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Staff Report 393-08
City Manager’s City of Palo Alto Summary Report TO:HONORABLE CITY COUNCIL ATTN:FINANCE COMMITTEE FROM:CITY MANAGER DEPARTMENT: UTILITIES DATE:OCTOBER 21, 2008 CMR: 393:08 SUBJECT:Consideration of a Recommendation to City Council to Adopt_a Resolution Approving the Execution of the Agreement for a Long-Term Assignment of the City’s Share of Transfer Capability 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 resolution approving the execution of an agreement for a fifteen (15) year assignment of the City’s share of the electric high voltage California-Oregon~Transmission Project (COTP) to the Modesto Irrigation District (MID), 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, MID, TID, 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 long 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. 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. 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 CMR: 393:08 Page 1 of 5 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 ina separate control area jointly operated by the SMUD 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 prompted staff to explore temporary assigmr~ent 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. The Utilities Advisory Comrnission (UAC) in April 2008 conceptually approved staff’s recommendation to assign the City’s share of the COTP to interested parties. In July 2008, staff presented the justification for the long-term assignment of the City’s COTP entitlements to the Finance Committee and sought approval of a short-term assignment as a bridging agreement while negotiations for the 15-year assignment continued. Following the Finance Committee’s recommendation, the Council approved the short-term assignment of the City’s rights in the COTP to SMUD and TID for the months of August 2008 through January 2009, or until the 15- year agreement becomes effective, whichever is earlier (Resolution No. 8850, adopted July 28, 2008). DISCUSSION COTP Cost The City’s electricity supply-related budget for FY 2008-09 (FY ’09) is approximately $78 million, of which approximately $2 million is related to the COTP transmission asset ownership cost. The debt service costs are expected to remain flat at $1.284 milliordyear 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 charges such as SMUD transaction fees, transmission line losses from the COB, and other CAISO charges. These additional costs, which are highly ~variable and depend 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 maj or categories: Basis Value: Basis is the difference between the market prices for electricity delivered to COB versus delivered into Northern California. Based on forward prices, the basis value of the COTP for the next 12 months is estimated at 40% to 70% of cost and declines even further in the outer years. Capacity Value: Supplies imported from the Northwest have capacity and ancillary services (electricity products sold in the market) 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 reliability requirements. 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: 393:08 Page 2 of 5 Operation Value: The COTP has value associated with access to resources and markets in the Pacific Northwest for non-economic reasons. 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. A summary of these costs and values is in the Resource Impact section below. Risk Assessment The City faces low overall risk from the proposed agreement, both in the short-term, from defaults by the assignees, and in the long-term from the impacts of potential regulatory and industry changes in the future. Short TeT"m Assessment: Under the terms and conditions of the contract, Palo Alto will not be billed for any COTP associated costs during the term of the assignment; these costs will be billed directly to the assignees/counterparties. Any default by a counterparty will be remedied prior to the start of the month’s delivery. In the absence of such remedy, the assignment of the layoff will revert back to Palo Alto, limiting the cost to the lost opportunity of COTP use for one month. In the event of a default by counterparty, the City’s COTP entitlement reverts back to the City and the City will revert to its current ownership position. Long Term Assessment: Although the COTP assigmnent is expected to create value for the City, the outcome could prove to be unfavorable or more favorable than expected. Listed below are the value-related uncertainties that staff considered in evaluating a long-term assignment: The building of new transmission lines to the Northwest markets and British Columbia, could shrink the COB/Northern California basis values. This factor favors the proposed assignment. ~ The impact of the CAISO’s new market design could reduce the value of COTP imports compared to resources from Northern California. These combined factors favor the proposed COTP assignment. An unexpected and large increase in Palo Alto’s electric demand or a move to increase Palo Alto’s renewable portfolio goal to 50% may increase the City’s interest in accessing Northwest resources. This uncertainty favors a medium-term assignment of 5-10 years. Assessment of these risks led staff to recommend a 15-year assignment, coincident with the extinguishing of the debt service for the COTP, and ending by 2023. Summary Based on staff’s cost-benefit analysis, the COTP will continue to have a net cost to the Electric Fund until 2024. Since COTP is considered a strategic asset that provides flexibility to the electric portfolio in meeting City’s long term loads, staff does not recommend an outright sale or permanent assignment of its rights to the project. But, a medium- to long-term assignment of the asset at full cost is likely to prove valuable to the electric portfolio. CMR: 393:08 Page 3 of 5 Should the Council approve execution of the 15-year 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, there are alternative ways to access these markets on an as-needed basis, and staff is exploring a number of other cofitractual mechanisms to achieve the objective of accessing other regional markets when it is economically beneficial to do so. One such mechanism is 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. BOARD/COMMISSION REVIEW AND RECOMMENDATIONS The UAC reviewed the concept of an assignment of the COTP at its April 2, 2008 meeting. At the time of the UAC meeting, a contract was unavailable for review. The UAC voted unanimously to recommend conceptual approval of a temporary (15-20 years) assignment of the COTP. RESOURCE IMPACT The impact on the Electric Fund from the 15-year assignment of the COTP is reduced expenses, including a reduction of debt service payments of approximately $1.3 million per year and a reduction of the operation and maintenance costs of about $550,000 per year in 2008, which would escalate each year. At the same time, the values derived from use of the COTP will disappear when the asset is assigned. Staff estimates that the value of COTP is only 60% to 75% of the cost of ownership; thus, a long-term assignment at full cost will save $400,000 to $800,000 per year, which is equivalent to a favorable retail rate impact of approximately 0.5%. Annual Cost 1. Debt Service Payments 2. Operations and Maintenance 3. Usage-Based Charges Total Annual Cost Annual Value 1. Basis Value 2. Capacity Value 3. Operational Value Range of Monthly Value Annual Value as a fraction of cost Net Savings Cost/Value (S/year) over the 20-year assignment period $1,300,000 700,000 250,000 $2,250,000 $750,000 to $1,300,000 $350,000 to $600,000 $50,000 to $100,000 $1,150,000 to S2,000,000 51% to 89% $250,000 to $1,100,000 per year 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. CMR: 393:08 Page 4 of 5 ENVIRONMENTAL REVIEW Approval of this agreement does not require review under the California Enviromnental Quality Act (CEQA) because it does not meet the definition of a "project" pursuant to California Public Resources Code Section 21065. ATTACHMENTS A: Resolution of theCouncil of the City of Palo Alto Approving the Execution of the Agreement for a Long-Term Assigmnent of Palo Alto’s Share of Transfer Capability on the California-Oregon Transmission Project to Other TANC Members B: Resolution 2008-xx, Resolution of the Transmission Agency of Northern California Authorizing the Execution of the Long-Term Layoff Agreement Between TANC and Certain of its Members C: Agreement for Long-Term Layoff By and Among the Transmission Agency of Northern California and certain of its Members namely The City of Palo Alto, The City of Roseville, The Modesto Irrigation District, The Turlock Irrigation District, and The Sacramento Municipal Utility District D: Minutes from the April 2, 2008 UAC meeting PREPARED BY:DEBRA LLOYD Senior Resource Planner REVIEWED BY: DEPARTMENT APPROVAL: CITY MANAGER APPROVAL: SHIVA S~¥AMINATHAN Senior Resource Planner O. 1~. T~CHYE ~tllmes Assistant Director, Resource Management VALERII~O. I~O]~G Director of Utilfffes City MUer CMR: 393:08 Page 5 of 5 NOT YET APPROVED ATTACHMENT A RESOLUTION NO. RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO APPROVING TI-~ EXECUTION OF THE AGREEMENT FOR A LONG-TERM ASSIGNMENT OF THE CITY’S SHARE OF TRANSFER CAPABILITY ON THECALWORNIA-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 California 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 (PA3); and WHEREAS, the City has a 3.6815%, or approximately 50 MW, share of TANC’s current entitlement to transfer capability on the COTP; and WI-~REAS, 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, the TANC Procedures for Long-Term Layoffs of Transmission Capacity govern TANC member assignments of their COTP entitlements; and WHEREAS, MID, TID, and SMUD have agreed to acquire the City’s COTP entitlements for a period of 15 years; follows: NOW, THEREFORE, the Council of the City of Palo Alto does RESOLVE as SECTION 1. The Council hereby approves the City of Palo Alto’s execution of the "Long-Term Layoff Agreement By and Among the Transmission Agency of Northern California and certain of its Members namely The City of Palo Alto, The City of Roseville, The 080918jb 0073031 NOT YET APPROVED Modesto Irrigation District, The Turlock Irrigation District, and The Sacramento Municipal Utility District". The City Manager or designee is hereby authorized to sign the agreement on behalf of the City of Palo Alto. 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: AB STENTIONS: ATTEST: City Clerk APPROVED AS TO FORM: Mayor APPROVED: Senior Asst. City Attorney City Manager Director of Utilities Director of Administrative Services 080918jb 0073031 2 ATTACHMENT B RESOLUTION 2008- A RESOLUTION OF THE TRANSMISSION AGENCY OF NORTHERN CALIFORNIA AUTHORIZING THE EXECUTION OF THE LONG-TERM LAYOFF AGREEMENT BETWEEN TANC AND CERTAIN OF ITS MEMBERS WHEREAS, the Transmission Agency of Northern California (TANC) is a joint exercise of powers agency organized under the laws of the State of California; and WHEREAS, the TANC Procedures for Long-Term Layoffs of Transmission Capacity govern TANC Member layoffs of their California-Oregon Transmission Project (COTP) and South of Tesla (SOT) Transmission Service; and WHEREAS, the Cities of Palo Alto and Roseville have expressed their desire to layoff their COTP Entitlement for 15 years and Roseville its SOT Entitlement for a similar period; and WHEREAS, the Modesto Irrigation District, the Turlock Irrigation District, and the Sacramento Municipal Utility District have agreed to acquire the entitlements of Palo. Alto and Roseville; and WHEREAS, TANC’s General Counsel has drafted a Long-Term Layoff Agreement between TANC and Certain of its Members to facilitate this layoff; and WHEREAS, the layoffs result in an interim change in the TANC Member cost sharing as reflected in TANC Project Agreement No. 3 (PA-3). NOW, THEREFORE, BE IT HEREBY RESOLVED by the Commission of the Transmission Agency of Northern California that: (1) the TANC General Manager, Resolution 2008-__ subject to the final review and approval of TANC’s General Counsel, is authorized to execute on behalf of TANC the Long-Term Layoff Agreement Between TANC and Certain of Its Members; and (2) the attached new appendices for PA-3 are approved. PASSED AND ADOPTED this 21st day of May, 2008 on a motion by , seconded by Resolution 2008-__ AYES NOES ABSTAIN ABSENT City of Alameda City of Biggs City of Gridley City of Healdsburg City of Lodi City of Lompoc Modesto Irrigation District City of Palo Alto Plumas-Sierra Rural Electric Cooperative City of Redding City of Roseville Sacramento Municipal Utility District City of Santa Clara Turlock Irrigation District City of Ukiah PROJECT AGREEMENT NO. 3 APPENDIX C-1 OPERATIONS AND MAINTENANCE TANC Entitlement MID Redding SMUD Santa Clara TID Alameda Healdsburg Lodi Lompoc ,, Palo Alto Plumas Roseville Ukiah Total Percent 21.2960% 8.4120% 27.5631% 20.4745%: 12.5393% 1.2272%1 0.2456% 1.9201% 0.1865% 3.6815% 0.1479% 2.1119% 0.1945% i00.0000% MW 295.9351 116.8950 383.0252 284.5201 174.2501 17.0531 3.4132 26.6817 2.5911 51.1594 2.0555 29.3482 2.7026 1389.6304 Third-Par~ Layoffs* 5.9629 2.3553 7.7177 5.732~I 3.5110 0.3436 0.0688 0.5376 0.0522 1.0308 0.0414 0.5913 0.0545 28.0000 MW Scheduling Rights 29( 115 375 278 171 17 3 26 3 5O 2 ...... 29 3 1362 * Includes Western 27 MW and San Juan 1 MW assingments. Revised May 21, 2008 PROJECT AGREEMENT NO. 3 APPENDIX C-la OPERATIONS AND MAINTENANCE (To accommodate Palo Alto and Roseville 2008 Long-Term Layoffs) TANC Member MID Redding SMUD Santa Clara TID Alameda Healdsburg Lodi Lompoc Palo Alto Plumas Roseville Ukiah Total ¯ Pre-Layoff Percentages 21.2960% 8.4120% 27.5631% 20.4745% 12.5393% 1.2272% 0.2456% 1.9201% 0.1865% 3.6815% 0.1479% 2.1119% 0.1945% IO0.O000% TANC Member Layoff 0.6509% 0.0000% 2.5713% 0.0000% 2.5713% 0.00o0% 0.0000% 0.0000% 0.OOOO% -3.6815% 0.o00o% -2.1119% 0.0000% 0.0000% Net TANC Member Percentage 21.9469% 8.4120% 30.1344% 20.4745% 15.1106% 1.2272% 0.2456% 1.9201% 0.1865% 0.OOOO% 0.1479% 0.OOOO% 0.1945% 100.0000% Revised May 21, 2008 PROJECT AGREEMENT NO. 3 APPENDIX C-2 ORIGINAL COTP DEBT SERVICE TANC Member MID Redding SMUD Santa Clara TID Alameda Healdsburg Lodi Lompoc Palo Alto Plumas Roseville Total Percent 21.1200% 8.2810% 27.1330% 20.7030% 12.4220% 1.3330% 0.2670%- 1.8900% 0.1840% 4.0OOO% 0.1610% 2.2950% 0.2110% 100.0000% Revised May 21, 2008 PROJECT AGREEMENT NO. 3 APPENDIX C-2a COTP DEBT SERVICE (To accommodate Palo Alto and Roseville 2008 Long-Term Layoffs) TANC Member MID Redding SMUD : Santa Clara TID Alameda Healdsburg Lodi Lompoc Palo Alto Plumas Roseville Uldah rolal TANC Member LayoffPercent 21.1200% 8.2810% 27.1330% 20.7030% 12.4220% 1.3330% 0.2670% 1.8900% 0.1840% 4.0OO0% 0.1610% 2.2950% 0.2110% 100.0000% 0.7073% 0.0000% 2.7938% 0.OO00% 2.7938% 0.O000% 0.0000% 0.0000% 0.0O00% -4.0O0O% 0.0000% -2.2950% 0.0000% 0.O000% Net TANC Member Percentage 21.8273% 8.2810% 29.9269% 20,7030% 15.2158% 1.3330% 0.2670% 1,8900% 0.1840% O,00OO% 0.1610% 0.O00O% 0.2110% 100.0000% Revised May 21, 2008 ATTACHMENT C Long-Term Layoff Agreement By and Among the Transmission Agency of Northern California and certain of its Members namely The City of Palo Alto The City of Roseville The Modesto Irrigation District The Turlock Irrigation District and The Sacramento Municipal Utility District DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT TABLE O1~ CONTENTS RECITALS ..........................................................................................................................1 AGREEMENT ....................................................................................................................3 Section1. Effective Date ..................................................................................................3 Sect-ion 2. Term .................................................................................................................3 Section 3. COTP Layoffs ....’ .............................................................................................3 a.Layoff of ROSEVILLE’s COTP Interests, Rights, and Obligations ..................................................................................................4 b.Return of ROSEVILLE’s Interests, Rights, and Obligations ...............4 c.Layoff of PALO ALTO’s COTP Interests, Rights, and Obligations .................................................................................................5 d.Return of PALO ALTO’s Interests, Rights, and Obligations ..............6 e.Projec_t__A_greement No. 3 Ap~pendix C ...................................................6 f.Billings and Payments..7 g.Additions, Betterments, and Replacements ..........................................8 h.Default ......................................................................................................1.0 i.Voting .......................................................................................................11 Section 4.SOT Layoff ....................................................................................................12 a.Layoff of ROSEVILLE’s SOT Interests, Rights, and Obligations ...............................................................................................12 b.Return of ROSEVILLE’s Interests, Rig_l~ts, and Obligations .............13 c.SOT Agreement Appendix B-2 .............................................................13 i DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT Section 5. Section 6. Section 7. Section 8. Section 9. Section 10. Section 11.. Section 12. Section 13. d.Billings and Payments ............................................................................14 e.Increases in SOT Allocation, Interests, or Obligations ......................15 f.Default ......................................................................................................15 No Assignment Without Consent .............................................................16 Dispute Resolution ...............................’ .......................................................16 a.Negotiation ..............................................................................................16 b.Mediation .................................................................................................17 c.Additional Rights ....................................................................................17. Attorney Fees ................................................................................................18 " California Law ..............................................................................................18 ¯ Integrated Agreement .................................................................................18 TANC Liability ...........................................................................................19 Notices ........................................................~ ................................................19 Severability .................................................................................................20 Discharge of Obligations ...........................................................................20 ii DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT This Long-Term Layoff Agreement (Agreement) is entered into by and among the Transmission Agency of Northern California, a California public entity and joint powers agency (TANC), and certain of its members, namely the City of Palo Alto, a California charter city and municipal corporation (PALO ALTO), the City of Roseville, a California charter city and municipal corporation (ROSEVILLE), the Modesto Irrigation District, a California irrigation district (MODESTO), the Turlock Irrigation District, a California irrigation district (TURLOCK), and the Sacramento Municipal Utility District, a California municipal utility district (SMUD), referred to as Party or Parties in this Agreement, as of the Effective Date of this Agreement, with regard to the following RECITALS: ROSEVILLE, PALO ALTO, MODESTO, TUR~OCK, and SMUD are each Participants in and parties to TANC Proiect Agreement No. 3, entered into as of March 1, 1990. ROSEVILLE and PALO ALTO each desire to layoff, as defined in TANC Project Agreement No. 3, their respective Participation Percentages in TANC’s entitlement to Transfer Capability on the California-Oregon Transmission Project (COTP), pursuant to section 7.1 of Project Agreement 1 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT No. 3, in accordance with TANC’s Long-Term Layoff Procedures, and in accordance with this Agreement. Co MODESTO, TURLOCK and SMUD are willing to accept the PALO ALTO and 1ROSEVILLE Participation Percentages of TANC’s entitlement to Transfer Capability on the COTP. ROSEVILLE, TURLOCK and SMUD are each SOT Members and parties to the South of Tesla Agreement (SOT Agreement) between TANC and its Members, dated as of February 14, 1993. ROSEVILLE desires to layoff or transfer its SOT Allocation of TANC’s entitlement to firm bidirectional Tesla-Midway Transmission Service from PG&E as a Long-Term Reallocation pursuant to section 4 of the SOT Agreement and in accordance with this Agreement. TURLOCK and SMUD are willing to accept the ROSEVILLE SOT Allocation of TANC’s entitlement to TesIa-Midway Transmission Service. 2 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT NOW THEREFORE, in consideration of the premises described in the recitals, and in consideration of the terms, covenants, and conditions that are set out below, the Parties have entered into this AGREEMENT: Section I. Effective a~:td-..©.p..:..~.r.-_t~_t...}!~ Date~. This Agreement shall become effective and enforceable on its Effective Date, which date shall commence at 0001 hours Pacific ~ Standard Time on the first day.-og.[.he...f.i.~.s~-.mo~.~.h December I, 2008 following [he due execution and delivery of ~his Agreemen~ io TANC. 3 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE dULY 30, 2008 DRAFT 31, 2008 at 2359 h.,aurs Pacific Day!fgEt Time. Section 2, Term. The Term of this Agreement shall be 15 years commencing on the Effective Date and terminating at 0000 hours Pacific-Dayl4g~ Standard t..Time on the day before the 15th anniversary of the Effective Date. Section 3. COTP Layoffs. This section 3 does not apply to or affect any provision of section 4, SOT Layoffs, of this Agreement. Section 4 shalI not be construed with reference to this section 3. Section 3 is intended to stand alone. Section 3 and section 4 are included in this single Agreement to make the administration, management, and. recordkeeping of layoffs under the TANC programs efficient and economic. Terms in section 3 of this Agreement that begin with capitalized letters are defined in TANC Project Agreement No. 3. 4 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT a.Layoff of ROSEVILLE’s COTP Interests, Rights, and Obligations. On the ©pe..~,.a~4v~ Effective Date ;~f-~hi~-.se.c4i(~,~-g, and for the Term of this Agreement ROSEVILLE hereby lays off and relinquishes to TANC all of ROSEVILLE’s use of its interests, rights, and obligations under TANC Project Agreement No. 3 ....{ TA NC Project a ................~ ~,T,, 5, except its obligations in the event of a default, associated with ROSEVILLE’s 2.1119 Participation Percentage in TANC’s entitlement to Transfer Capability on the COTP. TANC hereby transfers at that instant: (i) 0.2373 Participation Percentage in TANC’s entitlement to Transfer Capability on the COTP to MODESTO; (ii) 0.9373 Participation Percentage in TANC’s entitlement to Transfer Capability on the COTP to TURLOCK; and (iii) 0.9373 Participation Percentage in TANC’s entidemen~ to Transfer Capability on the COTP to SMUD. MODESTO, TURLOCK, and SMUD hereby accept and assume at that instant for the Term of this Agreement all of the use of the ROSEVILLE interests, rights, and obligations under the provisions of TANC Project Agreement No. 3 ~.- ,~ w a krm Project ,a ,,,. ........... + ~T,, ~ b.Return of ROSEVILLE’s Interests, Rights, and Obligations. 5 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT Unless earlier relinquished because of a default, upon the end of the last hour of the last day of the 15 year Term of this Agreement, all of the ROSEVILLF. interests, rights, and obligations in ROSEVILLE’s ~ Participation Percentage .(2.1119as of the Effective Date of this A_zreement) under TANC Projec~ Agreement No. 3 .~.,greemen! No. 5 shall automatically and without any action of the Parties be relinquished by MODESTO, TURLOCK, and SMUD through TANC to ROSEVILLE, and ROSEVILLE hereby accepts its interests, rights, and obligations at that instant in the future. c. Layoff of PALO ALTO’s COTP Interests, Rights, and Obligations. On the ©pe.~a.~-we Effective Date oL~is.-se.c-~o.m-.$ and for the Term of this Agreement, PALO ALTO hereby lays off and relinquishes to TANC all of PALO ALTO’s use of its interests, rights, and obligations under TANC Project Agreement No. 3 ’~C Pro]e, ct Agr~ ¯ No~...5, except its obligations in the event of a default, associated with PALO ALTO’s 3.6815 Participation Percentage in TANC’s entitlement to Transfer Capability on the COTP. TANC hereby transfers at that instant: (i) 0.4137 Participation Percentage in TANC’s entitlemenl to Transfer Capability on the COTP to MODESTO; and (it) 1.6339 6 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT Participation Percentage in TANC’s entidement to Transfer Capability in the COTP to TURLOCK; and (iii) 1.6339 Participation Percentage in TANC’s entitlement to Transfer Capability on the COTP to SMUD. MODESTO, TURLOCK, and SMUD hereby accept and assume at that instant for the Term of this Agreement all of the use of the PALO ALTO interests, rights, and obligations under the provisions of TANC Project Agreement No. 3 d. Return of PALO ALTO’s Interests, Rights, and Obligations. Unless earlier relinquished because of a default, upon the end of the last hour of the last day of the 15 year Term of this Agreement, all of the PALO ALTO interests, rights, and obligations in PALO ALTO’s ~ Participation Percentage ~3.6815~ as of. the Effective Date of this Agreement~ under TANC Project Agreement No. 3 A~.greement No~-5 shall automatically and without any action of the Parties be relinquished by MODESTO, TURLOCK, and SMUD through TANC to PALO ALTO, and PALO ALTO hereby accepts its interests, rights, and obligations at that instant in the future. Project Agreement No. 3 Appendix C. 7 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT The TANC Commission by resolution has approved a revised version of APPENDIX C of TANC Project Agreement No. 3, showing the effect of the layoffs on the Participation Percentages of ROSEVILLE, PALO ALTO, MODESTO, TURLOCK, and SMUD during the Term of this Agreement, for the purposes of delineating voting, billings, and obligations during the Term of this Agreement The version of APPENDIX C approved by the TANC CorfLmission and attached to and incorporated into this Agreement as ATTACHMENT A has been created solely for the convenience of the parties, and does not ___ affect the interests, rights, or obligations of ROSEVILLE or PALO ALTO if MODESTO, TURLOCK, or SMUD were to default in their obligations under this Agreement. Notwithstanding anything to the contrary in this Agreement, title to the interests of ROSEVILLE and PALO ALTO in their respective Participation Percentages shall remain vested in ROSEVILLE and FALO ALTO during the Term of this Agreemen% while the right of use of those interests, rights, and obligations shall be vested in MODESTO, TURLOCK, and SMUD. Nothing in this Agreement is intended to alter or amend any right or obligation under TANC Project Agreement No. 3. The failure to give due and timely notice of a defauIt or potential default shall not absolve the obligation 8 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT of any Party to comply with its responsibi!ities under TANG Project Agreement No. 3. Regardless of any default on the part of MODESTO, TUI-<LOGK, or SMUD, neither ROSEVILLE nor PALO ALTO shall be excused from their respective obligations under TANG Project Agreement No. 3. f.Billings and Payments. During the Term of this Agreement, and in the absence of a default by MOD]q, STO, TURLOCK, or SMUD, all billings and payments shah be made in accordance with the provisions of TANG Project Agreement No. 3, with ATTACHMENT A of this Agreement employed by TANG to assure that, in the absence of a default by MODESTO, TURLOCK, or SMUD, ROSEVILLE and PALO ALTO will not be billed for any TANG Project Agreement No. 3 costs, including but not limited to TANC Project O&M Costs, TANG Project Indebtedness, Deb~ Service, or TANG Capita]. Improvement Costs, ~- during the Term of this Agreement; provided, however, teat ROSEVILLE and PALO ALTO shall remain responsible under tee TANC Joint Power Agreement for any costs um~elated to TANC Project Agreement No. 3 9 DWD FOURTH DRAFT-AUGUST 2~, 2008 REVISING THE JULY 30, 2008 DRAFT During the Term of this Agreement, TANC shall bill SMUD, and SMUD shall pay, for TANC Project Agreement No. 5 costs, expenses, fees, and charges otherwise allocable to ROSEVILLE and PALO ALTO pursuant to section 3 of TANC Project Agreement No. 5. g.Additions, Betterments, and Replacements. Additions, Betterments, and Replacements, as defined in TANC Project Agreement No. 3, approved by MODESTO, TURLOCK, or SMUD during the Term of this Agreement shall be avaiIable for their sole use and at their sole expense during the Term hereof. At the end of the Term of this Agreement, MODESTO, TURLOCK, and SMUD shall be solely and severally responsible for their respective Participation t Percentages of the Betterments approved and financed by them and for the portion of Additions approved and financed by them that exceeds the adjusted cost index delia-ted in section 3.1.2.2.2 of TANC Project A~greement No. 3, as to the excess amount against which an Opposing Member voted. Any Additions exceeding the adjusted cost index of section 3.1.2.2.2 approved by PALO ALTO or ROSEVILLE during the Term of this Agreement, and Replacements put into service during the Term of this Agreement, shall be available at the end of the 10 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT Term of this Agreement for use by PALO ALTO and ROSEVILLE as their Participation Percentages of TANC’s entitlement in Transfer Capability according to APPENDIX C of TANC Project Agreement No. 3 as of ~he day preceding the Effective Date of this Agreement. The Parties ~ agree that the costs of any Additions or Replacements put into service during the Term of this Agreementl wh.ic!~, are used ’ap~,fi ,azef"M bey~,;p,d ~he e~,d of tee Te:r~n shall be allocated on a straight-line basis over the expected useful 1ire of the Addition or Replacement as determined at the time the Addition or R__eplacement is put into service. In consideration of the fact that in the absence of a default~ PALO ALTO and ROSEVILLE will no{ be paying the costs of Additions or RepIacements during the Term of this Agreement~ even if PALO ALTO and ROSEVILLE vote to approve Additions as provided in this Agreement/the Parties agree eo up" costs paid or incurred for Additions or Replacements put into service during the Term of this Agreement. Prior to the end of the Term of this Agreemenb unless {he Parties otherwise agree~ TANC shall recommend to the Par{its an allocation of the costs paid or incurred for any Additions or Replace~aents~ in view of the value of the past and remaining useful 1ires of the Additions or Replacements. 11 D~ND FOURTH DR~,FT-/kUGUST 27, 2008 REVISING THE JULY a0, 2008 DRAFT Upon the end of the Term. of ~:his Agreement the Parties shall make such payments to each other a~ to effect their mutual intention that costs for Additions and Replacements with long lives be allocated on a straight-line basis. h. Default. In the event of a default by MODESTO, TURLOCK, or SMUD, TANC shall immediately and simultaneously notify each of the Parties in accordance with the provisions of section 11 of this Agreement. If a default remains uncured for 20 days after the date notice is first given by email under section 11, then ROSEVILLE e~. and PALO ALTO7 shall cure the default not later than 3 business days following, the 20th day. Upon completion of the cure of the default, the interests, rights, and obligations laid off shall be automatically relinquished at that instant, and without any action of the Parties r-eli-~ " "~s~4’. TANC shall take reasonable measures to give notice of the default to each of the Parties to this Agreement, but TANC shall have no responsibility to otherwise respond to the default. Voting. 12 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT During the Term of this Agreement: (i)Except for Additions, neither PALO ALTO nor ROSEVILLE shall have rights to vote on any matter related to TANG Project Agreement No. 3 in the absence of a default under this Agreement by MODESTO, TURLOCI<,_ or SMUD. For Additions proposed during the Term of this Agreement each Party shall be entitled to vote its Participation Percentage shown on APPENDIX C of TANC Project Agreement No. 3 as of the day preceding the Effective Date of this Agreement, (it)In the event of a default by either MODESTO, TURLOCK,_ or SMUD the defaulting pParty may no~ vote on any matter related to TANC Project Agreement No. 3 and the -p~arty adversely affected by the default may exercise all of the rights of the p_P_arty in default. (iii)Any new TANC Program or project shall be governed by the agreements that pertain to the project or program. 13 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT Section 4. SOT Layoff. This section 4 does not apply to or affect any provision of section 3, COTP Layoffs, of this Agreement. Section 3 shall not be construed with reference to this section 4. Section 4 is intended to stand alone. Section 3 and section 4 are included in this single Agreement to make the administration, management, and recordkeeping of layoffs under the TANC programs efficient and economic. Terms in section 4 of this Agreement that begin with capitalized letters are defined in the SOT Agreement. a.La_~off of ROSEVILLE’s SOT Interests, Rights, and Obligations. On the ©pe~.a.[.i.v:e Effective Date ~f:...~hi-s..se~t~o~-4 and for the Term of this Agreement, ROSEVILLE hereby lays off and relinquishes to TANC aI1 of ROSEVILLE’s use of its interests, rights, and obligations, except its obligations in the event of a default, associated with ROSEVILLE’s 1.786 percent SOT Allocation (expressed as a percentage of TANC’s Tesla-Midway Transmission Service), and TANC hereby makes a Long-Term RealIocation and transfers at that instant 62.71 percent of the ROSEVILLE SOT Allocation (1.120 percent of the total SOT Allocations) to TURLOCK and 37.29 percent of the ROSEVILLE SOT 14 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT Allocation to SMUD (0.666 percent of the total SOT AlIocations). TURLOCK and SMUD hereby accept and assume at that instant for the Term of this Agreement the use of all of the ROSEVILLE interests, rights, and obligations under the provisions of the TANC SOT Agreement. Return of ROSEVILLE’s Interests, Rights, and Obligations. Unless relinquished earlier because of a default, upon the end of the last hour of the last day of the 15 year Term of this Agreement, all of ROSEVILLE’s interests, rights, and obligations under the TANC SOT Agreement, including ROSEVILLE’s 1.786 percent SOT Allocation, shall automatically and without any action of the Parties be relinquished by TURLOCK and SMUD through TANC to ROSEVILLE, and ROSEVILLE hereby accepts its interests, rights, and obligations at that instant in the future. c.SOT Agreement Appendix The TANC Commission by resolution has approved a revised version of Appendix B-2 of the TANC SOT Agreement, showing the effect of 15 D~VD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JUEY 80, 2008 DRAFT the layoff on the SOT Allocations and the Cost Sharing Percentages for the purpose_s of voting, billings, and payments during the Term of this Agreement. The revision of Appendix B-2 approved by the TANC Commission and attached to and incorporated into this Agreement as ATTACHMENT B has been prepared solely for the convenience of the Parties, and does not affect the interests, rights, and obligations of ROSEVILLE, if TURLOCK or SMUD were to default in their obligations under this Agreement. Notwithstanding anything to the contrary in this Agreement, title to the interest of ROSEVILLE in its SOT Allocation shall remain vested in ROSEVILLE during the Term of this Agreement, while the right of use of those interests, rights, and obligations of ROSEVILLE’s SOT Allocation shall remain vested in TURLOCK and SMUD during the Term of this Agreement. Billings and Payments. During the Term of this Agreement, and in the absence of a default by TURLOCK o1" SMUD, all billings_ and payments shall be made in accordance with the provisions of the TANC SOT Agreement, with ATTACHMENT B of this Agreement employed by TANC to assure that, in the absence of a default by TURLOCK or SMUD, ROSEVILLE 16 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT will not be billed for any costs, SOT Service Charges, or other expenses associated with the SOT Agreement during the Term of this Agreement. e.Increases in SOT Allocation, Interests, or Obligations. Any increases in SOT Allocations, interests, or obligations approved by TURLOCK or SMUD during the Term of this Agreement shall be available fo~ their sole use and at their sole expense during the Term hereof, and al the end of the Term of this Agreement, such increases in SOT Allocations, interests, or obligations shall remain with TURLOCK or SMUD. Default. In the event of a default by TURLOCK or SMUD, TANC shall immediately notify each of the Parties in accordance with the provision of section 11 of this Agreement. If a default remains uncured for 20 days after the date notice is first given by emaiI under section 11 of this Agreement, then 1ROSEVILLE shall cure the default not later than 3 business days following the 20th day. Upon completion of the cure o~f 17 DWD FOURTH DRAFT-AUGUST 27, 2008 REVIS;NG THE 3ULY 30, 2008 DRAFT the default, the interests, rights, and obligations laid off shall be automatically7 relinquished at that instant, and without any action of the Parties ~’~e-l-i~u.i<s.~e.~l-. TANC shall take reasonable steps to provide notice of the default to each of the Parties to this Agreement, but TANC shall have no responsibility to otherwise respond to the default. Section 5. No Assignment Withoul Consent. During the Term of this Agreement, MODESTO, TURLOCK and SMUD shall not assign any interest of PALO ALTO or ROSEVILLE without the advance written consent of TANC, PALO ALTO, or ROSEVILLE, as applicable. Section 6.Dispute Resolution. In the event of any controversy or claim between the Parties, whether based in contract, tort or otherwise, arising out of, based upon, or relating to this Agreement, except for any controversy or claim based upon a default of the obligations to make payments set forth in sections 3 or 4 of this Agreement (Dispute), the Parties shall attempt to resolve such Dispute in the following manner: a._Negotiation. 18 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT The Parties shall attempt in good faith to resolve the Dispute promptly by negotiations between duly authorized representatives of the Parties who have authority to resoIve the Dispute. When a Party believes there is a Dispute, that Party shall give the other Party written notice describing the Dispute with reasonable particularity. Within fifteen (15) calendar days following the receipt of such notice, the receiving Party shall submit a written response to the noticing Party. The authorized representatives shall meet in person a~d attempt to resoIve the Dispute. b.Mediation. If the Dispute is not resolved within fifteen (15) calendar days following receipt of the receiving Party’s response given pursuant to subsection a, above, or such additional time, if any, that the Parties mutually agree to in writing, the Parties shall try in good faith to resolve the Dispute by mediation. The form of mediation and the mediator selected to mediate the Dispute shall be acceptable to both Parties, which acceptance shall be confirmed by the Parties in writing. 19 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT c.Additional Rights. If the Dispute is not resolved through mediation within ninety (90) calendar days of the noticing Party’s written notice of the Dispute pursuant to subsection a above, or such additional time, if any, that the Parties mutually agree to in writing, the Party or Parties involved in the dispute shaII be free to pursue any and all legal and equitable actions or remedies. Section 7.Attorney Fees. In any negotiation, mediation, arbitration, or litigation to enforce or defend any interest, right, or obligation of this Agreement, the prevailing p_Party shall be entitled to an award of reasonable attorney fees and other litigation expenses. Section 8. California Law. This Agreement was made in and will be performed in California, and the law of California shall apply in the interpretation and enforcement of this Agreement. 2O DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT Section 9. Integrated A~eement. This Agreement is the whole, integrated agreement of the parties, superseding prior negotiations and replacing and terminating the Principles for Long-Term Layoff of Palo Alto and Roseville Transmission ]Entitlements. This Agreement does not amend Project Agreement No. 3 or the TANC SOT Agreement in any respect. In the event of any conflict between this Agreement, TANC Proiect Agreement No. 3, or TANC SOT Agreement, the provisions of TANC Project Agreement No. 3 or the TANC SOT Agreement shall control. Section I0.TANC Liability. TANC and its officers, agents, and employees, as well as the other members and commissioners of TANC (Indemnitees), undertake no legal liability to the parties to this Agreement and each Party releases, holds harmless, and covenants not to sue the Indemnitees for any cause, claim, injury, damage, or death arising from a negligent act or omission of an Indemnitee in. connection with this Agreement Section 11. Notices. 21 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT NoNces of default shall be given by TANC to each Party to this Agreement using all of the four following methods on the same day, if possible: facsimile, email, ~L~S~..--P...os.t.a.LSe.~-~i.e overnight deliver~, and a personal phone call from the TANC General Manager to each Chief Executive Officer of each Party. Contact information for the purposes of notice for each Party shall be maintained by TANC as ATTACHMENT C of this Agreement, attached to and incorporated herein. Each Party shall be responsible for maintaining current contact information with TANC. Section 12.Severability. Any provision of this Agreement determined by a court of competent jurisdiction to be invalid shall not be severed from this Agreement 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 notice under the notice provisions hereof, that this Agreement shall terminate on a date all of the Parties consider appropriate, and if no agreement is 22 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT reached on an appropriate early termination dale, then at the las[ hour of the day that is 120 days after the date notice was first given. Section ]S. Discharge of Obligations. All obligations unsatisfied at the end of the Term of ~his Agreemen~ shall be promptly discharged by the responsible Party. TRANSMISSION AGENCY OF NORTHERN CALIFORNIA TURLOCK IRRIGATION DISTRICT By:By: I~:s:Its: Dated:Da~:ed: CITY OF PALO ALTO SACRAMENTO MUNICIPAL UTLITY DISTRICT By: Its: Dated: By: Its: Dated: CITY OF ROSEVILLE MODESTO IRRIGATION DISTRICT 23 DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT By: Its: Da~:ed: By: lls: Da~ed: DWD FOURTH DRAFT-AUGUST 27, 2008 REVISING THE JULY 30, 2008 DRAFT ATTACHMENT D FINAL UTILITIES ADVISORY COMMISSION MINUTES OF APRIL 2, 2008 CALLTO ORDER Chairman Rosenbaum Commission (UAC). called to order at 7:00 P.M. the scheduled meeting of the Utilities 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 MEETINGSIEVENTS 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 I 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: Energy Risk Mana.qement 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, Ga§, 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 Assign the Seattle City Light Exchanqe Contract to Another NCPA Member A.qency 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-Oreqon 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: Com~nissioner 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 gre_at profitability of the fiber fund. ITEM 6: INFORMATION ITEM: Enerqy Policy Act (EPACT) Reporting Update on Time Based Meterin.q and Pricing 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 whenlif 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