HomeMy WebLinkAboutStaff Report 307-08City of Palo Alto
City Manager’s Report
TO:
ATTN:
FROM:
DATE:
SUBJECT:
HONORABLE CITY COUNCIL
FINANCE COMMITTEE
CITY MANAGER
JULY 15, 2008
DEPARTMENT: UTILITIES
CMR: 307:08
RECOMMENDATION TO CITY COUNCIL TO ADOPT A RESOLUTION
AUTHORIZING THE CITY MANAGER TO EXECUTE AGREEMENTS
FOR THE SHORT TERM ASSIGNMENT OF THE CITY’S SHARE OF
ENTITLEMENTS ON THE CALIFORNIA-OREGON TRANSMISSION
PROJECT TO OTHER MEMBERS OF THE TRANSMISSION AGENCY
OF NORTHERN CALIFORNIA
RECOMMENDATION
Staff recommends that the Finance Committee recommend that Council adopt the attached
re~olution authorizing the City Manager or his designee to execute Agreements for the short-
term assignment of the City’s share on the electric high voltage California-Oregon Transmission
Project (COTP) to the Turlock Irrigation District (TID) and the Sacramento Municipal Utility
District (SMUD), thereby lowering the cost to serve the electric utility customers of the City.
BACKGROUND
The Transmission Agency of Northern California (TANC) is a California Joint Powers Agency,
whose membership, comprises: SMUD; TID; Modesto Irrigation District (MID); and the
California cities of Alameda, Biggs, Gridley, Healdsburg, Lodi, Lompoc, Palo Alto, Redding,
Roseville, Santa Clara, and Ukiah. TANC currently owns approximately 87 percent of the
COTP, a 1600 MW, 340 mile !ong electric transmission line from the California-Oregon Border
(COB) to the 500 kilovolt Tracy Substation in Northern California. The City is a signatory to
TANC’s 1990 Project Agreement No.3 (PA3) (Resolution No. 6877, adopted March 26, 1990).
PA3 provides the City a share of approximately 50 MW of TANC’s entitlement on the COTP.
CMR:307:08 Page 1 of 8
Since the COTP became operational in March 1993, the City has utilized this asset to access
low-cost electricity resources from the Pacific Northwest to serve the electricity needs of the
City. However, from time to time, the City has executed temporary assignment agreements with
other TANC members when the City’s electric snpply portfolio did not have the need to access
resources from Oregon or when it was uneconomical to do so. The last assignment agreement
(with the City of Roseville) ended in December 2004.
While the City and the Northern California Power Agency (NCPA), as the City’s electricity
scheduling agent, have continued to utilize the COTP to meet the electrical loads of the City at
the lowest cost, the value of this transmission right in recent years has been lower than the cost
of ownership. This is particularly pronounced for Palo Alto; the City is located within the
control area operated by the California Independent System Operator (CAISO), while the COTP
line is in a separate control area jointly operated by SMLrD and the Western Area Power
Administration (Western). While the City continues to consider the COTP a strategic asset for
future years when the cost of ownership can be offset by its market value, the projected short-
term value of the asset has prompted staff to explore temporary assignment options to members
of TANC located within the SMUD-Western transmission control area. These entities have the
potential to garner greater value from the transmission asset.
DISCUSSION
The City’s electricity supply related budget for FY 2008-09is approximately $78 million, of
which approximately $1.85 million is related to the COTP Transmission asset ownership cost.
However, the value the City derives from this asset is well below the cost of ownership and is
described in detail below.
Cost Drivers
The City’s share of TANC’s budget for FY 2007-08 was $1.852 million and consisted of the
following components, with debt service accounting for 70% of the cost.
Debt Service
COTP O&M
TANC operations
Special projects
Open Access Same-Time Information System (OASIS)
Total
$1.284 M
$0.360 M
$0.173 M
$0.027 M
$0.006 M
$1.852 M.@$0.16M per month)
The debt service costs are expected to remain flat at $1.284 million!year until 2024 when the
debt is fully paid-off. The other costs of $550,000 per year are expected to increase by 3% per
year. In addition to these costs of ownership, COTP owners incur a number of usage-based
CMR:307:08 Page 2 of 8
charges such as SMUD transaction fees, transmission line losses from the COB, and other
CAISO charges. These additional costs, which are highly variable and dependent on utilization
of the line, are estimated at between $100,000 and $400,000 per year. These costs could also
change due to regulatory changes.
Value Drivers
The value of the COTP is derived in multiple ways, but falls into three major categories:
1.Basis Value: Basis is the difference between the market prices for electricity delivered to
COB versus delivered into Northern California.
Since taldng ownership of COTP, the City has entered into a number of long-term
transactions to capture this basis value. However, in the past 5 years, the basis value
captured has varied between $500,000 and $1.3 million per year, considerably below the $2
million annual cost of owning and operating the asset.
Based on forward market prices, the basis value of COB versus Northern California
deliveries for the next 12 months is estimated at 40% to 70% of the cost of the COTP and
declines even further in the outer years. Most of this annual value is derived during the spring
months when low cost hydroelectric power from the Pacific Northwest is available to be
imported into California. For the months of the short-term assignment - August 2008 through
January 2009 - the basis value is on the low end, resulting in higher net costs to the portfolio.
For this reason, regardless of any other transactions contemplated for this asset, this short-
term lay-off proposal is in the best interests of City’s electric utility customers.
2.Capacity Value: Supplies imported from COB have capacity and ancillary service value.
Imports of firm energy delivered at COB and scheduled over the COTP for the City’s load
currently count towards meeting the City’s 15% planning reserve requirements (also referred
to as system capacity requirements). Under current projections of the City’s load and
purchases of capacity to meet local reliability requirements, the City’s electric portfolio has
sufficient system capacity even when excluding contracts at COB. While there may exist the
potential to sell the COTP capacity counting rights in the future, there is no market for this
product at present. Also, the ability to apply imported energy towards system capacity
requirements may change in future regulations.
Staff estimates that the potential capacity and ancillary services value associated with COTP
could be $350,000 to $600,000 per year, or 15% to 30% of the cost starting in 2010.
CMR:307:08 Page 3 of 8
3.Operation Value: The COTP has value associated with access to resources and markets in the
Pacific Northwest for non-economic reasons.
Operational value is derived by accessing the Pacific Northwest markets to meet fluctuations
in electric demand in real-time (referred to as real-time load following) and for green
(renewable) energy. With respect to the need to access the Pacific Northwest markets for
green energy, the COTP transmission remains an option. However, staff’s assessment is that
there are currently sufficient renewable resources within California that could be
economically obtained for the City’s medium- and long-term renewable portfolio goals. In
addition, if the opportunity arises to access Pacific Northwest resources to meet short-term
renewable energy needs, then there are alternative methods for transporting energy from the
Pacific Northwest to the City that may be obtained at lower cost than COTP ownership. Such
alternatives include CAISO service and other private and public sector suppliers. As
mentioned above, for the months of the short-term assignment - August 2008 through
January 2009 - the price difference between the Pacific Northwest and Northern California is
low. Hence, staff suggests that the possibility of accessing Pacific Northwest renewable
energy is not sufficient reason to reserve COTP capacity over the short- and medium-term
(next 15 years).
Staff’s assessment of operational value of the asset is $50,000 to a $100,000 per year, or less
than 5% of the ownership cost.
In total, the value of COTP to the City is estimated to be about 60% to 75% of the annual cost of
owning and operating the asset based on the factors identified above. Over the period proposed
for the short-term assignment, the value of the COTP is estimated to be even lower at 10% to
20% of the cost, because the basis value is typically lower in the later part of the year; with most
of the basis value captured during the spring and early summer.
Agreement Terms
The Utilities Advisory Commission in April conceptually approved staff’s recommendation to
assign the City’s share of the COTP to interested parties. Since then, staff has been pursuing a
15-year assignment agreement with SMUD, TID, and MID. The effective date of this long-term
assignment was projected for August or September 2008, but negotiations have taken longer than
expected. When the negotiations are completed in the coming months, staff will bring the final
15-year assignment agreement to Council for approval.
In the interim, until the 15-year assignment agreement is completed, SMUD and TID have
requested a temporary assignment of the City’s rights in the COTP for the months of August
CMR:307:08 Page 4 of 8
2008 through January 2009, or until the 15 year agreement becomes effective, whichever is
earlier. MID is not interested in participating in the temporary assignment and is waiting for
completion of the 15-year assignment: SMUD and TID will take MID’s share during the
temporary assignment. Such a short-term assignment agreement is expected to have a value of
$128,000 to $144,000 per month to the City and will be based on the following terms:
1.The Contract shall be negotiated with SMUD and TID, with each entity receiving
one-half of the City’s share of COTP.
2.Contract to be based on industry standard Western System Power Pool (WSPP)
Agreement.
3.Term of the Agreement shall not extend beyond January 31, 2009, and shall
terminate on the effective date of the 15-year Assignment Agreement
4.The price of the sale shall recover the full monthly cost the City incurs to own the
asset (approximately $160,000/month).
Should the Council approve execution of the long-term assignment of the City’s interest in the
COTP transmission line, the City will no longer have long-term access to the Pacific Northwest
markets. However, the overall electric portfolio could continue to benefit from having access to
other regional markets during those times when the cost of taking delivery of imported energy is
lower than the value of the imported energy: For example, there may be times when the market
price of energy delivered to COB plus the cost of transmission from COB into Northern
California is less than the market price for energy available in Northern California. Staff is
exploring a number of other contractual mechanisms to achieve the objective of accessing other
regional markets when it is economically beneficial to do so. one such mechanism could be to
enter into enabling agreements with members of TANC that will provide the option to the City
and interested TANC members to execute short-term bilateral transmission transactions for the
use of COTP during periods of value. Such access to COTP transmission in certain periods might
be obtained at a discount to full costs. When staff finalizes an evaluation of such opportunities,
staff will return to Council to seek additional approvals.
Risk Assessment
Assessment of Short-Term Assignment Risks: The risks of this short-term assignment agreement
are minimal. Under the terms and conditions of the short-telan agreement, Palo Alto will be
compensated prior to the month, with the exception of the first month, when payment will be
CMR:307:08 Page 5 of 8
received within 10 days of contract execution. As a result of this provision in the contract, any
default caused by SMUD or TID not paying the monthly bills will be remedied prior to the start
of the month’s delivery. In the absence of such remedy, the assignment agreement will be
terminated and the COTP asset then will revert to Palo Alto.
Summary
Based on a cost-benefit analysis, staff has recommended, and the UAC has approved in concept,
a long-term assignment of the asset at full cost. As the negotiations for the long-term assignment
have been slower than anticipated and are delaying the start of the long-term assigrm~ent to
November or December 2008, staff is now recommending to Council a short-term assignment to
recover the monthly cost of owning the asset during the interim. Staff will return to the Finance
Committee and the Council with a request to authorize the execution of a long-term assignment
of the COTP entitlements at a later date.
Due to the relative short time available to negotiate the agreement and seek Council approval,
staff recommends that the City Manager or designee be authorized to enter into the Agreements
for Short-Term Layoffs under the following terms:
1. The Contract(s) shall be with SMUD and TID, with each entity receiving one-half of the
City’s COTP share.
2.Contract to be based on industry standard Western System Power Pool (WSPP)
Agreement, and the final agreement shall be approved by the City Attorney’s Office.
3.Term of the Agreement shall not extend beyond January 31, 2009, and shall terminate
upon the effective start date of the 15-year Assigmnent Agreement.
4.The price of the sale shall recover the full monthly cost the City incurs to own the asset
(approximately $160,000/month).
BOARD/COMMISSION REVIEW AND RECOMMENDATIONS
The UAC reviewed the concept of a long-term assignment of the COTP at its April 2, 2008
meeting and voted unanimously to recommend conceptual approval of a long-term assignment of
the COTP, for up to 20 years. The subject of the short-term layoff, the need for which was a
result of delays experienced in the negotiations over the long-term layoff, was not included in the
review by the UAC because the delays were not anticipated at the time of the UAC review.
CMR:307:08 Page 6 of 8
RESOURCE IMPACT
The net impact on the Electric Fund from the short-term assigmnent of the COTP is the
difference between sales revenues from SMUD and TID (equal to the cost of owning the asset of
approximately $160,000 per month), and lost opportunity for the City to derive value from the
use of the COTP asset. As illustrated in the following table, assuming that the monthly value of
COTP during the period contemplated for the short-term assignment is 10% to 20% of the
monthly cost of ownership, the short-term assignment will result in a net savings of $128,000 to
$144,000 per month.
Monthly Cost
Monthly Value
1. Basis Value
2. Capacity Value
3. Operational Value
Range of Monthly Value
Monthly Value as a fraction of fixed cost
Net Savings
Short-Term Value
($thousand/month)
$160
$8 - $24 (5%-15%)
$0
-$8 (-5%)
$16 to $32
10% to 20%
$128 - $144
POLICY IMPLICATIONS
This recommendation is consistent with the Council-approved .Utilities Strategic Plan with
regard to managing supply portfolio risk to preserve a supply cost advantage. These bilateral
transactions by TANC members are also sanctioned under the TANC Commission-approved
Procedures for Allocations for COTP Transmission (One Year or Less).
ENVIRONMENTAL REVIEW
Approval of this agreement does not require review under the California Environmental Quality
Act (CEQA) because it does not meet the definition of a "project" pursuant to California Public
Resources Code Section 21065.
CMR:307:08 Page 7 of 8
ATTACHMENTS
A:Resolution of the Council of the City of Palo Alto Authorizing the City Manager to Execute
Agreements for the Short-Term Assignment of the City’s Share of Entitlements on the
California-Oregon Transmission Project to other TANC Members
B:Draft Transaction Confirmation (WSPP) Agreements for Short-Term Assignment of COTP
Entitlements to TID and SMUD. The complete Western System Power Pool (WSPP) Master
Agreement is available at: www.wspp.org
C: Minutes from the April 2, 2008 UAC meeting
PREPARED BY:
~.~ DEBRA LLOYDSenior Resource Planner
SHIVA SWAMINATHAN
~-Senior Resource Planner
REVIEWED BY:
JANE O. RATCHYE
Utilities Assistant Director, Resource Management
DEPARTMENT APPROVAL:
Director of Utilities
CITY MANAGER APPROVAL:
STEVE
Deputy Cit’y Manager’s
MORARIU
CMR:307:08 Page 8 of 8
ATTACHMENT A
NOT YET APPROVED
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING THE CITY MANAGER TO EXECUTE
AGREEMENTS FOR THE SHORT-TERM ASSIGNMENT OF THE
CITY’S SHARE OF ENTITLEMENTS ON THE CALIFORNIA-
OREGON TRANSMISSION PROJECT TO OTHER MEMBERS OF
THE TRANSMISSION AGENCY OF NORTHERN CALIFORNIA
WHEREAS, the City of Palo Alto ("City"), a municipal utility and a chartered city,
became a founding member of the Transmission Agency of Northern California ("TANC") in
1984 to facilitate construction and joint ownership of transmission projects; and
WHEREAS, in addition to the City of Palo Alto, the cities of Alameda, Biggs,
Gridley, Healdsburg, Lodi, Lompoc, Redding, Roseville, Santa Clara, and Ukiah; the Modesto
Irrigation District ("MID"); the Turlock Irrigation District ("TID"); and the Sacramento
Municipal Utility District ("SMUD") are also members of TANC; and
WHEREAS, TANC currently owns approximately 87 percent of the California-
Oregon Transmission Project ("COTP"), a 500-kV transmission line that interconnects with the
Bonneville Power Administration at the Captain Jack Substation in Southern Oregon and with
Pacific Gas & Electric Company in California at the Tesla Substation; and
WHEREAS, the City became a participant in the COTP in 1990, by executing
Project Agreement No. 3; and
WHEREAS, the City has a 3.6815%, or approximately fifty (50) megawatts (MW),
share of TANC’s current entitlement to transfer capacity on the COTP; and
WHEREAS, the recent and projected value of the COTP to the City’s electric
portfolio is lower than the cost of ownership, which prompted City staff to explore temporary
assignment options of the City’s COTP entitlement; and
WHEREAS, MID, TID, and SMUD have agreed to acquire the City’s COTP
entitlements for a period of fifteen years; and
WHEREAS, the 15-year contract will not be effective before November 2008; and
WHEREAS, prior to execution of the 15-year contract, TID and SMUD have agreed
to acquire the City’s COTP entitlements on a short-term basis, consistent with TANC’s "Short-
Term Layoff Procedures"; and
WHEREAS, bilateral transactions by TANC .members are allowed under the TANC
Commission-approved "Short-Term Layoff Procedures";
follows:
NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as
080708jb 0073038
NOT YET APPROVED
SECTION 1.The Council hereby authorizes the City Manager to execute
Agreements for the short-term assignment of the City of Palo Alto’s share of entitlements on the
California-Oregon Transmission Project to the Turlock Irrigation District and the Sacramento
Municipal Utility District.
SECTION 2.The Council finds that the adoption of this resolution does not
constitute a project under the California Environmental Quality Act and the CEQA Guidelines
and, therefore, no environment assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
City Clerk
APPROVED AS TO FORM:
Mayor
APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director of Administrative
Services
080708jb 0073038
City of Palo Alto
Transaction Confirmation
ATTACHMENT BI:SMUD Page 1 of 5
TRANSACTION CONFIRMATION (WSPP)
Short-Term Assignment of COTP Entitlements
Transaction Date: July 29, 2008
The purpose of this Transaction Confirmation is to confirm the short-term layoff
(assignment) between the City of Palo Alto (Palo Alto) and the Sacramento Municipal
Utility District (SMUD) of Palo Alto’s scheduling interest in the California Oregon
Transmission Project (COTP). Palo Alto and SMUD are collectively known as Parties.
The Parties, along with other Transmission Agency of Northern California (TANC)
members are in the process of negotiating a Long Term Layoff Agreement with a term of
fifteen (15) years, under a process facilitated by TANC. This Transaction Confirmation
is to facilitate a bilateral layoff (assignment) under the TANC Short-Term Layoff Process
until the Long Term Layoff Agreement becomes effective.
The Transaction Confirmation shall be governed by the commercial terms of the
WSPP (Western Systems Power Pool) Agreement. The Parties acknowledge that the
WSPP Agreement is generally intended to address physical transactions in capacity and
energy. The parties elect to utilize the WSPP Agreement, as modified herein, to govern
this assignment of transmission capacity. If there is any conflict between this Transaction
Confirmation and the WSPP Agreement, the provisions of this Transaction Confirmation
shall control.
1.) Specific Terms and Conditions
(a) Seller:City of Palo Alto
250 Hamilton Avenue. 3rd Floor
Palo Alto, CA 94301
Phone: (650)329-2465, Fax: (650)-3261507
(b) Purchaser:Sacramento Municipal Utility District
6301 S. Street, PO Box 15830
Sacramento, CA 95852
Phone: (916) 732-5802, Fax: XX
(c) Period of Delivery: 8/1/2008 through Termination Date
(d) Schedule (Days and Hours):7x24
(e) Delivery Rate: NA
(f) Delivery Point(s): NA
(g) Type of Service (Check as Applicable)
Service Schedule A
Service Schedule B
Service Schedule C
Physically-Settled Option Service Schedule B
Physically-Settled Option Service Schedule C
Other products per Section 32.8 X
City of Palo Alto
Transaction Confirmation
Page 2 of 5
(h)
(i)
(J)(k)
(1)
Contract Quantity:NA Total MWhrs.
Contract or Strike Price:See Attachment A
Transmission Path for the Transaction (If Applicable):
Date of Agreement if different:
Additional Information for Physically-Settled Options N_._~A
/)Option Type:Put
ii) Option Style:
iii) Exercise Date or Period:
iv) Premium:
v) Premium Payment Date:
vi) Method for providing notice of exercise
vii) Special Terms and Exceptions:
Call
See Attachment A
Authorized Signatures
SMUD CITY OF PALO ALTO
Cary Nethaway, Controller Frank Benest, City Manager
Date Date
City of Palo Alto
Transaction Confirrnation
Page 3 of 5
Attachment A
Special Terms and Conditions
1. Definitions: Unless otherwise defined herein, capitalized terms and conditions
included in this Attachment A shall have the meaning defined in the TANC Project
Agreement No. 3 to which both SMUD and Palo Alto are signatories.
2. Termination Date: The earlier of (1) the Effective Date of the TANC "COTP
Long-Term Layoff Agreement" between TANC, Palo Alto, Turlock Irrigation District
(TID), Modesto Irrigation District (MID) and SMUD, as that term is defined therein; or
(2) at the end of the day, January 31, 2009. In an Event of Default, as that term is defined
in Section 22 of the WSPP Agreement and as modified herein, that remains uncured
according to the provisions of 22.2 of the WSPP Agreement, the non-Defaulting Party
has the right to terminate this Transaction Confirmation prior to the Termination Date set
forth herein and that earlier termination date will be considered the Termination Date.
For the purposes of this Transaction Confirmation, Palo Alto’s failure to provide the
Product in accordance with this Transaction Confirmation shall constitute an Event of
Default.
3. Product: Palo Alto’s interest (scheduling rights) in 1.84075% allocation (one-
half of Palo Alto’s COTP participation) of TANC’s share of COTP transmission capacity
under the ownership interest of TANC in both Directions (Allocated Participation
Percentage).
4,Direction: North-to-South and South to North
5. Layoff of Palo Alto’s COTP Scheduling Rights. During the Period of Delivery,
Palo Alto lays off (assigns) and relinquishes to SMUD Palo Alto’s scheduling rights to
the Product, in the percentage referenced in Section 3, above, to the extent permissible
under, and in accordance with, TANC Project Agreement No. 3; TANC Procedure for
Allocation for COTP Transmission (One Year or less); and associated TANC Intertie
Agreements. Palo Alto also relinquishes any and all rights to TANC revenues associated
with the Product including but not limited to the OATT refunds from fiscal year ending
June 2009 available for owner’s distribution. SMUD hereby accepts and assumes the use
ofPalo Alto’s scheduling rights to the Product, in the percentage referenced in Section 3,
above, under the provisions of TANC Project Agreement No. 3 for the Period of
Delivery.
7. Return of Palo Alto’s Scheduling Rights. Upon the Termination Date set forth
above, all of Palo Alto’s COTP scheduling rights to the Product laid-off (assigned)
pursuant to the terms of this Transaction Confirmation, shall automatically and without
any action of the Parties be relinquished from SMUD to Palo Alto, and Palo Alto hereby
accepts those rights to the Product at that instant in the future except as those rights may
be transferred subject to the provisions of the COTP Long-Term Layoff Agreement
8.Reimbursement of Palo Alto’s COTP Costs: On a monthly basis, SMUD shall
City of Palo Alto
Transaction Confirmation
Page 4 of 5
reimburse Palo Alto for SMUD’s share, under this Transaction Confirmation, of Palo
Alto’s COTP costs associated with Product, as billed by TANC to Palo Alto for each
month for the Period of Delivery, and including any adjustments made to monthly
billings within the TANC 2008/2009 fiscal year that occur within six (6) months of the
end of that fiscal year. Palo Alto shall include with each invoice a copy of the monthly
bill that it receives from TANC pursuant to Section 22 of TANC Project Agreement No.
3 for the purposes of verifying the invoice.
Palo Alto shall generate an invoice thirty (30) days or less prior to the beginning of the
month. SMUD in tuna shall pay the requisite amount to Palo Alto the later of 10 business
days after the invoice is received or 10 days before the beginning of the month. For the
month of August 2008, an invoice will be generated by Palo Alto immediately upon
execution of this Transaction Confirmation, and payment for the month is due within ten
(10) days after the receipt of invoice. A schedule of TANC Cash Call per member per
month is provided in Attachment B as a reference only. This schedule (or modification to
this schedule that may be implemented by TANC from time-to-time) will form the basis
of Palo Alto’s monthly invoice.
Should TANC’s fiscal year actual COTP cost differ from budget and actual billings, one
Party shall reimburse the other such that SMUD would have paid SMUD’s proportionate
share based on the Period of the Delivery and fights allocated under this Transaction
Confirmation.
9. Palo Alto Obligation to Reduce TANC OASIS Posting by Allocated
Participation Percentage. Palo Alto’s COTP scheduling fights as purchased by SMUD
will be aggregated with SMUD’s existing COTP share for SMUD’s use and posting on
SMUD’s OASIS. Palo Alto will reduce its COTP share on the TANC OASIS to reflect
the transfer to SMUD.
10. Integrated Agreement: This Transaction Confirmation does not amend TANC
Project Agreement No. 3. In the event of a conflict between this Confirmation and
TANC Project Agreement No. 3, TANC Project Agreement No. 3 shall control.
11. Severability: Any provision of this Transaction Confirmation determined by a
court of competent jurisdiction to be invalid shall not be severed from this Transaction
Confirmation if severance would materially adversely affect any Party, and if any Party
in good faith concludes that severance would result in materially adverse consequences,
such Party may give written notice under the notice provisions of Section 12 of the
WSPP Agreement, that this Transaction Confirmation shall terminate on a date all of the
Parties consider appropriate, and if no agreement is reached on an appropriate early
termination date, then at the last hour of the day that is forty-five (45) days after the date
written notice was first given.
13. Governing Law: Unless otherwise expressly agreed in writing by the Parties,
this Transaction Confirmation shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to principles of conflicts of laws.
City of Palo Alto
Transaction Confirmation
Page 5 of 5
Attachment B
Schedule of TANC Cash Call by Member per Month via ROR for FY 08-09
Transmission Agency of Northern California
Calculation of Cash Call per member, per month via ROR
Table 4-7
TANC MEMBERS 2009 2009
Ent|tlernant Share Entitlement %12 month coincident peak Monthly Cash Call Annual Cash Call
MODESTO IRRIGATION DIST,295.9351 21.2960%247.2466 1,024,841 12,298,092
CITY OF RSDDING 116.8950 ’8.4119%97.6622 404,811 4,857,732
S~4UD 383.0252 27.5631%320.0076 1,326,436 15,917,232
CITY OF SANTA CLARA 284.5201 20.4745%237.7069 985,307 11,823,684
TURLOCK IRRIGATION DIST.174.2501 12.5393%145.5813 803,437 7.,241,244
CITY OF ROS EVILLE 29.3482 2.1119%24.5192 101,632 1 ~219,584Subtotal1,283.9737 92.3967%1,072.7258 4,446,464 .53~357~568
NCPA ~
CITY OF ALAMEDA 17.0531 1.2272%14.2478 59,057 .708,684
CITY OF HEALDSBURG 3.4132 0.2456%2.8514 11,819 141,828
CiTY OF LODI 26.6817 1.9201 %22.2924 92,402 1,108,824
CITY OF LOf4POC 2.5911 0.1865%2.1653 8,975 107,700
CITY OF PALOALTO 51.1594 3.681.5%42.7422 177,167 2,126,004
PLUMAS-SIERRA REC 2.0555 0.1479%1.7171 7,117 85,404CITY OF UKIAH 2.7026 0.1945%2.2581 9,360 112,320
Sub, total 105.6566 7.6033%88.2743 365,897 4,390,764
TOTAL 1,389.6303 100.0000%1,161.0000 4,812,361 57,748,332
City of Palo Alto
Transaction Confirmation
ATTACHMENT B2:TID
Page 1 of 5
TRANSACTION CONFIRMATION (WSPP)
Short-Term Assignment of COTP Entitlements
Transaction Date: July 29, 2008
The purpose of this Transaction Confirmation is to confirm the short-term layoff
(assignment) between the City of Palo Alto (Palo Alto) and the Turlock Irrigation District
(TID) of Palo Alto’s scheduling interest in the California Oregon Transmission Project
(COTP). Palo Alto and TID are collectively lcnown as Parties. The Parties, along with
other Transmission Agency of Northern California (TANC) members are in the process
of negotiating a Long Term Layoff Agreement with a term of fifteen (15) years, under a
process facilitated by TANC. This Transaction Confirmation is to facilitate a bilateral
layoff (assignment) under the TANC Short-Term Layoff Process until the Long Term
Layoff Agreement becomes effective.
The Transaction Confirmation shall be governed by the commercial terms of the
WSPP (Western Systems Power Pool) Agreement. The Parties acknowledge that the
WSPP Agreement is generally intended to address physical transactions in capacity and
energy. The parties elect to utilize the WSPP Agreement, as modified herein, to govern
this assignment of transmission capacity. If there is any conflict between this Transaction
Confirmation and the WSPP Agreement, the provisions of this Transaction Confirmation
shall control.
1.) Specific Terms and Conditions
(a) Seller:City of Palo Alto
250 Hamilton Avenue. 3rd Floor
Palo Alto, CA 94301
Phone: (650)329-2465, Fax: (650)-3261507
(b) Purchaser:Turlock Irrigation District (TID)
333 East Canal Drive, (PO Box 0949)
Turlock, CA95380 (95381-0949)
Phone: (209) 883 8216, Fax: (209) 632-3023
(c) Period of Delivery: 8II/2008 through Termination Date
(d) Schedule (Days and Hours):7x24
(e) Delivery Rate: NA
(f) Delivery Point(s): NA
(g) Type of Service (Check as Applicable)
Service Schedule A
Service Schedule B
Service Schedule C
Physically-Settled Option Service Schedule B __
Physically-Settled Option Service Schedule C __
Other products per Section 32.8 X
City of Palo Alto
Transaction Confirmation
Page 2 of 5
(h)
(i)
(k)
(1)
Contract Quantity:NA Total MWhrs.
Contract or Strike Price:See Attachment A
Transmission Path for the Transaction (If Applicable):
Date of Agreement if different:
Additional Information for Physically-Settled Options N._.A
/)Option Type:Put
ii) Option Style:
iii) Exercise Date or Period:
iv) Premium:
v) Premium Payment Date:
vi) Method for providing notice of exercise
vii) Special Terms and Exceptions:
Call
See Attachment A
Authorized Signatures
TURLOCK IRRIGATION DISTRICT CITY OF PALO ALTO
James M. Farrar,
Director Energy Markets
Frank Benest, City Manager
Date Date
City of Palo Alto
Transaction Confim~ation
Page 3 of 5
Attachment A
Special Terms and Conditions
1. Definitions: Unless otherwise defined herein, capitalized terms and conditions
included in this Attachment A shall have the meaning defined in the TANC Project
Agreement No. 3 to which both TID and Palo Alto are signatories.
2. Termination Date: The earlier of (1) the Effective Date of the TANC "COTP
Long-Term Layoff Agreement" between TANC, Palo Alto, Sacramento Municipal
Utility District (SMUD), Modesto Irrigation District (MID) and TID, as that term is
defined therein; or (2) at the end of the day, January 31, 2009. In an Event of Default, as
that term is defined in Section 22 of the WSPP Agreement and as modified herein, that
remains uncured according to the provisions of 22.2 of the WSPP Agreement, the non-
Defaulting Party has the right to terminate this Transaction Confirmation prior to the
Termination Date set forth herein and that earlier termination date will be considered the
Termination Date. For the purposes of this Transaction Confirmation, Palo Alto’s failure
to provide the Product in’accordance with this Transaction Confirmation shall constitute
an Event of Default.
3. Product: Palo Alto’s interest (scheduling rights) in i.84075% allocation (one-
half ofPalo Alto’s COTP participation) of TANC’s share of COTP transmission capacity
under the ownership interest of TANC in both Directions (Allocated Participation
Percentage).
4.Direction: North-to-South and South to North
5. Layoff of Palo Alto’s COTP Scheduling Rights. During the Period of Delivery,
Palo Alto lays off (assigns) and relinquishes to TID Palo Alto’s scheduling fights to the
Product, in the percentage referenced in Section 3, above, to the extent permissible under,
and in accordance with, TANC Project Agreement No. 3; TANC Procedure for
Allocation for COTP Transmission (One Year or less); and associated TANC Intertie
Agreements. Palo Alto also relinquishes any and all rights to TANC revenues associated
with the Product including but not limited to the OATT refunds from fiscal year ending
June 2009 available for owner’s distribution. TIE) hereby accepts and assumes the use of
Palo Alto’s scheduling fights to the Product, in the percentage referenced in Section 3,
above, under the provisions of TANC Project Agreement No. 3 for the Period of
Delivery.
7. Return of Palo Alto’s Scheduling Rights. Upon the T~rmination Date set forth
above, all of Palo Alto’s COTP scheduling rights to the Product laid-off (assigned)
pursuant to the terms of this Transaction Confirmation, shall automatically and without
any action of the Parties be relinquished from TID to Palo Alto, and Palo Alto hereby
accepts those rights to the Product at that instant in the future except as those rights may
be transferred subject to the provisions of the COTP Long-Term Layoff Agreement
8.Reimbursement of P~lo Alto’s COTP Costs: On a monthly basis, TID shall
City of Palo Alto
Transaction Confirmation
Page 4 of 5
reimburse Palo Alto for TID’s share, under this Transaction Confirmation, of Palo Alto’s
COTP costs associated with Product, as billed by TANC to Palo Alto for each month for
the Period of Delivery, and including any adjustments made to monthly billings within
the TANC 2008/2009 fiscal year that occur within six (6) months of the end of that fiscal
year. Palo Alto shall include with each invoice a copy of the monthly bill that it receives
from TANC pursuant to Section 22 of TANC Project Agreement No. 3 for ~the purposes
of verifying the invoice.
Palo Alto shall generate an invoice thirty (30) days or less prior to the beginning of the
month. TID in turn shall pay the requisite amount to Palo Alto the later of 10 business
days after the invoice is received or 10 days before the beginning of the month. For the
month of August 2008, an invoice will be generated by Palo Alto immediately upon
execution of this Transaction Confirmation, and payment for the month is due within ten
(10) days after the receipt of invoice. A schedule of TANC Cash Call per member per
month is provided in Attachment B as a reference only. This schedule (or modification to
this schedule that may be implemented by TANC from time-to-time) will form the basis
of Palo Alto’s monthly invoice.
Should TANC’s fiscal year actual COTP cost differ from budget and actual billings, one
Party shall reimburse the other such that TID would have paid TID’s proportionate share
based on the Period of the Delive~?y and rights allocated under this Transaction
Confirmation.
9. Palo Alto Obligation to Reduce TANC OASIS Posting by Allocated
Participation Percentage. Palo Alto’s COTP scheduling rights as purchased by TID
will be aggregated with TID’s existing COTP share for TID’s use and posting on the
TANC OASIS. Palo Alto will reduce its COTP share on the TANC OASIS to reflect the
transfer to TID.
10. Integrated Agreement: This Transaction Confirmation does not amend TANC
Project Agreement No. 3. In the event of a conflict between this Confirmation and
TANC Project Agreement No. 3, TANC Project Agreement No. 3 shall control.
11. Severability: Any provision of this Transaction Confirmation determined by a
court of competent jurisdiction to be invalid shall not be severed from this Transaction
Confirmation if severance would materially adversely affect any Party, and if any Party
in good faith concludes that severance would result in materially adverse consequences,
such Party may give written notice under the notice provisions of Section 12 of the
WSPP Agreement, that this Transaction Confirmation shall terminate on a date all of the
Parties consider appropriate, and if no agreement is reached on an appropriate early
termination date, then at the last hour of the day that is forty-five (45) days after the date
written notice was first given.
13. Governing Law: Unless otherwise expressly agreed in writing by the Parties,
this Transaction Confirmation shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to principles of conflicts of laws.
City of Palo Alto
Transaction Confirmation
Page 5 of 5
Attachment B
Schedule of TANC Cash Call by Member per Month via ROR for FY 08-09
Transmission Agency of Northern California
Calculation of Cash Call per member, per month via ROR
Table 4-7
TANC I~EMBERS Entitlem ent Share Entitlement %
MODES]’O IRRIGATION DIST,295.9351 21.2960%
CI’F¢ OF REDDING 116.8950 ’8.4119%
SMUD 383.0262 27.5831%
CITY OF SANTA CLARA 284,5201 20.4745%
TURLOC}< IRRIGATION DIST.174.2501 12.5393%
CITY OF ROSEVILLE 29.3482 2.11 !9%
Subtotal iI 1,283.9737 92.3967%
NCPA -
CITY OF AL.~MEDA 17,0531 1,2272%
CITY OF HEALDSaURG 3.4132 0,2456%
CITY OF LODI 26.6817 1.9201 %
CITY OF LOMPOG 2.5911 0.1865%
CITY OF PALO AL’rO 51.1594 3.6815%
PLUMAS-SIERRA REC 2.0555 0.1479%
’CITY OF UK~AH 2.7026 0,1945%
Sub.total 105.6568 7.6033%
TOTAL 1,389.6303 100.0000%
2009
12month coincident,peak Monthly Cash Call
.247.2466 1,024,841
97.6622 404,511
320.0076 1,326,436
237.7089 985,307
145.5813 603,437
24.5192 101,632
1,072.7258 4,446,464
14.2478
2.8514
22.2924
2.1653
42.7422
%7171
.2.2581
88.2743
1,16%0000
59,057
11,819
92,402
8,975
177,167
7,117
9,360
365,897
4,812,361
2009
Annual Cash Call
12,298,092
4,857,732
15,917,232
11,823,664
~,241,244
1,21g,564
53,357~566
708,684
141,828
1,108,824
107,700
~126,004
85,404
112,320
4,390,764
57,748,332
FINAL
ATTACHMENT C
UTILITIES ADVISORY COMMISSION
MINUTES OF APRIL 2, 2008
CALL TO ORDER
Chairman Rosenbaum
Commission (UAC).
called to order at 7:00 P.M. the scheduled meeting of theUtilities Advisory
Present: Commissioners George Bechtel, Dexter Dawes, John Melton, and Dick Rosenbaum
Absent: Commissioner Marilyn Keller and Council Liaison Yiaway Yeh
ORAL COMMUNICATIONS
Bruce Hodge, Palo Alto resident, spoke to the Commission regarding carbon emissions. He asked for the
utilities plan to reduce emissions over the next 20 years. Chair Rosenbaum directed him to recent memos
updating the Commission on such efforts.
APPROVAL OF THE MINUTES
The minutes from the March 5, 2008, were unanimously approved.
AGENDA REVIEW
No changes to the agenda were requested.
REPORT FROM COMMISSION MEETINGS/EVENTS
There were no reports.-
UTILITIES DIRECTOR REPORT
Utilities Director Valerie Fong gave the following updates:
Utilities Advisory Commission Minutes Approved on: May 7, 2008 Page 1 of 7
Retail Rate: The UAC and staff recommendation for retail rates was unanimously approved by Finance
Committee on March 18th and is expected to go to the full Council on June 9th. Fong also provided a quick
update on past and upcoming customer communications regarding the rate increases including press
releases, Frank’s Weekly memos, and notifications through customer bills, letters, postcards and customer
meetings.
Hydro Conditions: Northern Sierra precipitation is at 80% of average to date and because of low reservoir
levels (about 80% of average), hydro electric generation is expected to be below average if precipitation
resumes median levels for the rest of the season.
New Lodi: NCPA’s 250MW new natural gas-fired Lodi project has been fully subscribed and permitting
work has begun, however, Palo Alto declined to participate in the project as the City’s long term capacity
needs require generation to be sited within the Great Bay Area.
Local Cogen: Staff continues to explore customer-sited cogeneration options within the City.
Earth Month Activities: Copies of Earth Month activities provided to the Commission, and also posted on
the City’s website, indicate special presentations planned for April 3, April 12, and April 16 with the
Greenlight Film Festival planned for Thursday April 17.
Compact Fluorescent Lights: The City of Palo Alto Utilities (CPAU) is offering 5 for $1 compact
fluorescent lights through Palo Alto Hardware and Peninsula Hardware. Commissioner Dawes noted that
the supplies are quickly snapped up at these locations, and suggested better inventory management for the
inevitable customer demand for the item.
UNFINISHED BUSINESS
Utilities Advisory Commission Minutes Approved on: May 7, 2008 Page 2 of 7
NONE
NEW BUSINESS
ITEM 1: INFORMATION ITEM: Ener.qy Risk Manaqement Report for the Second Quarter, Fiscal Year
2007-2008
Karl Van Orsdol, Energy Risk Manager, summarized the quarterly report. He noted that there were no
exceptions to report and that all transactions were fully in accordance with the City Energy Risk
Management Policies, Procedures and Guidelines. Van Orsdol noted that the overall credit exposure was
approximately $7.5 million for gas and electricity combined. This exposure is significantly lower than from
previous years. Van Orsdol also noted that the load resource balance is within limits and reflects the
increasing importance of non-carbon sources of electricity in the City’s electricity purchases. He pointed
out that all but one of the City’s counterparties maintains an excellent credit rating, but that the City has no
exposure with that one outlier.
ITEM 2: ACTION ITEM: Proposed Increase in Utility Water, Gas, Wastewater, and Electric Connection
Fees and Water and Wastewater Capacity Fees
Roland Ekstrand, Senior Engineer gave a short presentation explaining the methodology for calculating
each of the two separate groups of one time charges (connection fees and capacity fees) for new or
upgraded utility services.
Eckstrand replied to questions regarding the impact of the capacity fees on low income housing, calculating
the capacity fees for single family housing, and the completeness of the connection fees in capturing the
City’s cost of installing new services.
Utilities Advisory Commission Minutes Approved on: May 7, 2008 Page 3 of 7
Commissioner Rosenbaum requested that the connection fees and the capacity fees be voted on
separately. The connection fees were approved unanimously. The capacity fees were approved 3 to 1
with Rosenbaum the dissenting vote.
Action: Commissioner Dawes moved to approve the recommended connection fee increase.
Commissioner Bechtel seconded the motion. The motion carried unanimously. Commissioner Dawes
moved to approve the recommended capacity fee increases. Commissioner Melton seconded the motion.
The motion carried by a vote of 3 to 1 with Commissioner Rosenbaum dissenting.
ITEM 3: ACTION ITEM: Recommendation to Assiqn the Seattle City Light Exchanqe Contract to Another
NCPA Member Agency
Senior Resource Planner Shiva Swaminathan explained the rationale for the recommended assignment of
the Seattle City Light (SCL) Contract. He noted that flows from the SCL exchange contract (Palo Alto
receives energy in June through October and provides energy from November through March) do not fit
with the electric portfolio since the hydro generation is highest in the spring and summer months and the
portfolio has excess energy, but is deficit in the winter, when Palo Alto must return the energy. In addition,
Swaminathan said that the value of the exchange is and is projected to be negative given the energy price
differences between summer and winter.
Commissioner Melton asked why others value the SCL Contract while Palo Alto does not. Swaminathan
replied that other agencies have different portfolio profiles. Moreover, they might be able to achieve
additional value by doing their own scheduling and trading, and the nature of their transmission assets may
provide more pathways for buying and selling energy.
Action: The UAC acted on a combined motion with Item 4 below.
Utilities Advisory Commission Minutes Approved on: May 7, 2008 Page 4 of 7
ITEM 4: ACTION ITEM: Recommendation to Lay-off the City’s Share of the California-Ore.qon
Transmission Proiect
Swaminathan explained that the primary justification for the recommended long-term lay-off of the
California-Oregon Transmission Project (COTP) is that the cost of the asset is greater than its value.
COTP, located within the Western Area Power Administration-Sacramento Municipal Utility District (SMUD)
control area has more value to entities within the SMUD control area.
Commissioner Dawes asked what the risks of the layoff are to Palo Alto. Fong responded that, as outlined
in the report, the risks include: 1) Palo Alto’s access to resources in the northwest will be reduced and
these resources could become valuable to meet the City’s Renewable Portfolio Standard (RPS) goals; and
2) the risk that the counterparties harvest some value from COTP, but do not pay the bills - this could
conceivably occur for a maximum of two months.
Action: Commissioner Dawes moved to approve both the recommended SCL assignment and the COTP
layoff. Commissioner Bechtel seconded the motion. The motion carried unanimously.
ITEM 5: INFORMATION ITEM: Utilities Report: Water, Gas, Electric, Fiber and Financial Issues Updates
Staff offered no presentation on this item, but answered questions from Commissioners.
On the water report, Commissioner Dawes asked about the likelihood of litigation on San Francisco Public
Utilities Commission’s Program Environmental Impact Report for the Water System Improvement Program
Assistant Director Jane Ratchye responded that it depends on what alternative San Francisco selects.
Commissioner Melton noted the grim progress on the new water contract negotiations.
Utilities Advisory Commission Minutes Approved on: May 7, 2008 Page 5 of 7
There were no questions on the gas report.
Regarding the electric report, Commissioner Bechtel asked what the definition of "local" means in terms of
the local capacity requirements. Senior Resource Planner Shiva Swaminathan explained that this is
defined by the California Independent System Operator and that not all of it needs to be in the Greater Bay
Area load pocket.
On the financial report, Commissioner Melton asked why the expenses are front loaded in the first half Of
the fiscal year. Utility Rates Analyst Eric Keniston responded that the amounts in the first half of the fiscal
year include commitments as well as actual expenses. Commissioner Dawes remarked on the great
profitability of the fiber fund.
ITEM 6: INFORMATION ITEM: Energy Policy Act (EPACT) Reportin.q Update on Time Based Meterinq
and Pricin.q
Commissioner Melton stated that CPAU is not expanding its time-based metering options due to short-term
software and hardware issues. However, the report also says that even if all the software and hardware
were in place, this doesn’t make sense given CPAU’s portfolio costs and profile. Director Fong agreed that
even if everything was in place, it still may not make sense to offer these rates, however we must study
them under the EPACT of 2005 and make a decision whether we implement them or not. Commissioner
Bechtel also noted that it would make sense when/if customers demanded it. Given that TOU rates have
been in existence for six years and customers have not taken them suggests that they are not in demand.
Commissioner Rosenbaum offered that another reason that this wouldn’t make sense at least for the
Utilities Advisory Commission Minutes Approved on: May 7, 2008 Page 6 of 7
residential sector is the fact that the residential customer load is only 16% of the total load, which is not
enough to provide much mutual benefit. He suggested that this should also be mentioned in the report.
ITEM 7: INFORMATION ITEM: 2007 Statewide and Palo Alto Business Customer Satisfaction Survey
Results
Commissioner Dawes observed that it was mildly disappointing to see CPAU’s ratings fall from 2 years ago
and be lower than other NCPA members. He wondered if staff has developed any programs to address the
concerns raised on the report. Director Fong responded there were a few things to mention here.
Unfortunately this year the number of major accounts surveyed was much smaller, and they usually provide
more favorable evaluation of utility services. Second, there is greater focus on customer service to small
(non key) accounts. We are somewhat restricted in terms of our customer service representatives for
smaller accounts due to other projects, and that may have also impacted the results. We also know that the
web site could be improved and we have plans to tweak the web site so that information is more easily
accessible. Commissioner Melton perceived that the power delivery score declined and that reliability is
always the customer’s most important issue. He said that he personally had not experienced power
outages, but asked whether outages are more common in some areas of the city. Fong replied that capital
improvement projects have been moved up to address problems in some targeted areas (e.g. California
Avenue business district). In summary, we are disappointed that these are the results, we are not
surprised, and we are taking action to address the issues raised in this survey.
The next schedule meeting is set for May 7.
Meeting adjourned at 8:45 P.M.
Respectfully submitted,
Marites Ward
City of Palo Alto Utilities
Utilities Advisory Commission Minutes Approved on: May 7, 2008 Page 7 of 7