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HomeMy WebLinkAboutStaff Report 224-10, ;, TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: MAY 17,2010 CMR: 224:10 REPORT TYPE: CONSENT SUBJECT: Approval of Termination of NCPA Natural Gas Procurement Program Third Phase Agreement, Including the City's Obligations Under the Agreement, Upon Effective Date of New Facilities Agreement Schedules for Fuel Procurement RECOMMENDATION Staff recommends that City Council approve and authorize the City Manager to execute the attached Tennination of Natural Gas Procurement Program Third Phase Agreement. BACKGROUND The Northern California Power Agency (NCPA) is an organization of municipal electric utilities including Palo Alto. NCPA arranges for delivery of the City's electric power and manages electric resources that Palo Alto jointly owns with other NCPA members. In 1991, Palo Alto entered into an agreement to purchase natural gas through NCPA's gas procurement program in order to establish a back-up natural gas supply alternative, but no gas was ever purchased by Palo Alto under this agreement. In 1993, NCPA passed a resolution redefining the members' participation percentages and obligations in the gas procurement program. At Palo Alto's request to withdraw from the program, a clause in the resolution attempted to terminate Palo Alto's obligations under the agreement without actually amending the contract. Palo Alto signed the NCPA resolution, which purportedly ended Palo Alto's participation in the gas procurement program. Since that time, the parties have treated Palo Alto as a non-participant in the program. DISCUSSION Another NCPA member, Turlock Irrigation District, now plans to leave the gas proeurcment program, and, as a result, NCPA is tenninating the associated contracts. Both NCPA's legal counsel and Palo Alto's City Attorney recommend that Palo Alto execute the Termination of Natural Gas Procurement Program Third Phase Agreement to assure that Palo Alto is fully protected from any possible future, obligations resulting from NCPA's gas procurement program. Additional infonnation is provided in the NCPA Commission Staff Report (Attachment B). CMR:224:10 Page 1 of2 RESOURCE IMPACT This project has no resource impact. POLICY IMPLICATIONS There are no policy implications. ENVIRONMENTAL REVIEW The provision of these services do not constitute a project pursuant to Section 21065 of the California Public Resources Code, thus no environmental review under CEQA is required. ATTACHMENTS A. Termination of Natural Gas Procurement Program Third Phase Agreement B. NCP A Commission Staff Report March 11, 2010 PREPARED BY: REVIEWED BY: KARLA DAILEY Senior Resouree Planner ~RATCHYE \jAssistant Director, Utilities Resource Management VAL~ONG DEPARTMENT APPROVAL: Director of Utilities CITY MANAGER APPROV AL: KEENE Ci c:rv1R: 224: 10 Page 20f2 , " TERMINATION OF NATURAL GAS PROCUREMENT PROGRAM THIRD PHASE AGREEMENT .ATTACHMENT A This Termination of Natural Gas Procurement Program Third Phase Agreement ("this Termination") is made and entered into as of this day of , 20 I 0 by and between the Northern California Power Agency, a California joint powers agency, and the Cities of Alameda, Lodi, Lompoc, Palo Alto, and Roseville and the Turlock Irrigation District (collectively, the "Parties") (the Parties other than NCPA are referred to herein as "the Participants"), and WITNESSETH: WHEREAS, on March 28, 1991, the Commission of the Northern California Power Agency ("the Commission") adopted its resolution no. 91-09, approving the Natural Gas Procurement Program Service Schedule ("the Service Schedule") authorizing NCPA to procure contract and other rights for the transportation, storage and supply of natural gas as fuel to the NCPA Combustion Turbine (CT1) Project, the Combined Cycle (STIG-CT2) Project (Unit One-Lodi and Unit Two-Ceres also known as Turlock), and for the needs of those NCPA members executing the Service Sehedule; and WHEREAS, the Service Schedule contemplated that it would be superseded by a "third phase agreement"; and WHEREAS, on or about November 6,1991 NCPA and the Participants entered into the Natural Gas Procurement Program Third Phase Agreement (" the Third Phase Agreement") as contemplated by the Service Schedule and which by its terms superseded the Service Schedule; and WHEREAS, on or about September 15, 1993 the Commission adopted its resolution no. 93- 16 which transferred the Natural Gas Procurement Program to the STIG-CT2 Project and additionally attached Gas Service Schedule A ("Schedule A") which is a service schedule related solely to the Turlock Irrigation District. Said resolution, copies of which were executed by NCPA and the Turlock Irrigation District, appears to hav .. been intended as a contract. In addition, said resolution also appears to attempt to terminate the obligations of the City of Palo Alto under the Third Phase Agreement, and although an amendment to the Third Phase Agreement to that effect has not been approved, the Parties have since treated Palo Alto as not being a participant under the Third Phase Agreement; and WHEREAS, NCPA is, concurrently with the approval of this Termination, approving new Schedules as attachments to its Facilities Agreement by which NCPA intends to procure contract and other rights for the transportation, storage and supply of natural gas as fuel to the cn and Unit One ofSTIG-CT2. The intention is that each NCPA Project requiring natural gas will have its own independent Facilities Agreement Schedule defining the terms by which the participants in the respective projects have determined to acquire natural gas; and WHEREAS, the Facilities Agreement Schedules upon adoption will supersede the Third Phase Agreement and the Parties desire to formally tenninate the Third Phase; and WHEREAS, section 25 of the Third Phase Agreement provides that it may not be tenninated without the consent of all Participants and NCP A and unless the means have been established to timely pay, extinguish, or discharge, without liability to NCPA or any Participant, all obligations entered into and liabilities incurred under the Third Phase Agreement; and WHEREAS, this Termination includes the obligation of the Participants to pay for those net costs and liabilities incurred under the terms of the Third Phase Agreement, whether known or unknown, and the obligation ofNCPA to pay Participants any funds owing under the tenns of the Third Phase Agreement; and WHEREAS, the new Schedules, to which the Cities of Alameda, Lodi, Lompoc and Roseville (but not the City of Palo Alto or the Turlock Irrigation District) will be subject as signatories to the Facilities Agreement, include ratification of pre-existing term gas pipeline agreements the term of which extends beyond the Effective date of this Termination and entered into by NCP A under the tenns of the Third Phase Agreement. The Cities of Alameda, Lodi, Lompoc, and Roseville will be responsible for the on-going costs and obligations of those pipeline agreements under the terms ofthe Facilities Agreement. NOW, THEREFORE, the Parties agree as follows: I. When this Tennination takes effect in accordance with Section 6, NCPA shall immediately cease purehasing natural gas under the Third Phase Agreement or incurring new obligations under it, and shall immediately begin procurement of natural gas for the CT No. I Project and Unit One of the STIG-CT No.2 Project utilizing the new Facilities Agreement Schedules. 2. Within sixty (60) days NCPA shall provide a closing statement to all Participants for all known costs or liabilities incurred pursuant to the Third Phase Agreement separately setting forth all credits and debits (which statement may be included in the monthly NCP A "All Resources Bill"), and which shall be paid by the Participants in accordance with the terms of the Third Phase Agreement. Should any Participant be entitled to payment of funds by NCP A, NCP A shall pay such funds within the same time period during which Participants would be required to pay NCP A. If and when any unknown cost~ or liabilities incurred pursuant to the Third Phase Agreement or pursuant to Resolution no. 93-16 arise, NCPA shall present such net costs to the Participants who shall pay such costs in accordance with the terms of the Third Phase Agreement or said resolution, respectively, and if any Participant is entitled to paymentof any funds, NCPA shall pay such funds to such Participant at the same time as the Participant would be obligated to pay funds to NCPA .. The Parties agree that, in accordance with the intent expressed in Resolution no. 93-16, none of such costs or liabilities shall be allocated to Palo Alto, which shall be treated for purposes of this Termination as if the Third Phase Agreement had been amended to exclude that Participant in 1993. The Cities of Alameda, Lodi, Lompoc and Roseville acknowledge that, upon approval of the new Facilities Agreement Schedules as contemplated by this Termination, existing gas pipeline Termination of Natural Gas Procurement Program Third Phase Agreement 1381743,3; rev. 412010 Page 2014 agreements the term of which extends beyond thc Effective Date of this Termination, shall be deemed to be ratified by the Cities of Alameda, Lodi, Lompoc, and Roseville and authorized by those new Facilities Agreement Schedules authorizing the NCPA Commission to periodically authorize contracts with third persons for transportation and storage services. The Cities of Alameda, LOOi, Lompoc and Roseville agree to pay costs arising out of the preexisting pipeline agreements under the terms of the Facilities Agreement. 3. The Third Phase Agreement is hereby terminated, and except for the obligations to pay outstanding costs and liabilities, net of any credit or debit adjustments, pursuant to section 2 of this Termination as well as any unknown net costs that arise subsequent to the closing statement, and the indemnity obligations of section 30 of the Third Phase Agreement which shall survive this Termination, all rights, obligations, and liabilities of the Parties to each other with respect to the Third Phase Agreement are extinguished and released. 4. This Termination may be executed in any number of counterparts and each executed counterpart shall have the same force and effect as an original instrument and as if all signatories to all of the counterparts had signed the same instrument. 5. Eaeh Participant executing this Termination warrants and represents that it has agreed to be bound by the terms of this Termination and that it has been executed after authorization and approval by its governing body. 6. This Termination shall take effect upon the later of: (a) the adoption and effective date of the Facilities Agreement Schedules for gas purchases for the CTI and Unit One of the STIG-CT2 project; (b) the effective date of such agreement or agreements by which TID makes alternative gas purchase, management and transportation arrangements replacing such services which it may have received directly or indirectly under the Third Phase Agreement or under Resolution no. 93-16; (c) the effective date of the permanent assignment to TID of its share of all pipeline rights which NCPA holds and to which TID is entitled to a 50% share on the pipeline systems of NOVA Gas Transmission Limited, Foothills Pipe Lines Ltd., Gas Transmission Northwest Corporation and Pacific Gas and Electric Co.; and (d) execution of this Termination by all Parties. IN WIlNESS WHEREOF the Parties by the signatures of their duly authorized representatives below have executed and delivered this Termination. NORTHERN CALIFORNIA POWER AGENCY By: ~--~------------------Its: General Manager Date: CITY OF ALAMEDA By: Its: --------------- --~.~.--~ .. --~.--~ Date: ______________ _ Termination of Natural Gas Procurement Program Third Phase Agreement 1381743v3; "",.412010 Approved as to form: General Counsel Approved as to form: City Attorney Page 3 014 CITY OF LODI By: ______________________ __ Its: _____________ _ Date: _______ _ CITY OF LOMPOC By: ___________ ___ Its: ' ------ Date: _________ _ CITY OF PALO ALTO By: ___________________ _ Its: ______________ _ Date: ________ _ CITY OF ROSEVILLE By: ___________________ _ Its: _____________ _ Date: _________ _ TURLOCK IRRIGATION DISTRICT By: ___________________ _ Its: ________ _ Date: _________ _ 1381743,3 Termination of Natural Gas Procurement Program Third Phase Agreement 1381743v3; rev. 412010 Approved as to form: City Attorney Approved as to form: City Attorney Approved as to form: City Attorney Approved as to form: City Attorney Approved as to form: General Counsel Page 4 of4 Commission Staff Report Date: March 11, 2010 To: NCPA Commission ATTACHMENT B 651 Commerce Drive Rosev1lle, CA 95678 phone (916) 781-3636 fax (916) 783-7693 web www,ncpa"com AGENDA ITEM NO.: Subjec1: Natural Gas Procurement Program (NGPP) Termination and New Facilities Agreement Schedules for Fuel Procurement Background This Commission Staff Report recommends that the Commission authorize the General Manager to execute an agreement to terminate the Natural Gas Procurement Program (NGPP) Third Phase Agreement, and in its place implement more modern gas procurement procedures under the Facilities Agreement (FA). This recommendation is made in the context of NCPA's many gas agreements and resolutions that reflect a very complex background. A detailed staff report was sent to Utility Directors on September 1, 2009, which described the history of NCPA's gas agreements. That report outlined a recommended process and alternative options for updating the Facilities Agreement in combination with simultaneously replacing the outdated set of gas agreements in a manner that would also facilitate TID's requested withdrawal from the Agency. The September 1,2009 staff report to the Utility Directors is attached for reference to assist those seeking the more details and history of NCPA's gas supply arrangements over the past two decades. In brief, the September 1, 2009 staff report the Utility Directors describes how the current set of gas-related agreements were Initially derived in 1991, In conjunction with the CT1 Project. Later, the gas procurement provisions were transferred from the CT1 to the CT2 Project, and plant operations provisions were mostly transferred from the Member Services Agreement to the Facilities Agreement. Now, however, the passage of time and the eVOlution in NCPA's gas procurement processes requires a more comprehensive update and restructuring 01 all these gas and pipeline arrangements. Therefore, this Commission Staff Report, focusing on the NGPP and its successor FA Schedules, has been prepared to work in combination with a second Commission Staff Report addreSSing the necessary changes to the remaining natural gas contract issues associated with the agreements between NCPA and third parties. The Natural Gas Procurement Program Third Phase Agreement (NGPP Agreement) was approved in November of 1991 and executed by Alameda, Lodi, Lompoc, Palo Alto, Roseville and TID. The NGPP Agreement was intended to be a comprehensive program under which all NCPA natural gas and pipeline rights were to be procured. However, over time, limitations in the NGPP Agreement have surfaced, for example: • Individual Member forward purchases of gas to fix fuel costs are not permitted; • The dollar threshold for Commission approval at $15,000, is too low, reflecting 1991 gas prices; SR: No. Natural Gas Procurement Program Termination and New Facilities Agreement Schedules for Fuel Procurement March 11,2010 Page 2 • TID;an original signatory, wishes to terminate its involvement in the NGPP Agreement; • The Natural Gas Information Program eliminated the need for portions of the NGPP Agreement; • Palo Alto, an original signatory, was permitted to terminate its participation in the NGPP Agreement in 1993 by adoption of a resolution without amendment to the NGPP, Attached to this staff report is a "termination" document, which when executed by all of the NGPP project participants, including both Turlock and Palo Alto, will terminate the NGPP Third Phase Agreement. The termination document is contingent upon payment by the participants of any outstanding obligations entered into under the NGPP Third Phase Agreement, and is also contingent upon approval by the Commission of the new Facilities Agreement Schedules which will replace it. To replace the NGPP Third Phase Agreement, staff has drafted the two attached Facilities Agreement (FA) Schedules to procure necessary fuel for the CT No.1 and CT No.2 Projects respectively. The two new FA Schedules are quite similar in that each provides the supporting details that were contemplated by each Project's Third Phase Agreement -under which NCPA is charged with doing all things necessary to cause Project output to be delivered to the Participants, including fuel procurement and transport. Of course the Project Third Phase Agreements are necessarily general in this regard, as they anticipated that the fuel supply details would mostly appear in supporting operating agreements. Nonetheless, the two FA schedules do differ in a few areas due to the different operating characteristics of each CT Project. One significant difference between the CT No.1 and the CT No.2 fuel procurement schedules is that the former does not permit forward purchases of natural gas fuel. The CT No. 1 Project consists of peaking generators, with high heat rates, and as such they only operate intermittently, Any forward purchases of fuel for the CT 1 Project, absent emergency reliability factors, would necessarily be speculative, and therefore are not authorized. Conversely, forward fuel procurement for the CT NO.2 Project has occurred from time to time throughout the Project's history, and will continue to be authorized under the new FA schedule, provided that the Project Participant has accepted financial responsibility for the forward purchase under a separate agreement to insure that NCPA's nonparticipating Members are insulated from the risk of such purchases. In addition, the ability of the CT No.2 Participants to purchase fuel in advance of consumption has been expanded by removing the restriction that all Project Participants must unanimously agree to the timing and amount of each such forward transaction. Notwithstanding the added flexibility for individual Participant forward purchases provided to the CT No.2 Project, the primary method of fuel procurement for each Project is reflected in the new FA schedule: daily purchases of gas under a primary fuel management agreement, currently, the Constellation Consolidated Natural Gas Purchase and Management Agreement. Therefore NCPA will be permitted to purchase fuel in advance for the CT No.2 Project provided that the term of the contract does not exceed one month, and delivery will be completed prior to the next calendar month. Such forward purchases are consistent with "Balance-of-Month" electric purchases authorized under the NCPA Pooling Agreement. In addition, NCPA must be authorized to obtain fuel transportation rights under the new FA Schedules in order to bring the gas purchased to the Project sites, Fuel transportation rights are also anticipated to be managed under the primary fuel management agreement. SR: No. Natural Gas Procurement Program Termination and New Facilities Agreement Schedules for Fuel Procurement March 11,2010 Page 3 The NCPA Commission is authorized to adopt new Facilities Schedules by the terms of the Facilities Agreement upon the recommendation of the Facilities Committee, The Facilities Committee has recommended approval of these new FA Schedules, Approval of the Schedules by the individual participating members in the Facilities Agreement is not required, Fiscal Impact Since fuel and pipeline capacity transactions flow through to the Project PartiCipants no significant fiscal impact to NCPA is anticipated to arise from the change in contractual provisions for gas procurement. Any fiscal impact that could arise from forward purchases authorized hereunder would be accounted for in the required enabling agreement, for example, the Single Member Services Agreement. Environmental Analysis Neither the termination of the NGPP Agreement nor the adoption of two new Facilities Agreement Schedules authorized herein create "projects" for CEQA and NEPA because neither action will cause neither a direct physical change in the environment nor a reasonably foreseeable indirect change in the environment. (Pub, Res, Code sec, 21065,) Recommendation Staff recommends that the Commission adopt a re.solution directing the General manager to execute the attached termination document for the Natural Gas Procurement Program Third Phase Agreement and approving the attached two new Facilities Agreement schedules (one for each CT project) that would authorize acquisition of pipeline capacity, gas storage, transport, fuel supply and any other things necessary to secure fuel supplies, consistent with agency risk management policies, The Commission approval of the attached FA Schedules is conditional, and the Schedules should become effective upon the latest of the dates that all affected members' governing bodies terminate the NGPP, Respectfully submitted, JAMES H, POPE General Manager Attachments (5) Termination Agreement FA 9,01 FA 9,05 NGPP Agreement Prepared by: JAMES RUDOLPH Contract Specialist Power Management September 1, 2009 Staff Report to the Utility Directors SR: No, __ Approved By: DAVID DOCKHAM Assistant General Manager Power Management