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HomeMy WebLinkAboutStaff Report 394-10 TO: HONORABLE CITY COUNCIL FROM: CITY MANAGER DEPARTMENT: UTILITIES DATE: NOVEMBER 1, 2010 CMR: 394:10 REPORT TYPE: ACTION SUBJECT: Authorize the City Manager to Decline a New Power Purchase Agreement Offer from Ameresco Butte County LLC that Could Otherwise Partially Replace the Recently Terminated Ameresco Butte County LLC Power Purchase Agreement RECOMMENDATION Staff requests that the Council authorize the City Manager to decline Ameresco Butte County LLC’s October 5, 2010 offer to draft and execute a power purchase agreement (PPA) similar to the terms Ameresco negotiated with Alameda Municipal Power. EXECUTIVE SUMMARY On September 15, 2010, Ameresco Butte County LLC (Ameresco) sent the City written notice of termination of the power purchase agreement (PPA) between Ameresco, as seller, and the City of Palo Alto, as buyer. Citing lower than expected landfill gas availability, resulting in a 50% reduction in project capacity, and increased interconnection costs with Pacific Gas and Electric Company, Ameresco terminated the PPA in accordance with a clause in the PPA, which permits Ameresco to terminate the PPA if Ameresco does not obtain the necessary permitting and interconnection agreements on a basis reasonably satisfactory to Ameresco. For a five-year period after the termination date, the City continues to enjoy the right of first refusal to acquire output from projects to be built at the site if the City exercises that right within 60 days of a written offer of terms negotiated with third parties. A new offer, provided by Ameresco on October 5, 2010, for a one-half share of the Butte County facility output under new terms and conditions is not adequately attractive for staff to recommend going against Council’s direction to complete certain long term planning work before recommending new PPAs for approval. Staff recommends Ameresco’s current offer be declined in order to facilitate completion of contracting efforts between Ameresco and Alameda, its other contracting partner. Palo Alto’s five-year right of first refusal continues to survive this recommended action. BACKGROUND Palo Alto has seven power purchase agreements with Ameresco for landfill gas (LFG) renewable power supply. Three are with Palo Alto alone and are in early permitting stages. Four others CMR: 394:10 Page 1 of 7 have Palo Alto alongside Alameda each receiving half of the output. Three of those four projects are already constructed, operating and delivering. However, the fourth one at Butte County’s Paradise landfill is in permitting stages and experiencing a shortage of LFG. Butte County PPA Approval On November 10, 2008, the Council approved Resolution No. 8885 (CMR:437:08) and approved entering into a PPA with Ameresco for delivery of renewable energy from a landfill-gas-to- energy (LFGTE) project. Resolution No. 8885 delegated to the City Manager, or his designee, authority to enter into a PPA with a term of twenty years for a 50 percent or higher share of the energy generated from a four megawatt (MW) plant for a total cost not to exceed $71 million over the life of the PPA. On November 13, 2008, the City executed a PPA with Ameresco for 1.88 MW, or roughly 1.6% of the City’s load, from the output of a new LFGTE plant that would be built by Ameresco at the Butte County Landfill in Paradise, California. The City of Alameda executed a similar PPA with Ameresco so that, under the PPAs, the Cities of Palo Alto and Alameda would have each received one-half of the output from the project. The first-year price was $87 per megawatt hour (MWh) with subsequent 1.5% increases per year for the 20-year term of the PPA. The expected commercial operation date (COD) was scheduled to be September 2011. At the contract price and quantity, the total expenditure for Palo Alto under the full size PPA would have been approximately $33.2 million. Ameresco Discovers Less Than Expected Amount of Gas Available Butte County overestimated the amount of Landfill Gas (LFG) being generated at its Paradise landfill when it issued a request for proposals for a developer to design and install both an LFG collection system and an LFG-fired power plant. Ameresco was awarded a contract by Butte County to design and install a LFG collection system and to build and operate a LFG power plant. Ameresco has successfully installed and operated the collection system that safely collects, measures and flares the LFG in compliance with California regulations. In the process, Ameresco has determined the LFG production volume is not enough for a two-engine plant as originally planned, but is only enough for a single engine plant. The low gas flow and loss of economies of scale have put the project under considerable financial stress. Ameresco Proposes Modifications to the PPA On August 4, 2010, Ameresco officially notified the Cities of Palo Alto and Alameda that, due to events beyond Ameresco’s control, the Butte County landfill gas project was uneconomic and could not move forward without certain modifications to the PPA. The issues that Ameresco cited in this notification included lower than expected landfill gas availability resulting in a 50% reduction in project capacity; increased interconnection costs with Pacific Gas and Electric Company (PG&E); and increased operating cost due to project delays. The primary issue is that the amount of landfill gas being generated at the site is expected to be sufficient for only one generator, rather than the two generators that Ameresco anticipated when originally proposing the project. By early September Ameresco ultimately requested to modify the PPA to: 1. Reduce supply quantity by 50% to 0.94 MW (approximately 8,200 MWh per year); and CMR: 394:10 Page 2 of 7 2. Collect a one-time payment from Palo Alto of $537,500 invoiced only after the plant is commercially operating to partially reimburse Ameresco for the higher cost for interconnection with PG&E. Ameresco Issues Notice of Termination On September 15, 2010, Ameresco gave the City notice, terminating the PPA in accordance with section 4.3(j) of the PPA. Under that section, Ameresco has the right to terminate the PPA if it has not received permitting and interconnection cost estimates on a basis reasonably satisfactory to Ameresco. Even after the termination, the City’s right of first refusal to acquire the plant output subject to whatever contract is negotiated by Ameresco and another buyer (such as Alameda) survives the termination of the PPA. On October 5, 2010 Ameresco provided a written offer to the City for its one-half share of the Butte facility output under new terms and conditions negotiated with Alameda, who is willing to take both halves of the output if Palo Alto declines the offer or does not act before the December 5, 2010 end of the 60 day right of first refusal period. The terms of the offer are as follows:  Project size cut in half to between 1.75 MW and 2.75 MW.  Term shortened to 15 years with the City having a right to extend for an additional 5 years followed by the City having a second right to extend for a second five-year (out to a total of 25 years) with the final five years being dependent on Ameresco determining in its sole opinion that it has secured a satisfactory landfill gas supply contract for years 21- 25.  Price of Output to start as $87/MWh and to escalate at 1.5% per year.  Buyer to pay Ameresco a one-time payment of $537,500 for each half of the project output with the payment invoiced soon after the plant achieves commercial operation. During the sixty-day period, the City would be expected to enter into good faith negotiations in regard to a new PPA, which substantially incorporates the terms of the offer. Over the 20-year energy delivery term under the new PPA the cost would be $16.9 million. The one-time cost reimbursement increases the levelized $/MWh cost of the project by about 4.8% to a levelized cost of about $103/MWh. DISCUSSION Renewable Portfolio Standard Palo Alto’s current Renewable Portfolio Standard (RPS) goal, which was adopted by Council in March 2007 as part of the Long-term Electric Acquisition Plan (LEAP) Guidelines (CMR: 158:07), is to provide 33% of the City’s electric load from renewable energy resources by 2015. For calendar year 2010, the City is expected to achieve an RPS of about 19% from five PPAs with wind and LFGTE projects. The City has also executed four additional PPAs with Ameresco LFGTE projects that have not yet begun operations. The PPA with Ameresco Butte County LLC is one of those projects. The resources for all nine existing PPAs are shown in Table 1 below, including the Butte County project with the modified (lower) estimated annual energy output. CMR: 394:10 Page 3 of 7 Table 1 – Existing Renewable Energy Contracts Technology Date Contract Executed Actual or Estimated Online Date Annual Energy (GWh) High Winds Wind Nov. 2004 Dec. 2004 51.8 Shiloh Wind Oct. 2005 June 2006 74.4 Santa Cruz Landfill Gas Nov. 2004 Feb. 2006 11.2 Half Moon Bay Landfill Gas Jan. 2005 Apr. 2009 40.8 Keller Canyon Landfill Gas Aug. 2005 Aug. 2009 11.8 Subtotal – Operating 190.0 Butte County Landfill Gas Nov. 2008 Sep. 2011 8.1 Johnson Canyon Landfill Gas Aug. 2009 Dec. 2011 11.2 San Joaquin Landfill Gas May 2010 2013 32.0 Crazy Horse Landfill Gas May 2010 2013 32.0 Subtotal – Under Construction (including Butte) 83.3 Subtotal – Under Construction and Still Active (less Butte) 75.2 Total – All Executed and Still Active Contracts (less Butte) 265.2 Figure 1 below illustrates the existing renewable energy resources in the portfolio (including the terminated Butte County PPA at the reduced project size). Actual resources are shown for 2005 through 2009. Projected resources are shown for the period after 2009. Figure 1 – Palo Alto’s Renewable Resources 0 50 100 150 200 250 300 350 400 2003 2005 2007 2009 2011 2013 201 5 2017 2019 2021 2023 2025 2027 2029 2031 2033 2035 Calendar Year GW h / y r Butte County LFG Crazy Horse LFG San Joaquin LFG Short-term Renewables Johnson Canyon LFG Keller Canyon LFG Half Moon Bay LFG Santa Cruz LFG Shiloh Wind High Winds RPS Goal: 33% (2015) RPS Goal: 30% (2012) RPS Goal: 20% (2008) CMR: 394:10 Page 4 of 7 If all of the projects in permitting stages are built to the expected sizes and the size of the Butte County project is reduced by one-half, the City’s RPS would be about 27.1% by 2015. The termination of the PPA leaves the RPS commitments at about 26.3% in 2015. The price of the new PPA levelized over 20 years would be about $103/MWh, which is slightly below the $104-$108 and $104-$118 levelized cost ranges of the two most recent PPAs that were narrowly approved by Council last spring, at Crazy Horse Canyon and San Joaquin landfills respectively. Table 2 below shows the amount of the green premium that has been used up with the existing nine PPAs. As shown, the contracts that were executed in 2004 and 2005 were priced very near the brown energy market price. The last four contracts, including the Butte County PPA, were priced significantly higher than the brown energy market price. Because the price of brown power has decreased substantially since the Butte County PPA was executed in 2008, the green premium for the project would be recalculated if the new PPA were accepted. The updated brown power price and green premium are shown in Table 2 below for the modified PPA terms. Table 2 – Green Premium for Existing Renewable Energy Contracts Date Contract Executed Annual Energy (GWh) Levelized Project Cost ($/MWh) Adjusted * Brown Market Cost ($/MWh) Green Premium ($/MWh) Green Premium ($1000/yr) High Winds Nov. 2004 51.8 57.60 55.0 2.56 132 Shiloh Wind Oct. 2005 74.4 62.95 69.5 (6.50) (484) Santa Cruz LFG Nov. 2004 11.2 62.32 59.3 2.97 33 Half Moon Bay LFG Jan. 2005 40.8 58.97 67.5 (8.55) (349) Keller Canyon LFG Aug. 2005 11.8 70.88 83.9 (13.00) (154) Terminated Butte County LFG Nov. 2008 16.5 98.66 76.6 22.11 365 Johnson Canyon LFG Aug. 2009 11.2 123.6 67.3 56.35 633 San Joaquin LFG May 2010 32.0 118.10 76.0 42.1 1348 Crazy Horse LFG May 2010 32.0 107.60 69.7 37.9 1213 Total - All Committed Contracts 281.7 2,737 WITH MODIFIED TERMS Butte County LFG 8.1 103.36 55.5 47.9 388 Total - All Committed Contracts 273.3 2,760 WITH BUTTE TERMINATED Total - All Committed Contracts 265.2 2,372 * Brown Market Costs are levelized across the project’s contract period, and adjusted for the comparison project’s delivery shape, local and system capacity value, transmission costs and losses. Note that the brown market cost does not include any future cost for emissions allowances. These costs could be imposed starting in 2012, but the cost for these allowances is highly uncertain at this point. As part of the Climate Protection Plan (CPP) approved by the Council in December 2007, a greenhouse gas (GHG) adder of $20 per metric ton, beginning in 2008 and escalating by 5% per year, is to be incorporated in utility purchasing decisions. The $20/ton CMR: 394:10 Page 5 of 7 GHG adder would add about $10/MWh onto the levelized brown energy market prices shown in the Table 2. Adding this cost to brown power would reduce the green premium by about $10/MWh. UTILITIES ADVISORY COMMISSION DISCUSSION The matter at hand was brought to the Utilities Advisory Commission (UAC) at its October 6, 2010 meeting as a discussion item agendized before the arrival of Ameresco’s offer of terms for a new PPA. Staff described the situation as presented in this report. Council Member Scharff recommended staff once more have the City Attorney’s office review the City’s rights under the terminated PPA to clarify what period of time was available to the City for making its decision to accept or decline the offer of newly negotiated terms. The finding upon additional review is that the City has 60 days after each written offer of terms provided by Ameresco to accept the terms and initiate good faith negotiations on a commensurate PPA. For any output from additional landfill gas projects offered by Ameresco from the Butte County site during the first 5 years after the termination of the PPA, Ameresco must make written offers of terms available to Palo Alto to act upon within 60 days of offer. The UAC discussed the matter and three members suggested that given the small amount of power remaining and its non-compelling pricing, it seemed reasonable to let it go. No other commissioners provided an opinion to pursue the new PPA offer. RESOURCE IMPACT The PPA has been terminated by Ameresco and Palo Alto is released from the commitment to pay for the energy generated by the project. That commitment was expected to cost about $33.2 million over the 20-year term of the PPA. If Palo Alto exercises its right to accept the new PPA terms, including a reduced project size, then it would cost about $12.3 Million over 15 years or $16.8 million over the 20-years or 21.7 million over a 25-year term of the PPA. If Palo Alto declines to act on the new PPA offer, Palo Alto could replace it with resources that could cost more or less than the declined offer depending on available replacement resources in the marketplace. POLICY IMPACT Declining the new PPA complies with Council direction to complete a thorough review of long term electric resource planning and RPS targets before bringing any new PPAs for Council approval. CMR: 394:10 Page 6 of 7 ATTACHMENTS A. Resolution No. 8885 Resolution of the Council of the City of Palo Alto Approving the Ameresco Butte County Landfill Gas Renewable Energy Power Purchase Agreement for the Acquisition of Up to Four Average Megawatts of Energy Over Twenty Years at an Estimated Cost Not to Exceed $71 Million B. Ameresco Butte County LLC Notice of Termination of Power Purchase Agreement C. Ameresco Butte County LLC Notice of offer of new PPA Terms and Conditions D. Excerpted UAC Minutes of Discussion item at October 6, 2010 UAC meeting PREPARED BY: TOM KABAT ~ Senior Resource ~inator APPROVED BY: _·-·~IJCSI __ ~~~~/~. ________ __ 'DEBRAL~D DEPARTMENT APPROVAL: VALE O. NG Di~r ofUtIl es CITY MANAGER APPROVAL: '---f---'~ ~-t:e:D t:oVAMES KEENE 17 City Manager CMR: 394:10 Page 7 of7 ATTACHMENT A RESOLUTION NO. 8885 RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO APPROVING THE AMERESCO BUTTE COUNTY RENEWABLE ENERGY POWER PURCHASE AGREEMENT FOR THE ACQUISITION OF UP TO FOUR AVERAGE MEGAWATTS OF ENERGY OVER TWENTY YEARS AT AN ESTIMATED COST NOT TO EXCEED $71 MILLION WHEREAS, the City of Palo Alto("City"), a municipal utility and a chartered city is a member of the Northern California Power Agency (''NCPA''); WHEREAS, on March 5,.2007, the City approved eight electric portfolio planning and management guidelines to guide the development and management of the City's long-tenn electricity acquisition plan; one of the guidelines is to pursue and target levels of new renewable resource energy purchases equal to thirty percent and thirty three percent of the City's expected energy load by 2012 and 2015, respectively; . WHEREAS, the City is interested in purchasing power generated by renewable resources for the benefit of its electric customers; WHEREAS, by purchasing these sources of renewable energy, the City will ,help reduce the production of greenhouse gases and assist in reducing volatile organic compound emissions; WHEREAS, Ameresco Butte County L.L.C. proposal best responds to the City'S and NCPA's recent requests for proposals; WHEREAS, executing an agreement with Ameresco Butte County L.L.C. will not fully satisfy the City's need to acquire renewable energy, which the City could expect to acquire from other suppliers; WHEREAS, the City will be initially allocated 50% of the power from the Ameresco project, amounting to 2.15 megawatts; WHEREAS, the City's allocation of the Ameresco project may be allowed to increase to 100% under some circumstances; WHEREAS, Butte County will be the lead agency for the purposes of California Environmental Quality Act ("CEQA") review of the Ameresco project. NOW, THEREFORE, the Council of the City of Palo Alto hereby RESOLVE as follows: SECTION 1. The Council hereby approves the City's execution of the Long Tenn Power Purchase Agreement (Landfill Gas Power) made between Ameresco Butte County L.L.C., as Seller, and the City of Palo Alto, as Purchaser. The Term of the contract is twenty (20) years, commencing on the Commercial Operation Date of the proposed generation facility. Quantity is a fifty percent or higher share of the four average megawatt plant net output. Spending authority under the contract is approved up to seventy one million dollars ($71,000,000). The City Manager or his designee is hereby authorized on behalf of the City to sign the contract with Ameresco Butte County L.L.C. 080924 jb 0013010 I SECTION 2. With respect to the Council's award of the Long Term Power Purchase Agreement referred to in Section 1 above, the Council hereby waives the choice of venue and credit rating terms and conditions requirements of Palo Alto Municipal Code section 2.30.340(c). SECTION 3. The Council finds that the adoption of this resolution does not constitute a project under the California Environmental Quality Act and no environmental assessment is required. INTRODUCED AND PASSED: NOVEMBER 10,2008 AYES: BARTON, BURT, DREKMEIER, ESPINOSA, KISHIMOTO, KLEIN, MORTON, SCHMID, YEH NOES: ABSENTIONS: ABSENT: APPROy£D ~ FORM: ~b City Attorney == 080924 jb 0073070 Director of A ministrative Services D~lities ~2~ ATTACHMENT B 111 Specn Srrect, S'llitc 410 FmminshQm, MA 0'1701 P; 508 661 3200 ¥: 508661 7.201 VIA }'ACSIMJLE «650) 319M 1646) AND VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED September ·15, 2010 rhe City of Palo Alto 250 Hamilton Avenue, Seventh Floor . Palo A'to, CA 94301 Attention: City Clerk Telecopier: (650) 329·2646 ReI Amerellco Butte County LLC -'ferm'natJon olPower pur~ha!ile Agreement Dear City Clerk: Reference is mad~ to the Power Purchase Agreement, enwred into November J 0, 2008, by and between The City of Palo Alto and Amel'esco Butte County LLC (the Power Purohase Agreement. inoluding all appendices (and as amended to the extent there are any amendments), shaU be refen-ed to herein as the "Power Purchase Agreement") .. Capitalized tenns lIsed but. not otherwise defined herein have the meanings given to them in the Powor Purohase Agreement. Pm'suant to Section 4.30) of tbo Power Purohase Agreement, Seller bereby terminates tbe Power PUl'Cbase Agreement (without liability of eithor Party to the other), Sincerely, By:~~~~~~~~b" Mic e1 T. aakas cc: Senior Vice President . The City of Palo Alto, 250 Hamilton Avenue, Eighth Floor, Palo AllOt CA 94301. Attention: Senior Assistant City Attomey / UtiJilil;lS, Telecoplel': (uSO) 329·2646 (via facsimile and via certified man, . return receipt requested) . Tho City of Palo A1to, 250 Hamilton Avenue, Third Floor, Palo Alto, CA 94301, Attentiol1! Director of Utilities, Tolecopier: (650) 321 N 0651 (via facsimile and via-certified mail. return j'eooipt requested) Northern California Power Agenoy, 651 Commerce Drive, Roseville, CA 95678, Attention: Powel' Contraots Administratot~ Teleoopier: (916) 181·4255 (via facsimile and via certified mail, return receipt requeste~) . / ~~'~~::.f. .... :.' .;": .. / ;""". '.'. . ... '. ,' .. ' ; ....... "'n''''' .. .-:-.' :i' ··X .... :,..: ... ':.':.:.:.\!; ... :;.(',:l'< ...... ;:::~ ... :,\;.:~~.r'~':.; ..... ; .. ;.::.:<: (·:',::·;:·:n~'\~· :i~i~2~·; .... :':;::" :;.1.;tC>.;·:·; ,:} .. ' :;::':(" :.' '. .. ;. ' .. , ..... ; .. ',:' ..... ".' ~ .. :. 'P;h""'~:'''~~~C~~''!'.d''I.·· ..:;.::: .. : .. ;:~;;\ ... :".~:.:: .. \:.~ ... ~j: ... C·';,·:::\/·:;;;;·;t'·y·:·::·?:·;':';f,~·l~;::h:~;.;~<;, ... 1;·i;:~~.\6;. 09/15/2010 WED 11:22 [TX/RX NO 8925] 1al002 111 Spcen Street, Suite 410 Framingham, MA 0'1701 P: 508661 2200 F: 508 661 2201 amercsco.com VIA FACSIMILE «650) 329-2646) AND VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED October 5, 2010 The City of Palo Alto 250 Hamilton A venue~ Seventh Floor Palo Alto, CA 94301 Attention: City Clerk . Telecopier: (650) 329-2646 Dear City Clerk: Re: Ameresco Butte County LLC ! .-•• ATTACHMENT C OCT 1'2 2010 Reference is m~de to the previous Power Purchase Agreement; entered into 'November to, 2008, by and between The City of Palo Alto and Ameresco Butte County LLC, which was terminated (the terminated Power Purchase Agreement, including all appendices (and as ari:'lended to the extent there were any amendments), shall be referred to herein as the "Power Purchase Agreement"). Capitalized terms used but not otherwise defined herein have the meanings given to them in the Power Purchase Agreement. Seller provided Buyer with written notice, dated September 15, 2010, terniinating the Power Purchase Agreement. Buyer has declined to adjust equitably the price that was payable under the Power Purchase Agreement and has also not provided Ameresco with written notice that Buyer is agreeing to pay any amount or adjust any price or payment in connection with the Power Purchase Agreement. Pursuant to Section 2.5 and the last three sentences in Section 4.30) of the Power Purchase Agreement, Seller hereby offers to sell to Buyer the percentage Share of the Output from the Plant pursuant to a new power purchase agreement under similar terms and conditions as contained in the Power Purchase Agreement with the following general principal . changes to the terms and conditionS of the Power Purchase Agreement. 1. Initial Capacity (which is defined in Article I of the Power Purchase Agreement) shan mean the installed gross capacity of the Plant on the Commercial Operation Date, such capacity to be not less . than 2.0,MW and not more than 3.0 MW (gross nameplate); 'and ~ot less than 1.75 MWand not more than 2.75 MW (net at the Point ofInterconnection). 2. SeCtion 2.1 of the Power Purchase Agr~ment would be changed (in the potential ~ew power purchase :agreement) substantially as, follows in this' item numb~r 2. The term of the potential newpower purchase agreement shall be effective upon execution by authorized representatives of both Parties and, unless earlier terminated pursuant to an express lrovision ofth~ potential new pow~ purchase . . . agreeI11ent, 'shall continue. Until the fifteenth (15 ) anniversary' of the CommerCial Operation Date. Buyer shall have the option (subject to the terms and conditions of the potential new power purchase agreement) to extend the original Term for two additional periods of five (5) years each (the first such . 0 I 11rlntcd em le.;\ tkd m.lIl'ft.tl The City of Palo Alto October 5,2010 Page 2 five (5) year extension would commence on the fifteenth (15th) anniversary of the 'Commercial Operation Date and the second such five (5) year extension would commence on the twentieth (20th) anniversary ofthe Commercial Operation Date) unles~ the potential new power purchase agreement is earlier terminated (during the original Term or during any extension of the original Term) pursuant to an express provision of the new power purchase a~ement; provided, however, (i) such option to extend the original Term for the first additional period of five (5) years (commencing on the fifteenth (15 th) anniversary of the Commercial Operation Date) shall be subject to Buyer receivillgJlpproval of the City Council of The City of Palo Alto (and any other required governing body of Buyer); and (ii) 'such option to extend the Term for the second additional period of five (5) years (commencing on the' . twentieth (20th) anniversary of the Commercial Operation Date) 'shall be subject to (a) Buyer previously appropriately exercising its option to extend the original Term for the frrst additional period of five (5) years (commencing on the fifteenth (l5th) anniversary of the Commercial Operation Date), (b) Seller entering into an agreement with the Landfill owner that allows Seller to (among other things) use the Landfill Gas for the Plant (and maintain the Plant on the site).on terms and conditions satisfactory to . Seller in Seller's sole discretion; and (c) Buyer receiving approval ofthe City Council of The City of Palo Alto (and any other required governing body of Buyer). In order for Buyer to exercise its option to extend the original Term for the f)fst additi9nal period of five (5) years (commencing on the fifteenth (15 th) anniversary of the Commercial Operation Date), Buyer,shall provide Seller with written notice at least one (1) year prior to the fifteenth (15 th).anniversary of the Commercial Operation Date that Buyer is electing to extend the original Term for such additional period of five (5) years 'and that Buyer has . received appropriate approval for such extension from the City Council of the City Of Palo Alto (and any other required governing body of Buyer). In order for Buyer to exercise its option to extend the Term for the second additional period of five (5) years (commencing on the twentieth (20th) anniversary of the Commercial Operation Date), Buyer shall provide Seller with written notice at least .one (1) year prior to the twentieth (20th) anniversary of the Commercial Operation Date (but not prior to the . commencement of the first five (5) year extension)that Buyer is electing to extend the Tetm for such additional period of five (5) yeili's and that Buyer has received appropriate approval for such extension from the City Council of the City of Palo Alto (and any other required governing body of Buyer). Notwithstanding anything to the contrary, (i) if Buyer does not exercise its option to extend the original Term for the first additional five (5) year period by written notice to Seller at least one (l)year prior to the fifteenth (15 th) anniversary of the Commercial Operati<;m Date and as otherwise set forth above; then any and all options or rights of Buyer to extend the original Term shall expire and be terminated, and (ii) if Buyer does appropriately exercise its option to extend the original Term for the first additional five (5) year period, but (a) Buyer does not exercise its option to extend the Term for the second additional five (5) year period by written notice to Seller at least one (1) year prior to the twentieth (20th) anniversary of the Commercial Operation Date (but not prior to the commencement of the first five (5) year extension), or (b) Seller provides Buyer written notice (at any time) that Seller is not able to enter into an· agreement with the Landfill owner that allows Seller to (among other things) use the Landfill Gas for the Plant (and maintain the Plant on the site) on terms and conditions satisfactory to Seller in Seller's sole discretion, then such option of Buyer to elect to extend the Term for such, second additional five (5) year period shall expire and be terminated. The City of Palo Alto October 5, 2010 PageS 3. Seller shall apply for pre-certification from the California Energy Commission ("CEC") that the Plant meets the requirements of anEligible Renewable Energy Resource ("ERR") for purposes of RPS Legislation (where RPS Legislation is defined as the State of California Renewable Portfolio Standard Program, as codified at California Public Utilities Code Section399.11 et seq. or any successor to this legislation) and use commercially reasonable efforts to ensure that: (i) the Plant is certified by the CEC to meet the requirements of an ERR for purposes ofRPS Legislation, and (ii) all electrical output delivered to Buyer from the Plant and paid for is certified by.the CEC as an ERR for purposes of the RPS Legislation. "Commercially reasonable efforts" as used in this item number 3 shall exclude (i). making any changes to the Plant or any Expansion Plant or the method of operation thereof and (ii) expenditure of any funds other than nominal filing fees . 4. . Seller shall use Western Renewable Energy Generation Information System ("WREGIS") to evidence the transfer of "WREGIS Certificates" (as defined in WREGIS Operating Rules, which are the rules describing the operations ofWREGIS, as pUblished by WREGIS and as may be amended from time to time) from Seller to Buyer in accordance with WREGIS reporting protocols and the terms of the potential new power purchase agreement. Seller shall register the Plant with WREGIS. After the Plant is registered with WREGIS, Seller agrees to transfer WREGIS Certificates to Buyer using the Forward Certificate Transfer method or an equivalent process, as described in WREGIS Operating Rules and as designated by Buyer. Buyer shall be responsible for providing required fnformation and taking any action that may be necessary for the registration of the Plant and for transfer ofWREGIS Certificates to Buyer's WREGIS account. Except as the Parties may otherwise agree in writing, in the event that WREGIS is not in operation, or WREGIS does not track Seller's transfer ofWREGIS Certificates to . Buyer, or its designees, on or before the 30th day of each calendar month, Seller shall document the production and transfer of Environmental Attributes under the potential new power purchase agreement by delivering to Buyer an attestation for the Environmental Attributes produced by the Plant, in whole MWh, in the preceding calendar quarter. The form of attestation shall be substantially in the fortn as set forth in Appendix B to the Power Purchase Agreement. Seller shall be responsible for the WREGIS expenses associated with registering the Plant, maintaining its account, WREGIS Certificate issuance fees, and transferring WREGIS Certificates to Buyer. Buyer shall be responsible for the WREGIS expenses associated with maintaining its account and subsequent transferring or retiring ofWREGIS Certificates. Seller shall, as instructed by Buyer and at Buyer's cost, dispute data with WREGIS. Notwithstanding anything to the contrary, if Seller's cost associated with WREGIS in connection with the potential new power purchase agreement or with compliance with the WREGIS provisions in the potential new power purchase agreement exceeds $5,000 (eScalating at 1.5% annually) in any calendar year, Buyer shall reimburse Seller for the excess amount; provided, however, Buyer may designate an alternate accounting system(s), at no cost to Seller, to evidence that transfer ofRECs if Seller's WREGIS costs exceed $5,000 (escalating at 1.5% annually) in any calendar year. Buyer shall defend, indemnify and hold Seller and its officers, directors, employees and agents harmless from and against all claims, demands, losses, liabilities and expenses (including'reasonable attorneys fees) arising out of or connected with the interaction with third parties in connection with WREGIS or any alternate accounting system(s) designated by Buyer. . The City o/Palo Alto October 5, 2010 Page 4 5. Section 2.2( d) of the Power Purchase Agreement and the definition of "EA Agency" in Article I of the' Power Purchase Agreement shall be deleted. 6. The last sentence of SectiQn 3.3 of the Power Purchase Agreement shall be changed such that both Parties shall maintain all payment records relating to the other Party or the new potential power purchase agreement for a minimum of four (4) years~ and shall permit the other Party, upon reasonable .,; notice, to inspect and,audit such records as the requesting Party deems reasonably necessary to protect , its rights. 7. Buyer shall pay Seller $0.087 per kWh of Energy delivered or tendered to Buyer at the Point of Interconnection~'which price shall be escalated at a rate of 1.5% (of the then-current price) annually on the anniversary of(i)ihe first day ofthe first full month following the Commercial Operation Date or (ii) if the Commercial Operation Date falls on the first day of the month, the Commercial Operation Date. 8. Notwithstanding anything to· the contrary~ in addition to the Price Buyer shall pay Seller per kWh of Energy delivered or tendered to Buyer at the Point of Interconnection (and in addition to any other payments Buyer is (or becomes) obligated to make to Seller), Buyer shall pay Seller a one-time payment of Five Hundred Thirty-Seven Thousand Five Hundred dollars ($537,500.0'0) within thirty (30) days after the Commercial Operation Date if Alameda Municipal Power (formerly known as Alameda Power & Telecom) also agrees to pay Seller a separate one-time payment of Five Hundred Thirty-Seven Thousand Five Hundred dollars ($537,500.00) within thirty (30) days after the Commercial Operation Date. if Alameda Municipal Power does not agree to pay such one-time payment of Five Hundred Thirty-Seven Thousand Five Hundred dollars ($537,500.00), then Buyer shall pay Seller a one-time payment of One Million Seventy-Five Thousand dollars ($1,075,000.00). Any such one-time payment from Buyer to Seller (as set forth in this item number 8) is not for emission offsets. 9. Article IX of the Power Purchase Agreement would be changed to be principally similar to the following language in this item number 9; The Parties intend that the standard of review for changes to any rate, charge, classification~ term or condition of the agreement (the potential new power purchase agreement) at FERC shall be the most stringent standard permissible under applicable law. As to the Parties, it is understood that the standard is the "Mobile-Sierra public interest" standard of review, as stated by the United States Supreme Court in Morgan Stanley Capital Group Inc. v. Public Utility District No.1 o/Snohomish County, Nos. 06-1457, 128 S.Ct. 2733 (2008), and consistent with the . order of the Supreme Court in NRG Power Marketing, LLC. et al., v. Maine Public Utilities Commission et al., No. 08-674, 130 S.Ct. 693 (2010) ("NRG Ordef'). As to all other persons it is intended that the same standard~ to the maximum degree as may be made applicable to other than the Parties, apply, to the maximum degree permitted under the NRG Order. In accordance with Section 2.5 and the last three sentences in Section 4.3(j) of the Power Purchase Agreement, Buyer has sixty (60) days after its receipt of this offer (letter) to accept Seller's offer stated in this letter. If The City of Palo Alto October 5, 2010 PageS Buyer does not accept this offer witQin sixty(60) days after Buyer's receipt of this offer (letter), then this offer set forth in this letter shall terminate.' . . Sincerely, BY:~tA~~~~ __ ~~ __ I ael T. Bakas cc: Senior Vice President The City of Palo Alto, 250 Hamilton Avenue, Eighth Floor, Palo Alto, CA 94301, Attention: Senior Assistant City Attorney / Utilities, Telecopier: (650) 329M 2646 (via facsimile and via certified mail, return receipt requested) . . The City of Palo Alto,250'Hamilton Avenue, Third Floor, Palo Alto, CA 94301, Attention: Director of Utilities, Telecopier: (650) 321-0651 (via facsimile and via certified mail, return receipt requested) Northern California Power Agency, 651 Commerce Drive, Roseville, CA 95678, Attention: Power Contracts Admil)istrator, Telecopier: (916) 7814255 (via facsimile and via certified mail, return .receipt requested) I ATTACHMENT D EXCERPTED DRAFT MINUTES OF UTILITIES ADVISORY COMMISSION Meeting of October 6,2010 ITEM 6: DISCUSSION: Ailleresco Butte County Landfill Gas to Energy Contract Senior Resource Originator, Tom Kabat stated that Ameresco terminated the Ameresco Butte County LLC (Ameresco) Power Purchase Agreement (PPA) on September 15, 2010 on the basis of not having an interconnection agreement with PG&E at satisfactory terms under contract section 4.30). That section of the PPA survives the termination of the PPA by 5 years giving Palo Alto a right of first refusal (ROFR) to any PPA terms and conditions negotiated with additional parties, such as Alameda Municipal Power (Alameda). On October 5 (the day before this UAC meeting), Palo Alto received written notice from Ameresco of the terms and conditions for a PPA it negotiated with Alameda, which started a 60-day ROFR period during which Palo Alto can accept the terms and conditions for a new PPA. The essential terms and conditions of the new PPA are: • Initial Plant Capacity is reduced in half to be between 1.75 MW and 2.75 MW. • The term is 15 years (instead of the original PPA's term of 20 years) with an option for Palo Alto to extend the term for an additional 5 years. Ameresco would have a second option to extend the term for an additional 5 years for a total term of 25 years if Ameresco has a satisfactory gas contract with Butte County. • Price is $87/MWh escalating at 1.5% per year (same as the original PPA). • A one time payment of $537,500 is required shortly after the pant begins commercial operation (expected in late 2011). Council Member Scharff asked if the 60-day ROFR period begins with the delivery of energy (around commercial operation date of late 2011) or with the delivery of the written notice on October 5, 2010. Staff interprets the 60~day ROFR period to start October 5, 2010. Council Member Scharff requested staff confer with the City Attorney's office again to determine the extent of Palo Alto's rights under the terminated PPA. Commissioner Eglash acknowledged that the project size has decreased to where it would be Palo Alto's smallest PPA and asked the reasoning behind staff's willingness to let it go. Kabat indIcated that it is under Council direction to not bring any new PPAs for renewable energy for approval until certain other extensive planning efforts are completed in the coming months. He also explained that the cost of the new proposed PPA is not especially attractive with a levelized cost between the levelized costs of the last two Ameresco PPAs (Crazy Horse and San Joaquin). Director Fong reiterated that the original PPA had been terminated and this was a new PPA that we would have to take to the Council. Commissioner Melton indicated he supports staff's recommendation and stated that the deal is not so compelling as to get Council to consider a new PPA for the project. Commissioners Foster and Cook agreed that the opportunity for a new PPA should be let go.