the City’s obligations to make payments with respect to Debt Service or otherwise required under a Bond Resolution or this Agreement shall be absolute and unconditional as provided in this Agreement. This Agreement may be executed in several counterparts, all or any of which shall be regarded for all purposes as one original and shall constitute and be but one and the same instrument. IN WITNESS WHEREOF, NCPA has executed this Agreement with the approval of its Commission, and the City has executed this Agreement in accordance with the authorization of its City Council, as of the date first above written. NORTHERN CALIFORNIA POWER AGENCY By And CITY OF PALO ALTO APPROVED AS TO FORM By Mayor City Attorney Attest: City Clerk APPENDIX A ADDRESSES FOR NOTICES Northern California Power Agency 180 Cirby Way Roseville, California 95678 Attention: General Manager Telephone No: (916) 781-3636 Telecopier No: (916) 783-7693 City of Palo Alto 717 Garland Drive Palo Alto, California 94303 Attention: Electric Utility Director Telephone No: Telecopier No: L&1-158353.1 A-1 FORM OF OPINION OF COUNSEL Northern California Power Agency 180 Cirby Way Roseville, California 95678 Dear Sirs: I am acting as counsel to the City of Palo Alto ("the City")under the Agreement for Financing of Electric Capacity, dated as of January 1, 1997 (the "Agreement~) between the City and the Northern California Power Agency (the "Agency"), and I have acted as counsel to the City in connection with the matters referred to herein. As such counsel I have examined and am familiar with (i) those documents relating to the existence, organization and ope~tion of the City, (ii) all necessary documentation of the City relating to the authorization, execution and delivery of the Agreement, and (fii) an executed counterpart of the Agreement. (Capitalized terms used and not otherwise defined herein shall have the~ respective meanings as set forth in the Agreement.) Based upon the foregoing and an examination of law and such other information, papers and documents as I deem necessary or advisable to enable me to render this opinion, including the Constitution and laws of the State of California, together with the governing charter instruments, ordinances, resolutions and public proceedings of the City, I am of the opinion that: 1. The City is a municipal corporation, duly created, organized and existing under the laws of the State of California and duly qualified to furnish electric service as ~ currently being conducted. 2. The City has full legal right, power and authority to enter into the Agreement and to carry out and consummate all transactions contemplated thereby, and the City has complied with the provisions of applicable law in all matters relating to such transactions required to be complied with as of the date hereof. 3. The Agreement has been duly authorized, executed and delivered by the City, is in full force and effect as to the City in accordance with its terms and, assuming that the Agency has all the requisite power and authority, and has duly executed and delivered such Agreement, constitutes the legal, valid and binding obligation of the City enforceable in accordance with its terms. 4. Payments by the City under the Agreement will constitute an operating expense of the City and are to be made solely from the Revenues of its Electric System, as provided in Section 5(b) of the Agreement. 5. Except for the authorization by the City’s Council therefor, no approval, consent or authorization of any governmental or public agency, authority or person is required forthe execution and delivery by the City of the Agreement, or the performance by the City of its obligations thereunder. 6. The authorization, execution and delivery of the Agreement and compliance with the provisions thereof will not conflict with or constitute a breach of, or default under, any instrument relating to the organization, existence or operation of the City, or any commitment, agreement or other instrument known to me after reasonable investigation to which the City is a party or by which it or its property is bound or affected, or any ruling, regulation, ordinance, judgment, order or decree to which the City (or any of its officers in their respective capacities as such) is subject or any provision of the laws of the State of California relating to the City or its affairs. 7. To the best of my knowledge after reasonable investigation, there is no action, suit, proceeding, inquiry or investigation at law or in equity, or before any court, public board or body, pending or threatened against or affecting the City or any entity affifiated with the City or any of its officers in their respective capacities as such, nor is there any basis therefor, which questions the powers of the City referred to in paragraph 2 above or the validity of the proceedings taken by the City in connection with the authorization, execution or defivery of the Agreement, or wherein any unfavorable decision, ruling or finding would materially adversely affect the transactions contemplated by the Agreement, or which, in any way, would adversely affect the validity or enforceability of the Agreement. The opinion expressed in paragraph 3 above is qualified to the extent that the enforceability of the Agreement may be limited by any applicable bankruptcy, insolvency, debt adjustment, moratorium, reorganization, or other similar laws affecting creditors’ rights generally or as to the availability of any particular remedy. This opinion is rendered only with respect to the laws of the State of California and the United States of America, and is addressed only to the Agency. No other person is entitled to rely on this opinion, nor may you rely on it in connection with any transactions other than those described herein. Very truly yours,