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HomeMy WebLinkAbout2014-09-15 City Council Agenda PacketCITY OF PALO ALTO CITY COUNCIL Regular Meeting Council Chambers September 15, 2014 6:00 PM Agenda posted according to PAMC Section 2.04.070. Supporting materials are available in the Council Chambers on the Thursday preceding the meeting. 1 September 15, 2014 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. PUBLIC COMMENT Members of the public may speak to agendized items; up to three minutes per speaker, to be determined by the presiding officer. If you wish to address the Council on any issue that is on this agenda, please complete a speaker request card located on the table at the entrance to the Council Chambers, and deliver it to the City Clerk prior to discussion of the item. You are not required to give your name on the speaker card in order to speak to the Council, but it is very helpful. TIME ESTIMATES Time estimates are provided as part of the Council's effort to manage its time at Council meetings. Listed times are estimates only and are subject to change at any time, including while the meeting is in progress. The Council reserves the right to use more or less time on any item, to change the order of items and/or to continue items to another meeting. Particular items may be heard before or after the time estimated on the agenda. This may occur in order to best manage the time at a meeting or to adapt to the participation of the public. To ensure participation in a particular item, we suggest arriving at the beginning of the meeting and remaining until the item is called. HEARINGS REQUIRED BY LAW Applications and/or appellants may have up to ten minutes at the outset of the public discussion to make their remarks and up to three minutes for concluding remarks after other members of the public have spoken. Call to Order Closed Session 6:00-7:00 PM Public Comments: Members of the public may speak to the Closed Session item(s); three minutes per speaker. 1. CONFERENCE WITH CITY ATTORNEY/LEGAL COUNSEL Potential Litigation Relating to the Mitchell Park Library and Community Center Construction Significant Exposure to Litigation: 1 Potential Case Potential Initiation of Litigation: 1 Potential Case Authority: Government Code Section 54956.9 2. CONFERENCE WITH CITY ATTORNEY - EXISTING LITIGATION Subject: Golin v. Allenby, San Mateo County Superior Court, Case No. CIV507159 Subject Authority: Government Code section 54956.9 REVISED 2 September 15, 2014 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Study Session 7:00-7:45 PM 3. Public Safety Update & Threat Hazard Identification and Risk Assessment (THIRA) Special Orders of the Day 7:45-8:00 PM 4. Proclamation for Jasmina Bojic Recipient of United Nations Educational Scientific and Cultural Organization's Fellini Medal 5. United Nations Association Film Festival (UNAFF) Proclamation Agenda Changes, Additions and Deletions City Manager Comments 8:00-8:10 PM Oral Communications 8:10-8:25 PM Members of the public may speak to any item NOT on the agenda. Council reserves the right to limit the duration of Oral Communications period to 30 minutes. Minutes Approval 8:25-8:30 PM August 11, 2014 Consent Calendar 8:30-8:35 PM Items will be voted on in one motion unless removed from the calendar by three Council Members. 6. Finance Committee Recommendation that the City Council Adopt a Resolution Authorizing the City’s Participation in a Natural Gas Purchase from Municipal Gas Acquisition and Supply Corporation for the City’s Entire Retail Load, an Amount Estimated to be Approximately $150 Million over Ten Years, Waiving the City’s Choice of Law and Venue Requirements, and Authorizing the City Manager to Execute all Associated Agreements Required to Effect the Natural Gas Purchase 7. Adoption of a Resolution to Adopt a New Rate Schedule for Net Energy Metering Aggregation Customers, Revise Rules and Regulations 2 and 29, and Approve a Revised Interconnection Agreement for Net Energy Metering Aggregation Customers 8. Adoption of a Resolution of the Council Expressing Appreciation to Linda Clerkson Upon her Retirement 3 September 15, 2014 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Action Items Include: Reports of Committees/Commissions, Ordinances and Resolutions, Public Hearings, Reports of Officials, Unfinished Business and Council Matters. 8:35-9:00 PM 9.Adoption of a Resolution Establishing the Enforcement Process for Violations of the Three Outdoor Water Use Restrictions Adopted by Council on August 4, 2014 (Resolution 9449) 9:00-9:15 PM 10.PUBLIC HEARING: 405 Curtner Condominium Map. Approval of a Tentative Map to Subdivide One Parcel Totaling 12,375 Square Feet Into Six Condominium Units Within the RM-30 Zone District located at 405 Curtner Avenue. The six-unit development on this site was approved on October 29, 2013 and the Planning and Transportation Commission unanimously recommend map approval allowing the approved units to be sold rather than rented. Environmental Assessment: Categorically exempt from the provisions of the California Environmental Quality Act (CEQA) per CEQA Guidelines Sections 15303 and 15061(b)(3) 9:15-10:00 PM 11.Refer Real Property Procedures and Related Matters to Policy & Services; Approve Response to Santa Clara County Civil Grand Jury Report “Reduced Transparency and Inhibited Public Input and Scrutiny on Important Land Use Issues" (Continued from September 8, 2014) Inter-Governmental Legislative Affairs Council Member Questions, Comments and Announcements Members of the public may not speak to the item(s) Closed Session 10:00-11:00 PM 12. CONFERENCE WITH LABOR NEGOTIATORS City Designated Representatives: City Manager and his designees pursuant to Merit System Rules and Regulations (James Keene, Lalo Perez, Joe Saccio, Molly Stump, Walter Rossman, Nancy Nagel, Dennis Burns, Mark Gregerson, Kathryn Shen, Dania Torres Wong) Employee Organization: Palo Alto Police Officers Association (PAPOA) Authority: Government Code Section 54957.6 Adjournment AMERICANS WITH DISABILITY ACT (ADA) Persons with disabilities who require auxiliary aids or services in using City facilities, services or programs or who would like information on the City’s compliance with the Americans with Disabilities Act (ADA) of 1990, may contact (650) 329-2550 (Voice) 24 hours in advance. Citizen Comments 4 September 15, 2014 MATERIALS RELATED TO AN ITEM ON THIS AGENDA SUBMITTED TO THE CITY COUNCIL AFTER DISTRIBUTION OF THE AGENDA PACKET ARE AVAILABLE FOR PUBLIC INSPECTION IN THE CITY CLERK’S OFFICE AT PALO ALTO CITY HALL, 250 HAMILTON AVE. DURING NORMAL BUSINESS HOURS. Additional Information Standing Committee Meetings Finance Committee Meeting Sept. 16, 2014 City/School Committee Meeting Sept. 18, 2014 Schedule of Meetings Schedule of Meetings Tentative Agenda Tentative Agenda Informational Report Informational Report on the City of Palo Alto Regional Water Quality Control Plant's New National Pollutant Discharge Elimination System Permits California Avenue Streetscape Improvements Project Update Public Letters to Council Set 1 City of Palo Alto (ID # 5059) City Council Staff Report Report Type: Study Session Meeting Date: 9/15/2014 City of Palo Alto Page 1 Summary Title: Public Safety Study Session with Council Title: Public Safety Update & Threat Hazard Identification and Risk Assessment (THIRA) From: City Manager Lead Department: Police Recommendation Staff recommends that the City Council receive an update from the Public Safety Directors including the Threats and Hazards Identification and Risk Assessment (THIRA) project (Attachment A), and other such topics. Background In 2011, Urban Resilience Policy Group was contracted by the City Manager to conduct a study to review disaster readiness activities and how to effectively structure the new Office of Emergency Services (OES) within the City of Palo Alto. The consultant’s report provided recommendations about the City’s staffing and organization, consistent with all-hazards, best management practices. One recommendation from that study was to complete a formal Threat and Hazard Identification and Risk Assessment (THIRA). Palo Alto OES contracted with Dewberry Consultants, LLC to develop this risk assessment in conjunction with the City staff and wider community stakeholders including Stanford University, Stanford Health Care, and community and business representatives. This project began in September 2013 and culminates with the report to Council and release of the THIRA Executive Summary. [The THIRA base document is not releasable to the public as it contains sensitive information for official use only.] Discussion To evaluate the City of Palo Alto’s capabilities for addressing all hazard events, the City of Palo Alto Office of Emergency Services (OES) conducted a collaborative planning process in order to develop the City of Palo Alto 2014 Threat and Hazard Identification and Risk Assessment (THIRA). This assessment provides the outcomes of this process and is compliant with the U.S. Department of Homeland Security (DHS) Comprehensive Preparedness Guide (CPG) 201. City of Palo Alto Page 2 1. Identify the Threats and Hazards of Concern. Based on past experience, forecasting, expert judgment, and available resources, identify a list of the threats and hazards of concern to the community. 2. Give Threats and Hazards Context. Using the list of threats and hazards, develop context that shows how those threats and hazards may affect the community. 3. Examine the Core Capabilities Using the Threats and Hazards. Using the threat and hazard context, identify impacts to the community through the lens of the core capabilities described in the Goal. 4. Set Capability Targets. Looking across the estimated impacts to the community, in the context of each core capability and coupled with a jurisdiction’s desired outcomes, set capability targets. 5. Apply the Results. Plan for the ability to deliver the targeted level of capability with either community assets or through mutual aid, identify mitigation opportunities, and drive preparedness activities. Palo Alto OES established a Planning Team of key stakeholders to ensure development of a well-rounded, inclusive assessment of all relevant threats/hazards and the City’s capabilities to address the five mission areas of prevention, protection, mitigation, response, and recovery. Members from across the community participated in this stakeholder group and are listed in Appendix A: Planning Team. The Planning Team met in person for two full day workshops and additionally provided input via virtual reviews conducted through email correspondence. Prior to the Planning Team workshops, the executive committee met to draft Desired Outcomes. This preliminary coordination by the leadership set the tone for the THIRA planning process and established guidelines for the Planning Team. Members of the City’s Executive Leadership Team, Stanford University, Stanford Health Care comprised this Executive Committee. The two full day workshops were designed to follow CPG 201. Each workshop was facilitated to emphasize comprehensive discussion and integrate expertise by Planning Team members for relevant topics. The first workshop focused on confirming the threats and hazards of concern (CPG 201 Step 1 listed below) and developing context (CPG 201 Step 2) to help evaluate potential impacts. These threats and hazards are grouped in three categories: Natural, Technological, and Human-Caused. Threats and Hazards of Most Concern Natural Hazards Earthquake Flood/Severe Winter Storm Technological Hazards Airplane Accident Hazardous Waste/ Materials Spill City of Palo Alto Page 3 Urban Fire Human-caused Hazards Major Crime Cyber Attack The second workshop was a facilitated discussion to validate the potential impacts for each of the developed scenarios. The Planning Team developed Capability Targets based on the greatest estimated impact for each of the 31 National Core Capabilities (CPG 201 Step 3). Once the Capability Targets were approved, the Planning Team examined each of the core capabilities against the Capability Target and identified gaps and recent advances in Planning, Organization, equipment, Training, and Exercise (POETE). The capability targets serve as objectives for the City to reach the desired outcomes of each capability established by the executive committee. The capability targets also form a basis for establishing priorities for future financial investments to improve emergency management capabilities within the City. For each of the identified gaps, subject matter experts identified initial recommendations on how to address these gaps (CPG 201 Step 4). As the City of Palo Alto moves forward with the results of the THIRA, it is recommended that the identified gaps be further discussed and analyzed in order to identify the root cause of the gap. Once the root cause is determined by the stakeholders, the identified recommendations should be revised, corrective actions determined and resource estimations be made in order to implement and prioritize the recommendations. A wide range of recommendations are found in Chapter 9: Conclusions dealing with planning, organization, equipment/facilities, training and exercises, and community readiness. The Office of Emergency Services will lead the coordination process with other city departments to implement recommended actions as part of the City’s comprehensive emergency management program. City of Palo Alto Page 4 This THIRA report will be used to inform ongoing planning efforts throughout the city. THIRA informed planning is consistent with and expands on nationally accepted emergency management standards, which have long required using risk assessments as the basis for planning across mission areas. A continuous cycle of assessing capabilities, plans, and programs and incorporating the results into future THIRAs allows a jurisdiction to manage changes to its risk landscape. It also provides the means to educate and update individuals, families, businesses, organizations, community leaders, and senior officials on the risks facing a community. An informed public is the best advocate for building required capabilities and creating a secure and resilient community. Resource Impact: The total cost of this project was $72,864 funded from OES FY13 operating funds. Policy Implications: There are no implications for changes to City policies. Environmental Review: The recommendation in this report does not constitute a project requiring review under the California Environmental Quality Act (CEQA). Attachments:  Unrestricted Palo Alto THIRA (August 2014.1) (PDF) Threat and Hazard Identification and Risk Assessment Report Prepared by City of Palo Alto Office of Emergency Services With the assistance of Unrestricted – For Public Release 15 August 2014 Table of Contents Table of Contents ............................................................................................................................. 1 List of Tables ............................................................................................................................... 2 List of Figures .............................................................................................................................. 2 1 Executive Summary ................................................................................................................. 3 2 Introduction ............................................................................................................................ 3 3 Goal Setting ............................................................................................................................. 5 4 Hazard Identification and Prioritization ................................................................................. 9 4.1 Identified Hazards and Threats ....................................................................................... 9 4.2 Natural Hazard Prioritization ......................................................................................... 17 4.3 Technological Hazard Prioritization ............................................................................... 19 4.4 Human Caused Threat Prioritization ............................................................................. 20 4.5 Threats and Hazards of Most Concern ........................................................................... 21 5 Hazard Profiles ...................................................................................................................... 22 5.1 Non-Natural Hazard Profile Structure .......................................................................... 22 5.2 Earthquake Hazard Summary ....................................................................................... 23 5.3 Flood/Severe Winter Storm Hazard Summary ............................................................. 23 5.4 Airplane Accident Profile ............................................................................................... 24 5.5 Urban Fire Profile .......................................................................................................... 28 5.6 Major Crimes .................................................................................................................. 29 5.7 Cyber Attack Profile ........................................................................................................ 31 5.8 Hostage/Assassin Profile ............................................................................................... 36 5.9 Sabotage/Theft Profile ................................................................................................... 37 5.10 Workplace Violence Profile ............................................................................................ 38 6 Conclusion ............................................................................................................................. 39 6.1 Recommendations for Action ........................................................................................ 40 6.2 THIRA Maintenance ...................................................................................................... 44 7 Appendices ............................................................................................................................ 44 Appendix A: Planning Team ..................................................................................................... 44 1 List of Tables Table 4-1 National Planning Scenarios ..........................................................................................10 Table 4-2 Comprehensive List of Hazards and Definitions ........................................................... 11 Table 4-3 Natural Hazards Rating Criteria.................................................................................... 18 Table 4-4 Natural Hazard Rating Results...................................................................................... 18 Table 4-5 Technological Hazards Rating Criteria.......................................................................... 19 Table 4-6 Technological Hazard Rating Results ........................................................................... 19 Table 4-7 Human Caused Threat Rating Criteria ......................................................................... 20 Table 4-8 Human Caused Threat Rating Results ......................................................................... 20 Table 4-9 Summary of All Hazards Prioritization ......................................................................... 21 Table 5-1 Common Types of Cyber Attacks ................................................................................... 31 Table 5-2 Common Sources of Cybersecurity Threats ................................................................. 33 Table 7-1 Planning Team .............................................................................................................. 45 List of Figures Figure 3-1 National Preparedness Core Capabilities ...................................................................... 5 Figure 5-1 Statistics of Part I and Part II Crimes in Palo Alto from the Palo Alto Fiscal Year 2013 Annual Report ............................................................................................................................... 30 2 1 Executive Summary To evaluate the City of Palo Alto’s capabilities for addressing all hazard events, the City of Palo Alto Office of Emergency Services (OES) conducted a collaborative planning process in order to develop the City of Palo Alto 2014 Threat and Hazard Identification and Risk Assessment (THIRA). This assessment provides the outcomes of this process and is compliant with the U.S. Department of Homeland Security (DHS) Comprehensive Preparedness Guide (CPG) 201. This THIRA report will be used to inform ongoing planning efforts throughout the city. Palo Alto OES established a Planning Team of key stakeholders to ensure development of a well- rounded, inclusive assessment of all relevant threats/hazards and the City’s capabilities to address the five mission areas of prevention, protection, mitigation, response, and recovery. The Planning Team met in person for two full day workshops and additionally provided input via virtual reviews conducted through email correspondence. Prior to the Planning Team workshops, the executive committee met to draft Desired Outcomes. This preliminary coordination by the leadership set the tone for the THIRA planning process and established guidelines for the Planning Team. The two full day workshops were designed to follow CPG 201. Each workshop was facilitated to emphasize comprehensive discussion and integrate expertise by Planning Team members for relevant topics. The first workshop focused on confirming the threats and hazards of concern (CPG 201 Step 1) and developing context (CPG 201 Step 2) to help evaluate potential impacts. The second workshop was a facilitated discussion to validate the potential impacts for each of the developed scenarios. The Planning Team developed Capability Targets based on the greatest estimated impact for each of the 31 Core Capabilities (CPG 201 Step 3). Once the Capability Targets were approved, the Planning Team examined each of the core capabilities against the Capability Target and identified gaps and recent advances in Planningorganization, equipment, Training, and Exercise (POETE). For each of the identified gaps, subject matter experts identified initial recommendations on how to address these gaps (CPG 201 Step 4). As the City of Palo Alto moves forward with the results of the THIRA, it is recommended that the identified gaps be further discussed and analyzed in order to identify the root cause of the gap. Once the root cause is determined by the stakeholders, the identified recommendations should be revised, corrective actions determined and resource estimations be made in order to implement and prioritize the recommendations. This document is published as Unrestricted – For Public Release. There is content published in the Restricted version of this document which is not included in this report due to the sensitive nature of this information. This includes Chapters 6 (Hazard Context), 7 (Vulnerability Assessment), and 8 (Capability Target Statements and Evaluation). 2 Introduction The City of Palo Alto is at risk from a variety of natural and non-natural hazards. Stanford University and other nearby communities are also at risk to many of these same hazards. Preventing, protecting from, mitigating, responding to, and recovering from hazards and threats 3 requires extensive coordination among City agencies and local partners, including Stanford. The City’s Office of Emergency Services (OES) leads that coordination with the goal of “developing, maintaining, and sustaining a citywide, comprehensive, all hazard, risk-based emergency management program that engages the whole community”1. The Stanford University Department of Public Safety and the Stanford University Environmental Health & Safety (EH&S) Department partner with the City to enhance their emergency preparedness, mitigation, and response capabilities. Under separate contracts, the City provides all 911 Public Safety Answering Point (PSAP) dispatch services to Stanford, and is also the prime Fire and EMS provider to the University. Together, the City’s OES and representatives from Stanford University supported the formulation of this plan. To better understand and effectively prioritize risk reduction measures, OES conducted a collaborative planning process with an Executive Committee and a broader Stakeholder Group to evaluate current capabilities with regard to prevention, protection, mitigation, response, and recovery. This THIRA is the result of the collaborative planning process. It is compliant with the U.S. Department of Homeland Security (DHS) Comprehensive Preparedness Guide (CPG) 201, Second Edition, released in August 2013, which outlines a process to help communities identify capability targets and resource requirements necessary to address anticipated and unanticipated risks. The result of the THIRA process is an organized evaluation of vulnerability and implementation measures based on the necessary capabilities to deal with the hazards/threats of most concern. This report should inform ongoing City and University planning efforts including, but not limited to, the following: • Emergency Operations Plan • Hazard Mitigation Plan • Emergency Planning & Homeland Security Strategic Plan • Operating Budget • Capital Budget • Office of Emergency Services Annual Report • Comprehensive Plan DHS requires annual THIRAs from States and Tier 1 Urban Area Security Initiative (UASI) organizations. The City of Palo Alto THIRA, as a local government assessment, may be shared as appropriate with the San Francisco Bay Area UASI and California Governor’s Office of Emergency Services (Cal OES) to ensure consistency in vulnerability analyses. Both the California State THIRA and San Francisco Bay Area UASI THIRA were consulted in the preparation of this City of Palo Alto THIRA. 1 Office of Emergency Services (OES): Executive Summary (Rev. 8/24/12) 4 3 Goal Setting Presidential Policy Directive 8: National Preparedness sets forth a national goal for “a secure and resilient Nation with the capabilities required across the whole community to prevent, protect against, mitigate, respond to, and recover from the threats and hazards that pose the greatest risk”2. To achieve this, the National Preparedness Goal identifies 31 necessary core capabilities. The City of Palo Alto Executive Team reviewed the National Preparedness Goal and through discussion established a more refined set of desired outcomes for the City based on the 31 core capabilities. Figure 3-1 National Preparedness Core Capabilities The following statements represent an ideal condition of the whole community’s capability to prevent, protect against, mitigate, respond to, and recover from the threats and hazards of most concern. 1. Planning Conduct a consolidated, coordinated, integrated planning process to ensure participation by the whole community using an all hazards approach and defined planning cycles. 2 National Preparedness Goal 5 2. Public Information and Warning Provide information in a timely and appropriate manner to the affected population, including those with functional needs. Information should be consistent with the threat or hazard and enable people to take appropriate actions or protective measures. 3. Operational Coordination Establish and maintain a unified and coordinated operational Incident Command System (ICS) compliant structure and process that appropriately integrates all critical stakeholders to include private/public partners (e.g. hospitals, residents, Emergency Services Volunteers, schools, businesses, etc.) and supports the execution of core capabilities. Prevention 4. Forensics and Attribution Conduct investigation, evidence collection, and analysis for criminal prosecution as well as assist in preventing initial or follow-on terrorist acts. 5. Intelligence and Information Sharing Interface with allied public safety agencies, regional planning entities, and other relevant stakeholders to collect, analyze, and disseminate timely, accurate, and actionable information. 6. Interdiction and Disruption Coordinate with other agencies to facilitate interdiction of cargo and persons that could present a threat to the City of Palo Alto and Stanford University. 7. Screening Search and Detection Screen and search cargo, packages, and persons if/when legally permissible and justified. For example, observe safety protocols with those entering Stanford Stadium for certain security-risk events. Protection 8. Access Control and Identity Verification Establish verification of identity to authorize, grantor deny physical and cyber access to critical infrastructure, key asset locations, and networks. 9. Cybersecurity Protect against malicious activity directed toward critical infrastructure, key resources, and networks. 6 10. Physical Protective Measures Protect people, structures, materials, products, and systems of key operational activities and critical infrastructure sectors against identified or perceived threats. 11. Risk Management for Protection Programs and Activities Complete and/or encourage risk assessments, using standardized methodologies/models, for critical infrastructure/key resources (CIKR) and assets. 12. Supply Chain Integrity and Security Accounting for reliance on digital technology and modern management practices, work with and encourage private sector to build resiliency in the supply chain and develop tangible and intellectual methods to protect it. Mitigation 13. Community Resilience Engage the whole community in improving resilience through development and implementation of local risk management plans, techniques, strategies, training, and exercises. 14. Long–term Vulnerability Reduction Implement ongoing strategies to achieve measurable decreases in the long-term vulnerability of critical infrastructure, systems, and community features at risk to identified threats and hazards. 15. Risk and Disaster Resilience Assessment Maintain a risk assessment that includes identification and analysis of information about security gaps, localized vulnerabilities and risk consequences in City systems and facilities. 16. Threats and Hazards Identification Continually review/identify/maintain the assessment of identified threats and hazards. Response 17. Critical Transportation Establish physical access through appropriate transportation corridors and deliver required resources in an effort to save lives and to meet the needs of disaster survivors. 18. Environmental Response/Health and Safety Conduct health and safety hazard and critical systems assessments and disseminate guidance and resources, including the deployment of hazardous materials teams, to support environmental health and safety actions for response personnel and the affected population and 7 area. Conduct water sampling from established locations to determine potential access breach and/or contamination. 19. Fatality Management Services Conduct operations to recover fatalities in coordination with Operational Area/regional/state, federal, and NGO partners. 20. Mass Care Services Move and deliver resources and capabilities to meet the needs of disaster survivors, including individuals with access and functional needs and others who may be considered at-risk. Coordinate operations with government and NGO assistance partners. 21. Mass Search and Rescue Operations Conduct search and rescue operations to locate and rescue persons in distress. 22. On-Scene Security and Protection Establish a safe and secure environment for the affected area. 23. Operational Communications Establish and maintain the capability and capacity for timely and sufficient integrated communications in support of security, situational awareness, and operations. This includes redundant capabilities and resilient systems and facilities. 24. Public and Private Services and Resources Mobilize and coordinate governmental, nongovernmental, and private sector resources within and outside the affected areas to save lives, sustain lives, meet basic human needs, stabilize the incident, and transition to recovery. 25. Public Health and Medical Services With operational area support as needed, complete triage and initial stabilization of casualties and begin coordination of transport to definitive care for those likely to survive their injuries. 26. Situational Assessment Deliver information sufficient to inform City decisions, through collaboration with key partners, regarding immediate life-saving and -sustaining activities and engage governmental, private, and civic-sector resources within and outside of the affected area to meet basic human needs and stabilize the incident and maintain public services. 27. Infrastructure Systems Decrease and stabilize immediate infrastructure threats to the affected population, following all City EOP procedures. 8 Recovery 28. Economic Recovery Develop a plan with whole community partners, with a specified timeline for redeveloping community infrastructures to contribute to resiliency, accessibility, and sustainability. 29. Health and Social Services Restore basic health and social services functions with support from Operational Area/state/federal, and NGO partners. 30. Housing Assess preliminary housing impacts and needs, identify currently available options for temporary housing, and plan for permanent housing in coordination with Operational Area/state/federal, and NGO partners. 31. Natural and Cultural Resources Mitigate impacts, stabilize natural and cultural resources, and conduct a preliminary assessment of the impacts to identify and implement protections during the various stages of incident management—from stabilization through recovery. 4 Hazard Identification and Prioritization 4.1 Identified Hazards and Threats Several City and regional emergency management and planning documents were reviewed to identify a comprehensive list of hazards for consideration. These documents address both natural and human caused hazards that have the potential to impact Palo Alto and the Bay Area. Many of these documents estimate the impacts that result from the identified hazards. City policies that aid in emergency prevention, protection, mitigation, response, and recovery are highlighted in these documents. The reviewed documents which were integral in providing key information are listed below: City of Palo Alto Emergency Operations Plan, June 2007 Palo Alto City Council Priority Update on Emergency Preparedness, September 2010 City of Palo Alto Local Hazard Mitigation Plan, 2011 City of Palo Alto Energy Assurance Plan, July 2013 After Action Report Power Outage and Plane Crash, May 2010 After Action Report Winter Storm of December 23, 2012, February 2013 City of Palo Alto Emergency Planning Strategic Plan, November 2009 9 State of California THIRA Draft, December 2012 Bay Area Urban Area Security Initiative THIRA, December 2012 San Francisco THIRA, 2012 National Planning Scenarios (See table 4-1 below) San Francisco Bay Area Regional Emergency Coordination Plan, March 2008 City of Palo Alto Comprehensive Plan, July 20073; Land Use Designation Map, March 2011; Housing Element, November 2013; Updated version to be released in 2014/2015 In addition to the documents listed above, the Infrastructure Blue Ribbon Commission Final Report on Palo Alto’s Infrastructure: Catching Up, Keeping Up, and Moving Ahead (December 2011) specifically helped to identify the City’s critical facilities and infrastructure used in estimating impacts and assessing vulnerability. Table 4-1 National Planning Scenarios Scenario 1: Nuclear Detonation Scenario 2: Biological Attack – Aerosol Anthrax Scenario 3: Biological Disease Outbreak – Pandemic Influenza Scenario 4: Biological Attack - Plague Scenario 5: Chemical Attack – Blister Agent Scenario 6: Chemical Attack – Toxic Industrial Chemicals Scenario 7: Chemical Attack – Nerve Agent Scenario 8: Chemical Attack – Chlorine Tank Explosion Scenario 9: Natural Disaster – Major Earthquake Scenario 10: Natural Disaster – Major Hurricane Scenario 11: Radiological Attack – Radiological Dispersal Devices Scenario 12: Explosives Attack – Bombing Using Improvised Explosive Devices Scenario 13: Biological Attack – Food Contamination Scenario 14: Biological Attack – Foreign Animal Disease (Foot and Mouth Disease) Scenario 15: Cyber Attack 3 The City is in the process of updating the 1998-2010 Palo Alto Comprehensive Plan which will contain updated goals, policies, and programs relating to safety and natural hazards. The update is expected to be completed by the end of 2015 and will have an expected horizon year of 2030. The updated Comprehensive Plan will be consistent with this Threat and Hazard Identification and Risk Assessment. 10 Table 4-2 Comprehensive List of Hazards and Definitions presents the comprehensive list of hazards as approved by the Executive Committee and considered by the Stakeholder Group. Table 4-2 Comprehensive List of Hazards and Definitions Natural Hazard Definition Earthquake An earthquake is a phenomenon resulting from the sudden release of stored energy in the crust of the Earth in the form of seismic waves. They can devastate regions and destroy nearly any type of asset. They can cause injuries and death due to falling debris and broken glass. A major earthquake could trigger significant landslides, spark fires, and release toxic chemicals. If an earthquake occurred during the rainy winter season, landslides would be worsened and flooding could occur, exacerbated by damaged creek culverts and storm drains. Extreme Heat A heat wave is defined as prolonged periods of excessive heat, often combined with excessive humidity. Extreme heat is defined as temperatures that hover ten degrees or more above the average high temperature for the region and last for several weeks. The main concern in periods of extreme heat is the potential public health impact, such as heat exhaustion or heat stroke. Flood/Winter Storm A flood is any high flow, overflow or inundation by water which causes or threatens damage. Flooding is often caused by winter storms in the City of Palo Alto. Flooding can contaminate potable water, wastewater, and irrigation systems, which may negatively affect the quality of the water supply and result in an increase of water and food borne diseases. Severe winter storms can cause flooding. High Wind Wind is associated with multiple natural hazards. In some hazards, wind is the primary cause of damage, while in others, wind plays a contributory or auxiliary role. Damaging wind is primarily associated with hurricanes, tornadoes, downbursts, severe thunderstorms, and winter storms. Wind plays a contributory role in wildfire generation and propagation and can exacerbate severe droughts as well as cause trees to fall on power lines. Landslides In a landslide, masses of rock, earth or debris move down a slope. Landslides may be small or large, slow or rapid. They are activated by storms, earthquakes, fires, alternate freezing and thawing, and steepening of slopes by erosion or human modification. 11 Public Health Pandemic The most readily apparent public health emergency is an outbreak of influenza pandemic, although other public health emergencies are just as likely. An influenza pandemic is a worldwide outbreak of disease that occurs when a new influenza virus appears in human population, causes serious illness and then spreads easily from person to person worldwide. Pandemics are different from seasonal outbreaks of the flu. Since 2005, a high virulent strain of bird flu (H5N1), which developed in Asia, has steadily spread in birds to the Middle East, Africa, and Europe. The fatality rate of this particular strain is more than 50 percent. The Center for Disease Control and Prevention (CDC) has estimated that, in the US alone, a "minor" influenza pandemic could infect up to 200 million people and cause between 100,000-200,000 deaths. The potential financial impact on the US of this type of pandemic is estimated at $166 billion. Pandemics could continue for up to 24 months and cause major disruptions in supply chains for essential goods and services. Other outbreaks could include H1N1, Whooping Cough, Salmonella, E. coli, and Measles. Tornado A tornado appears as a rotating, funnel-shaped cloud that extends from a thunderstorm to the ground with whirling winds that can reach 300 miles per hour. Damage paths can be in excess of one mile wide and fifty miles long. Waterspouts are tornadoes that form over water. Tsunami A tsunami is a sea wave of local or distant origin that results from large-scale seafloor displacements associated with large earthquakes, major submarine slides or exploding volcanic islands. Wildland Fire A wildfire is an uncontrollable fire beginning in a wilderness area, typified by its large size, and ability to spread quickly or change direction suddenly. High temperatures and drought followed by an active period of vegetation growth provide the most dangerous conditions. Wildfires can affect any type of asset and may threaten major population centers when they breakout on the rural-urban fringe. Technological Definition 12 Hazard Airplane Accident Aviation accidents may be caused by problems originating from mechanical difficulties, pilot error or acts of terrorism. Airplane accidents can result from aircraft experiencing trouble while in flight or from mid-air collisions between aircraft flying over or near Palo Alto since the City lies in the flight path of two international airports: San Jose and San Francisco. There is also the potential for this type of accident to occur over water. Dam Failure Flooding inundation areas in the event of dam failure extend across a wide region of northeastern Palo Alto. Reservoir failures that would affect Palo Alto include Felt Lake, Searsville Lake, and Foothills Park (Boronda Lake). Financial Disruption A situation where the markets cease to function in a regular manner, typically characterized by rapid and large market declines. Market disruptions can result from both physical threats to the stock exchange or unusual trading (as in a crash). In either case, the disruption typically causes panic and results in disorderly market conditions. Food/Water Contamination A water system can become contaminated as a result of flooding or by saltwater intrusion. Food contamination refers to the presence in food of harmful chemicals and microorganisms which can cause consumer illness. Hazardous Materials Spill The release of a hazardous material to the environment could cause a multitude of problems. Although these incidents can happen almost anywhere, certain areas of the city are at higher risk, such as near roadways that are frequently used for transporting hazardous materials and locations with industrial facilities that use, store or dispose of such materials. Areas crossed by railways, waterways, airways, and pipelines also have increased potential for mishaps. Hazards can occur during production, storage, transportation, use or disposal. Communities can be at risk if a chemical is used unsafely or released in harmful amounts into the environment. Hazardous materials can cause death, serious injury, long-lasting health effects, and damage to buildings, the environment, homes, and other property. 13 Oil Spill An oil spill is the release of a liquid petroleum hydrocarbon into the environment due to human activity or technological error. The term is usually applied to marine oil spills, but spills can also occur on land. Spills may be due to releases of oil from tankers, offshore platforms, and drilling rigs and wells. An oil spill represents an immediate fire hazard and can contaminate drinking water supplies. Contamination can also have an economic impact on tourism and marine resource extraction industries. Clean up and recovery is time and cost consuming. Power Blackout/Energy Shortage/Utilities Failure Energy disruptions are considered to be a form of Lifeline System Failure. This can be the consequence of any of the other hazards identified or as a primary hazard, absent of an outside trigger. A failure could involve the City's potable water system, power system, natural gas system, wastewater system, communication system or transportation system. Train Accident Most train accidents are caused by human error, often relating to communications, speed limits, and braking. Train accidents also can occur because of equipment failure. Rail accidents include derailment, collisions, railroad grade crossing, obstruction, explosion or fire/violent rupture. Urban Fire In addition to the areas within the City limits considered to be in the Wildland Urban Interface (WUI), the more densely built “flatlands” are also at risk. The City has over 25,000 housing units and a significant business base. The proximity of structures to each other within the City creates additional exposure to widespread urban fire. Localized, single-structure fires sometimes occur in Palo Alto. Major uncontrolled events are a possibility, but rarely occur. Human Caused Hazard Definition Agro-Terrorism Agro-terrorism is the use of a biological or chemical agent against crops, livestock or poultry. The agent could be any of a wide range of pathogens or toxins. Agro-terrorism may be used to endanger public heath, to reduce the food supply or as a strategic economic weapon. Aircraft as a weapon Aircraft as a weapon (AAW) is a suicide attack using an airplane to target an asset. The primary explosive is the airplane's fuel supply. Aircraft include but are not limited to large commercial passenger craft, cargo craft, small single or double engine private craft, gliders, helicopters, and lighter-than-aircraft. 14 Biological Attack (contagious and non-contagious) A contagious biological attack is an attack on a population using a communicable, infectious disease. Effects occur after an incubation period which varies with the biological strain in use. They can quickly infect large populations. Bioterrorism can cause mass panic and societal disruption. Chemical Agent/Toxic Inhalation Release Chemical weapons kill by attacking the nervous system and lungs or by interfering with a body's ability to absorb oxygen. Some are designed to incapacitate by producing severe burns and blisters. These include such agents as mustard, tabun, sarin (GB), and nerve gas. Chemical agents could be introduced through an HVAC system or air inlets in buildings such as apartments, commercial offices or public facilities. Civil Disorder Civil disorder refers to unrest caused by a group of people and may include terrorist activities. Public demonstrations have the potential to lead to looting and rioting. There are many potential causes for civil disorder including: animal rights, labor disputes, civil rights, campus related issues, abortion rights, neighboring jurisdictions, political issues, events (sports, music, etc.), and spontaneous miscellaneous events. Potential consequences from acts of civil disorder include: disruptions of police and city services, closure of roads, rioting, property damage, and injuries to protesters, police officers, and uninvolved parties. Conventional Attack Light armed attack (small arms (ballistics) which include guns and rockets or stand-off weapons such as rocket propelled grenades or mortars) with one or more people acting for a terrorist group, anti- government/anti-political group, etc. Major Crime A major criminal incident (shooting, homicide, kidnapping) including multiple suspects or multiple victims with an ongoing threat to the community. Cyber Attack A cyber terrorist can infiltrate many institutions including banking, medical, education, government, military, and communication and infrastructure systems. The majority of effective malicious cyber- activity has become web-based. Recent trends indicate that hackers are targeting users to steal personal information and moving away from targeting computers by causing system failure. 15 Hostage/Assassin A hostage situation includes a person or group of people seized or held as security for the fulfillment of a condition. An assassin is a person who murders an important person in a surprise attack for political or religious reasons. IED Improvised Explosive Devices (IEDs) are constructed using conventional explosives and flammable materials. There are a variety of detonation methods. Conventional explosives include, but are not limited to: ammonium nitrate and fuel oil, TATP, TNT, RDX, PETN, C4, Semtex or Dynamite. Flammable materials include, but are not limited to: gasoline, kerosene, alcohol, iodine crystals, magnesium, glycerin or aluminum powder. An IED is likely to cause localized consequence primarily in the form of casualties and economic impact. Nuclear Attack/Acts of War The detonation of a nuclear weapon meets the US DODs definition of a Weapon of Mass Destruction, which includes any weapon or device that is intended or has the capability to cause death or serious bodily injury to a significant number of people through the release of toxic or poisonous chemicals or their precursors, a disease organism or radiation or radioactivity. A nuclear bomb attack could occur without warning and cause mass devastation within seconds. Radiation can exist in the atmosphere and in the ground for years after an event. A nuclear attack would cause more damage in a metropolitan area. Radiological Dispersion Device (RDD) RDDs (commonly known as “dirty bombs”) consist of radioactive materials wrapped in conventional explosives, which upon detonation release deadly radioactive particles into the environment. Sabotage/Theft Sabotage is a deliberate action aimed at weakening another entity through subversion, destruction, obstruction or destruction. The result of sabotage could be the destruction or damage of a vital facility. Some criminals have engaged in sabotage for reasons of extortion. Political sabotage is sometimes used to harass or damage the reputation of a political opponent. Terrorism Terrorist activities include bombings, kidnappings, shootings, and hijackings. 80% of terrorist activity is perpetrated through the use of explosives, and the other 20% is a combination of arson, vandalism, and assassination. The actual use of terrorist chemical, nuclear, and biological weapons has occurred less than a handful of times in the last 50 years. The common kinds of terrorist situations (explosions, fires, vandalism, and shootings) are the same kind of critical incidents first responders handle on a daily 16 basis. Terrorist activity can be conducted by an active shooter, an individual actively engaging in killing or attempting to kill people in a confined and populated area using a firearm. Targets of an armed attack vary; however, in recent history, schools, office buildings, federal/state owned buildings, religious institutions, military installations, and large public areas have all been subject to armed attacks. An active shooter may be a disgruntled student or group of students, an employee or an anti-government/anti- political/extremist citizen or group. Vehicle Born IED Vehicle Born Improvised Explosive Devices (VBIEDs) are constructed using conventional explosives and flammable materials. VBIEDs involve the use of cars, trucks, and other vehicles as the package/container to deliver explosive payloads to a target. Larger vehicles enable larger amounts of explosives, resulting in a greater impact. Functioning of devices can vary within the same methods as the package types and can have the same common characteristics as other IEDs. Some examples in the U.S. include the 1993 World Trade Center bombing (a precursor to 9/11) and the Murrah Federal Building in Oklahoma City. Workplace Violence Workplace violence is violence or the threat of violence against workers. It includes any act or threat of physical violence, harassment, intimidation or other threatening disruptive behavior that occurs at the worksite. It can occur at or outside the workplace and can range from threats and verbal abuse to physical assaults and homicide. It can affect and involve employees, clients, customers, and visitors. Workplace violence includes locations such as churches, malls, etc. and may be the result of a person acting alone. The Stakeholder Group, through a facilitated exercise reviewed the comprehensive list of hazards/threats and prioritized them to identify those of most concern. The prioritization methodology is presented in the following sections. 4.2 Natural Hazard Prioritization Each natural hazard was rated by the sum of three criteria. The first criterion was estimated likelihood of future occurrence on a scale of 1 - 4. The second criterion was potential impacts on a scale of 1 -4. Both of these scales are presented in Table 4-3 Natural Hazards Rating Criteria. The third criterion was based on results from a public survey conducted during the 2012 local hazard mitigation planning process. Respondents were asked to select the five hazards of most concern. The percentage of responses for the identified hazards was scored on a 10 point scale. For each hazard, the three criteria were summed, and the natural hazards with the highest rating were included in the hazards of most concern for the City of Palo Alto. 17 Table 4-3 Natural Hazards Rating Criteria Natural Hazards Probability Rating Criteria Based on estimated likelihood of occurrence from historical data Score Unlikely (Less than 1% probability in next 100 years or has a recurrence interval of greater than every 100 years.) 1 Somewhat Likely (Between 1 and 10% probability in next year or has a recurrence interval of 11 to 100 years.) 2 Likely (Between 10 and 100% probability in next year or has a recurrence interval of 10 years or less.) 3 Highly Likely (Near 100% probability in next year or happens every year.) 4 Natural Hazards Potential Impacts Rating Criteria Based on percentage of damage to typical facility in community Score Negligible - less than 10% damage 1 Limited - between 10% and 25% damage 2 Critical - between 25% and 50% damage 3 Catastrophic - more than 50% damage 4 Table 4-4 Natural Hazard Rating Results Natural Hazard Probability Impact Survey Rating Score Earthquake 2 4 9 15 Extreme Heat 2 1 0 3 Flood* 3 2 4 9 High Wind 2 1 0 3 Landslides 3 1 0 4 Public Health Pandemic 2 3 2 7 Severe Winter Storm* 3 2 6 11 Tornado 1 1 0 2 Tsunami 1 1 0 2 Wildland Fire 3 3 1 7 *Most severe impacts of winter storms are flooding. These two hazards were combined for a Rating Score of 10. 18 4.3 Technological Hazard Prioritization Each technological hazard was reviewed for its potential to occur. The Stakeholder Group shared knowledge, concerns, and other pertinent information to come to a consensus on rating each technological hazard as low, medium, high or very high. Table 4-5 Technological Hazards Rating Criteria Technological Hazards Ranking Criteria Rating An event is imminent. Experts have confirmed potential for occurrence. Very High An event is expected/probable. Experts have confirmed potential for occurrence. High An event is possible. Potential for occurrence is assumed but not verified. Medium An event is unlikely. Potential for occurrence is extremely limited. Low Table 4-6 Technological Hazard Rating Results Technological Hazard Rating Airplane Accident High Dam Failure* Low Financial Disruption Low Food/Water Contamination Medium Hazardous Materials Spill High Oil Spill Medium Power Blackout/Energy Shortage/Utilities Failure Medium Train Accident Medium Urban Fire High * Rating results shown have been considered as independent hazards and do not include secondary or cascading events. Dam failure includes technological failure risk (engineering) and does not include secondary risk from an earthquake. 19 4.4 Human Caused Threat Prioritization Each human caused threat was reviewed for its potential to occur. The Stakeholder Group shared knowledge, concerns, and other pertinent information to come to a consensus on rating each human caused threat as low, medium, high or very high. Table 4-7 Human Caused Threat Rating Criteria Human Caused Threat Ranking Criteria Rating The likelihood of a threat, weapon, and tactic being used against a site or building is imminent. Internal decision makers and/or external law enforcement and intelligence agencies determine the threat is credible. Very High The likelihood of a threat, weapon, and tactic being used against a site or building is expected. Internal decision makers and/or external law enforcement and intelligence agencies determine the threat is credible. High The likelihood of a threat, weapon, and tactic being used against a site or building is possible. Internal decision makers and/or external law enforcement and intelligence agencies determine the threat is known, but is not verified. Medium The likelihood of a threat, weapon, and tactic being used in the region or against the site or building is negligible. Internal decision makers and/or external law enforcement and intelligence agencies determine the threat is non-existent or extremely unlikely. Low Table 4-8 Human Caused Threat Rating Results Human Caused Threat Rating Agro-Terrorism Medium Aircraft as a weapon Low Biological Attack Medium Chemical Agent/Toxic Inhalation Release Medium Civil Disorder Medium Conventional Attack Medium Major Crime Very High Cyber Attack Very High Hostage/Assassin High IED Medium Nuclear Attack/Acts of War Low Radiological Dispersion Device Medium 20 Human Caused Threat Rating Sabotage/Theft High Terrorism Medium Vehicle Born IED Medium Workplace Violence Very High 4.5 Threats and Hazards of Most Concern The prioritization process resulted in a pared down listing of natural, technological, and human caused hazards/threats of most concern to the City of Palo Alto and its local partners. These are presented in Table 4-9 Summary of All Hazards Prioritization. To complete the THIRA process, we researched each of these hazards/threats to develop a more complete understanding of their characteristics. Section 5 presents detailed hazard and threat profiles. Table 4-9 Summary of All Hazards Prioritization Threats and Hazards of Most Concern Natural Technological Human-caused Earthquake Airplane Accident Major Crime Flood/Severe Winter Storm Hazardous Waste/ Materials Spill Cyber Attack Urban Fire Hostage/Assassin Sabotage/Theft Workplace Violence 21 5 Hazard Profiles This section contains profiles detailing the characteristics of the hazards of most concern. 5.1 Non-Natural Hazard Profile Structure Technological and human caused threats and hazards require a different approach to evaluating likelihood and potential impacts as compared to natural hazards. With natural hazards, as done in the local hazard mitigation planning process, an evaluation is based on past occurrences, weather patterns, geography, and other relevant earth science. Technological and human caused threats and hazards are not dependent upon earth science and do not occur with regular patterns. For that reason, a modified approach is appropriate for evaluating the potential of technological and human caused threats and hazards. Each technological or human caused hazard profile contains the following components: Application Mode: describing the human act(s) or unintended event(s) necessary to cause the hazard to occur. Duration: the anticipated length of time the hazard is present on the target. For example, the duration of an earthquake may be just seconds, but a chemical warfare agent such as mustard gas, if un-remediated, can persist for days or weeks under the right conditions. Dynamic/Static Characteristic: describing the hazard’s tendency or that of its effects, to either expand, contract or remain confined in time, magnitude, and space. For example, the physical destruction caused by an earthquake is generally confined to the place in which it occurs, and it does not usually get worse, unless there are aftershocks or other cascading failures; in contrast, a cloud of chlorine gas leaking from a storage tank can change location by drifting with the wind and can diminish in danger by dissipating over time. Mitigating Conditions: characteristics of the target and its physical environment that can reduce the effects of a hazard. For example, earthen berms can provide protection from bombs; exposure to sunlight can render some biological agents ineffective; and effective perimeter lighting and surveillance can minimize the likelihood of someone approaching a target unseen. Exacerbating Conditions: characteristics that can enhance or magnify the effects of a hazard. For example, depressions or low areas in terrain can trap heavy vapors, and proliferation of street furniture (trash receptacles, newspaper vending machines, mail boxes, etc) can provide concealment opportunities for explosive devises. 22 5.2 Earthquake Hazard Summary Past land use decisions in Palo Alto have not always taken hazards into consideration. Moreover, older buildings and infrastructure reflect the construction and engineering standards of their era, which in most cases fall short of current standards for seismic safety. As a result, a portion of the City, including 130 soft story structures, would be at some risk in the event of a major earthquake. The greatest hazards are associated with fault rupture and ground shaking, although liquefaction hazards are significant in the area east of Highway 101 due to the porous nature and high water content of the soil. Landslides, a hazard that is common in the foothills of Palo Alto, may result from heavy rain, erosion, removal of vegetationor human activities. Settlement and subsidence due to groundwater withdrawal has historically been a problem in the southern and eastern areas of the City of Palo Alto, but has been largely halted by groundwater recharge efforts and reduced pumping. Seismically-induced flooding is a hazard due to the possibility of dam failure at Felt Lake and Searsville Lake and the potential for levee failure near the San Francisco Bay. To help mitigate the damages that may result from a potential earthquake, Palo Alto strictly enforces uniform building code seismic safety restrictions and provides incentives for seismic retrofits of structures in the University Avenue/Downtown area. The City also allows development rights achieved through seismic upgrading of specified sites to be transferred to designated eligible receiver sites per Program N - 71 in the Comprehensive Plan and per the Palo Alto Municipal Code, Section 18.18.080. Palo Alto has completed seismic improvements to facilities and critical infrastructure as part of its mitigation planning, including City Hall, library buildings, the Art Center, and water reservoirs among others. 5.3 Flood/Severe Winter Storm Hazard Summary Flood hazards, including tidal flooding from overtopping of coastal levees during extreme high tide events in the Bay and fluvial flooding from creeks overflowing their banks, are likely to continue to occur in Palo Alto. Winter storms, which generate large amounts of rain and heavy winds, can result in flooding. As noted in the 2011 LHMP, the City minimizes exposure to flood hazards through its participation in the Federal Emergency Management Agency’s (FEMA) National Flood Insurance Program (NFIP). FEMA makes NFIP flood insurance available to Palo Alto residents and businesses as a result of the City’s adoption of required floodplain management regulations into its Municipal Code (Chapter 16.52) that promote public health, safety and general welfare, and minimize damages due to flood conditions. City staff reviews proposed development in flood prone areas and enforces the floodplain management regulations for specified building activity in Special Flood Hazard Areas, as depicted on FEMA’s Flood Insurance Rate Maps (FIRMs). In 1990, the City created an independent enterprise fund to fund needed improvements to the storm drain system with revenue generated through user fees and developed a Storm Drain Master Plan in 1993 to identify and prioritize a set of projects to increase system capacity and reduce the incidence of street flooding. Property owners approved a ballot measure in 2005 to increase the City’s monthly storm drain fee and thereby provided funding to implement a set of seven high-priority capital improvement projects to upgrade the storm drain system. The City has long been a partner with the Santa Clara Valley Water 23 District (SCVWD) who constructed channel upgrades (100-year flood protection) in the 1980’s and 1990’s to reduce flood risks from Adobe, Matadero, and Barron Creeks. San Francisquito Creek remains a substantial flood risk to the community, along with tidal flooding during extreme high tide events. Following the historic 1998 flood, five local agencies from two counties (the cities of Palo Alto, Menlo Park, and East Palo Alto, the County of San Mateo Flood Control District, and the Santa Clara Valley Water District) formed the San Francisquito Creek Joint Powers Authority (SFCJPA) to plan, design, and implement flood, environmental, and recreational projects. Specifically, the San Francisquito Creek Joint Powers Authority is developing a comprehensive regional plan for the San Francisquito Creek watershed that will improve the level of flood protection to Palo Alto and surrounding communities. The SFCJPA’s initial capital project, being planned in conjunction with the City of Palo Alto, is designed to increase creek flow capacity to protect people and property from fluvial flooding along a critical urban section of the creek between Highway 101 and San Francisco Bay. Palo Alto, along with the entire Bay Area, is also subject to increasing flood risk as a result of rising sea levels, requiring city planners to collaborate with regional organizations and projects, such as the SCVWD, SFCJPA, the US Army Corps of Engineers’ South San Francisco Bay Shoreline Study, and the State Coastal Conservancy Salt Pond Restoration Project, who have each initiated studies on impacts of sea level rise in the vicinity of Palo Alto. 5.4 Airplane Accident Profile Aircraft accidents in Palo Alto can result from an aircraft experiencing trouble or from mid-air collisions between aircraft flying over or near Palo Alto as they approach the three Bay Area Airports (San Francisco, Oakland, and San Jose), as well as Moffett Field. In February 2010, a small aircraft left the Palo Alto Airport and collided with power lines, causing a City-wide power outage. The Palo Alto electrical utility feedpoint to PG&E (and the grid) is a single point, near the airport. Application mode: Aviation accidents may be caused by problems originating from mechanical difficulties, pilot error or acts of terrorism. Extreme weather conditions may also increase the potential of an accident. Airplane accidents can result from major aircraft experiencing trouble while in flight or from mid-air collisions between aircraft flying over or near Palo Alto. There is also the potential for this type of accident to occur over water.4 Duration: An airplane accident can occur in an instant and without notice or could be reported but not remediated, lasting a few hours. Clean up after an accident could take days to weeks. Longer term actions include repairing any buildings and infrastructure that may have been damaged due to the accident and investigating the cause of the incident. Dynamic/static characteristics: The number of fatalities/injuries and the area damaged by the aircraft accident can vary depending on the type and magnitude of the accident. While damage may be concentrated to the location of the incident, secondary impacts from the accident, such as explosion and fire, as well as debris and hazardous materials, could spread from the initial area of impact. 4 City of Palo Alto EOP (2007) 24 Mitigating conditions: The City’s Emergency Operations Plan (EOP) outlines a response plan to airplane accidents. The EOP also notes that consequences of an airplane accident from a small aircraft associated with Palo Alto airport would be low. Issues in responding to the February 2010 incident were identified in an After Action Report. These issues have been addressed to provide better response to a potential future incident. Exacerbating conditions: The City of Palo Alto lies between two international airports, San Jose and San Francisco. Within the boundaries of Palo Alto, Santa Clara County operates the Palo Alto Municipal Airport, a general aviation airport. There is potential for an accident to occur in the air or on the ground near these locations as well as over water in Palo Alto’s jurisdiction. 5.5 Hazardous Waste/Materials Spill Profile Hazardous waste/materials are widely used or created at facilities such as hospitals, wastewater treatment plants, universities and industrial/manufacturing warehouses. Several household products such as cleaning supplies and paint are also considered hazardous materials and can be found in households and stores. Hazardous materials include: • Explosives; • Flammable, non-flammable, and poison gas; • Flammable liquids; • Flammable, spontaneously combustible, and dangerous when wet solids; • Oxidizers and organic peroxides; • Poisons and infectious substances; • Radioactive materials; and • Corrosive materials.5 The release of a hazardous material to the environment could cause a multitude of problems. Although these incidents can happen almost anywhere, certain areas of the City are at higher risk, such as near roadways that are frequently used for transporting hazardous materials and locations with industrial facilities that use, store or dispose of such materials. Areas crossed by railways, waterways, airways, and pipelines also have increased potential for mishaps. Incidences can occur during production, storage, transportation, use or disposal of hazardous materials. Communities can be at risk if a chemical is used unsafely or released in harmful 5 National Archives and Records Administration, “Code of Federal Regulations Title 49: Transportation” (July 1 2012), http://ecfr/gpoaccess.gov/cgi/t/text/text- idx?c=ecfr;sid=54f867044f1c9e1af52443eb305e1360;rgn=div5;view=text;node=49%3A2.1.1.3.7 ;idno=49;cc=ecfr 25 amounts into the environment. Hazardous materials can cause death, serious injury, long- lasting health effects, and damage to buildings, the environment, homes, and other property.6 Application mode: Hazardous waste/materials spills may be accidental or intentional, and may occur at fixed facilities or on vehicles. Accidental Hazardous Waste/Materials Spill Hazardous materials accidents can range from a chemical spill on a highway to groundwater contamination by naturally occurring methane gas to a household hazardous materials accident.7 Potential hazards can occur during any stage of use from production and storage to transportation, use or disposal. Production and storage occurs in chemical plants, gas stations, hospitals, and many other sites. There are many reasons an unintentional hazardous waste/materials spill may occur. Some of these include: • Malfunction of equipment • Natural disaster • Accidents caused by humans8 Intentional Fixed Facility Hazardous Waste/Materials Spill Hazardous material spills at fixed facilities may be internal or external to the facility. External releases may involve industrial storage, firesor malicious acts. External releases may create airborne plumes of chemical, biologicalor radiological elements that can affect a wide area and last for hours or days. Internal releases occur inside buildings and can be caused by a chemical spill or release of a biological or radiological agent. Internal releases can affect all occupants of a building, particularly if the material is distributed throughout the building through the heating/ventilation system.9 Intentional hazardous material releases at fixed facilities might include: • Deliberate release of a hazardous substance by an employee of a facility that stores or uses hazardous materials or produces hazardous waste; • Deliberate release of a hazardous substance into the water supply • Detonation of a “dirty bomb” – an explosive device containing radiological or biological substances that are released into the air upon explosion; 6 City of Palo Alto EOP; Santa Clara County 2011 LHMP 7 University of Idaho Cooperative Extension System, http://www.uiweb.uidaho.edu/disaster/haz/hazmat.html 8 Innovateus, “What is a Chemical Spill?”, http://www.innovateus.net/earth-matters/what- chemical-spill 9 US Air Force, “Protective Actions for a Hazardous Material Release”, (22 October 2001), Http://emc.ornl.gov/CSEPPweb/data/Reports/Misc.%20Reports/HAZMAT.pdf 26 • Redirection of toxic waste into water supply or ventilation system; and • Delivery or placement of a hazardous material inside a building. Intentional Mobile Hazardous Waste/Materials Spill Intentional mobile releases may include: • Release of a chemical, biological or radiological agent from a moving vehicle or train; • Use of a vehicle as a dirty bomb, i.e. crashing a vehicle filled with hazardous materials into a structure or building or exploding the vehicle; • Targeting commercial/industrial chemical containers transported in bulk by both road and rail; • Release of hazardous materials from airplanes over densely populated areas; and • Release of hazardous materials into water from a boat. Duration: Accidental hazardous waste/materials spills can be reported immediately following the spill, thus reducing the amount of time the spill is left uncontained. Most hazardous waste/materials spills occur with little or no warning, and can be difficult to detect until symptoms present themselves to those affected.10 External releases may create airborne plumes of chemical, biologicalor radiological elements that can affect a wide area and last for hours or days. Internal releases will most likely require evacuation of a facility for hours to days. Both external and internal releases require extensive clean-up efforts, lasting from days to months depending on the type and magnitude of the spill. Dynamic/static characteristics: Both mobile and external hazardous materials releases can spread and affect a wide area, through the release of plumes of chemical, biological or radiological elements or leaks or spills. Conversely, internal releases are more likely to be confined to the structure the material is stored in. Chemicals may be corrosive or otherwise damaging over time. A hazardous materials release could also result in fire or explosion. Contamination may be carried out of the incident area by people, vehicles, wind, and water.11 Hazardous material releases are dynamic and may vary depending on the following factors: • Type and amount of agent released; • Environmental conditions – The micro-meteorological effects of the buildings and terrain can influence the travel of agents12; 10 US Air Force, “Protective Actions for a Hazardous Material Release”, (22 October 2001), Http://emc.ornl.gov/CSEPPweb/data/Reports/Misc.%20Reports/HAZMAT.pdf 11 FEMA, “Primer to Design Safe School Projects in Case of Terrorist Attacks,” FEMA 428, http://www.fema.gov/pdf/plan/prevent/rms/428/fema428_ch1.pdf 27 • Location of release (urban vs. rural, water vs. air); and • Remediation time, dependent on a locality’s or facility’s hazardous material release preparedness programs. Mitigating conditions: Facilities that store hazardous materials are reported to local and federal governments. Security measures at these facilities can be heightened. Many facilities have their own hazardous materials guides and response plans, including transportation companies who transport hazardous materials. The City’s EOP includes an annex identifying the actions and agencies involved in responding to a hazardous materials incident. The City of Palo Alto Fire Department administers the County’s hazardous materials emergency planning and community right-to-know program. They also maintain Hazardous Materials Business Plans for every business in the City that handles a hazardous material in quantities above the State’s reporting threshold. The City inspects and issues annual permits to approximately 500 businesses with annual hazardous materials permits that necessitate monitoring and inspection. In addition, the City of Palo Alto provides safe hazardous waste disposal for residents and small businesses at a specified Household Hazardous Waste (HHW) Station. Their HHW Program educates the public about the safe use, storage, disposal, and alternatives to hazardous products. 5.6 Urban Fire Profile The entire City of Palo Alto is at risk to major fires impacting a section of the City or a large complex. The City has over 25,000 housing units and a significant business base. The proximity of structures to each other within the City creates additional exposure to widespread urban fire. Localized, single-structure fires sometimes occur in Palo Alto. As of November 2013, the City had experienced three urban fires during the previous three months. Major uncontrolled fires are a possibility, but rarely occur.13 Application mode: Urban fires can be accidentally caused through human error including cooking accidents, smoking or unsafe use of woodstoves or space heaters. Malfunctioning electrical equipment is also a major cause of fire in urban areas.14 Fires originating in the Wildland-Urban Interface (WUI) also pose a threat as they can spread toward more developed areas and cause significant damage to structures, residents, and natural resources. Arson or the deliberate burning of property, is also a possibility within City limits. Arson attacks may be imposed upon structures, motor vehicles, wildland areas or other “nonstructural” properties. Duration: The duration of an urban fire is dependent on weather conditions, the magnitude of the fire, and fire suppression resources. Structural fires could burn for several hours before being fully contained. 12 FEMA, “Primer to Design Safe School Projects in Case of Terrorist Attacks,” FEMA 428, http://www.fema.gov/pdf/plan/prevent/rms/428/fema428_ch1.pdf 13 City of Palo Alto EOP (2007) 14 National Fire Protection Association, (29 January 2013), Urban Fire Safety, http://www.nfpa.org/safety-information/for-consumers/populations/urban-fire-safety 28 Dynamic/static characteristics: Weather conditions (wind and warm, dry temperatures) and the presence of fire fuel can cause fires to spread away from their source. Mitigating conditions: In the event of a major urban fire, auto-aid and mutual-aid agreements (with CAL FIRE) will be utilized, as outlined in the Palo Alto Emergency Operations Plan. The City strives to minimize exposure to wildland and urban fire hazards through rapid emergency response, a sufficient water supply, proactive fire code enforcement, public education programs, and adequate emergency management preparation. To ensure a sufficient water supply, an emergency water supply and storage project, initiated in 2007, was primarily completed by the City in late 2013/early 2014. This project provides Palo Alto with a self-sustaining emergency water supply through rehabilitating five City wells, constructing three new wells, constructing a new 2.5 million gallon reservoir and associated pump station and well, and upgrading an existing pump station (Mayfield Reservoir Pump Station). As part of the City’s emergency management preparation for wildland and urban fires, they designed and implemented the Palo Alto Foothills Fire Management Plan. This plan pertains to the Palo Alto Foothills area west of the Foothills Expressway and Junipero Serra Boulevard, which represents a Wildland Urban Interface (WUI) area. The plan addresses a broad range of integrated activities and planning documents to identify and mitigate the impacts of fire hazards in the Palo Alto Foothills Area. Fire mitigation project areas include the boundaries of Foothills Park and Pearson-Arastradero Preserve. In urban areas, arsonists may target abandoned buildings. Limiting the number of abandoned buildings or providing security near these buildings may deter arsonists. Both structure and wildland arson data can be analyzed to depict trends in copy cat arsonists as well as in weather and fuel conditions. Documenting these trends in a reporting system may assist in mitigating future cases. Exacerbating conditions: Increasing development in the wildland-urban interface can exacerbate the spread of a wildfire into developed areas, making these areas vulnerable. While planning and mitigation to reduce the risk of fire in Palo Alto’s WUI area is controlled through the Palo Alto Foothills Fire Management Plan, there is still potential a fire in this area could impact the City’s public safety, cultural and economic activities, and environmental and natural resource management. 5.7 Major Crimes Major criminal incidents include shooting, homicide, and kidnapping crimes that may include multiple suspects or multiple victims and are considered an ongoing threat to the community. These types of crime have an ability to impact the community in such a way that can undermine the quality of life within the Palo Alto community. Application mode: For reporting purposes, criminal offenses are divided into two major groups: Part I offenses and Part II offenses per the DOJ and FBI. Part I crimes comprise two categories: violent and property crimes. Aggravated assault, forcible rape, murder, and robbery are classified as violent, while arson, burglary, larceny-theft, and motor vehicle theft are 29 classified as property crimes. Part I crimes are collectively known as Index crimes, this name is used because the crimes are considered quite serious, tend to be reported more reliably than others, and are reported directly to the police. In Part II, the following categories are tracked: simple assault, curfew offenses and loitering, embezzlement, forgery and counterfeiting, disorderly conduct, driving under the influence, drug offenses, fraud, gambling, liquor offenses, offenses against the family, prostitution, public drunkenness, runaways, sex offenses, stolen property, vandalism, vagrancy, and weapons offenses. This categorization is informative as it links to Palo Alto Police Department’s Fiscal Year 2013 Annual Report. “Crime in Palo Alto has seen an overall decrease in the past five years. Violent crimes have continued to decrease, while property crimes have increased. The most notable is the increase in Residential and Auto Burglaries. Fiscal Year 2013 saw a sharp increase in residential burglaries. The Police Department responded with a directed enforcement campaign, and an increased presence in high risk areas. A total of 79 suspects were arrested for burglary, attempted burglary and other associated charges.” Figure 5-1 Statistics of Part I and Part II Crimes in Palo Alto from the Palo Alto Fiscal Year 2013 Annual Report Duration: A major crime may occur in a short amount of time, from seconds to hours, and it usually occurs without immediate notice. Dynamic/static characteristics: Major crimes can occur anywhere in the community. Mitigating conditions: The Palo Alto Police Department and Stanford Department of Public Safety participate in mutual aid and regional organizations to share information, capabilities, and other resources to prevent major crimes from occurring. Additionally, increased 2013 staffing and effective training of Palo Alto Police Department personnel will likely have deterrent effects. 30 Exacerbating conditions: Palo Alto businesses and residences are perceived as a soft target resulting in increased property crimes by criminals who live outside Palo Alto. The increase of such events increases the probability of a robbery going wrong resulting in a shooting or homicide event. 5.8 Cyber Attack Profile A cyber terrorist can infiltrate many institutions including banking, medical, education, government, military, and communication and infrastructure systems. The majority of effective malicious cyber-activity has become web-based. Recent trends indicate that hackers are targeting users to steal personal information and moving away from targeting computers by causing system failure.15 Application mode: Common types of cyber attacks are summarized in Table 5-1 Common Types of Cyber Attacks16 Table 5-1 Common Types of Cyber Attacks Type of Attack Description Denial of service A method of attack from a single source that denies system access to legitimate users by overwhelming the target computer with messages and blocking legitimate traffic. It can prevent a system from being able to exchange data with other systems or use the internet. Botnet A collection of compromised machines (bots) under (unified) control of an attacker (botmaster). Distributed denial of service A variant of the denial-of-service attack that uses a coordinated attack from a distributed system of computers rather than from a single source. It often makes use of worms to spread to multiple computers that can then attack the target. Exploit tools Publicly available and sophisticated tools that intruders of various skill levels can use to determine vulnerabilities and gain entry into targeted systems. Logic bombs A form of sabotage in which a programmer inserts code that causes the program to perform a destructive action when some triggering event occurs, such as terminating the 15 Symantec, “Internet Security Threat Report” Volume 17 (2011), www.symantec.com/threatreport 16 United States Government Accountability Office, “Critical Infrastructure Protection: Department of Homeland Security Faces Challenges in Fulfilling Cybersecurity Responsibilities”, Report #GAO-05-434 (May 2005), www.gao.gov/new.items/d05434.pdf 31 Type of Attack Description programmer’s employment. Phishing The creation and use of e-mails and Web sites—designed to look like those of well-known legitimate businesses, financial institutions, and government agencies—in order to deceive Internet users into disclosing their personal data, such as bank and financial account information and passwords. The phishers then take that information and use it for criminal purposes, such as identity theft and fraud. Sniffer Synonymous with packet sniffer. A program that intercepts routed data and examines each packet in search of specified information, such as passwords transmitted in clear text. Trojan horse A computer program that conceals harmful code. A Trojan horse usually masquerades as a useful program that a user would wish to execute. Virus A program that infects computer files, usually executable programs, by inserting a copy of itself into the file. These copies are usually executed when the infected file is loaded into memory, allowing the virus to infect other files. Unlike the computer worm, a virus requires human involvement (usually unwitting) to propagate. War dialing Simple programs that dial consecutive telephone numbers looking for modems. War driving A method of gaining entry into wireless computer networks using a laptop, antennas, and a wireless network adaptor that involves patrolling locations to gain unauthorized access. Worm An independent computer program that reproduces by copying itself from one system to another across a network. Unlike computer viruses, worms do not require human involvement to propagate. 32 One of the difficulties of malicious cyber activity is that its origin could be virtually anyone, virtually anywhere. Table 5-2 Common Sources of Cybersecurity Threats summarizes common sources of cybersecurity threats.17 Table 5-2 Common Sources of Cybersecurity Threats Threat Description Bot-network operators Bot-network operators are hackers; however, instead of breaking into systems for the challenge or bragging rights, they take over multiple systems in order to coordinate attacks and to distribute phishing schemes, spam, and malware attacks. The services of these networks are sometimes made available on underground markets (e.g., purchasing a denial-of-service attack, servers to relay spam or phishing attacks, etc.). Criminal groups Criminal groups seek to attack systems for monetary gain. Specifically organized crime groups are using spam, phishing, and spyware/malware to commit identity theft and online fraud. International corporate spies and organized crime organizations also pose a threat to the United States through their ability to conduct industrial espionage and large-scale monetary theft and to hire or develop hacker talent. Foreign intelligence services Foreign intelligence services use cyber tools as part of their information-gathering and espionage activities. In addition, several nations are aggressively working to develop information warfare doctrine, programs, and capabilities. Such capabilities enable a single entity to have a significant and serious impact by disrupting the supply, communications, and economic infrastructures that support military power—impacts that could affect the daily lives of U.S. citizens across the country. 17 United States Government Accountability Office, “Critical Infrastructure Protection: Department of Homeland Security Faces Challenges in Fulfilling Cybersecurity Responsibilities”, Report #GAO-05-434 (May 2005), www.gao.gov/new.items/d05434.pdf 33 Threat Description Hackers Hackers break into networks for the thrill of the challenge or for bragging rights in the hacker community. While remote cracking once required a fair amount of skill or computer knowledge, hackers can now download attack scripts and protocols from the Internet and launch them against victim sites. Thus, while attack tools have become more sophisticated, they have also become easier to use. According to the Central Intelligence Agency, the large majority of hackers do not have the requisite expertise to threaten difficult targets such as critical U.S. networks. Nevertheless, the worldwide population of hackers poses a relatively high threat of an isolated or brief disruption causing serious damage. Insiders The disgruntled organization insider is a principal source of computer crime. Insiders may not need a great deal of knowledge about computer intrusions because their knowledge of a target system often allows them to gain unrestricted access to cause damage to the system or to steal system data. The insider threat also includes outsourcing vendors as well as employees who accidentally introduce malware into systems. Phishers Individuals or small groups, that execute phishing schemes in an attempt to steal identities or information for monetary gain. Phishers may also use spam and spyware/malware to accomplish their objectives. Spammers Individuals or organizations that distribute unsolicited e- mail with hidden or false information in order to sell products, conduct phishing schemes, distribute spyware/malware or attack organizations (i.e., denial of service). Spyware/malware authors Individuals or organizations with malicious intent carry out attacks against users by producing and distributing spyware and malware. Several destructive computer viruses and worms have harmed files and hard drives, including the Melissa Macro Virus, the Explore.Zip worm, the CIH (Chernobyl) Virus, Nimda, Code Red, Slammer, and Blaster. Cyber-Terrorists Cyber-Terrorists seek to destroy, incapacitateor exploit critical infrastructures in order to threaten national security, cause mass casualties, weaken economies or target businesses, and damage public morale and confidence. 34 Threat Description Cyber-Terrorists may use phishing schemes or spyware/malware in order to generate funds or gather sensitive information. Given its location in Silicon Valley, Palo Alto is home to many large companies that could be subject to a cyber attack. Duration: The duration of a cyber attack is dependent on the complexity of the attack, how widespread it is, how quickly the attack is detected, and the resources available to aid in restoring the system. Dynamic/static characteristics: A cyber attack could be geared toward one organization, one type of infrastructure and/or a specific geographical area. The affected area could range from small to large scale. Cyber attacks generated toward large corporations can negatively affect the economy. The Congressional Research Service study (2008) found the economic impact of cyber attacks on businesses has grown to over $226 billion annually.18 Attacks geared toward critical infrastructure and hospitals can result in the loss of life and the loss of basic needs, such as power and water, to the general public. Cyber attacks can also lead to the loss of operational capacity. Mitigating conditions: Palo Alto has three levels of security to prevent cyber attacks: 1. A Symantech anti-virus protection for desktops and laptops; 2. Malware Protection Systems for Web and email systems; and 3. A Barracuda Firewall for the IT Network. In addition, the City is in the process of deploying a vulnerability management system to better protect the IT network. Access control to buildings, such as ID cards and badges, can help regulate the people who have access to an agency’s or corporations’ cyber network. Palo Alto information technology network locations include access control measures to prevent unauthorized access to these controlled areas. The City has an Energy Assurance Plan that focuses on minimizing energy interruptions during emergencies. This plan could be updated to include a contingency plan for keeping energy lifelines online given a cyber attack. Currently, the North American Electric Reliability Corporation (NERC) is responsible for ensuring energy industry compliance with Critical Infrastructure Protection (CIP) standards. These rules require organizations that deliver bulk electricity to the North American power grid to identify and protect critical cyber assets. In 18 Defense Tech. http://defensetech.org/2008/10/20/the-cyber-attack-danger/ 35 addition, bulk power suppliers must define methods, processes, and procedures for securing critical cyber assets. “Cyber assets” are loosely defined as all “programmable electronic devices and communication networks including hardware, software, and data.19 Exacerbating conditions: Humans are the weakest link in a chain of cyber security. It remains difficult to continuously monitor and manage human/operator vulnerability. However, to address this weakness the City has deployed an online security training program which all employees are required to complete annually. 5.9 Hostage/Assassin Profile A hostage situation includes a person or group of people seized or held as security for the fulfillment of a condition. An assassin is a person who murders an important person in a surprise attack for political, religious or monetary reasons. Application mode: A hostage crisis can develop when one or more individuals or an organized group of people seize people against their will and try to hold off authorities by force, often threatening to kill hostages if provoked or attacked. Typically hostage takers will issue demands, many times politically or religiously driven. Monetary demands are also possible. In cases where the hostage situation was improvised as an attempt to avoid capture for another crime, the demand usually revolves around exchanging the lives of the hostage(s) for transport to safety. Hostage takers are usually armed with explosives, handguns, and/or other weapons. Similar to a hostage situation, an assassination may be prompted by religious, political or monetary motives. Assassinations can also be militarily driven or done to avenge a grievance or to gain fame or notoriety. Car bombs and other explosives, poison, snipers, and handguns are most commonly used in assassination attempts. In most cases, the assassin will have detailed advanced knowledge of the intended victim’s itinerary in order to plan out the assassination. Most modern assassinations have been committed either during a public performance or transport, both because of weaker security and security lapses. Duration: A hostage crisis can range from a couple of hours to years. Assassinations occur without warning and, although they may take years to plan out, can transpire in a matter of seconds. Dynamic/static characteristics: For the most part, both hostage situations and assassinations are static in that they are confined to one location. However, both scenarios could escalate into a chase for the suspects, thus having the capacity to shut down an entire city or multiple locations simultaneously. In addition, if bombs or other explosive devices are used, impacts may be distributed throughout a larger area. Mitigating conditions: Many high profile dignitaries travel with security, making the ability to execute a hostage situation or assassination more difficult. Increased security in public places where these incidents are more likely to occur has the potential to discourage these types of events from taking place. The City’s police force includes a SWAT (Special Weapons and Tactics) Team and Crisis Negotiation Team, both of which are trained to contain these 19 NextLabs. http://www.nextlabs.com/html/?q=nerc-and-ferc-cyber-security-standards 36 situations. Additionally, multi-jurisdiction intelligence sharing forums improve the awareness of when such high profile visits take place; and enhanced coordination between these jurisdictions closes the common operational gaps should a response be necessary. The City of Palo Alto’s Office of Emergency Services hosts a monthly multi-jurisdictional intelligence sharing meeting that reinforces this concept. The Palo Alto Police Department also is integrated into the Northern California Regional Intelligence Center (NCRIC) through their Terrorism Liaison Officer (TLO) program that provides a direct conduit for intelligence sharing with this agency. Exacerbating conditions: The level of threat depends on the presence of dignitaries or notable figures in the City. The risk of a hostage/assassin situation is exacerbated when high level dignitaries visit, which occurs frequently. In addition, wealthy Silicon Valley executives live in the City and could be potential targets. 5.10 Sabotage/Theft Profile Sabotage is a deliberate action aimed at weakening another entity (business, government, etc.) through subversion, obstruction or destruction. The result of sabotage could be the destruction of a vital facility or the disruption of operations. The principal identifying characteristic of sabotage is that the attack is usually not intended to harm large numbers of people, but rather to cause economic harm or embarrassment to the target. Application mode: One who engages in sabotage is a saboteur. A saboteur could be one individual working alone or an organized crime group. They typically try to conceal their identities because of the consequences of their actions. Many single-issue terrorists, including ecological extremists and anti-abortion radicals, have used sabotage widely. Disgruntled employees and activists may also use sabotage. Many times, a saboteur is an insider. Sabotage can be conducted as a response to an environmental action, in which groups turn to the destruction of property to stop actions they consider detrimental to the environment. Another modern form of sabotage is the distribution of software intended to damage specific industrial systems. Some criminals have engaged in sabotage for reasons of extortion, in which destruction of property or the threat of destruction is used to obtain money, property or services. Political sabotage is sometimes used to harass or damage the reputation of a political opponent or group. Sabotage of lifeline infrastructure, energy systems or of hazardous materials sites is also possible. Duration: While planning sabotage may take an extended period of time, actually executing the plan can happen instantaneously. An act of sabotage may take a matter of seconds to a few hours, but the effects can be longer term. For example, if a train is targeted as an act of sabotage, it may take days to months to rebuild the train infrastructure that was destroyed. Dynamic/static characteristics: A sabotage incident may be concentrated to one general area or personor could be more widespread, all depending on the tactic used. For example, a disgruntled employee at a meat packing plant could sabotage the company by adding poison to their product before distribution. Once the meat is distributed, the incident becomes a more widespread problem. 37 Mitigating conditions: Some cases of sabotage can be categorized as terrorism. The City of Palo Alto maintains a Terrorism Response Plan to prepare various City departments and agencies to perform safely and effectively during a terrorist incident. The City’s EOP also provides insight on how to deal with certain types of emergency incidents, such as hazardous materials spills, which could be the result of a case of sabotage. Many employers undergo training on how to identify and mitigate sabotage in the workplace. In addition, as discussed in further detail in the “mitigating conditions” section of the Hostage/Assassin profile above, the City’s Police Department and Office of Emergency Services are prepared to mitigate acts of terrorism through training, intelligence sharing forums, and partnerships with the NCRIC. Exacerbating conditions: Sabotage is difficult to detect and to trace to its origin. Sabotage may cause lifeline infrastructure, for example water lines, to be disabled, and thus have secondary impacts, such as causing or worsening flood/drought events, fire, hazardous material spills, and other effects that could limit a city’s capacity to function as normal. Social media, such as Twitter and Facebook, have become very popular in recent times and could be used as a readily available means to sabotage companies, fellow employees or employers, and/or officials. 5.11 Workplace Violence Profile Workplace violence is violence or the threat of violence against workers. It includes any act or threat of physical violence, harassment, intimidation or other threatening disruptive behavior that occurs at the worksite. It can occur at or outside the workplace and can range from threats and verbal abuse to physical assaults and homicide. It can affect and involve employees, clients, customers, and visitors. Workplace violence includes locations such as churches, malls, etc. and may be the result of a person acting alone.20 Application mode: Workplace violence can range from threats and verbal abuse to physical assaults and homicide. These incidents can be caused by fellow employees, by employers or by external clients. Duration: Acts of workplace violence could be a onetime incident or could occur repetitively over time, lasting weeks to years. Dynamic/static characteristics: Workplace violence can occur at or outside the workplace. Mitigating conditions: Many companies have established workplace violence prevention programs and offer trainings on workplace violence including how to identify it and mitigate it. Providing a secure workplace that has video surveillance, extra lighting, and alarm systems may minimize access to outsiders. Exacerbating conditions: Some workers are at increased risk to workplace violence. Among them are workers who exchange money with the public, deliver passengers, goods or services; or work alone or in small groups, during late night or early morning hours, in high-crime areas or in community settings and homes where they have extensive contact with the public. As with 20 US Department of Labor, Occupational Safety and Health Act, www.OSHA.gov 38 sabotage, social media such as Twitter and Facebook may be a means of exacerbating workplace bullying and violence. 6 Conclusion The City of Palo Alto and its local partners should be commended for the tremendous capabilities currently available to prevent, protect against, mitigate, respond to, and recover from hazards and threats. One invaluable strength of the City’s emergency management program is the ongoing coordination with local partners. Emergency planning, training, and exercises are conducted in partnership with Stanford University, Stanford Hospital, neighboring jurisdictions, community members, and other pertinent organizations such as the American Red Cross. Communications technology within the City is fairly robust. Mass notification systems are in place. Responders and emergency managers will use the highest level of communication technology available during/immediately following an incident. Communications and notification systems are both for public safety agencies and the general public. There are a wide range of communications options. Stanford University employs an Outdoor Warning System (PA and sirens) for emergency alerts/notifications, but such a system does not exist in Palo Alto. Stanford University and the City of Palo Alto have interoperable dispatch systems. A Mobile Emergency Operations Center (MEOC) is available to enable communication coordination should the primary EOC be compromised. Social media will be an asset for receiving information from the public regarding attacks and impacts. KZSU, the Stanford radio station, is an available resource that can be taken over from Palo Alto City Hall to provide supplemental information, beyond and more-local than what might be available on other broadcast stations via the Emergency Alert System (EAS). Certain businesses have two-way radio communications within their neighborhood and to the City EOC. WebEOC enables efficient dissemination of incident management information across local government agencies throughout the Operational Area. Finally, the growth of social media tools is a resource to Palo Alto and Stanford. Opportunities for residents and members of the public to contribute to the City’s resiliency are bountiful. The Emergency Services Volunteer program provides supplemental resources to the professional first responders and facilitates means for neighbors to help neighbors (including businesses and other entities). This organization includes several City-sponsored emergency preparedness volunteer programs: • Neighborhood and Block Preparedness Coordinator program (BPC/NPC) • Palo Alto CERT Program • Palo Alto Auxiliary Communications Services: ARES/RACES • Palo Alto Medical Reserve Corps In addition to these formal opportunities for community members to receive training and assist through specific roles, "see something, say something" campaigns are helpful in maintaining vigilance throughout the City. Public education occurs via the Office of Emergency Services 39 presence on the web (www.cityofpaloalto.org/publicsafety), providing emergency preparedness presentations to the “whole community”, and through the use of semi-annual utility bill inserts. Policies and organizational processes are in place for the City government to achieve long term resiliency. Examples include the zoning ordinance and building code enforcing safe development. Critical Infrastructure and Key Resources (CIKR) sites are tagged in the new Computer Aided Dispatch (CAD) system for Palo Alto, Stanford University Campus, Los Altos, and Mountain View. Current planning efforts include an update to the Comprehensive Plan, a recent Hazard Mitigation Plan, and this THIRA report. The established THIRA Executive Committee may prove to be helpful in ongoing planning efforts beyond regular updates of this report. 6.1 Recommendations for Action Throughout the THIRA process, the Stakeholder Group and Executive Committee identified many actions to improve capabilities for prevention, protection, mitigation, response, and recovery. These recommendations are captured in Table 8-1. The list below has been modified to summarize clear actionable items the City may prioritize and incorporate into ongoing planning and budgeting processes. Planning • Update the City of Palo Alto Emergency Operations Plan and incorporate the identified hazards as evaluated in this THIRA. • Develop a detailed inventory of Critical Infrastructure and Key Resources (CIKR) among Palo Alto and Stanford University that will foster improved planning for critical infrastructure protection. Implement a plan to document risks to specified CIKR and develop a strategy to mitigate these risks. This plan could include a template for CIKR managers to conduct and document risk assessments for submission to the City of Palo Alto. • Explore sustainable solutions for energy assurance, including alternate energy for critical facilities. • Promote Utilities Infrastructure improvements that mitigate/improve resiliency (power, water, wastewater, gas). • Continue to collaborate with regional planning efforts to mitigate impacts of sea level rise/ climate change. • Implement an Infrastructure Management System – identified by IBRC. • Conduct an updated assessment on the vulnerabilities of public safety communication technologies and capabilities. o Develop alternate communications capabilities to reduce reliance on commercial carriers. 40 o Incorporate a city-wide public safety communications infrastructure assessment and survey (including Stanford University and Stanford Hospital) to provide a baseline capability to connect key facilities and nodes. • Develop a Continuity of Operations/Continuity of Government Plan. • Develop an emergency information technology plan, including business continuity and disaster recovery (BCDR). • Develop a supporting plan in conjunction with the Operational Area plan for mortuary affairs, mass casualty, mass sheltering, points of distribution and points of dispensing (mass prophylaxis) and other such regional activities. • Encourage owners of CIKR to develop all hazard response plans and coordinate, where applicable, support requirements with appropriate service providers. • Develop a City of Palo Alto recovery plan including: o Pre-identified locations for FEMA trailers and field hospital/medical treatment areas. o Plans for restoring basic health and social services functions following a catastrophic event pre-identified alternative housing solutions for use following a catastrophic event. o An evaluation of options for expediting building permits following a catastrophic event. o Resources available from the City of Palo Alto airport. • Convene THIRA executive committee annually to review and update the THIRA. Organization • Maintain an OES staff that is trained to develop, manage, and coordinate the implementation of the Palo Alto family of emergency plans (EOP, COOP, HMP, THIRA, etc.). • Use the Threat and Hazard Identification and Risk Assessment (THIRA) report to help guide decisions related to prevention, protection, mitigation, response and recovery related to threats that could affect the City. • Implement a Joint Information System with North County stakeholders that will improve public messaging during times of crises. Maintain trained staff to serve as local alerting authorities consistent with the Integrated Public Alert and Warning system (IPAWS). 41 • Maintain Palo Alto Emergency Services Volunteer, Stanford University volunteer programs, corporate Emergency Response Teams, and similar programs throughout the community. • Maintain participation in regional efforts to address remaining flood concerns, e.g., SFC JPA, SCVWD, South San Francisco Bay Shoreline Study, and Salt Pond Restoration Project. • Implement a Multi-Agency Coordination (MAC) structure for storms/floods, public works mutual aid, etc. Evaluate and improve coordination protocols within the Operational Area, and with appropriate state and federal agencies. • Bolster participation in the Northern California Regional Intelligence Center (NCRIC), the Terrorism Liaison Officer (TLO) program, the Urban Area Security Initiative (UASI), and other means to share information among agencies, businesses, and partner organizations. • Establish an emergency resource directory and put in place advanced contracts for key commodities or services identified during the planning, training, exercise process . Equipment/Facilities • Construct new Palo Alto Public Safety Building. • Develop an Emergency Operations Staging Area (EOSA) to serve as a North County staging area resource and to shelter the Palo Alto Mobile Emergency Operations Center and other critical supplies. • Improve video monitoring throughout the City of Palo Alto through collaboration and coordination with privately owned video systems and city owned video systems. • Increase access controls /physical security at critical city owned and operated facilities. • Maintain at a high level of readiness emergency response vehicles and specialized equipment required to respond to the threats and hazards listed in this report. • Acquire alternative energy and energy efficient equipment that will reduce fuel requirements and ease overall logistical burdens. • Upgrade creek storm water monitoring systems to provide improved situational awareness during storm events. • Evaluate and implement a thermal sensors/camera network to cover the Wildland Urban Interface (WUI). • Coordinate with appropriate organizations to install battery backup systems on traffic signals that increase public safety following a power outage scenario. 42 • Improve connectivity to partner EOCs and 911 PSAPs such as fiber, microwave, etc. • Explore Video Teleconferencing (VTC) capabilities to link government and nongovernment partners. • Upgrade command and control software systems that improve communications, collaboration, and situational awareness. • Acquire base camp supplies and materials to sustain small response operations (30-50 responders) for events that occur in or around Palo Alto. • Continue to participate in UASI CBRNE and HAZMAT equipment evaluation and selection. • Continue to evaluate feasibility of Regional Command Center at Moffett Field. Training and Exercise • Collaborate and regularly exercise with agencies/organizations referenced in the City’s Emergency Operations Plan: Federal, State, agencies with a regional presence; Mutual Aid Jurisdictions, Schools and Universities, Private Sector businesses, Not for Profit organizations (Faith Based, Community Service); Hospitals & Health Care Facilities. o Conduct training with other government agencies such as the FBI, State Dept., Secret Service, etc. to ensure collaborative processes and work through specific scenario variables. o Conduct collaborative planning, training and exercises with Caltrain and other rail carriers operating in the area. o Train and exercise road block/traffic diversion procedures such as in the vicinity of Stanford Hospital and Stanford University. • Conduct training and exercises with private sector entities such as Stanford Industrial Park, Stanford Shopping Center, etc. • Regularly conduct ICS and EOC staff training per the Palo Alto EOC Staff Development Program prioritizing high threat hazards • Conduct employee information technology security and awareness training and exercise a cyber-security response effort with the information technology department as the operations lead. • Routinely conduct mass care and shelter training in coordination with American Red Cross and City of Palo Alto partners. 43 Community Readiness • Cultivate a culture of preparedness and community connection through efforts such as outreach to public and private schools, Citizen Corps Council, City Staff and Volunteer Disaster Service Worker training, and other “whole community” stakeholders. o Continue to engage the business sector to improve their mitigation and preparedness efforts; educate small businesses on the importance of resiliency planning. o Establish a goal for each family and business within the community to have an adequate supply of water, food, etc. o Pre-identify/establish public messaging campaigns that remind the community of appropriate actions to a variety of potential hazard events (e.g. shelter in place, evacuate, earthquake, flooding, etc.) o Continue and improve promotion of family and business readiness to mitigate service needs such as sheltering and mass care. • Evaluate the potential for establishing a coordinating group for private airplane pilots (a model exists in southern Santa Clara County) that could improve small-scale disaster logistics operations. 6.2 THIRA Maintenance The Palo Alto Office of Emergency Services (OES) will be responsible for reviewing this THIRA report quarterly to make note of progress and/or items to update. Annually, the THIRA Executive Committee will convene to discuss the progress and/or circumstances requiring changes to the stated priorities. The annual Executive Committee meeting will culminate in a summary memo prepared by OES and submitted to the City Council for consent as a matter of public record. Every two years the THIRA report will be updated and re-issued as a new version. On an ongoing basis the THIRA report shall inform updates to the City’s Emergency Operations Plan. The THIRA report is For Official Use Only and is not available in its entirety to the public. Questions regarding this report may be directed to OES at 650-617-3197. 7 Appendices Appendix A: Planning Team Table 7-1 lists the Executive Committee and broader stakeholder group members who participated in and contributed to the development of this THIRA. 44 Table 7-1 Planning Team Name Agency Executive Committee Member Aaron Aknin Acting Director, City of Palo Alto Planning, Community & Environment (now employed by Redwood City) X Andy Swanson City of Palo Alto, Airport Manager Annette Glanckopf City of Palo Alto Emergency Services Volunteer Program Arrietta Chakos Dewberry Team Bern Beecham City of Palo Alto Emergency Services Volunteer Program (and former City Councilmember) Brad Wardle City of Mountain View, Fire Chief Brandon Bond Stanford University Medical Center, Administrative Director of Office of Emergency Management X Brian Marquez Stanford Shopping Center, Security Manager Cathleen Atchison Dewberry Chris Cohendet Stanford University Department of Public Safety, Sergeant X Claudia Keith Chief Communications Officer; City Manager's Office Corinne Bartshire Dewberry David MacKenzie City of Palo Alto Chamber of Commerce, CEO Dean Batchelor City of Palo Alto Utilities, Assistant Director Dennis Burns City of Palo Alto Police Chief X Donna Grider City of Palo Alto, City Clerk Elizabeth Lam City of East Palo Alto Police Department, CSO Eric Nickel City of Palo Alto Fire Chief X Frank Grgurina City of Sunnyvale Department of Public Safety, Chief Greg Betts City of Palo Alto, Director of Community Services Hillary Gitelman City of Palo Alto Planning, Community & Environment, Director X Houman Boussina City of Palo Alto, Interim Auditor James Keene City of Palo Alto, City Manager X Jim Dunnegan Varian Oncology Systems, EH&S Manager Jim Schweikhard Palo Alto Medical Foundation, Safety Manager John StClair III City of Palo Alto Emergency Services Volunteer Program, CERT Jonathan Reichental City of Palo Alto, Chief Information Technology Officer X Karen Bouvier Palo Alto Research Center Karl Matzke American Red Cross Kathryn Shen City of Palo Alto, Director of People Strategy 45 Name Agency Executive Committee Member & Operations Kay Iida Stanford University Department of Public Safety, Lieutenant Keith Perry Stanford University EH&S X Ken Dueker City of Palo Alto, Director of Emergency Services X Lalo Perez City of Palo Alto, Director of Administrative Services/Chief Financial Officer Laura Wilson Stanford University Department of Public Safety, Chief X Linda Barcomb Merck Sharp & Dohme Corp. Linda Hibbs Lytton Gardens Lydia Kou City of Palo Alto Emergency Services Volunteer Program Lynn Brown City of Mountain View, Emergency Services Coordinator Matt Sorgenfrei City of Palo Alto Emergency Services Volunteer Program, CERT Mike Sartor City of Palo Alto, Director of Public Works X Molly Stump City of Palo Alto, City Attorney Monique leConge City of Palo Alto, Library Director Nathan Rainey City of Palo Alto Office of Emergency Services Paul Lufkin City of Palo Alto Emergency Services Volunteer Program, ARES/RACES Peter Prinejad City of Palo Alto, Development Center Director Ryan Zollicoffer Menlo Park Fire Protection District, Emergency Manager Samantha Brichacek Stanford Industrial Park (SIP), EH&S Manager Scott Vermeer City of Mountain View, Chief of Police Simon Williams City of Palo Alto Office of Emergency Services Steve Drewniany City of Sunnyvale Department of Public Safety, Deputy Chief Tom Fehrenbach City of Palo Alto Economic Development Manager X Tuck Younis City of Los Altos, Police Chief Val Fong City of Palo Alto, Director of Utilities X Victor Talavera Palo Alto Research Center Vinny Mata City of Sunnyvale, Emergency Services Coordinator Walter Rossman City of Palo Alto, Director of Office of Management and Budget Zachary Perron City of Palo Alto Police Department, Lieutenant 46 47 CITY OF PALO ALTO PROCLAMATION Jasmina Bojic United Nations Educational Scientific and Cultural Organization (UNESCO) Fellini Medal WHEREAS, on May 24, 2014, the International Council for Film, Television and Audiovisual Communication presented the UNESCO Fellini Medal to Jasmina Bojic, Founder and Executive Director of the Stanford University and Palo Alto based United Nations Association Film Festival (UNAFF), in recognition of her exceptional contribution in promoting the principles of the Universal Declaration of Human Rights through documentary films; and WHEREAS, the Federico Fellini Medal was created by UNESCO in 1994 to recognize major contributions to international film heritage; and WHEREAS, Jasmina Bojic, originally conceived UNAFF in 1998 to celebrate the 50th anniversary of the signing of the Universal Declaration of Human Rights; and WHEREAS, UNAFF has become a highly regarded platform for intrepid documentaries with a stellar reputation amongst filmmakers and audiences alike; and WHEREAS, through the Stanford University "Camera as Witness" program, created by Jasmina Bojic, have become an invaluable tool in the education process; and WHEREAS, Jasmina Bojic brought together the Cities of Palo Alto, East Palo Alto and Stanford University to host academics and filmmakers from around the world to discuss issues through film; these films often included people separated by geography, ethnicity and economic constraints. NOW, THEREFORE, I, Nancy Shepherd, Mayor of the City of Palo Alto, on behalf of the City Council do hereby proclaim gratitude to Jasmina Bojic for her UNESCO Fellini Medal and her promotion of the Universal Declaration of Human Rights. Presented: September 15, 2014 ______________________________ Nancy Shepherd Mayor CITY OF PALO ALTO PROCLAMATION 17th Annual United Nations Association Film Festival (UNAFF) WHEREAS, October 16, 2014, marks the 17th anniversary of the United Nations Association Film Festival (UNAFF), which was originally created to celebrate the 50th anniversary of the signing of the Universal Declaration of Human Rights; and WHEREAS, UNAFF was founded by Stanford educator and film critic Jasmina Bojic with the participation of the Stanford Film Society and the UNA Mid-peninsula Chapter, a community based nonprofit organization in Palo Alto; and WHEREAS, UNAFF gives five awards: UNAFF Grand Jury Award for Best Documentary, UNAFF Grand Jury Award for Best Short Documentary, UNAFF/Stanford Video Award for Cinematography, UNAFF/Stanford Video Award for Editing and the UNAFF Youth Vision Award; and WHEREAS, UNAFF has previously screened some of the most honored and talked about documentaries including seven that went on to win Academy Awards and twenty-three that were nominated; and WHEREAS, UNAFF celebrates the power of films dealing with human rights, environment, women’s issues, homelessness, racism, disease control, universal education, war and peace with the theme this year of “BRIDGING THE GAP”; and WHEREAS, the UNAFF jury selected 70 films for this year’s festival dealing with topics from countries around the world; and WHEREAS, UNAFF will be held October 16 to October 26, 2014 at the Aquarius Theatre in Palo Alto, at Stanford University, in East Palo Alto and in San Francisco; and WHEREAS, UNAFF hosts academics and international filmmakers to discuss the topics in the films with members of the audience, who are often separated by geography, ethnicity and economic status. NOW, THEREFORE, I, Nancy Shepherd, Mayor of the City of Palo Alto, on behalf of the City Council do hereby proclaim October 16-26, 2014 as United Nations Association Film Festival Days, and encourage the citizens of our community to attend the UNAFF Opening Night at the Aquarius Theatre and other UNAFF screenings. Presented: September 15, 2014 ______________________________ Nancy Shepherd Mayor City of Palo Alto (ID # 5006) City Council Staff Report Report Type: Consent Calendar Meeting Date: 9/15/2014 City of Palo Alto Page 1 Summary Title: MuniGas Natural Gas Purchase Agreement Title: Finance Committee Recommendation that the City Council Adopt a Resolution Authorizing the City’s Participation in a Natural Gas Purchase from Municipal Gas Acquisition and Supply Corporation for the City’s Entire Retail Load, an Amount Estimated to be Approximately $150 Million over Ten Years, Waiving the City’s Choice of Law and Venue Requirements, and Authorizing the City Manager to Execute all Associated Agreements Required to Effect the Natural Gas Purchase From: City Manager Lead Department: Utilities Recommendation Staff, the Utilities Advisory Commission (UAC), and the Finance Committee recommend that the City Council adopt a resolution: 1. Authorizing the City’s participation in a natural gas purchase from Municipal Gas Acquisition and Supply Corporation (MuniGas) for the City’s entire load, an amount estimated to be approximately $150 million over ten years; 2. Waiving the choice of law and venue requirements of Section 2.30.340(c) of Palo Alto’s Municipal Code, to permit the City to enter into the purchase transaction with MuniGas under Texas law; and 3. Authorizing the City Manager to execute all associated agreements required to affect the natural gas purchase. Executive Summary Gas prepay transactions are a mechanism for municipal utilities to utilize their tax-exempt status to achieve a discount on the market price of gas. Staff has evaluated many options for prepay participation over the years and has concluded that the MuniGas transaction is the best fit for the organization. If approved, the City would participate in a gas prepay transaction by purchasing gas from MuniGas at a discounted price, and taking delivery of the gas from one of the City’s existing suppliers that also participates in the MuniGas program. Taking advantage of this low-risk opportunity will reduce the City’s gas commodity cost by about $1 million per year and save retail gas customers about 7.5% on their monthly gas commodity bill. City of Palo Alto Page 2 Background The most recent Gas Utility Long-term Plan (GULP) was approved by City Council in April 2012 (Staff Report 2552, Resolution 9244). The plan covers a wide-range of areas, including the change from purchasing gas up to three years in advance, to purchasing gas on the market and passing those costs directly to customers via a rate based on the monthly market index price. GULP’s “Supply Cost Management” objective is to “lower delivered gas cost over the long term”. The associated GULP strategy is to “take advantage of the City’s low cost of capital to acquire gas supply and assets”. Discussion Gas prepay transactions offer the only opportunity for CPAU to reduce gas commodity costs significantly below market. This is an opportunity that is not available to PG&E. The MuniGas program is a very low risk way to take advantage of the City’s tax-exempt status to achieve a discount on the commodity cost for all CPAU gas rate payers and meet the Council-approved GULP objectives. Staff feels that the significant economic and commercial advantages of entering into a MuniGas purchase outweigh the relatively low risks associated with accepting most of MuniGas’ contractual provisions. The ‘index less discount’ price structure is well matched with CPAU’s market index-based pass-through gas commodity rate. The discount for participating in the MuniGas transaction is estimated to be 30 cents per million British thermal units (MMBtu). Table 1 shows the impact of a 30 cents per MMBtu (equivalent to 3 cents per therm) discount on residential customer bills. Table 1: Residential Natural Gas Bill Impact with Estimated MuniGas Discount Gas Usage (therms/month) Current Monthly bill * Monthly bill with a discount of 3₵/therm Decreased monthly bill with a discount of 3₵/therm $/month % 10 $18.27 $17.97 $0.30 1.6% 18 (summer median) $24.99 $24.45 $0.54 2.2% 25 $33.44 $32.69 $0.75 2.2% 30 $35.06 $34.16 $0.90 2.6% 54 (winter median) $55.20 $53.58 $1.62 2.9% 100 $114.42 $111.42 $3.00 2.6% * Assumes gas commodity cost of 40 ₵/therm City of Palo Alto Page 3 Because this opportunity is only available to tax-exempt entities, investor-owned utilities like PG&E are unable to participate. The discount on natural gas commodity helps to narrow the gap between PG&E’s rates and Palo Alto’s rates. For example, Palo Alto’s current residential rates are approximately 9 percent higher than PG&E’s, and participation in the MuniGas transaction will reduce that difference by approximately 2 percent. Details of the proposed MuniGas transaction, including a discussion of the risks of the transaction, can be found in the report presented to the Finance Committee (Staff Report 4832), which is also provided as Attachment G to this report. Commission Review and Recommendation The UAC reviewed the recommended action at its June 4, 2014 meeting. The UAC discussed the merits of reducing the cost of gas compared to that of PG&E. Staff clarified that, in the worst-case scenario of the prepay deal terminating, Palo Alto would be back to the status quo of purchasing gas on the market without the MuniGas discount. After discussion, the UAC voted unanimously (4-0, with Commissioners Chang, Foster and Hall absent) to recommend that Council approve the recommended action. The draft minutes from the UAC’s June 4, 2014 meeting are provided as Attachment H. The Finance Committee considered the recommended action at its August 5, 2014 meeting and voted unanimously (4-0) to recommend that Council approve the recommended action. The draft minutes from the Finance Committee’s August 5, 2014 meeting are provided as Attachment I. Resource Impact The total gas commodity budget is approximately $15 million per year (based on a gas price of $4.50 per MMBtu), and staff anticipates a discount of $0.30 per MMBtu resulting in a savings of approximately $1 million per year. The discount will be passed through to retail gas customers. Staff time to administer the contract is anticipated to be negligible. Policy Implications Adoption of the proposed resolution supports the objectives and strategies identified in the Council-approved GULP and the Council-approved Utilities Strategic Plan’s strategic objective to reduce the cost of delivering service. City of Palo Alto Page 4 Environmental Review Execution of the attached contracts does not require review under the California Environmental Quality Act (CEQA) since the proposed action does not meet the definition of a project under Public Resources Code Section 21065. In the alternative, execution of the attached contracts is exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines because it can be seen with certainty that there is no possibility of significant environmental effects occurring as a result. Attachments:  Attachment A: Resolution - MuniGas Prepay Transaction 5-19-14 (PDF)  Attachment B: Secretarial Certificate MuniGas Prepay Transaction (PDF)  Attachment C: Joint Gas Purchase Contract (PDF)  Attachment D: Purchase Contract (PDF)  Attachment E: Supplier Addendum (Non-Texas Non-BPEC) Clean (PDF)  Attachment F: Participant Addendum (PDF)  Attachment G: Final Staff Report ID 4832_MuniGas Natural Gas Purchase Agreement without attachments (PDF)  Attachment H: Excerpted Final UAC Minutes of June 4, 2014 meeting (PDF)  Attachment I: Excerpted Draft FC Minutes of August 5, 2014 (PDF) Not Yet Approved Resolution No. _______ Resolution of the Council of the City of Palo Alto Authorizing the City’s Participation in a Future Natural Gas Purchase from Municipal Gas Acquisition and Supply Corporation for the City’s Entire Retail Load, an Amount Estimated to be Approximately $150 Million over Ten Years, Waiving the City’s Choice of Law and Venue Requirements, and Authorizing the City Manager to Execute all Associated Agreements Required to Effect the Natural Gas Purchase R E C I T A L S A. The City of La Grange (the “Sponsor”) and its instrumentality, the Municipal Gas Acquisition and Supply Corporation (“MuniGas”), have offered to sell natural gas to one or more municipalities pursuant to a joint purchasing program at prices substantially below prevailing market prices. B. Joint gas purchasing programs, or gas prepay transactions, are a mechanism for municipal utilities to utilize their tax-exempt status to achieve a discount on the market price of gas. Staff recommends that the City participate in a gas prepay transaction by purchasing gas from MuniGas at a discounted price, and taking delivery of the gas from one of the City’s existing suppliers that also participates in the MuniGas program. C. The City of Palo Alto (the “City”) desires to purchase gas via the gas prepay transaction on such terms to reduce the cost of gas commodity supplies, for the benefit of Palo Alto Gas Utility customers. D. The City currently purchases its gas requirements from JP Morgan Ventures Energy Corporation, Shell Energy North America, L.P., ConocoPhillips Company, BP Energy Company, and Powerex Corporation (the “Suppliers”) and desires to amend three to five of those agreements to enable the City to purchase gas pursuant to such program. E. On June 4, 2014, the Utilities Advisory Commission voted _____________ to recommend that City Council approve the City’s participation in a natural gas purchase from Municipal Gas Acquisition and Supply Corporation for the City’s entire retail load, an amount estimated to be approximately $150 million over ten years, waive the City’s choice of law and venue requirements, and authorize the City Manager to execute all associated agreements required to effect the natural gas purchase. F. On June 17, 2014, the Finance Committee voted ________________ to recommend that City Council approve the City’s participation in a natural gas purchase from Municipal Gas Acquisition and Supply Corporation for the City’s entire retail load, an amount estimated to be approximately $150 million over ten years, waive the City’s choice of law and venue requirements, and authorize the City Manager to execute all associated agreements required to effect the natural gas purchase. The Council of the City of Palo Alto RESOLVES as follows: 140519 jb 6053050 1 Not Yet Approved SECTION 1. The Council authorizes the City’s participation in a natural gas purchase from Municipal Gas Acquisition and Supply Corporation for the City’s entire load, amount estimated to be approximately $150 million over ten years. SECTION 2. The terms of the Purchase Contract with the Sponsor and MuniGas, a Participant Addendum with MuniGas and BP Energy Company, and a Supplier Addendum with the Supplier and BP Energy Company, each attached to this Resolution as Exhibits A, B and C, are hereby approved as presented. SECTION 3. The City Manager of Palo Alto is authorized to execute and deliver such Purchase Contract and Supplier Addendum, making any such changes not affecting the essential terms of the Purchase Contract and Supplier Addendum as the Council may approve, on behalf of the City. SECTION 4. The Sponsor is authorized to purchase gas on behalf of the City solely in accordance with the terms of such Purchase Contract and Supplier Addendum, as required to deliver gas in the amounts and on the terms to be purchased by the City under such Purchase Contract from and after its execution. SECTION 5. The Council hereby waives the choice of law and venue requirements of Section 2.30.340(c) of Palo Alto’s Municipal Code, to permit the City to purchase gas via the terms of the Purchase Contact with the Sponsor and MuniGas, and the Supplier Addendum with the Supplier and BP Energy Company, under Texas law. SECTION 6. The City Manager of the City is authorized to take any and all action required to observe and perform the obligations of the City under such Purchase Contract and Supplier Addendum from and after its execution. SECTION 7. The Council’s approval of a gas purchase from MuniGas, including Council’s approval of all related documents required to affect the Gas Prepay Transaction, does not meet the definition of a project, pursuant to section 21065 of the California Environmental 140519 jb 6053050 2 Not Yet Approved Quality Act (CEQA). In the alternative, Council’s authorization of a gas purchase from MuniGas is exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines because it can be seen with certainty that there is no possibility of significant environmental effects occurring as a result. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services Attachments: A. Purchase Contract B. Participant Addendum C. Supplier Addendum 140519 jb 6053050 3 ATTACHMENT B CERTIFICATE OF BUYER I, the undersigned City Manager of the City of Palo Alto, California (the "City"), acting in my official capacity, do hereby certify as follows: 1. This Certificate is given in connection with the execution and delivery by the City of a Purchase Contract (the "Purchase Contract") with the Municipal Gas Acquisition and Supply Corporation {"MuniGas") and the City of La Grange, Texas (the "Sponsor"), by which the City became a party to the Joint Gas Purchase Contract, dated as of among MuniGas, the Sponsor, and other local governments that become parties thereto. 2. Execution and delivery of the Purchase Contract by the City has been duly authorized by resolution (the "Resolution") adopted at a meeting of the City Council of the City held on September 15, 2014 (Staff Report ). A true and correct copy of the Resolution is attached hereto. The Resolution was du ly introduced and adopted at such meeting, such meeting was duly called and held, and notice of such meeting and of the proposed action on the Resolution was duly given, in accordance with applicable law; and such action has been recorded in the minutes of such meeting. 3. The Purchase Contract has been authorized, executed, and delivered in accordance with all legal requirements established by any charter or ordinance of the City. 4. The Purchase Contract was duly executed on behalf of the City by the following person, who at the time of such execution held the office within the City specified opposite such person's name below, and the signature appearing opposite such person's name below is the true and genuine signature of such person: Signature James Keene City Manager 5. The Resolutions has not been repealed or amended. SIGNED and SEALED this_ day of __ ~ 20_ James Keene, City Manager The person whose name is subscribed to the foregoing Certificate is the duly appointed and incumbent City Manager of the City, and the signature subscribed above is such person's true and genuine signature. . ............................... -...................•........................................... Donna Grider, City Clerk APROVED AS TO FORM Amy Bartell, Sr. Deputy City Attorney 140519 jb 6053046 TEXAS MUNICIPAL GAS CORPORATION II "TMGCJJ" and CITY OF LA GRANGE, TEXAS as "Agent" and TEXAS LOCAL GOVERNMENTS DESCRIBED HEREIN, as "Buyers" JOINT GAS PURCHASE CONTRA CT Dated as of January 1, 2006 [This page intentionally left blank] 45522620.8 TABLE OF CONTENTS PARTIES ...................................................................................................................................................................... l RECITALS ................................................................................................................................................................... l GENERAL AGREEMENT ........................................................................................................................................ 1 ARTICLE ONE SECTION 1.01. Definitions .................................................................................................................................... I SECTION 1.02. Notices, etc .................................................................................................................................... 7 SECTION 1.03. Benefits of Agreement; Assignment ............................................................................................ 8 SECTION 1.04. Term .............................................................................................................................................. 8 SECTION 1.05. Amendn1ent of Agree1nent ........................................................................................................... 9 ARTICLE TWO SECTION 2.01. Acquisition of Production Rights ................................................................................................ 9 SECTION 2.02. Development of Leased Property ................................................................................................. 9 SECTION 2.03. Pooling ........................................................................................................................................ 10 SECTION 2.04. Operation of Leased Property .................................................................................................... IO SECTION 2.05. Processing .................................................................................................................................. 10 SECTION 2.06. Production Projections ............................................................................................................... 10 SECTION 2.07. Disposition of Production Rights ............................................................................................... 10 SECTION 2.08. Release ofTMGC / ..................................................................................................................... 10 ARTICLE THREE SECTION 3.01.Reservation of Production ......................................................................................................... 11 SECTION 3.02.'Permitted Uses of Gas ................................................................................................................ 11 SECTION 3.03. Spot and Other Sales .................................................................................................................. 11 SECTION 3.04. Storage ........................................................................................................................................ 12 SECTION 3.05. Exchange and Balancing Agreements ...................................................................................... 12 SECTION 3.06. Subordination ............................................................................................................................. 12 ARTICLE FOUR SECTION 4.01. Purchase and Sale of Gas Produced ............................................................... : ......................... 13 SECTION 4.02. Delivery ....................................................................................................................................... 13 SECTION 4.03. Price ............................................................................................................................................ 13 ARTICLE FIVE SECTION 5.01. Purchase and Sale of Gas .......................................................................................................... 14 SECTION 5.02. Delivery ....................................................................................................................................... 14 SECTION 5.03. Price ............................................................................................................................................ 15 SECTION 5.04. Determination of Discount ........................................................................................................ 15 SECTION 5.05. Price Rebate ................................................................................................................................ 15 SECTION 5.06. Adjustment of Maximum Annual Quantity ............................................................................... 16 ARTICLE SIX SECTION 6.01. Proposed Nominations ............................................................................................................... 16 SECTION 6.02. Deliveries at Index Points .......................................................................................................... 17 SECTION 6.03. Allocations and Adjustments ..................................................................................................... 18 SECTION 6.04. Montllly Nomination Quantities ................................................................................................ 19 SECTION 6.05. Daily Nominations ..................................................................................................................... 19 SECTION 6.06. Notices of Proposed and Nominated Quantities ........................................................................ 20 45522620.8 -1- ARTICLE SEVEN TABLE OF CONTENTS (Continued) SECTION 7.01. Inco1poration by Reference .............................................................•......................................... 20 SECTION 7.02. Special Provisions ...................................................................................................................... 21 ARTICLE EIGHT SECTION 8.01. Property and Severance Taxes ................................................................................................... 22 SECTION 8.02. Sales Taxes ................................................................................................................................. 22 SECTION 8.03. Recovery of Taxes ...................................................................................................................... 22 ARTICLE NINE SECTION 9.01. Monthly Statements .................................................................................................................... 23 SECTION 9.02. Early Payment Discounts ........................................................................................................... 23 SECTION 9.03. Waiver of Set-Off, Etc ................................................................................................................ 23 SECTION 9.04. Audits; Financial Information ...........•...................................................................................... 23 ARTICLE TEN SECTION 10.01. General ..................................................................................................................................... 23 SECTION 10.02. To Preserve Tax Exemption ..................................................................................................... 24 SECTION 10.03. Use in Limited Service Area ..................................................................................................... 24 SECTION 10.04. No Private Use or Payments .................................................................................................... 24 SECTION 10.05. No Private Loan ....................................................................................................................... 25 ARTICLE ELEVEN SECTION 11.01.Addition of Buyers ................................................................................................................... 25 SECTION 11.02. Terni of Purchase Contracts •..............•.....•.............................................................................. 25 SECTION 11.03. Phase-Out of Purchase Contracts ..................................•........................................................ 26 SECTION 11.04. Assignment by Buyer ................................................................................................................ 26 ARTICLE TWELVE SECTION 12.01. Limited Obligations of TMGC II, Agent, and Buyers ............................................................. 27 SECTION 12.02. No Recourse Against Officers, Etc .......................................................................................... 27 SECTION 12.03. Time of the Essence ................................................................................................................. 28 SECTION 12.04. No F'iduciaries ................................................................................................ : ......................... 28 SECTION 12.05. Independence of TMGC I, TMGC II, Related Suppliers, and Agent ..................................... 28 TESTIMONIUJ\1 ........................................................................................................................................................ 29 SIGNATURES ........................................................................................................................................................... 29 EXHIBIT A -GENERAL TERMS AND CONDITIONS .................................................................................. A-1 EXIIIBIT B -FORM OF PURCHASE CONTRACT ......................................................................................... B-1 45522620.8 -11- JOINT GAS PURCHASE CONTRACT THIS JOINT GAS PURCHASE CONTRACT (herein referred to as this "Agreement"), dated as of January 1, 2006, among Texas Municipal Gas Corporation II (herein, together with successors and assigns permitted hereby, referred to as "TMGC If'), a public facility corporation created with the approval of the City of La Grange, Texas, under the Texas Public Facility Corporation Act, chapter 303, Texas Local Government Code, as amended (herein referred to as the "Enabling Act"), the City of La Grange, Texas (herein, together with assigns permitted hereby, referred to as the "Agent"), and each "local government", as defined in the Texas Interlocal CoopenHion Act, chapter 791, Texas Government Code, as amended (herein referred to as the "Jnterlocal Act"), and state "agency", as defined in Section 771.002, Texas Government Code, which has hereafter assumed the rights and obligations of a Buyer hereunder and whose rights and obligations hereunder have not terminated as herein provided (each herein referred to as a "Buyer"), including Texas Municipal Gas Corporation (herein referred to as "TMGC I'), WIT N ES SETH: WHEREAS, the Agent and one or more Buyers have previously contracted with TMGC I to purchase gas for the purposes described herein; TMGC I has not acquired sufficient production interests to supply the Buyers' gas requirements in full; and the Agent approved the incorporation of TMGC II to carry on the municipal joint gas purchasing program initiated by TMGC I on more efficient and flexible terms; WHEREAS, TMGC II plans to acquire interests in certain mineral leases, overriding royalties, and/or production payments covering proved developed producing gas reserves or enter into gas supply contracts and desires to sell to the Agent all gas produced or saved from wells drilled on the property subject and attributable to such interests or acquired under such contracts, so that such gas may be devoted to public use in the gas or electric utility enterprises of (or otherwise consumed, used, or exchanged for the benefit of) the Buyers, and TMGC II is authorized to do so by the Enabling Act; and WHEREAS, the Agent desires to purchase such gas on behalf of the Buyers and to resell such gas to the Buyers, and the Buyers desire to purchase such gas, on the terms described herein for such uses, which they consider to be necessary, useful, or appropriate for such purposes, in order to realize savings in the cost of gas and/or electric energy, and the Agent and the Buyers are authorized to do so by the Interlocal Ad, the Texas Public Property Finance Act, chapter 271, subchapter A, Texas Local Government Code, as amended, section 271.102, Texas Local Government Code, as amended, and, in the case of Buyers which are home-rule municipalities, section 402.002(c), Texas Local Government Code, as amended; NOW, THEREFORE, for and in consideration of the premises and the mutual covenants hereinafter contained, and subject to the conditions herein set forth, the parties hereto covenant, agree, and bind themselves as follows: SECTION 1.01. Definitions. ARTICLE ONE DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION For all purposes of this Agreement, except as otherwise expressly provided and unless the context otherwise requires: 45522620.8 A The terms defined in this Article have the meanings assigned to them in this Article, the terms defined in the Base Provisions have the meanings assigned to them in the Base Provisions (unless inconsistent with this Article), and all terms include the plural as well as the singular. B. All references in this instrument to designated "Articles", "Sections'', "Exhibits'', and other provisions are to the designated Articles, Sections, Exhibits, and other provisions of this instrument as originally executed. C. The words "herein", "hereof', and "hereunder" and other words of similar import refer to this Agreement as a whole and not any particular Article, Section, Exhibit, or other subdivision. D. Unless otherwise provided herein, all accounting terms have the meanings assigned to them, and all computations herein provided for shall be made, in accordance with generally accepted accounting principles. E. References herein to "generally accepted accounting principles" refer to such principles as they exist on the date of applicability thereof. "Agent" has the meaning stated in the first paragraph of this Agreement. "Agreement" means this Joint Gas Purchase Contract (including the exhibits hereto) together with all Buyer Purchase Contracts, as originally executed or as they may from time to time be amended, supplemented, or modified by one or more instruments supplemental thereto entered into pursuant to the applicable provisions thereof. "Available for delive1y" has the meaning stated in Section 6.03. "Balancer" means a party to a Balancing Agreement other than TMGC II or a Buyer. "Balancing Agreement" means an agreement between TMGC II and any other Person pursuant to which such Person has agreed to accept Gas from TMGC II at a Displacement Point in each month in quantities available for delivery by TMGC II at such Displacement Point and to deliver Gas to TMGC II at the Buyer's Delivery Point in each Month in quantities equal to such Buyer's confirmed nominations for delivery in such Month, all on terms and conditions and subject to limitations therein provided, as originally execut~d or as amended, supplemented, or modified from time to time. A Balancing Agreement is in effect in respect of a Buyer if it provides for delivery of Gas to TMGC II at such Buyer's Delivery Point. "Base Provisions" means the General Terms and Conditions attached hereto as Exhibit A. "Bonds" means all bonds or other obligations ofTMGC II or any Related Supplier authenticated and delivered under or secured by an Indenture to finance the acquisition of Production Rights or the development or rehabilitation of properties subject or facilities related thereto or related costs (or to refinance Bonds or finance or refinance other obligations associated with or arising out of Production Rights or Bonds), provided that, in the case of obligations of a Related Supplier, TMGC has contracted to purchase all Gas attributable to such Related Supplier's interest in such Production Rights. "Buyer" has the meaning stated in the first paragraph of this Agreement, including TMGC I after it has assumed the rights and obligations of a Buyer hereunder and before such rights and obligations have terminated as herein provided. "Charter Buyer" means each of the following which has executed a Purchase Contract with a term of 15 years or more within 180 days after the date of this Agreement, but only for so long as such Buyer remains a Requirements Buyer: 45522620.8 2 City of Brady City of Brenham City of Carrizo Springs City of Columbus City of Del Rio City of Denver City City of Dumas City of Lubbock City of Pearsall City of Perryton City of Robstown City of Spearman City of Sunray City of Tomball City of Woodville "Code" when used with respect to any issue of Bonds means the Internal Revenue Code of 1986, as amended and in force and effect on the date of issue thereof. "Conditional Buyer" means a Buyer specified as such in its Purchase Contract. (A Conditional Buyer is not a Requirements Buyer and is obligated to buy Gas from TMGC II only on the conditions described in Clause (3) of Section 6.0JB.) "Contract Year" means each 12-Month period beginning with the first Day to begin in January. "Day" means a period of24 consecutive hours beginning at 9:00 a.m., Central Time. "Delivery Point" for the Gas to be sold and delivered to any Buyer means each place where such Gas is to be sold and delivered by TMGC II to the Agent and again by the Agent to such Buyer hereunder. Each Buyer's Delivery Points shall be as specified in its Purchase Contract or determined pursuant to Section 5.02. "Discount" means the percentage of each Buyer's Gross Price or the absolute amount, in either case determined by TMGC II from time to time pursuant to Section 5.04, to be subtracted from each Buyer's Gross Price to determine the price to be paid by such Buyer for Gas sold and delivered to it hereunder. Each change in the Discount shall become effective on the first Day of the Month following the Month in which it is determined and announced, unless otherwise determined by TMGC II. "Displacement Point" means a location where Gas is required to be transferred and delivered by TMGC II to a Balancer pursuant to a Balancing Agreement, to an Exchanger pursuant to an Exchange Agreement, or to the Agent pursuant hereto for resale to a Buyer in respect of which no Balancing Agre~ment or Exchange Agreement is in effect. "Effective Date" of any Buyer's Purchase Contract and rights and obligations hereunder means the date specified as such in its Purchase Contract. "Enabling Act" has the meaning stated in the first paragraph of this Agreement. "Exchanger" means a party to an Exchange Agreement other than TMGC II. "Exchange Agreement" means an agreement (other than a Balancing Agreement) between TMGC II and any other Person pursuant to which such Person has agreed to accept Gas from TMGC II at a Displacement Point in each Month and to deliver Gas with equivalent value to TMGC II at a Buyer's Delivery Point in such Month, all on terms and conditions and subject to limitations therein provided, as originally executed or as amended, supplemented, or modified from time to time. An Exchange Agreement is in effect in respect of a Buyer if it provides for delivery of Gas to TMGC II at such Buyer's Delivery Point. "Exempt Bonds" means Bonds the interest on which was stated to be exempt from gross income for federal income tax purposes when such Bonds were issued. 45522620.8 3 "Exempt Gas" means Gas derived (directly or by exchange) from Production Rights the acquisition, exploration, development, or improvement of which was financed or refinanced by outstanding Exempt Bonds. "Exempt Gas Buyer" means a Buyer specified as such in its Purchase Contract or that has otherwise agreed to accept Exempt Gas and to observe the obligations of Exempt Gas Buyers under Article Ten (to the extent of Exempt Gas accepted by such Buyer). "Expenses" means all amounts paid by or for the account ofTMGC II in respect of its financing, acquisition, ownership, development, operation, maintenance, sale, or delivery of Production Rights or Gas or other minerals attributable to TMGC II's interest therein, whether or not current expenses under generally accepted accounting principles, except amounts paid from proceeds of borrowings, but including without limitation ( 1) principal of (and premium, if any) and interest on obligations issued or incurred to finance any such amount or to acquire Production Rights, including the Bonds, or to refund any other such obligation, (2) labor, material, and other costs of developing, rehabilitating, reworking, or replacing wells, gathering lines, separators, processing plants, storage facilities, and other property used in the production, storage, processing, and transportation of minerals produced or saved from wells drilled on property subject to Production Rights, and premiums for and other costs of policies of casualty, hazard, and liability insurance elected to be maintained by TMGC II in respect of such property, (3) storage, processing, exchange, balancing, and transportation expense, including costs incurred to purchase Gas, (4) amounts paid by TMGC II pursuant to any commodity price or interest rate exchange agreement, or any other hedging agreement, entered into by TMGC II in order to provide assurance that proceeds from the sale of Gas, separated liquids, and extracted components hereunder will be sufficient to pay when due the principal of (and premium, if any) and interest on the Bonds and other obligations of TMGC II incurred under or secured by an Indenture, including costs of terminating any such agreement, (5) financing costs such as fees and expenses of any trustee, paying agent, registrar, tender agent, authenticating agent, credit enhancer, liquidity provider, rate-setting agent, or remarketing agent with respect to the Bonds, ( 6) allocable general and direct administrative costs, including legal and accounting fees, taxes, costs of program management, marketing, Gas dispatching and trading, billing, and collecting, and premiums for and other costs of policies of general liability, business interruption, or other insurance elected to be maintained by TMGC II, and (7) payments to TMGC I, any Related Supplier, or any other corporation created for substantially the same purposes as one or more of the purposes of TMGC II and sponsored and controlled by the Agent or TMGC II, provided that such payments do not exceed amounts contributed to TMGC II by the payee or have been found by the board of directors of TMGC II to be in the best interests of the Buyers. "Gas" means the effluent vapor stream, in its natural state, produced from wells, including all hydrocarbon and non-hydrocarbon constituents and casinghead gas produced with crude oil and residue gas resulting from the processing of gas well gas or casinghead gas. "Gas Supply Contract" means a written agreement entered into by TMGC II to purchase Gas for the purpose of satisfying its obligations hereunder and identified as such by written notice to the applicable Trustee. "Gross Price" for any Buyer has the meaning specified in such Buyer's Purchase Contract. "Historical Service Area" has the meaning stated in Section 10. 03. "Indenture" means any indenture and deed of trust and/or security agreement entered into between TMGC II or a Related Supplier and a Trustee to provide for the issuance of Bonds to finance the purchase of Production Rights or the development or rehabilitation of the property subject thereto or to refinance Bonds or other obligations associated with or arising out of Bonds or Production Rights, as such instrument is originally executed or as it may from time to time be amended, supplemented, or modified by one or more supplemental indentures or other instruments supplemental thereto entered into pursuant to the applicable provisions thereof. 45522620.8 4 "lnterlocal Act" has the meaning stated in the first paragraph of this Agreement. "Lease" means any written instrument conveying to TMGC II or a Related Supplier an undivided or divided right to drill for, produce, and dispose of one or more minerals (including Gas) in, under, and from specified lands, acquired (or the rights to Gas produced therefrom has been acquired) by TMGC II for the purpose of obtaining Gas with which to satisfy its obligations hereunder, and identified as such by written notice to the applicable Trustee. "Local Government" has the meaning assigned to such term in the Interlocal Act. "Long-Term Buyer" means a Buyer which has a Maximum Annual Quantity (or, if none, estimated annual Requirements) of at least the amount specified below for at least the number of Contract years specified opposite such Maximum Annual Quantity below, beginning with the current Contract Year: Maximum Annual Quantity/ Requirements 20,000,000 MMBtus and above 10,000,000-19,999,999 MMBtus 3 ,000,000-9 ,999 ,999 MMBtus Less than 2,999,999 MMBtus Minimum Contract Years 2 yrs 4 yrs 5 yrs IO yrs "Maximum Annual Quantity" for any Buyer means the amount of Gas, including Transporter's Fuel, if any, which such Buyer shall nominate for purchase hereunder in any Contract Year (up to its Requirements) in accordance with and subject to the conditions of Section 6.0lB. Each Buyer's Maximum Annual Quantity shall be as specified in its Purchase Contract or adjusted pursuant to Section 5.06 or 11.03 for each Contract Year that does not end in a leap year and shall be 366/365ths of such specified or adjusted quantity for each Contract Year that ends in a leap year. If the Effective Date of any Buyer's Purchase Contract occurs, or such Purchase Contract is terminated, during a Contract Year, then such Buyer's Maximum Annual Quantity for such Contract Year shall be as specified in such Purchase Contract or, if not specified therein, shall be reduced to the same proportion of the stated Maximum Annual Quantity as the number of days of such Purchase Contract's term in such Contract Year bears to the number of days in such Contract Year. "Nominated Quantity" of any Buyer for any Day means the amount of Ga's which TMGC II schedules for sale and delivery to such Buyer at such Buyer's Delivery Points on such Day pursuant to Article Six. "Operator" means any Person engaged by TMGC II or a Related Supplier to operate facilities used to produce Gas under a Lease. "Operations Agreement" means an agreement between an Operator and TMGC II or a Related Supplier providing for operation by such Operator of the facilities used to produce Gas under a Lease. "Opinion of Counsef' means a written opinion of counsel who may (except as otherwise expressly provided in this Agreement) be counsel for TMGC II, a Related Supplier, the Agent, or any Buyer and, when given with respect to the status of interest on any Bond under federal income tax law, shall mean counsel of nationally recognized standing in the field of municipal bond law acceptable to TMGC IL "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization, or government or any agency or political subdivision thereof. "Prior Agreement" means the Joint Gas Purchase Contract dated as of April I, 1998, among TMGC I, the Agent, and the Local Governments described therein, together with all "Purchase Contracts," as 45522620.8 5 therein defined, as originally executed or as they may from time to time be amended, supplemented, or modified pursuant to the applicable provisions thereof. "Production Right" means a Lease, a Royalty, or a Gas Supply Contract. "Purchase Contracf' of a Buyer means a written agreement, substantially in the form set forth in Exhibit B, duly completed, executed, and delivered among such Buyer, TMGC II, and the Agent, by which such Buyer assumes the obligations and becomes entitled to the rights and privileges of a Buyer hereunder, as originally executed or as amended, supplemented, or modified from time to time in accordance with this Agreement. "Regulations" when used with respect to the Exempt Bonds of any series means the temporary or final Income Tax Regulations applicable to the Bonds of such series issued pursuant to Sections 141 through 150 of the Code or section 103 of the Internal Revenue Code of 1954. Any reference to a Section of the Regulations shall also refer to any successor provision to such Section hereafter promulgated by the Internal Revenue Service pursuant to Sections 141 through 150 of the Code and applicable to the Exempt Bonds of the related series. "Related Supplier" means any corporation (other than TMGC II) that is a party to a Gas Supply Contract and a majority of the directors of which may be appointed or removed by the Agent or the board of directors ofTMGC II. "Requirements" for Gas by any Buyer during any period means the excess, if any, of(l) the total of all Gas consumed, exchanged, or otherwise used by such Buyer in generating or acquiring electricity distributed or used by such Buyer or other Local Governments, or sold by such Buyer in its gas utility system or enterprise, or (if specified in such Buyer's Purchase Contract) consumed by such Buyer in its public facilities, during such period within the areas permitted by Section 10.03, if applicable, whether greater than, equal to, or less than such Buyer's Maximum Annual Quantity, over (2) the total of all Gas, if any, sold by the Agent to such Buyer in such period pursuant to the Prior Agreement. "Requirements Buyer" means a Buyer specified as such in its Purchase Contract. (A Requirements Buyer is obligated to purchase its Gas Requirements from TMGC II, up to the Maximum Annual Quantity, if any, specified in such Buyer's Purchase Contract, to the extent of Gas available for delivery by TMGC II but without further condition.) "Revenues" means all amounts received by or for the account of TMGC II in respect of its financing, acquisition, ownership, operation, maintenance, sale, or delivery of Production Rights, the property subject thereto, minerals produced or saved from wells drilled on such property and attributable to TMGC II's interest therein, or other Gas delivered to TMGC II thereunder, except proceeds of borrowings, but including without limitation (1) all amounts received from or for the account of the Agent for Gas, separated liquids, and extracted components sold and delivered hereunder (including Gas sold and delivered to Buyers, hydrocarbons separated and sold and components extracted and sold pursuant to Section 2.05, and Gas sold pursuant to Section 3. 03 or 3. 05), (2) all amounts received by or for the account of TMGC II pursuant to any commodity price or interest rate exchange agreement, or any other hedging agreement, entered into by TMGC II in order to provide assurance that proceeds from the sale of Gas, separated liquids, and extracted components hereunder will be sufficient to pay when due the principal of (and premium, if any) and interest on the Bonds and other obligations of TMGC II or a Related Supplier incurred under or secured by an Indenture, and (3) income from the investment of such amounts or of amounts held under any Indenture. "Royalty" means any written instrument (other than a Lease) conveying or assigning to TMGC II an undivided or divided right to one or more minerals (including Gas or one or more component parts thereof including methane) produced or saved from wells now or hereafter drilled on specified lands, acquired (or the rights to Gas produced therefrom has been acquired) by TMGC II for the purpose of acquiring Gas with which to satisfy 45522620.8 6 its obligations hereunder, and identified as such by written notice to the applicable Trustee, including overriding royalties and production payments. "Second Priority Buyer" means each of the following which has executed a Purchase Contract with a term of 15 years or more within 180 days after the date of this Agreement, but only for so long as such Buyer remains a Requirements Buyer: City ofBoerne City of Dilley City of Fort Stockton City of Greenville City of Gruver City of Navasota City of Plains City of Sundown West Texas Municipal Power Agency "Short-Term Buyer" means a Buyer other than a Long-Term Buyer. "State Agency" means any "agency," as defined in Section 771.002, Texas Government Code, as amended, and any similar agency of a state other than the State of Texas. "Supplier" means a party to a Supply Contract other than a Buyer. "Supplier-Exchanger Agreement" means an agreement under which a Buyer's Supplier sells Gas to a Balancer or Exchanger at such Buyer's Delivery Points to enable such Balancer or Exchanger to perform its obligations under the Balancing Agreement or Exchange Agreement in respect of such Buyer. "Supply Contract" means an agreement between a Buyer and another Person pursuant to which such Person may or shall sell and deliver to such Buyer in each Month at one or more of its Delivery Points all or a portion of such Buyer's nominated requirements of Gas less the quantities of Gas sold and delivered to the Buyer at such Delivery Points pursuant to this Agreement, all on terms and conditions and subject to limitations therein provided. "TMGC I" has the meaning stated in the recitals to this Agreement. "TMGC II'' has the meaning stated in the first paragraph of this Agreement. "Transporter's FueI" means the volume of Gas retained by a Buyer's Transporter, if any, as fuel (for compressor fuel and line loss make-up) for transportation of Gas sold hereunder. "Trustee" means each commercial bank or trust company appointed by TMGC II or a Related Supplier to act as trustee under an Indenture, until a successor shall have become trustee under such Indenture pursuant to the applicable provisions thereof, and thereafter "Trustee" shall mean such successor trustee. "Withdrawing Buyer" means a Buyer which has elected to phase out its obligation to purchase and receive Gas hereunder pursuant to Section 11.03. SECTION 1.02. Notices, etc. Any request, authorization, direction, notice, consent, waiver, or other document provided or permitted by this Agreement to be made upon, given or furnished to, or filed with, A. TMGC II: TMGC II by the Agent or any Buyer shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to TMGC II addressed to it in care of 45522620.8 7 Municipal Energy Resources Corporation, Three Riverway, Suite 1375, Houston, Texas 77056, Attention: Executive Director, or at any other address previously furnished in writing to such Person by TMGC II, or B. Agent; the Agent by TMGC II or any Buyer shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to the Agent addressed to it at 155 E. Colorado Street, La Grange, Texas 78945, Attention: City Manager, or at any other address previously furnished in writing to such Person by the Agent, or C. Buyer; any Buyer by TMGC II or the Agent shall be sufficient for every purpose hereunder if in writing and mailed, first-class postage prepaid, to such Buyer addressed to it at the address specified in its Purchase Contract or at any other address previously furnished in writing to such Person by such Buyer, all subject to Section 6. 06. Where this Agreement provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. SECTION 1.03. Benefits of Agreement; Assignment. Nothing in this Agreement, expressed or implied, shall give any benefit or any legal or equitable right, remedy, or claim under this Agreement to any Person, other than the parties hereto and their successors hereunder and, as third party beneficiaries, the Trustees for the benefit of the owners of the obligations secured by the Indentures. All right, title, and interest of TMGC II in and to this Agreement, including the present and continuing right to bring actions and proceedings hereunder or for the enforcement hereof and to do any and all things which TMGC II is or may become entitled to do hereunder, (1) in respect of Production Rights or Gas Supply Contracts financed by Bonds issued by TMGC II and secured by an Indenture or in respect of Gas derived therefrom may and are intended to be collaterally assigned to the applicable Trustee pursuant to such Indenture and (2) in respect of Gas purchased under any other Gas Supply Contract may and are intended to be collat~rally assigned to the Related Supplier counter-party to such Gas Supply Contract. Notwithstanding the foregoing, all rights ofTMGC II to enforce, or for damages on account of any breach of, a Buyer's obligations pursuant to Article Seven may be assigned to or for the benefit of any Person acting as Balancer or Exchanger under any Balancing Agreement or Exchange Agreement, or any party to a Supplier-Exchanger Agreement, in effect in respect of such Buyer. The Agent and the Buyers hereby consent to such assignments. SECTION 1.04. Term. This Agreement shall become effective when the Agent, TMGC II, and a Buyer have first executed and delivered a Purchase Contract. As between TMGC II and the Agent, the term of this Agreement shall extend for a term beginning on the date it becomes effective and ending 40 years from the date hereof. As between TMGC II and the Agent, the term of this Agreement shall be automatically extended by one year on each anniversary of the date hereof unless either such Person has given notice to the other such Person of its election not to extend the term hereof at least 30 days prior to such anniversary date. Notwithstanding the foregoing, this Agreement may be terminated at the option of TMGC II or the Agent upon the later of (1) expiration (without extension) of the term of all Production Rights of TMGC II or (2) if all Production Rights of TMGC II are Leases, the later of (a) the date as of which TMGC II has abandoned all wells drilled on the property subject to the Leases or surrendered, released, or terminated all Leases 45522620.8 8 pursuant to Section 2. 02 or (b) the date as of which no Gas produced or saved pursuant to the Leases remains in storage available for delivery hereunder. This Agreement shall terminate and be discharged on the condition described in Section 2.01. The term of each Buyer's Purchase Contract and rights, privileges, and obligations hereunder shall be as specified in Article Eleven. SECTION 1.05. Amendment of Agreement This Agreement may be amended only (I) by written agreement of all affected parties hereto, including the Buyers, or (2) by written agreement of TMGC II and the Agent if such agreement i~ either (a) applicable only in respect of Production Rights acquired or entered into and Gas produced and saved therefrom or purchased thereunder or exchanged for such Gas, ifTMGC II has given notice of such amendment to each Buyer that has not consented to such amendment at least 7 5 days before the beginning of the Contract Year in which such Production Rights are purchased or entered into or (b) consented to in writing by Buyers of each class described in Section 6.03A affected by such amendment aggregating a majority of Maximum Annual Quantities (or, for Buyers with none, Requirements) of such class. If so provided in an Indenture or Gas Supply Contract, this Agreement may not be amended without the consent of the Trustee thereunder. Any Purchase Contract may be amended by written agreement executed by TMGC II, the Agent, and the applicable Buyer, provided that such Purchase Contract, as amended, is consistent with the provisions of this Agreement. ARTICLE TWO PRODUCTION OF GAS SECTION 2.01. Acquisition of Production Rights. TMGC II will use reasonable efforts to acquire Production Rights from time,to time which will enable TMGC II to produce or otherwise acquire the Gas scheduled for sale and delivery hereunder on the terms and conditions described herein (provided that such Production Rights may be acquired and financed on terms and at locations expected to enable TMGC II to maintain a positive Discount in respect of all Gas produced or otherwise resulting therefrom and to be sold and delivered by it hereunder), to sell and issue Bonds as and if required to finance such acquisition, and to secure any governmental authorization which may be necessary to commence the receipt and sale of Gas from any well drilled on property subject to the Leases. If no Production Right is acquired within three years after the date of issuance of the initial series of Bonds, then this Agreement will terminate and be of no further force or effect. SECTION 2.02. Development of Leased Property. It is anticipated that the Leases, if any, will convey to TMGC II rights to produce proved developed producing reserves of Gas (among other possible minerals or hydrocarbons), i.e., reserves recoverable from completion intervals open and producing to market at the time of acquisition, and an interest in the facilities used for such purpose. If, at any time, it is necessary or advisable to improve, repair, or otherwise rework such facilities, to develop such reserves further, to extend any Lease, or to construct or improve facilities for processing or transporting Gas produced under such Lease, TMGC II may, at its election, but shall not be required to, make expenditures for such purposes, and TMGC II or any Related Supplier may issue Bonds or apply funds held under any Indenture to fund such expenditures. 45522620.8 9 SECTION 2.03. Pooling. TMGC II may pool, combine, or unitize any Lease with other properties and may alter any such pooling, combination, or unit at its election. If it does so, or if the property from which any Royalty is assigned is so pooled, combined, or unitized, then this Agreement shall apply to the Gas resulting from TMGC II's allocated interest in such pool, combination, or unit attributable to such Lease or Royalty rather than to the Gas produced by wells pursuant to such Lease or Royalty. SECTION 2.04. Operation of Leased Property. TMGC II shall contract with an Operator for operation pursuant to an Operations Agreement of the facilities acquired or developed pursuant to each Lease acquired by TMGC II. If any such Operator resigns or is removed as Operator or becomes insolvent or otherwise incapable of managing such operations, TMGC II will use reasonable efforts to engage a substitute Operator to the extent permitted by the applicable Operations Agreement. Subject to Section 2.02, TMGC II shall use reasonable efforts to enforce its rights, and to make elections and give consents, under each such Operations Agreement so as to enable it to offer, in the judgment of its board of directors, the largest aggregate Discount in the sale of Gas to the Buyers hereunder. SECTION 2.05. Processing. TMGC II shall remove (or cause to be removed) liquid hydrocarbons, including oil and condensate, from the Gas produced pursuant to the Leases or delivered to TMGC II pursuant to the Royalties by means of drips or conventional gas-liquid separators. TMGC II may, in its discretion, process (or cause to be processed) any or all Gas produced under any or all Leases or delivered to TMGC II pursuant to the Royalties and extract or cause to be extracted therefrom ethane, propane, butanes, pentanes, and heavier hydrocarbons (together with so much methane as is necessarily removed or lost in the employment of customary processes for the extraction of all such components). TMGC II shall sell such separated liquid hydrocarbons and extracted components as agent for and for the account and benefit of the Agent in consideration for TM GC II' s right to receive the proceeds of such sales pursuant to Section 4.03B. TMGC II will not process (or permit to be processed) any such Gas in a manner that would render it incapable of meeting the quality specifications set forth in the Base Provisions. SECTION 2.06. Production Projections. Upon request of any Buyer made not more than once each Contract Year, TMGC II shall give notice to such Buyer of the amount of Gas reasonably expected by TMGC II to be available for delivery to such Buyer at such Buyer's Delivery Points hereunder in each Month of the ensuing 12-Month period. SECTION 2.07. Disposition of Production Rights. TMGC II may abandon any well or surrender, release, terminate, or assign any Lease which TMGC II does not deem capable of producing Gas in commercial quantities, subject to the provisions of any Indenture. TMGC II may also sell, assign, convey, exchange, or otherwise dispose of Production Rights at any time and from time to time, subject to the provisions of any Indenture, provided that the board of directors of TMGC II determines, in its sole discretion, that such disposition and the terms thereof are in the best interests of the Buyers. SECTION 2.08. Release ofTMGC I. Each Buyer and Agent releases TMGC I from any and all obligations on its part to comply with Section 2.01 of the Prior Agreement. Upon execution of a Purchase Contract by a Buyer, the Agent, and TMGC II, such Buyer shall give prompt notice to TMGC I of its election to phase out pursuant to Section 16.03 of the Prior Agreement, which election may be revoked only with the written consent ofTMGC IL 45522620.8 IO ARTICLE THREE RESERVATION AND STORAGE OF PRODUCTION SECTION 3.01. Reservation of Production. TMGC II will reserve for and sell to the Agent all Gas produced or saved by or for the account of TMGC II from wells now or hereafter drilled on the property subject to the Leases and the Royalties and attributable to TMGC II's interest therein, or purchased and received by TMGC II pursuant to Gas Supply Contracts, subject to the terms hereof and except as herein otherwise provided. SECTION 3.02. Permitted Uses of Gas. TMGC II may consume, sell, or otherwise use the following amounts of Gas or portions thereof or extracts therefrom for the following purposes for the account and benefit of the Agent in furtherance of its obligation to deliver Gas hereunder: A. Royalties: all Gas which is contractually required to be delivered to or reserved in favor of Persons other than the Agent and the Buyers under the terms of any Lease or Royalty at the time such Production Right is acquired by TMGC II; B. Prior Contracts: all Gas produced pursuant to any Production Right which is required to be sold or delivered to Persons other than the Agent and the Buyers pursuant to contracts executed prior to the date of acquisition of such Production Right by TMGC II, provided that the remaining term of such contract at the time of such acquisition does not exceed one year and TMGC II shall not extend the term of such contract or increase the amount of Gas committed thereunder; C. Fuel: all Gas which TMGC II may require as fuel to further develop the property subject to any Lease or in operation of the facilities used to produce Gas under any Lease or as shall be required as fuel or shall otherwise be lost in any processing of Gas pursuant to Section 2. 05; D. Recycled Gas: any Gas used, at the election of TMGC II, for cycling, repressuring, and pressure maintenance in connection with the production of Gas pursuant to any Le~se, which shall be excluded from the terms hereof until such Gas becomes available for delivery by TMGC II at a Displacement Point hereunder; and E. Oil Production: Gas reasonably necessary for gas-lifting of oil produced from the property subject to any Lease, if used for such purpose at the election ofTMGC II, which shall be excluded from the terms hereof until such Gas becomes available for delivery by TMGC II at a Displacement Point hereunder. SECTION 3.03. Spot and Other Sales. Whenever TMGC II determines that the amount of Gas produced or saved pursuant to the Leases and Royalties and attributable to TMGC II's interest therein or purchased and received by TMGC II pursuant to the Gas Supply Contracts, together with the Gas stored pursuant to Section 3.04, is expected to exceed the amount of Gas required to deliver the Requirements (or, if less, Maximum Annual Quantities, if any) of all Buyers hereunder and to honor any prior contractual commitments, TMGC II may sell and deliver such excess Gas for the account and benefit of the Agent to one or more other Local Governments and State Agencies of the State of Texas at prices and on other terms and conditions determined by TMGC II, including (in the case of Exempt Gas) the terms and conditions applicable to Buyers pursuant to Article Ten. If TMGC II is unable to sell and deliver any such excess Gas to such Local Governments and State Agencies on such terms after reasonable efforts to do so, TMGC II may 45522620.8 11 sell and deliver such excess to any other Person or on any other terms for the account and benefit of the Agent, subject to the provisions of any Indenture. SECTION 3.04. Storage. Whenever the aggregate amount of Gas produced or saved pursuant to the Leases and Royalties and attributable to TMGC Il's interest therein, net of liquid hydrocarbons separated and components extracted therefrom pursuant to Section 2.05, and purchased and received by TMGC II pursuant to the Gas Supply Contracts exceeds the aggregate Nominated Quantities to be delivered to Buyers hereunder and the Gas sold pursuant to Section 3.03, TMGC II may arrange for the storage of such excess Gas pending its delivery through the Agent to Buyers hereunder or sale pursuant to Section 3.03. SECTION 3.05. Exchange and Balancing Agreements. To deliver Gas to any Delivery Point, TMGC II may from time to time enter into one or more agreements with other producers of or dealers in Gas, including Balancing Agreements and Exchange Agreements, under which TMGC II shall transfer and deliver all or any portion of the Gas produced or saved pursuant to a Lease or Royalty (and attributable to TMGC II's interest therein), or purchased and received by TMGC II pursuant to a Gas Supply Contract, to any Person at one or more agreed locations in exchange for such Person's transfer and delivery to TMGC II of Gas of like aggregate value at or near such Delivery Point. To deliver Gas in desired quantities at various times during each Contract Year, TMGC II may from time to time enter into one or more agreements with other producers of or dealers in Gas, including Balancing Agreements, under which TMGC II shall transfer and deliver all or any portion of the Gas produced or saved pursuant to a Lease or Royalty (and attributable to TMGC H's interest therein), or purchased and received by TMGC II pursuant to a Gas Supply Contract, to any Person in certain quantities and at certain times in such Contract Year in exchange for such Person's transfer and delivery to TMGC II of Gas of like aggregate value, adjusted for applicable carrying charges, if any, at one or more other times during such Contract Year. If TMGC II enters into any such agreement of either type described in the two preceding paragraphs of this Section, then while such agreement remains in effect the provisions of this Agreement relating to the sale and delivery of Gas to and by the Agent shall apply to the Gas so transferred and delivered to TMGC II under such agreement rather than to the Gas delivered or required to be delivered by TMGC II thereunder. If a Buyer elects to contract with one or more new Persons for the purchase of its Requirements for Gas in excess of the quantities of Gas sold and delivered to it pursuant to this Agreement, TMGC II and such Buyer shall cooperate with each other to keep the then existing Balancing Agreement or Exchange Agreement in effect for such Buyer on substantially the same terms or such other terms as are acceptable to TMGC II and such Buyer. SECTION 3.06. Subordination. The Agent and the Buyers hereby acknowledge and agree that they shall have no legal or equitable right, title, or interest in or to any Production Right (or in or to any Gas produced, sold, or delivered thereunder prior to the time such Gas is sold and delivered to such Person hereunder) pursuant to this Agreement or on account of any breach hereof or otherwise, and in order to secure financing of the acquisition of the Production Rights on favorable terms the Agent and the Buyers do hereby release all such right, title, and interest. All rights, titles, and interests of the Agent and the Buyers hereunder, including, without limitation, all rights, titles, and interests of such Persons in and to the Gas produced or saved pursuant to the Leases and the Royalties and attributable to TMGC II's interest therein, or purchased and received by TMGC II pursuant to the Gas Supply Contracts, are subject and subordinate (and in order to secure financing of the acquisition of the 45522620.8 12 Production Rights on favorable terms the Agent and each Buyer do hereby subordinate such rights, titles, and interests) to the liens and security interests now or hereafter granted by TMGC II under the Indentures to secure the Bonds and other obligations ofTMGC II secured thereby. The Agent and each Buyer shall execute and deliver such instruments as TMGC II may reasonably request from time to time, in recordable form, to evidence such subordination. ARTICLE FOUR PURCHASE OF GAS BY AGENT SECTION 4.01. Purchase and Safe of Gas Produced. TMGC II shall sell to the Agent, and the Agent shall purchase from TMGC II, (1) all Gas produced or saved by or for the account of TMGC II from wells now or hereafter drilled on the property subject to the Leases and the Royalties and attributable to TMGC II's interest therein, and all Gas purchased and received by TMGC II pursuant to the Gas Supply Contracts, save and except the Gas excluded pursuant to Section 3.02 and Gas transferred and delivered by TMGC II pursuant to a Balancing Agreement, an Exchange Agreement, or another agreement described in Section 3.05, and (2) all Gas transferred and delivered to TMGC II pursuant to Balancing Agreements, Exchange Agreements, and other agreements described in Section 3.05, in each case at the times and respective Delivery Points specified in Section 4.02, for the price specified in Section 4.03, and upon and subject to the further terms and conditions hereof. SECTION 4.02. Delivery. All Gas to be sold by the Agent to the Buyers shall be sold and delivered by TMGC II to the Agent at the respective times and Delivery Points at which such Gas is sold and delivered by the Agent to the Buyers. All liquid hydrocarbons separated and components extracted from Gas pursuant to Section 2.05 and sold for the account and benefit of the Agent, and all Gas sold pursuant to Section 3.03 for the account and benefit of the Agent, shall be deemed to be sold and delivered by TMGC II to the Agent and resold and delivered by the Agent to the purchasers at the times and places at which such Gas, hydrocarbons, and components are sold and delivered by TMGC II pursuant to such Sections. TMGC II shall use reasonable efforts to arrange for transportation to, or an exchange for Gas at, the respective Delivery Points of all Gas to be sold and delivered by TMGC II to or for the account and benefit of the Agent hereunder. SECTION 4.03. Price. In consideration for the Gas sold and delivered by TMGC II to or for the account and benefit of the Agent hereunder, the Agent shall pay to TMGC II: A. Gas Sold to Buyers: for all Gas resold and delivered by the Agent to the Buyers, the aggregate prices due and owing from the Buyers to the Agent in consideration for such resales, and B. Sold Liquids, Extracts, and Excess: for all liquid hydrocarbons separated and components extracted from Gas, and sold, pursuant to Section 2.05, and all excess Gas sold pursuant to Section 3. 03, an amount equal to the aggregate consideration for which such hydrocarbons, components, and excess Gas are sold by TMGC II for the account and benefit of the Agent, in each case as and when such consideration is received by or for the account of the Agent. In consideration for the services provided by the Agent in approving creation of TMGC II and purchasing, selling, and delivering Gas hereunder, TMGC II shall (I) rebate to the Agent at the end of each Month 45522620.8 13 during the term of this Agreement, from the aggregate purchase price paid to TMGC II by or for the account of the Agent hereunder, an amount agreed to by TMGC II and the Agent, not to exceed 2¢ per MMBtu of Gas delivered by TMGC II pursuant to Balancing Agreements and Exchange Agreements in respect of each Buyer (or, absent such an agreement in respect of any Buyer, delivered by the Agent to such Buyer hereunder) in the immediately preceding Month, and (2) pay, or cause to be paid, to the Agent from proceeds of each issuance of Bonds an amount agreed to by TMGC II and the Agent, not to exceed 0.1 % of the principal amount of such Bonds. ARTICLE FIVE SALE OF GAS TO BUYERS SECTION 5.01. Purchase and Sale of Gas. On each Day during the term of this Agreement, each Buyer shall purchase and receive from the Agent, and the Agent shall sell and deliver to such Buyer, at the place specified in Section 5.02 and for the price specified in Section 5.03, an amount of Gas equal to such Buyer's Nominated Quantity for such Day, as determined pursuant to Article Six, upon and subject to the further terms and conditions hereof, including Article Ten to the extent applicable. The Agent shall be obligated to sell and deliver Gas to each Buyer solely from and to the extent of Gas sold and delivered by TMGC II to the Agent at the Buyer's Delivery Point. SECTION 5.02. Delivery. All Gas sold by the Agent to any Buyer hereunder shall be delivered by the Agent to such Buyer at such Buyer's respective Delivery Points. TMGC II shall employ reasonable efforts to maintain a Balancing Agreement (and, if unable to do so, an Exchange Agreement) in effect for each Buyer, unless otherwise agreed by such Buyer, while such Buyer remains obligated to receive and purchase Gas hereunder. If a Balancing Agreement or Exchange Agreement entered into in respect of a Buyer becomes ineffective for such Buyer (whether because the counterparties to such Buyer's Supply Contracts cease to sell Gas to the applicable Balancer or Exchanger at such Buyer's Delivery Points or for any other reason), then (I) such Buyer's Delivery Points and Gross Price shall cease to be the Delivery Points and Gross Price specified in its Purchase Contract, (2) such Buyer's Delivery Points shall there~fter be the point or points designated by TMGC II at which it may deliver Gas under the last Balancing Agreement or Exchange Agreement in effect for such Buyer, and (3) such Buyer's Gross Price shall thereafter be the price at which Gas delivered by TMGC II at such Delivery Point was valued from time to time for exchanges under such Balancing Agreement or Exchange Agreement. If TMGC II for any reason shall desire that Gas be sold and delivered to any Buyer at a Delivery Point in addition to or different from the Delivery Point specified in such Buyer's Purchase Contract or previously agreed to pursuant to this Section, TMGC II may propose that such additional or different Delivery Point be added to or substituted for such Buyer's previous Delivery Point by written request to such Buyer. If any Buyer for any reason shall desire that Gas be sold and delivered to such Buyer hereunder at a Delivery Point in addition to or different from the Delivery Point specified in its Purchase Contract or previously agreed to pursuant to this Section, such Buyer may propose that such additional or different Delivery Point be added to or substituted for such Buyer's previous Delivery Point by written request to TMGC II. If the Person receiving any such request agrees to the proposed addition or substitution specified therein, it shall accept such proposal by written notice to the Person making such request, whereupon the proposed new Delivery Point shall be added to or substituted for the respective Buyer's Delivery Point hereunder, as applicable. Neither TMGC II nor any Buyer shall unreasonably withhold its agreement to any request for an additional or substitute Delivery Point hereunder. 45522620.8 14 SECTION 5.03. Price. In consideration for the Gas sold and delivered by the Agent to each Buyer hereunder during any calendar Month, such Buyer shall pay to or for the account of the Agent, as provided in the Base Provisions, (1) the product of (a) the quantity of Gas sold and delivered by the Agent to such Buyer in such period, measured in MMBtus, and (b) the price per MMBtu determined by (i) if the Discount is expressed as a percentage, multiplying such Buyer's Gross Price for such period by 100% less the Discount in effect for such period, or (ii) if the Discount is expressed as an absolute amount, subtracting the Discount in effect during such period from the Buyer's Gross Price for such period, plus (2) if so required by any Purchase Contract, the amount specified therein to compensate the Agent and TMGC II for transporting such Gas, or Gas exchanged for such Gas, to such Buyer's Delivery Point or for storing the same pending such transportation. SECTION 5.04. Determination of Discount. TMGC II shall establish and periodically adjust an annual budget of all Revenues expected to be received and all Expenses expected to be paid and, in connection therewith, shall set and from time to time adjust Discounts to be subtracted from each Buyer's Gross Price for purposes of determining the price to be paid by Buyers for Gas sold and delivered to them hereunder. TMGC II shall set the Discounts at the greatest amount which, if subtracted from all applicable Buyer Gross Prices from and after the effective date of such Discounts, in the sole judgment of TMGC II would nevertheless result in adequate projected Revenue to pay, or to establish any reserves (if required by any Indenture or Gas Supply Contract or considered prudent by TMGC II) for, all anticipated Expenses hereunder and to comply with all Indenture provisions during the remaining expected term hereof. In no event may the Discount be less than 0% or $0. In setting Discounts, TMGC II may establish classes of Purchase Contracts hereunder (which may distinguish between Purchase Contracts of different terms, with different Delivery Points, with Gross Prices covering periods of different duration or determined by reference to different locales, being phased-out pursuant to Section 11.03 beginning in different Contract Years, or having other differences) and may set a different Discount for each such class of Purchase Contracts and for Exempt Gas; provided that no class of Purchase Contract shall be established, and no Discount shall be set or adjusted in a manner that is not equally applicable to all Buyers in the same class, unless Buyers with Maximum Annual Quantities (or, for Buyers with none, Requirements) that comprise a majority of the Maximum Annual Quantities (or, for Buyers with none, Requirements) for the current Contract Year applicable to each class of Purchase Contracts consent to such Discount. Each new Discount shall become effective for Gas sold and delivered in the Month following the Month in which such Discount is set and notice thereof is given to Buyers, unless deferred by TMGC II. Discounts may be suspended as and to the extent required by the provisions of any Indenture or Gas Supply Contract. TMGC II shall give prompt notice of each new Discount and each suspension of Discounts to each affected Buyer. SECTION 5.05. Price Rebate. It is the intention of the parties that TMGC II administer its program of producing, gathering, processing, storing, selling, transporting, and delivering Gas hereunder without profit on its part and that the price of Gas sold and delivered to Buyers hereunder be the lowest possible price required to pay, or to establish and maintain required or prudent reserves for, Expenses. The parties hereto recognize that, in establishing the Discount applicable to each class of Purchase Contracts from time to time hereunder, TMGC II must provide for reserves to pay Expenses (including costs of Gas payable to Related Suppliers) or to account for reductions in production that cannot be precisely predicted in advance and that, if such Expenses or reductions in production are not realized, TMGC II's reserves may be reduced. 45522620.8 15 TMGC II shall review its reserves associated with the program established hereunder at least annually. Whenever TMGC II determines that such reserves exceed the amounts which are prudent to maintain for Expenses (including costs of Gas payable to Related Suppliers) thereafter due or to apply to the retirement of Bonds, TMUC JI shall declare a surplus and rebate the excess portion of such reserves to all Buyers then a party hereto, subject to the terms of the Indentures and the Gas Supply Contracts. On or before the last day of the term of the last Purchase Contract in effect, after reserving funds to pay all Expenses theretofore incurred, TMGC II shall declare as surplus and rebate to the Buyers then a party hereto all remaining reserves and other funds held by or for the account ofTMGC II pursuant to this Agreement or the Indentures, subject to the terms of the Indentures and the Gas Supply Contracts. Each rebate of excess reserves shall be allocated among Buyers (and former Buyers whose Purchase Contracts have terminated pursuant to Clause (4) of Section 11.02) in proportion to the product, for each Buyer or former Buyer, of (1) either (a) I .0, if such Person is or was a Charter Buyer or has no Maximum Annual Quantity, or (b) otherwise the lesser of 1.0 or a fraction, the numerator of which is equal to such Buyer's Maximum Annual Quantity for the Contract Year in which such rebate is made and the denominator of which is equal to the arithmetic average of such Buyer's Maximum Annual Quantities for such and all prior Contract Years during the term of such Buyer's Purchase Contract and (2) the sum, for all Months from the date of such Buyer's or former Buyer's Purchase Contract through the Month preceding the Month in which such rebate is made, of the product of (a) the quantity of Gas purchased and received by such Buyer pursuant hereto in such Month and (b) the applicable percentage specified below opposite the remaining term of such Buyer's Purchase Contract as of the end of such Month (unless such former Buyer was a Charter Buyer and its Purchase Contract had an initial term of 20 years or more, in which case I 00% for the duration of such initial term): Remaining Term 20 yrs or more At least 15 but less than 20 yrs At least 10 but less than 15 yrs At least 5 but less than 10 yrs At least 2 but less than 5 yrs At least 1 but less than 2 yrs Less than 1 yr S:ECTION 5.06. Adjustment of Maximum Annual Quantity. Percentage 100% 85% 65% 40% 20% 10% 0% Each Buyer may change the Maximum Annual Quantity, if any, of Gas to be nominated by it for purchase and receipt hereunder by an amount and as of the Day specified in a written request made by such Buyer to TMGC II, if such request is consented to in writing by TMGC II in accordance with the Indentures and Gas Supply Contracts. From and after the effective Day of any such request and consent, the Maximum Annual Quantity specified in such request and consent shall be substituted for the Maximum Annual Quantity of the applicable Buyer specified in its Purchase Contract or previously pursuant to this Section, with the consequence specified in Section 6. 03B in the case of increases. ARTICLE SIX NOMINATIONS AND ALLOCATIONS SECTION 6.01. Proposed Nominations. A. Annual Forecast. At least 15 days prior to each Contract Year, each Buyer shall notify TMGC II in writing of the quantities of Gas that such Buyer expects to nominate for purchase from the Agent at such Buyer's Delivery Point in each Month in such Contract Year in accordance with the provisions of this Section. 45522620.8 16 If at any time during a Contract Year any Buyer expects so to nominate for purchase from the Agent a materially different quantity of Gas in any succeeding Month than the quantity for such Month specified in the most recent notice given by such Buyer to TMGC II pursuant to this Subsection, such Buyer shall promptly notify TMGC II in writing of the revised quantities of Gas that such Buyer expects to nominate for purchase from the Agent in each succeeding Month in such Contract Year. On request of TMGC II, each Buyer shall notify TMGC in writing of its estimated Requirements (not to exceed its Maximum Annual Quanitities, if any) for each Contract Year during the term of any Production Right proposed to be acquired or entered into or Bonds proposed to be issued by TMGC II. B. Monthly Nominations; Annual Totals. At least seven business days prior to the beginning of each Month each Requirements Buyer shall notify TMGC II of the quantity of Gas that such Buyer proposes to purchase and receive from the Agent at such Buyer's respective Delivery Points in such Month and, in the case of any Buyer with respect to which no Balancing Agreement or Exchange Agreement is in effect, on each Day during such Month. Each Conditional Buyer may from time to time notify TMGC II of the quantity of Gas that such Buyer proposes to purchase and receive from the Agent at such Buyer's respective Delivery Points on any Day or Days. Each Buyer shall so nominate quantities of Gas to be purchased and received from the Agent such that, during each Contract Year, to the extent of Gas available for delivery by TMGC II to the Agent at such Buyer's Delivery Point and subject to Sections 10.03 and 11.03, the aggregate amount of Gas nominated for purchase and receipt by such Buyer shall be equal to the least of (1) such Buyer's Requirements for Gas during such Contract Year, (2) such Buyer's Maximum Annual Quantity for such Contract Year, and (3) if, but only if, such Buyer is a Conditional Buyer, the amount of Gas offered for sale (to a Balancer or Exchanger in respect of which a Balancing Agreement or Exchange Agreement is in effect for such Buyer) by Suppliers that are parties to Supplier-Exchanger Agreements with such Balancer or Exchanger, on terms that such Buyer deems at least as favorable, after application of the Discount, associated expenses, and applicable credit policies, as the terms on which Gas is offered to such Buyer by any other Supplier and satisfying any additional conditions in such Buyer's Purchase Contract. SECTION 6.02. Deliveries at Index Points. Subject to Section 6.03, during each Month in each Contract Year during the term of this Agreement, TMGC II shall transfer and deliver at each Displacement Point: A. Balanced Deliveries: to each Balancer pursuant to each Balancing Agreement in respect of each Buyer by which such Balancer has agreed to receive and accept Gas at such Displacement Point, a quantity of Gas such that, if the same proportion of all Gas expected to be available for delivery from TMGC II at such Displacement Point in such Month and each succeeding Month in such Contract Year were transferred and delivered to such Balancer pursuant to such Balancing Agreement and the prices used to determine the future quantities required to balance earlier deliveries thereunder are equal to the prices then projected by TMGC II, TMGC II would be entitled to receive from such Balancer at such Buyer's Delivery Point in such and each such succeeding Month in such Contract Year the respective quantities of Gas nominated pursuant to Section 6.0JB, or last forecasted to be nominated pursuant to Section 6.0JA, by such Buyer to be purchased and received by it from the Agent at such Delivery Point, but will not be entitled to receive more than such aggregate quantities of Gas thereunder; B. Exchanged Deliveries: to each Exchanger pursuant to each Exchange Agreement by which the Exchanger has agreed to receive and accept Gas at such Displacement Point and to transfer and delivery Gas to TMGC II at a Buyer's Delivery Point, a quantity of Gas such that TMGC II will be entitled to receive from such Exchanger at such Buyer's Delivery Point in such Month the quantity of Gas nominated by such Buyer pursuant to Section 6.0JB to be purchased and received by it from the Agent at such Delivery Point in such Month, but will not be entitled to receive more than such quantity of Gas at such Delivery Point thereunder; and C. Other Deliveries: to the Agent for sale and delivery to each Buyer in respect of which TMGC II has not entered into a Balancing Agreement or an Exchange Agreement, the quantity of Gas 45522620.8 17 nominated by such Buyer pursuant to Section 6.0JB to be purchased and received from the Agent at such Displacement Point in such Month, including Transporter's Fuel. SECTION 6.03. Allocations and Adjustments. A. Allocations. If the quantity of Gas available for delivery by TMGC II at any Displacement Point in any Month is less than the total quantities of Gas otherwise required to be transferred and delivered by TMGC II at such Displacement Point in such Month pursuant to Section 6.02, TMGC II shall transfer and deliver only the following quantities of Gas at such Displacement Point in such Month allocated on account of the following Exempt Gas Buyers, first, until all Exempt Gas is allocated, and on account of all Buyers (including Exempt Buyers), second, in each case in the following order (and, within each priority, in proportion to the amounts otherwise required to be transferred and delivered on account of each such Buyer pursuant to Section 6.02), up to the amounts required to be transferred and delivered on account of each such Buyer pursuant to Section 6.02, until the total quantity of Gas allocated by TMGC II at such Displacement Point in such Month is equal to the quantity of Gas available for delivery by TMGC II at such Displacement Point in such Month: (1) TMGC I: first, TMGC I (if and while a Buyer) to the extent of the lesser of (a) the amount required to enable it to satisfy the requirements of all "Buyers", as therein defined, under the Prior Agreement that have not become such after the date of this Agreement and that have not elected to phase out their obligations thereunder prior to such Month or (b) the amount of Gas produced and saved in such Month from Mineral Interests acquired by TMGC II or any affiliate thereof from TMGC I; (2) Small Charter Buyers: second, each Charter Buyer (other than a Short-Term Buyer or Withdrawing Buyer) whose Maximum Annual Quantity is less than 1,000,000 MMBtus; (3) Other Charter Buyers: third, all Charter Buyers other than Short-Term Buyers, Withdrawing Buyers, and Buyers described in Clause (2) of this Subsection A; (4) Second Priority Buyers: fourth, all Buyers (other than Short-Term Buyers or Withdrawing Buyers) which are Second Priority Buyers; (5) Small Later Buyers: fifth, each Requirements Buyer (other than a Charter Buyer, Second Priority Buyer, Short-Term Buyer, or Withdrawing Buyer) whose Maximum Annual Quantity is less than 1,000,000 MMBtus; (6) Later Buyers: sixth, all Requirements Buyers of each class established by TMGC II (other than Charter Buyers, Second Priority Buyers, Buyers described in Clause (5) of this Subsection A, Short-Term Buyers, and Withdrawing Buyers), and among such classes of Requirements Buyers in the order in which TMGC II closes admission to such classes, and among Buyers in the same class, first, Buyers with remaining Purchase Contract terms of 15 years or more and, second, other Buyers in reverse order of their remaining Purchase Contract terms (i.e., longest first, shortest last); (7) Conditional Buyers: seventh, all Conditional Buyers (other than Withdrawing Buyers and Short-Term Buyers) of each class established by TMGC II, and among such classes of such Conditional Buyers in the order in which TMGC II closes admission to such classes; (8) Priority Withdrawing Buyers: eighth, all Long-Term Buyers that are Withdrawing Buyers and have notified TMGC II in writing of their election to receive priority allocations of Gas for the remaining term of their Purchase Contracts; 45522620.8 18 (9) Short-Term Buyers: ninth, all Short-Term Buyers which are not described in Clause (10) of this Subsection A of each class established by TMGC II, and among such classes of Short- Term Buyers in the order in which TMGC II closes admission to such classes; and (10) Non-Priority Withdrawing Buyers: tenth, all Withdrawing Buyers which have not notified TMGC II in writing of their election to receive priority allocations of Gas for the remaining term of their Purchase Contracts. B. Treatment of Purchase Contract Amendments. For purposes of this Section, each amendment of a Buyer's Purchase Contract to increase such Buyer's Maximum Annual Quantity shall be treated as the execution as of the date of such amendment of a new Purchase Contract for a Maximum Annual Quantity equal to the amount of such increase. C. Excess Supply. If the quantity of Gas expected to be available for delivery by TMGC II at any Displacement Point in any Month exceeds the total quantities of Gas otherwise required to be transferred and delivered by TMGC II at such Displacement Point in such Month pursuant to Section 6.02, TMGC II (1) shall use reasonable efforts (a) to sell such excess to one or more other Local Governments or State Agencies of the State of Texas that have authorized the Agent to purchase Gas on their behalf pursuant to joint purchasing arrangements and have agreed to use such Gas in accordance with Article Ten, if applicable, and/or (b) to exchange such Gas for Gas to be delivered to TMGC II at a later date pursuant to a balancing agreement and (2) may make other spot sales of such excess to one or more other Persons, in each case as described in Section 3.03 or 3.05 and to the extent permitted by the Indentures and Gas Supply Contracts. D. "Available for Delivery." As used herein, Gas is "available for delivery" by TMGC II (1) at a Displacement Point in any Month if such Gas is produced for the account of or sold and delivered to TMGC II at or near such Displacement Point in such Month and may be transported to such Displacement Point on commercially reasonable terms and (2) at a Buyer's Delivery Points in any Month if, after making all deliveries in such Month required by this Agreement of Gas available for delivery by TMGC II at the Displacement Points in such Month, the Agent is obligated to sell and deliver such Gas to such Buyer at such Displacement Point or TMGC II is entitled to receive such Gas under a Balancing Agreement or Exchange Agreement at such Delivery Points. All determinations of whether Gas is available for delivery by TMGC II at a Displacement Point or a Buyer's Delivery Point shall be made by TMGC II in its discretion and shall be binding on all other parties hereto. SECTION 6.04. Monthly Nomination Quantities. During each Day and Month in each Contract Year during the term of this Agreement, TMGC II shall sell and deliver to the Agent, and the Agent shall sell and deliver to each Buyer, at such Buyer's Delivery Points pursuant hereto: A. Balanced Deliveries: if a Balancing Agreement is in effect in respect of such Buyer, a quantity of Gas equal to (1) the quantity of Gas nominated to be purchased and received by such Buyer in such period pursuant to Section 6.0JB or (2) the maximum quantity of Gas which TMGC II is entitled to receive at such Buyer's Delivery Point in such period pursuant to such Balancing Agreement, whichever is less; B. Exchanged Deliveries: if TMGC II has entered into an Exchange Agreement entitling it to receive Gas at such Buyer's Delivery Point, a quantity of Gas equal to the quantity of Gas which TMGC II is entitled to receive at such Delivery Point in such period pursuant to such Exchange Agreement; and C. Other Deliveries: if TMGC II has not entered into a Balancing Agreement or an Exchange Agreement in respect of such Buyer, the quantity of Gas specified in Clause C of Section 6.02, as adjusted pursuant to Section 6.03. 45522620.8 19 SECTION 6.05. Daily Nominations. TMGC II shall confirm or reduce daily nominations of Gas to be delivered to it in each Month pursuant to Balancing Agreements and Exchange Agreements, and pursuant hereto to Buyers for whom no Balancing Agreement or Exchange Agreement is in effect, as and to the extent required, in TMGC II's sole judgment, to fill all confirmed nominations of Gas in such Month in an efficient manner without storage or unreasonable transportation charges. TMGC II shall make sales and deliveries of gas in each Day in each Month to each Buyer in respect of which a Balancing Agreement or an Exchange Agreement exists in accordance with such Buyer's nominations or, if none, in a quantity that bears the same proportion to the total quantity of Gas to be delivered to such Buyer hereunder and under its Supply Agreements on such Day as the quantity of Gas to be delivered to such Buyer hereunder in such Month bears to its total quantity of Gas to be delivered to such Buyer hereunder and under its Supply Contracts in such Month, subject to the provisions of the Balancing Agreement or Exchange Agreement in respect of such Buyer or any related Supplier-Exchanger Agreement. TMGC II shall notify each Buyer in respect of which no Balancing Agreement is in effect of such Buyer's Nominated Quantity for each Day of each Month, as determined in accordance with this Article, by the nomination deadline of such Buyer's Transporter for Gas transported by it in such Month. Each such Buyer shall notify TMGC II of such Buyer's Transporter and its nomination deadline. After TMGC II has notified Buyers of their Nominated Quantities for any Day, no Buyer may adjust its Nominated Quantity for such Day except with the prior consent of TMGC II. At the request of any Buyer, however, TMGC II shall use reasonable efforts to sell for Buyer's account, at any available price, any nominated Gas which such Buyer desires not to receive on any Day, and TMGC II and the Agent shall credit against the amount to be paid by the Agent and such Buyer for such Gas any proceeds of such sale received by TMGC II, subject to the requirements of any Indenture or Gas Supply Contract. SECTION 6.06. Notices of Proposed and Nominated Quantities. Each notice from a Buyer to TMGC II of such Buyer's proposed quantities and each notice from TMGC II to a Buyer of such Buyer's Nominated Quantities (1) shall be given in writing (including by facsimile or internet) or by telephone promptly confirmed in writing, (2) in the case of notices to TMGC II shall be given to any Person engaged by TMGC II to manage the nominations described in this Article at the address or number specified by TMGC II in writing to such Buyer, and (3) shall not be deemed to have been given until receipt by the Person to whom such notice is given or at the place to which notices to such Person are to be addressed. ARTICLE SEVEN TERMS AND CONDITIONS OF SALES SECTION 7.01. Incorporation by Reference. The Base Provisions (including all representations, warranties, and indemnities and the effect of Force Majeure) are incorporated herein by reference and, together with the elections described in this Section, shall apply to and be binding on TMGC II, the Agent, and each Buyer in respect of all sales and deliveries of Gas between such parties hereunder, except to the extent inconsistent herewith. For each sale of Gas by the Agent to a Buyer (and by TMGC II to the Agent in respect thereof), TMGC II, the Agent, and such Buyer hereby make the same elections under the Base Provisions as those made in the Supply Contract in effect for such Buyer (or, if more than one, in the Supply Contract in respect of which such 45522620.8 20 Gas was sold to the Balancer pursuant to the applicable Supplier-Exchanger Agreement) or, if none, then the default elections specified in the Base Provisions, except to the extent inconsistent herewith and except that such parties make the following elections under the Base Provisions, which shall supercede such Supply Contract elections: Section Election 1.2 Transaction Procedure Written 7.2 Payment Date 201h Day of Month following Month of delivery 7.2 Method of Payment Wire or automated clearing house (ACH) transfer, unless otherwise agreed by TMGC II 10.3.l Early Termination Damages Early Termination Damages do not apply unless elected in the related Supplier-Exchanger Agreement, if any 10.3.2 Other Agreement Set-Off Other Agreement Set-Offs Do Not Apply 14.5 Choice of Law Texas SECTION 7.02. Special Provisions. The following provisions shall apply to and control all sales of Gas by TMGC II and the Agent hereunder, notwithstanding anything in the Base Provisions to the contrary: A Procedures. The provisions of Articles Four, Five and Six of this Agreement shall supercede and replace Section I of the Base Provisions. B. Firm or Interruptible. All sales and purchases of Gas hereunder shall be Firm, unless such Gas is acquired for sale to a Buyer pursuant to an Interruptible transaction agreed to by a Buyer under a related Supplier-Exchanger Agreement, in which case the sales of such Gas to the Agent and the Buyer hereunder shall also be Interruptible. C. Alternate Damages; Termination Options. If Gas sold to the Agent and a Buyer is acquired by TMGC II pursuant to a transaction under a related Supplier-Exchanger Agreement, the terms of which are set forth in a Transaction Confirmation agreed to by such Buyer that specifies Alternate Damages or a Termination Option, then such Alternate Damages and Termination Option shall also apply to the sale of such Gas to the Agent and such Buyer under this Agreement. D. Indemnities. The indemnities given by TMGC II, the Agent, and each Buyer pursuant to Section 8.3 of the Base Provisions shall be limited to the extent permitted by law. E. Financial Responsibility. Article Ten of the Base Provisions shall be applied as if a Buyer's Supplier were guarantor ofTMGC II's and the Agent's obligations to sell and deliver Gas to or for the benefit of such Buyer, and sales and deliveries to each Buyer (and to the Agent for such Buyer's account), and of Gas acquired from each related Supplier, shall be treated as made pursuant to a separate Contract, separately terminable. Neither TMGC II nor the Agent nor any Buyer represents that it is a "forward contract merchant" within the meaning of the United States Bankruptcy Code. 45522620.8 21 F. Term. This Agreement may not be terminated except as provided in Section 1.04 and Article Eleven of this Agreement, notwithstanding anything in Section 12 of the Base Provisions to the contrary. G. Assignments. Section 14.1 of the Base Provisions is superceded and replaced in its entirety by Sections 1.03 and 11.04 of this Agreement. H. Amendments. The last sentence of Section 14.4 of the Base Provisions is superceded and replaced in its entirety by Section 1. 05 of this Agreement. I. Third Party Beneficiaries. Section 14. 7 of the Base Provisions 1s superceded and replaced in its entirely by Section 1. 03 of this Agreement. J. Alternate Dispute Resolution If the parties to a Supplier-Exchanger Agreement in respect of any Buyer agree to procedures for resolving disputes thereunder, then the same procedures shall apply to the resolution of disputes hereunder in respect of the sale and delivery of all Gas sold and delivered, or agreed to be sold and delivered, thereunder (and proceedings hereunder and thereunder may be consolidated), to the extent permitted by law. ARTICLE EIGHT TAXES SECTION 8.01. Property and Severance Taxes. The parties hereto understand and believe that TMGC II is exempt from the payment of all property taxes imposed by any municipality or political subdivision of the State of Texas on the Leases and Royalties acquired by TMGC II hereunder or the property subject thereto or used in connection therewith and from the payment of all production, severance, gathering, and similar taxes imposed by the State of Texas with respect to all Gas produced thereunder, all pursuant to article VIII, section 1 and article XI, section 9 of the Constitution of Texas and section 303.042 of the Enabling Act. TMGC II shall take and institute all necessary actions to preserve and defend such exemptions. If, as a result of or in settlement of any such action, it shall be determined that any such property, production, severance, or gathering shall not be exempt from tax, TMGC II shall pay all such taxes due and owing against such property or on account of such production, severance, or gathering. SECTION 8.02. Sales Taxes. The parties hereto understand and believe that all sales of Gas made to the Agent and the Buyers hereunder are exempt from sales, use, and other excise taxes imposed by the United States or the State of Texas or any municipality or political subdivision thereof. Buyers shall provide TMGC II and the Agent with any and all documentation necessary to evidence such Buyers' exemption from such tax. If at any time any such sale becomes subject to the payment of any sales or use tax imposed by any federal, state, or local authority, the Buyers shall pay or reimburse the Agent or TMGC II for all such taxes as shall be due or paid in respect of such sales. SECTION 8.03. Recovery of Taxes. If any taxes shall be imposed upon TMGC II in respect of its ownership or operation of the Production Rights or property used in connection therewith, TMGC II may recover such taxes by adjustment of the Discount used to determine the price of Gas sold and delivered hereunder pursuant to Section 5. 04. 45522620.8 22 ARTICLE NINE BILLING AND PAYMENT SECTION 9.01. Monthly Statements. On or before the 5th business day of each Month, TMGC II shall submit a statement to each Buyer showing the quantity of Gas delivered to such Buyer hereunder during the prior Month and invoicing the price for such Gas due from such Buyer to or for the account of the Agent pursuant to the terms of this Agreement. If the actual total quantities are not available by the billing date, TMGC II shall invoice on an estimated basis and adjust for differences from actual totals in the following Month's billing or as soon thereafter as available. SECTION 9.02. Early Payment Discounts. TMGC II may from time to time maintain a program providing discounts for all invoices paid on or before the date specified in such program, provided that such discounts are made available to all Buyers on the same basis. If TMGC II maintains such a program and any Buyer makes payment of the discounted amount on or before the date specified in such program, such discounted payment shall be considered payment of the applicable invoice in full. SECTION 9.03. Waiver of Set-Off, Etc. In order to induce Persons to purchase the Bonds so as to enable TMGC II to acquire Production Rights for a cost that enables it to sell Gas at the prices described herein, the Agent hereby waives all rights of set- off, recoupment, counterclaim, and abatement against TMGC II, the Related Suppliers, and the Trustees, and the Buyers hereby waive all rights of set-off, recoupment, counterclaim, and abatement against TMGC II, the Relaetd Suppliers, the Trustees, and the Agent, in each case to the fullest extent that they may lawfully agree and notwithstanding any breach by any such Person of any obligation hereunder or under any Indenture or Gas Supply Contract. SECTION 9.04. Audits; Financial Information. TMGC II shall provide to each Buyer on request a copy of its financial statements and accompanying report of auditors required to be delivered to the Trustees pursuant to the Indentures or Gas Supply Contracts. TMGC II shall permit each Buyer, or a representative appointed by it, to inspect its financial and other records during regular business hours on reasonable notice. ARTICLE TEN BUYERS' USE OF GAS SECTION 10.01. General. Each Buyer shall use Gas sold and delivered to it hereunder solely for public uses which it considers necessary, useful, or appropriate in connection with the operation of its electric utility system or gas utility system or enterprise or other public facilities or, in the case of TMGC I, for sale to other governmental entities that are or are eligible to become Buyers for such use. 45522620.8 23 SECTION 10.02. To Preserve Tax Exemption. No Exempt Gas Buyer shall knowingly use or permit the use of Exempt Gas sold and delivered to it hereunder in a manner which (or shall knowingly take or omit to take any other action which, if taken or omitted, respectively) would adversely affect the exclusion of interest on any Exempt Bond from the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes, or the exemption of the Leases and Royalties and their production from property and severance taxes. Without limiting the generality of the foregoing, each Exempt Gas Buyer shall comply with each specific covenant in this Article at all times prior to the last maturity of Bonds, unless and until (I) TMGC II shall have waived compliance with such covenant in writing or (2) such Buyer shall have delivered to TMGC II and each Trustee an Opinion of Counsel to the effect that failure to comply with such covenant, either generally or to the extent described therein, will not adversely affect any exclusion of interest on any Exempt Bond from the gross income, as defined in section 61 of the Code, of the owner thereof for federal income tax purposes or any applicable property or severance tax exemption, and thereafter such covenant shall no longer be binding upon such Buyer to the extent described in such Opinion of Counsel, anything in any other Section of this Article to the contrary notwithstanding. If, due to the promulgation of new or amended Regulations, the issuance of a private letter ruling to TMGC II or a published ruling, or otherwise, TMGC II concludes that compliance with any such covenant is not required to preserve the exclusion of interest on any Exempt Bond from such gross income, TMGC II shall seek an Opinion of Counsel to such effect and, upon receipt of such an opinion, shall so waive compliance with such covenant and shall notify each Exempt Gas Buyer of such waiver. SECTION 10.03. Use in Limited Service Area. Unless otherwise agreed by TMGC II in writing, each Exempt Gas Buyer agrees to resell Exempt Gas purchased and received by it hereunder in each Contract Year to such Persons, or to bum such Exempt Gas to generate electric energy that will be sold to such Persons, such that all of such Exempt Gas or electric energy will be consumed in a qualified service area or qualified annexed area of such Buyer, or of one or more other Local Governments to which such Buyer has sold such Exempt Gas or electric energy, within the meaning of section 141(d)(3)(B) of the Code. For such purposes, (1) a Buyer's or Local Government's "qualified service area" means an area throughout which such Buyer or Local Government provided gas or electric utility service, as applicable, at all times during each 10-year period prior to the date on which TMGC II acquires a Production Right pursuant to which Exempt Gas (or Gas exchanged therefor) sold and delivered to such Buyer is produced or otherwise delivered to TMGC II, and (2) a Buyer's or Local Government's "qualified annexed area" means an area (a) that is contiguous to one of such Person's qualified service areas or previously annexed qualified annexed areas and is annexed by such Person for general governmental purposes, (b) within which such Buyer or Local Government makes gas or electric utility service, as applicable, available to all members of the general public, and (c) that does not exceed 10% of the area of the qualified service area to which it is contiguous and all previously annexed qualified annexed areas contiguous thereto, determined as of the end of the calendar year preceding the calendar year in which such area is annexed. Unless otherwise agreed by TMGC II in writing, each Exempt Gas Buyer shall forecast and nominate Gas for purchase and receipt pursuant to Section 6.01 such that it may resell or bum its Nominated Quantities of Gas in full in accordance with the provisions of this Section. SECTION 10.04. No Private Use or Payments. Prior to the last maturity of the Bonds, no Exempt Gas Buyer shall use or permit the use of Exempt Gas sold and delivered to it hereunder directly or indirectly in any private business use, unless otherwise agreed by TMGC II in accordance with the applicable provisions of each Indenture and Gas Supply Contract. For these purposes, "private business use" means any trade or business carried on by any Person, or any activity of any Person other than a natural person, in each case excluding state and local governments, unless (1) such use is merely as a member of the general public, (2) such property is intended to be and is in fact reasonably available for use on 45522620.8 24 the same basis as natural persons not engaged in a trade or business, (3) no priority rights therein or special benefits therefrom are extended to such Person (other than customary and reasonable differences in rates for different classes of users), or (4) the term of committed use (including renewal options) does not exceed three years. For purposes of the foregoing covenant, property is considered to be "usetf' by a Person if: A. Dispositions: it is sold or otherwise disposed of, or leased, to such Person; B. Operation and Management: it is operated, managed, or otherwise physically employed, utilized, or consumed by such Person, excluding operation or management pursuant to an agreement which meets the guidelines set forth in Revenue Procedure 97-13, including any amendments or revisions thereto or superseding Regulations, or is described in subparagraph (A) through (D) of Section l .14 l-3(b )(4)(iii) of the Regulations; C. Legal Entitlements: capacity in or output or service from such property is reserved or committed to such Person under a take-or-pay, output, incentive payment, or similar contract or arrangement or special legal entitlements (e.g., priority rights) to beneficial use of such property are extended to such Person; or D. Economic Benefit: in the case of property not available for use by the general public, such property bestows a special economic benefit on such Person. SECTION 10.05. No Private Loan. No Exempt Gas Buyer shall use Exempt Gas sold and delivered to it hereunder directly or indirectly to make or finance loans to any Person other than a state or local government. For purposes of the foregoing covenant, Exempt Gas is considered to be "loanetf' to a Person if ( 1) it is sold or leased to such Person in a transaction which creates a debt for federal income tax purposes or (2) indirect benefits, or burdens and benefits of ownership, of such Exempt Gas are otherwise transferred in a transaction which is the economic equivalent of a loan. ARTICLE ELEVEN BUYERS SECTION 11.01. Addition of Buyers. Any Local Government or State Agency shall become a party to this Agreement, as a Buyer, when such Local Government or State Agency, TMGC II, and the Agent shall have executed and delivered a Purchase Contract. Upon such execution and delivery, such Local Government or State Agency shall be entitled to all the rights, privileges, and benefits, and shall assume all of the obligations, of a Buyer hereunder, except to the extent provided in such Purchase Contract, effective on the Effective Date specified in such Purchase Contract. SECTION 11.02. Term of Purchase Contract. The te1m of each Buyer's Purchase Contract shall extend from the Effective Date of such Purchase Contract to the earliest of (1) the end of the term specified in such Purchase Contract, as amended by written instrument executed and delivered by TMGC II, the Agent, and such Buyer, (2) the expiration of the term or termination of this Agreement, (3) if such Buyer has elected to phase out such Purchase Contract pursuant to Section 11.03, the date as of which TMGC II has surrendered, released, or terminated, or there shall have expired, all Production Rights and Gas Supply Contracts allocable to such Buyer pursuant to such Section or abandoned all 45522620.8 25 wells drilled on the property subject to all Leases allocable to such Buyer, if no other Production Rights and no Gas Supply Contracts are so allocable, (4) the date as of which such Buyer shall have disposed of or abandoned substantially all gas distribution and electric generating facilities owned by it, unless either such facilities have been transferred to a Local Government to which such Buyer's Purchase Contract has been assigned pursuant to Section J J. 04 or such Buyer has made arrangements to exchange Gas purchased hereunder for electric energy or such Buyer has agreed to use Gas purchased hereunder for consumption in its other public facilities, or (5) the date as of which such Purchase Contract shall have terminated by written instrument executed and delivered by TMGC II, the Agent, and such Buyer or by TMGC II and the Agent for cause. At such time as the term of any Buyer's Purchase Contract has expired, such Buyer shall no longer be considered a Buyer hereunder or be a party hereto or be obligated, or entitled to any right or privilege, hereunder. SECTION 11.03. Phase-Out of Purchase Contracts. Any Buyer may elect to phase out its obligation to purchase and receive either Exempt Gas only or all Gas hereunder, by giving notice of such election to TMGC II at least 45 days prior to the effective date of such election, which will have the consequence described in this Section. If any Buyer gives notice of a phase-out of its obligations hereunder in accordance with this Section, then the amount of Gas or Exempt Gas, as applicable, required to be purchased and received by such Buyer hereunder in each subsequent Contract Year shall not exceed the product of (I) the amount of Gas or Exempt Gas, as applicable, available for delivery at the Displacement Point at which Gas is required to be delivered to such Buyer, or to a Balancer or Exchanger on account of such Buyer, pursuant to Section 6. 02 in such Contract Year and produced or saved for the account of TMGC II pursuant to Production Rights acquired by TMGC II with proceeds of Bonds issued, or purchased or received pursuant to Gas Supply Contracts executed by TMGC II, on or before the 45th day after such notice is given and (2) a fraction, the numerator of which is such Buyer's Maximum Annual Quantity (or, for a Buyer with none, its projected Requirements) in such Contract Year and the denominator of which is the total Maximum Annual Quantity (or, for Buyers with none, projected Requirements) in such Contract Year of all Buyers to whom such Gas 1s available for delivery at their respective Delivery Points. For any Day in any Contract Year in which the Gas required to be purchased and received by any Buyer hereunder is limited by the provisions of this Section, the quantity of Gas in such Contract Year to which such Buyer's obligations hereunder are so limited shall be treated as such Buyer's "Maximum Annual Quantity" in such Contract Year. ' SECTION 11.04. Assignment by Buyer. Each Buyer may assign its Purchase Contract, in whole or in part, to any other Local Government or State Agency of the State of Texas and, in connection therewith, may change the Delivery Points at which Gas sold pursuant to the assigned portion shall be delivered pursuant to Section 5.02, with the consent of TMGC II, which consent shall not be umeasonably withheld, provided that the Delivery Point for the assigned portion of such Purchase Contract is the Displacement Point to which Gas is required to be delivered by TMGC II to or on account of the assignee or a Balancing Agreement or Exchange Agreement is in effect in respect of the assignee to exchange Gas at such Displacement Point for Gas at the assignee's Delivery Point. If the assignee assumes the obligations of such Buyer pursuant hereto in respect of the assigned portion of such Purchase Contract, then all rights and obligations of such Buyer hereunder in respect of such assigned portion shall transfer to and vest in such assignee, and such Buyer shall no longer be obligated hereunder in respect thereof. If TMGC II and such assignee elect to execute a new Purchase Contract to effect any such assignment, such Purchase Contract shall be deemed to have been executed as of the date of the Purchase Contract being assigned for purposes of Section 6. 03. At the request of any Buyer, TMGC II shall use reasonable efforts to solicit other Local Governments and State Agencies to accept an assignment of such Buyer's Purchase Contract or any portion thereof. 45522620.8 26 ARTICLE TWELVE MISCELLANEOUS SECTION 12.01. Limited Obligations of TMGC II, Agent, and Buyers. Neither TMGC II nor the Agent nor the Buyers shall be obligated to observe and perform any obligation hereunder except from and to the extent of the property and sources of funds to which such Person's obligations hereunder are limited by this Section, to which all recourse of any other party hereto shall be limited. No provision of this Agreement shall require any party hereto to expend or risk any other funds or incur any other financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers. Anything in this Agreement to the contrary notwithstanding, the performance by any party hereto of all duties and obligations imposed upon it hereby, the exercise by it of all powers granted to it hereunder, the carrying out of all covenants, agreements, and promises made by it hereunder, and liability of such party for all warranties and other covenants herein shall be limited solely to such property and sources of funds; and no such party shall be required to effectuate any of such duties, obligations, powers, or covenants except from, and to the extent of, such property and sources of funds. Whether or not therein expressly so provided, every provision of this Agreement shall be subject to the provisions of this Section. The obligations of TMGC II hereunder shall be limited to the property and funds held or pledged, or required to be held or pledged, under the Indentures, including the Production Rights, proceeds of the Bonds, and amounts paid to TMGC II hereunder, and to its rights under the Gas Supply Contracts, including Gas received thereunder. If a Balancing Agreement or Exchange Agreement is in effect in respect of any Buyer, then the obligations ofTMGC II and the Agent to sell and deliver Gas acquired or contracted to be acquired for such purpose under any related Supplier-Exchanger Agreement shall be limited to the Gas sold and delivered by the related Supplier and the rights of TMGC II thereunder. TMGC II hereby assigns such rights to the Agent, and the Agent hereby assigns such rights to such Buyer, as security for the performance of their respective obligations hereunder. The obligations of the Agent hereunder shall be limited to the Gas delivered to it by TMGC II pursuant to Section 4.01, the rights assigned to it by TMGC II pursuant to this Section, the proceeds of sale of such Gas to the Buyers pursuant to Section 5.01, and such other funds as may be paid to the Agent by any other party hereto to enable it to observe or perform any of its obligations hereunder. The obligations of the Buyers hereunder shall be limited to the current revenues of their respective electric utility systems and gas utility systems or enterprises, if Gas is purchased by them for such purpose, and otherwise their general current revenue (or, in the case of TMGC I, to the same extent as its obligations under the Prior Agreement) and, in the case of State Agencies, are subject to legislative appropriation. Neither TMGC II nor the Agent shall be obligated to sell and deliver Gas to any State Agency in any fiscal year of the State of Texas with an aggregate purchase price that exceeds funds appropriated for that purpose. No party hereto or other beneficiary hereof shall have any right to demand payment or performance by any other party hereto out of money raised or to be raised by taxation. SECTION 12.02. No Recourse Against Officers, Etc. No recourse under or upon any obligation, covenant, or agreement contained in this Agreement, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, or against any past, present, or future director, officer, or employee or member of the governing body, as such, of any party hereto or of any successor, or against any Person with whom any such party has contracted for goods or services, either directly or through such party, whether by virtue of any constitution or statute or rule of law, or by the enforcement of any assessment, judgment, or penalty, or otherwise; it being expressly understood that this Agreement is solely a corporate obligation, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the 45522620.8 27 incorporators, directors, officers, or employees, as such, of such party or any successor, or any member of its governing body, or any such contracting Person, or any of them, by reason of the obligations, covenants, or agreements contained in this Agreement or implied therefrom, and that any and all such personal liability either at common law or equity or by constitution or statute of, and any and all such rights and claims against, every such incorporator, member, director, officer, employee, or Person, as such, are hereby expressly waived and released as a condition of, and in consideration for, the execution of this Agreement. SECTION 12.03. Time of the Essence. Time shall be of the essence in the payment or performance of the obligations from time to time imposed upon the parties hereto by this Agreement. SECTION 12.04. No Fiduciaries. Notwithstanding any provision herein to the contrary, the relationship among all parties hereunder shall be as independent contractors acting as principals, and not as agents, trustees, or fiduciaries for any other party hereto. Each party hereto undertakes to perform such duties, and only such duties, on its part as are specifically set forth in this Agreement, and no implied duties, covenants, or obligations shall be inferred from or read into any provision of this Agreement. SECTION 12.05. Independence of TMGC I, TMGC II, Related Suppliers, and Agent. The Agent acknowledges that the Buyers, the holders of Bonds issued from time to time, and any Person who insures payment of such Bonds will rely upon (and would be substantially harmed if the Agent does not preserve), and the Agent therefore agrees not to take any action that would interfere with, the independent identities and independent corporate existence ofTMGC I, TMGC II, the Related Suppliers, and the Agent so long as TMGC II remains obligated hereby or under an Indenture or Gas Supply Contract. Without limiting the generality of the foregoing, for so long as TMGC II remains obligated hereby or under an Indenture or Gas Supply Contract, the Agent shall not include the assets or liabilities of TMGC II in the financial statements of the Agent; shall not commingle the assets or accounts of TMGC I, TMGC II, the Related Suppliers, and the Agent; shall not refer to TMGC II or its assets or activities as a division, department, or other part of, or as owned by, the Agent, TMGC I, or any Related Supplier; shall not seek to borrow money, issue bonds or other obligations, or otherwise obtain credit on the basis of TMGC H's assets; in the event the Agent shall file a petition under chapter 9 of the United States Bankruptcy Code, shall not request or consent to the consolidation ofTMGC I, TMGC II, or any Related Supplier or its assets or liabilities in the case commenced by such petition; shall not commingle the assets or activities of the Agent, TMGC I, or any Related Supplier with those ofTMGC II and, in the event the Agent elects to exercise any power granted to it pursuant to Section 303.045 of the Enabling Act, shall do so only in a manner that observes all requisite corporate formalities applicable to TMGC II. [The remainder of this page is intentionally left blank] 45522620.8 28 IN WITNESS WHEREOF, TMGC II and the Agent have duly executed this Agreement as of the day and year first written above and each Buyer has executed its Purchase Contract as of the Effective Date thereof. CITY OF LA GRANGE, TEXAS Attest/Countersign: c/h0. ,~f?,,J.yA) ..... Lisa Oltmann , City Secretary TEXAS MUNICIPAL GAS CORPORATION II Attest: 45522620.7 29 [This page intentionally left blank] 45522620.8 30 EXHIBIT A TO JOINT GAS PURCHASE CONTRACT General Terms and Conditions Base Contract for Sale and Purchase of Natural Gas SECTION 1. PURPOSE AND PROCEDURES 1.1. These General Terms and Conditions are intended to facilitate purchase and sale transactions of Gas on a Firm or Interruptible basis. "Buyer" refers to the party receiving Gas and "Seller" refers to the party delivering Gas. The entire agreement btw th rr hllbthC t t dfi d"S ti 27 e een epa 1ess a e e on rac as e ne m econ .. The parties have selected either the "Oral Transaction Procedure" or the "Written Transaction Procedure" as indicated on the Base Contract. Oral Transaction Procedure: -- 1.2. The parties will use the following Transaction Confirmation procedure. Any Gas purchase and sale transaction may be effectuated in an EDI transmission or telephone conversation with the offer and acceptance constituting the agreement of the parties. The parties shall be legally bound from the time they so agree to transaction terms and may each rely thereon. Any such transaction shall be considered a "writing" and to have been "signed". Notwithstanding the foregoing sentence, the parties agree that Confirming Party shall, and the other party may, confirm a telephonic transaction by sending the other party a Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means within three Business Days of a transaction covered by this Section 1.2 (Oral Transaction Procedure) provided that the failure to send a Transaction Confirmation shall not invalidate the oral agreement of the parties. Confirming Party adopts its confirming letterhead, or the like, as its signature on any Transaction Confirmation as the identification and authentication of Confirming Party. If the Transaction Confirmation contains any provisions other than those relating to the commercial terms of the transaction (i.e., price, quantity, performance obligation, delivery point, period of delivery and/or transportation conditions), which modify or supplement the Base Contract or General Terms and Conditions of this Contract (e.g., arbitration or additional representations and warranties), such provisions shall not be deemed to be accepted pursuant to Section 1.3 but must be expressly agreed to by both parties; provided that the foregoing shall not invalidate any transaction agreed to by the parties. Written Transaction Procedure: -- 1.2. The parties will use the following Transaction Confirmation procedure. Should the parties come to an agreement regarding a Gas purchase and sale transaction for a particular Delivery Period, the Confirming Party shall, and the other party may, record that agreement on a Transaction Confirmation and communicate such Transaction Confirmation by facsimile, EDI or mutually agreeable electronic means, to the other party by the close of the Business Day following the date of agreement. The parties acknowledge that their agreement will not be binding until the exchange of nonconflicting Transaction Confirmations or the passage of the Confirm Deadline without objection from the receivinq party, as provided in Section 1.3. 1.3. If a sending party's Transaction Confirmation is materially different from the receiving party's understanding of the agreement referred to in Section 1.2, such receiving party shall notify the sending party via facsimile, EDI or mutually agreeable electronic means by the Confirm Deadline, unless such receiving party has previously sent a Transaction Confirmation to the sending party. The failure of the receiving party to so notify the sending party in writing by the Confirm Deadline constitutes the receiving party's agreement to the terms of the transaction described in the sending party's Transaction Confirmation. If there are any material differences between timely sent Transaction Confirmations governing the same transaction, then neither Transaction Confirmation shall be binding until or unless such differences are resolved including the use of any evidence that clearly resolves the differences in the Transaction Confirmations. In the event of a conflict among the terms of (i) a binding Transaction Confirmation pursuant to Section 1.2, (ii) the oral agreement of the parties which may be evidenced by a recorded conversation, where the parties have selected the Oral Transaction Procedure of the Base Contract, (iii) the Base Contract, and (iv) these General Terms and Conditions, the terms of the documents shall govern in the priority listed in this sentence. 1.4. The parties agree that each party may electronically record all telephone conversations with respect to this Contract between their respective employees, without any special or further notice to the other party. Each party shall obtain any necessary consent of its agents and employees to such recording. Where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, the parties agree not to contest the validity or enforceability of telephonic recordings entered into in accordance with the requirements of this Base Contract. However, nothing herein shall be construed as a waiver of any objection to the admissibility of such evidence. 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-1 NAESB Standard 6.3.1 April 19, 2002 SECTION 2. DEFINITIONS The terms set forth below shall have the meaning ascribed to them below. Other terms are also defined elsewhere in the Contract and shall have the meanings ascribed to them herein. 2.1. "Alternative Damages" shall mean such damages, expressed in dollars or dollars per MMBtu, as the parties shall agree upon in the Transaction Confirmation, in the event either Seller or Buyer fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer. 2.2. "Base Contract" shall mean a contract executed by the parties that incorporates these General Terms and Conditions by reference; that specifies the agreed selections of provisions contained herein; and that sets forth other information required herein and any Special Provisions and addendum(s) as identified on page one. 2.3. "British thermal unit" or "Btu" shall mean the International BTU, which is also called the Btu {IT). 2.4. "Business Day" shall mean any day except Saturday, Sunday or Federal Reserve Bank holidays. 2.5. "Confirm Deadline" shall mean 5:00 p.m. in the receiving party's time zone on the second Business Day following the Day a Transaction Confirmation is received or, if applicable, on the Business Day agreed to by the parties in the Base Contract; provided, if the Transaction Confirmation is time stamped after 5:00 p.m. in the receiving party's time zone, it shall be deemed received at the opening of the next Business Day. 2.6. "Confirming Party" shall mean the party designated in the Base Contract to prepare and forward Transaction Confirmations to the other party. 2.7. "Contract" shall mean the legally-binding relationship established by (i) the Base Contract, (ii) any and all binding Transaction Confirmations and (iii) where the parties have selected the Oral Transaction Procedure in Section 1.2 of the Base Contract, any and all transactions that the parties have entered into through an EDI transmission or by telephone, but that have not been confirmed in a binding Transaction Confirmation. 2.8. "Contract Price" shall mean the amount expressed in U.S. Dollars per MMBtu to be paid by Buyer to Seller for the purchase of Gas as agreed to by the parties in a transaction. 2.9. "Contract Quantity" shall mean the quantity of Gas to be delivered and taken as agreed to by the parties in a transaction. 2.10. "Cover Standard", as referred to in Section 3.2, shall mean that if there is an unexcused failure to take or deliver any quantity of Gas pursuant to this Contract, then the performing party shall use commercially reasonable efforts to (i) if Buyer is the performing party, obtain Gas, (or an alternate fuel if elected by Buyer and replacement Gas is not available), or (ii) if Seller is the performing party, sell Gas, in either case, at a price reasonable for the delivery or production area, as applicable, consistent with: the amount of notice provided by the nonperforming party; the immediacy of the Buyer's Gas consumption needs or Seller's Gas sales requirements, as applicable; the quantities involved; and the anticipated length of failure by the nonperforming party. ' 2.11. "Credit Support Obligation(s)" shall mean any obligation(s) to provide or establish credit support for, or on behalf of, a party to this Contract such as an irrevocable standby letter of credit, a margin agreement, a prepayment, a security interest in an asset, a performance bond, guaranty, or other good and sufficient security of a continuing nature. 2.12. "Day" shall mean a period of 24 consecutive hours, coextensive with a "day" as defined by the Receiving Transporter in a particular transaction. 2.13. "Delivery Period" shall be the period during which deliveries are to be made as agreed to by the parties in a transaction. 2.14. "Delivery Point(s)" shall mean such point(s) as are agreed to by the parties in a transaction. 2.15. "EDI" shall mean an electronic data interchange pursuant to an agreement entered into by the parties, specifically relating to the communication of Transaction Confirmations under this Contract. 2.16. "EFP" shall mean the purchase, sale or exchange of natural Gas as the "physical" side of an exchange for physical transaction involving gas futures contracts. EFP shall incorporate the meaning and remedies of "Firm", provided that a party's excuse for nonperformance of its obligations to deliver or receive Gas will be governed by the rules of the relevant futures exchange regulated under the Commodity Exchange Act. 2.17. "Firm" shall mean that either party may interrupt its performance without liability only to the extent that such performance is prevented for reasons of Force Majeure; provided, however, that during Force Majeure interruptions, the party invoking Force Majeure may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and/or receipts is confirmed by the Transporter. 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-2 NAESB Standard 6.3.1 April 19, 2002 2.18. "Gas" shall mean any mixture of hydrocarbons and noncombustible gases in a gaseous state consisting primarily of methane. 2.19. "Imbalance Charges" shall mean any fees, penalties, costs or charges (in cash or in kind) assessed by a Transporter for failure to satisfy the Transporter's balance and/or nomination requirements. 2.20. "Interruptible" shall mean that either party may interrupt its performance at any time for any reason, whether or not caused by an event of Force Majeure, with no liability, except such interrupting party may be responsible for any Imbalance Charges as set forth in Section 4.3 related to its interruption after the nomination is made to the Transporter and until the change in deliveries and/or receipts is confirmed by Transporter. 2.21. "MMBtu" shall mean one million British thermal units, which is equivalent to one dekatherm. 2.22. "Month" shall mean the period beginning on the first Day of the calendar month and ending immediately prior to the commencement of the first Day of the next calendar month. 2.23. "Payment Date" shall mean a date, as indicated on the Base Contract, on or before which payment is due Seller for Gas received by Buyer in the previous Month. 2.24. "Receiving Transporter" shall mean the Transporter receiving Gas at a Delivery Point, or absent such receiving Transporter, the Transporter delivering Gas at a Delivery Point. 2.25. "Scheduled Gas" shall mean the quantity of Gas confirmed by Transporter(s) for movement, transportation or management. 2.26. "Spot Price " as referred to in Section 3.2 shall mean the price listed in the publication indicated on the Base Contract, under the listing applicable to the geographic location closest in proximity to the Delivery Point(s) for the relevant Day; provided, if there is no single price published for such location for such Day, but there is published a range of prices, then the Spot Price shall be the average of such high and low prices. If no price or range of prices is published for such Day, then the Spot Price shall be the average of the following: (i) the price (determined as stated above) for the first Day for which a price or range of prices is published that next precedes the relevant Day; and (ii) the price (determined as stated above) for the first Day for which a price or range of prices is published that next follows the relevant Day. 2.27. "Transaction Confirmation" shall mean a document, similar to the form of Exhibit A, setting forth the terms of a transaction formed pursuant to Section 1 for a particular Delivery Period. 2.28. "Termination Option" shall mean the option of either party to terminate a transaction in the event that the other party fails to perform a Firm obligation to deliver Gas in the case of Seller or to receive Gas in the case of Buyer for a designated number of days during a period as specified on the applicable Transaction Confirmation. 2.29. "Transporter(s)" shall mean all Gas gathering or pipeline companies, or local distribution companies, acting in the capacity of a transporter, transporting Gas for Seller or Buyer upstream or downstream, respectively, of the Delivery Point pursuant to a particular transaction. SECTION 3. PERFORMANCE OBLIGATION 3.1. Seller agrees to sell and deliver, and Buyer agrees to receive and purchase, the Contract Quantity for a particular transaction in accordance with the terms of the Contract. Sales and purchases will be on a Firm or Interruptible basis, as agreed to by the parties in a transaction. The parties have selected either the "Cover Standard" or the "Spot Price Standard" as indicated on the Base Contract. Cover Standard: 3.2. The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the positive difference, if any, between the purchase price paid by Buyer utilizing the Cover Standard and the Contract Price, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller for such Day(s); or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in the amount equal to the positive difference, if any, between the Contract Price and the price received by Seller utilizing the Cover Standard for the resale of such Gas, adjusted for commercially reasonable differences in transportation costs to or from the Delivery Point(s), multiplied by the difference between the Contract Quantity and the quantity actually taken by Buyer for such Day(s); or (iii) in the event that Buyer has used com,mercially reasonable efforts to replace the Gas or Seller has used commercially reasonable efforts to sell the Gas to a third party, and no such replacement or sale is available, then the sole and exclusive remedv of the oerformina oartv shall be anv unfavorable difference between the Contract Price and the Spot Price, adjusted 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-3 NAESB Standard 6.3. i April 19, 2002 for such transportation to the applicable Delivery Point, multiplied by the difference between the Contract Quantity and the quantity actually delivered by Seller and received by Buyer for such Day(s). Imbalance Charges shall not be recovered under this Section 3.2, but Seller and/or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3. The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party's invoice, which shall set forth the basis upon which such amount was calculated. Spot Price Standard: 3.2. The sole and exclusive remedy of the parties in the event of a breach of a Firm obligation to deliver or receive Gas shall be recovery of the following: (i) in the event of a breach by Seller on any Day(s), payment by Seller to Buyer in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the Contract Price from the Spot Price; or (ii) in the event of a breach by Buyer on any Day(s), payment by Buyer to Seller in an amount equal to the difference between the Contract Quantity and the actual quantity delivered by Seller and received by Buyer for such Day(s), multiplied by the positive difference, if any, obtained by subtracting the applicable Spot Price from the Contract Price. Imbalance Charges shall not be recovered under this Section 3.2, but Seller and/or Buyer shall be responsible for Imbalance Charges, if any, as provided in Section 4.3. The amount of such unfavorable difference shall be payable five Business Days after presentation of the performing party's invoice, which shall set forth the basis upon which such amount was calculated. 3.3. Notwithstanding Section 3.2, the parties may agree to Alternative Damages in a Transaction Confirmation executed in writing by both parties. 3.4. In addition to Sections 3.2 and 3.3, the parties may provide for a Termination Option in a Transaction Confirmation executed in writing by both parties. The Transaction Confirmation containing the Termination Option will designate the length of nonperformance triggering the Termination Option and the procedures for exercise thereof, how damages for nonperformance will be compensated, and how liquidation costs will be calculated. SECTION 4. TRANSPORTATION, NOMINATIONS, AND IMBALANCES 4.1. Seller shall have the sole responsibility for transporting the Gas to the Delivery Point(s). Buyer shall have the sole responsibility for transporting the Gas from the Delivery Point(s). 4.2. The parties shall coordinate their nomination activities, giving sufficient time to meet the deadlines of the affected Transporter{s). Each party shall give the other party timely prior Notice, sufficient to meet the requirements of all Transporter{s) involved in the transaction, of the quantities of Gas to be delivered and purchased each Day. Should either party become aware that actual deliveries at the Delivery Point(s} are greater or lesser than the Scheduled Gas, such party shall promptly notify the other party. 4.3. The parties shall use commercially reasonable efforts to avoid imposition of any Imbalance Charges. 'If Buyer or Seller receives an invoice from a Transporter that includes Imbalance Charges, the parties shall determine the validity as well as the cause of such Imbalance Charges. If the Imbalance Charges were incurred as a result of Buyer's receipt of quantities of Gas greater than or less than the Scheduled Gas, then Buyer shall pay for such Imbalance Charges or reimburse Seller for such Imbalance Charges paid by Seller. If the Imbalance Charges were incurred as a result of Seller's delivery of quantities of Gas greater than or less than the Scheduled Gas, then Seller shall pay for such Imbalance Charges or reimburse Buyer for such Imbalance Charges paid by Buyer. SECTION 5. QUALITY AND MEASUREMENT All Gas delivered by Seller shall meet the pressure, quality and heat content requirements of the Receiving Transporter. The unit of quantity measurement for purposes of this Contract shall be one MMBtu dry. Measurement of Gas quantities hereunder shall be in accordance with the established procedures of the Receiving Transporter. 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-4 NAESB Standard 6.3.1 April 19, 2002 SECTION 6. TAXES ! I The parties have selected either "Buyer Pays At and After Delivery Point" or "Seller Pays Before and At Delivery Point" as ' indicated on the Base Contract. Buyer Pays At and After Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ("Taxes") on or with respect to the Gas prior to the Delivery Point( s ). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas at the Delivery Point(s) and all Taxes after the Delivery Point(s). If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof. Seller Pays Before and At Delivery Point: Seller shall pay or cause to be paid all taxes, fees, levies, penalties, licenses or charges imposed by any government authority ("Taxes") on or with respect to the Gas prior to the Delivery Point(s) and all Taxes at the Delivery Point(s). Buyer shall pay or cause to be paid all Taxes on or with respect to the Gas after the Delivery Point(s). If a party is required to remit or pay Taxes that are the other party's responsibility hereunder, the party responsible for such Taxes shall promptly reimburse the other party for such Taxes. Any party entitled to an exemption from any such Taxes or charges shall furnish the other party any necessary documentation thereof. SECTION 7. BILLING, PAYMENT, AND AUDIT 7.1. Seller shall invoice Buyer for Gas delivered and received in the preceding Month and for any other applicable charges, providing supporting documentation acceptable in industry practice to support the amount charged. If the actual quantity delivered is not known by the billing date, billing will be prepared based on the quantity of Scheduled Gas. The invoiced quantity will then be adjusted to the actual quantity on the following Month's billing or as soon thereafter as actual delivery information is available. 7.2. Buyer shall remit the amount due under Section 7.1 in the manner specified in the Base Contract, in immediately available funds, on or before the later of the Payment Date or 10 Days after receipt of the invoice by Buyer; provided that if the Payment Date is not a Business Day, payment is due on the next Business Day following that date. In the event any payments are due Buyer hereunder, payment to Buyer shall be made in accordance with this Section 7.2. 7.3. In the event payments become due pursuant to Sections 3.2 or 3.3, the performing party may submit an invoice to the nonperforming party for an accelerated payment setting forth the basis upon which the invoiced amount was calculated. Payment from the nonperforming party will be due five Business Days after receipt of invoice. 7.4. If the invoiced party, in good faith, disputes the amount of any such invoice or any part thereof, such invoiced party will pay such amount as it concedes to be correct; provided, however, if the invoiced party disputes the amount due, it must provide supporting documentation acceptable in industry practice to support the amount paid or disputed. In the event the parties are unable to resolve such dispute, either party may pursue any remedy available at law or in equity to enforce its rights pursuant to this Section. 7.5. If the invoiced party fails to remit the full amount payable when due, interest on the unpaid portion shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then-effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate. 7.6. A party shall have the right, at its own expense, upon reasonable Notice and at reasonable times, to examine and audit and to obtain copies of the relevant portion of the books, records, and telephone recordings of the other party only to the extent reasonably necessary to verify the accuracy of any statement, charge, payment, or computation made under the Contract This right to examine, audit, and to obtain copies shall not be available with respect to proprietary information not directly relevant to transactions under this Contract All invoices and billings shall be conclusively presumed final and accurate arid all associated claims for under-or overpayments shall be deemed waived unless such invoices or 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-5 NAESB Standard 6.3.1 April 19, 2002 billings are objected to in writing, with adequate explanation and/or documentation, within two years after the Month of Gas delivery. All retroactive adjustments under Section 7 shall be paid in full by the party owing payment within 30 Days of Notice and substantiation of such inaccuracy. 7.7. Unless the parties have elected on the Base Contract not to make this Section 7.7 applicable to this Contract, the parties shall net all undisputed amounts due and owing, and/or past due, arising under the Contract such that the party owing the greater amount shall make a single payment of the net amount to the other party in accordance with Section 7; provided that no payment required to be made pursuant to the terms of any Credit Support Obligation or pursuant to Section 7.3 shall be subject to netting under this Section. If the parties have executed a separate netting agreement, the terms and conditions therein shall prevail to the extent inconsistent herewith. SECTION 8. TITLE, WARRANTY, AND INDEMNITY 8.1. Unless otherwise specifically agreed, title to the Gas shall pass from Seller to Buyer at the Delivery Point( s ). Seller shall have responsibility for and assume any liability with respect to the Gas prior to its delivery to Buyer at the specified Delivery Point(s). Buyer shall have responsibility for and any liability with respect to said Gas after its delivery to Buyer at the Delivery Point(s). 8.2. Seller warrants that it will have the right to convey and will transfer good and merchantable title to all Gas sold hereunder and delivered by it to Buyer, free and clear of all liens, encumbrances, and claims. EXCEPT AS PROVIDED IN THIS SECTION 8.2 AND IN SECTION 14.8, ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY PARTICULAR PURPOSE, ARE DISCLAIMED. 8.3. Seller agrees to indemnify Buyer and save it harmless from all losses, liabilities or claims including reasonable attorneys' fees and costs of court ("Claims"), from any and all persons, arising from or out of claims of title, personal injury or property damage from said Gas or other charges thereon which attach before title passes to Buyer. Buyer agrees to indemnify Seller and save it harmless from all Claims, from any and all persons, arising from or out of claims regarding payment. personal injury or property damage from said Gas or other charges thereon which attach after title passes to Buyer. 8.4. Notwithstanding the other provisions of this Section 8, as between Seller and Buyer, Seller will be liable for all Claims to the extent that such arise from the failure of Gas delivered by Seller to meet the quality requirements of Section 5. SECTION 9. NOTICES 9.1. All Transaction Confirmations, invoices, payments and other communications made pursuant to the Base Contract ("Notices") shall be made to the addresses specified in writing by the respective parties from time to time. 9.2. All Notices required hereunder may be sent by facsimile or mutually acceptable electronic means, a nationally recognized overnight courier service, first class mail or hand delivered. 9.3. Notice shall be given when received on a Business Day by the addressee. In the absence of proof of the actual receipt date, the following presumptions will apply. Notices sent by facsimile shall be deemed to have been received upon the sending party's receipt of its facsimile machine's confirmation of successful transmission. If the day on which such facsimile is received is not a Business Day or is after five p.m. on a Business Day, then such facsimile shall be deemed to have been received on the next following Business Day. Notice by overnight mail or courier shall be deemed to have been received on the next Business Day after it was sent or such earlier time as is "Confirmed by the receiving party. Notice via first class mail shall be considered delivered five Business Days after mailing. SECTION 10. FINANCIAL RESPONSIBILITY 10.1. If either party ("X") has reasonable grounds for insecurity regarding the performance of any obligation under this Contract (whether or not then due) by the other party ("Y") (including, without limitation, the occurrence of a material change in the creditworthiness of Y), X may demand Adequate Assurance of Performance. "Adequate Assurance of Performance" shall mean sufficient security in the form, amount and for the term reasonably acceptable to X, including, but not limited to, a standby irrevocable letter of credit. a prepayment, a security interest in an asset or a performance bond or guaranty (including the issuer of any such security). , 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-6 NAESB Standard 6.3.1 April 19, 2002 10.2. In the event (each an "Event of Default") either party (the "Defaulting Party") or its guarantor shall: (i) make an assignment or any general arrangement for the benefit of creditors; (ii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a proceeding or case under any bankruptcy or similar law for the protection of creditors or have such petition filed or proceeding commenced against it; (iii) otherwise become bankrupt or insolvent (however evidenced); (iv) be unable to pay its debts as they fall due; (v) have a receiver, provisional liquidator, conservator, custodian, trustee or other similar official appointed with respect to it or substantially all of its assets; (vi) fail to perform any obligation to the other party with respect to any Credit Support Obligations relating to the Contract; (vii) fail to give Adequate Assurance of Performance under Section 10.1 within 48 hours but at least one Business Day of a written request by the other party; or (viii) not have paid any amount due the other party hereunder on or before the second Business Day following written Notice that such payment is due; then the other party (the "Non-Defaulting Party") shall have the right, at its sole election, to immediately withhold and/or suspend deliveries or payments upon Notice and/or to terminate and liquidate the transactions under the Contract, in the manner provided in Section 10.3, in addition to any and all other remedies available hereunder. 10.3. If an Event of Default has occurred and is continuing, the Non-Defaulting Party shall have the right, by Notice to the Defaulting Party, to designate a Day, no earlier than the Day such Notice is given and no later than 20 Days after such Notice is given, as an early termination date (the "Early Termination Date") for the liquidation and termination pursuant to Section 10.3.1 of all transactions under the Contract, each a "Terminated Transaction". On the Early Termination Date, all transactions will terminate, other than those transactions, if any, that may not be liquidated and terminated under applicable law or that are, in the reasonable opinion of the Non- Defaulting Party, commercially impracticable to liquidate and terminate ("Excluded Transactions"), which Excluded Transactions must be liquidated and terminated as soon thereafter as is reasonably practicable, and upon termination shall be a Terminated Transaction and be valued consistent with Section 10.3.1 below. With respect to each Excluded Transaction, its actual termination date shall be the Early Termination Date for purposes of Section 10.3.1. The parties have selected either "Early Termination Damages Apply" or "Early Termination Damages Do Not Apply" as indicated on the Base Contract. ., ____ Early Termination Damages Apply: 10.3.1 As of the Early Termination Date, the Non-Defaulting Party shall determine, in good faith and in a commercially reasonable manner, (i) the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract and (ii) the Market Value, as defined below, of each Terminated Transaction. The Non-Defaulting Party shall (x) liquidate and accelerate each Terminated Transaction at its Market Value, so that each amount equal to the difference between such Market Value and the Contract Value, as defined below, of such Terminated Transaction(s) shall be due to the Buyer under the Terminated Transaction(s) if such Market Value exceeds the Contract Value and to the Seller if the opposite is the case; and (y) where appropriate, discount each am9unt then due under clause (x) above to present value in a commercially reasonable manner as of the Early Termination Date (to take account of the period between the date of liquidation and the date on which such amount would have otherwise been due pursuant to the relevant Terminated Transactions). For purposes of this Section 10.3.1, "Contract Value" means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the Contract Price, and "Market Value" means the amount of Gas remaining to be delivered or purchased under a transaction multiplied by the market price for a similar transaction at the Delivery Point determined by the Non-Defaulting Party in a commercially reasonable manner. To ascertain the Market Value, the Non-Defaulting Party may consider, among other valuations, any or all of the settlement prices of NYMEX Gas futures contracts, quotations from leading dealers in energy swap contracts or physical gas trading markets, similar sales or purchases and any other bona fide third-party offers, all adjusted for the length of the term and differences in transportation costs. A party shall not be required to enter into a replacement transaction(s) in order to determine the Market Value. Any extension(s) of the term of a transaction to which parties are not bound as of the Early Termination Date (including but not limited to "evergreen provisions") shall not be considered in determining Contract Values and Market Values. For the avoidance of doubt, any option pursuant to which one party has the right to extend the term of a transaction shall be considered in determining Contract Values and Market Values. The rate of interest used in calculating net present value shall be determined by the Non-Defaultinq Party in a commercially reasonable manner. Early Termination Dama~es Do Not Apply: 10.3.1. As of the Early Termination Date, the Non-Defaulting Party shall determine, in good faith and in a commercially reasonable manner, the amount owed (whether or not then due) by each party with respect to all Gas delivered and received between the parties under Terminated Transactions and Excluded Transactions on and before the Early Termination Date and all other 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-7 NAESB Standard 6.3.1 April 19, 2002 applicable charges relating to such deliveries and receipts (including without limitation any amounts owed under Section 3.2), for which payment has not yet been made by the party that owes such payment under this Contract. The parties have selected either "Other Agreement Setoffs Apply" or "Other Agreement Setoffs Do Not Apply" as indicated on the Base Contract. Other Agreement Setoffs Apply: 10.3.2. The Non-Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount"). At its sole option and without prior Notice to the Defaulting Party, the Non-Defaulting Party may setoff (i) any Net Settlement Amount owed to the Non-Defaulting Party against any margin or other collateral held by it in connection with any Credit Support Obligation relating to the Contract; or (ii) any Net Settlement Amount payable to the Defaulting Party against any amount(s) payable by the Defaulting Party to the Non-Defaulting Party under any other agreement or arrangement between the parties. Other Agreement Setoffs Do Not Apply: 10.3.2. The Non-Defaulting Party shall net or aggregate, as appropriate, any and all amounts owing between the parties under Section 10.3.1, so that all such amounts are netted or aggregated to a single liquidated amount payable by one party to the other (the "Net Settlement Amount"). At its sole option and without prior Notice to the Defaulting Party, the Non-Defaulting Party may setoff any Net Settlement Amount owed to the Non-Defaulting Party against any margin or other collateral held by it in connection with any Credit Suooort Obliqation relatinq to the Contract. 10.3.3. If any obligation that is to be included in any netting, aggregation or setoff pursuant to Section 10.3.2 is unascertained, the Non-Defaulting Party may in good faith estimate that obligation and net, aggregate or setoff, as applicable, in respect of the estimate, subject to the Non-Defaulting Party accounting to the Defaulting Party when the obligation is ascertained. Any amount not then due which is included in any netting, aggregation or setoff pursuant to Section 10.3.2 shall be discounted to net present value in a commercially reasonable manner determined by the Non-Defaulting Party. 10.4 As soon as practicable after a liquidation, Notice shall be given by the Non-Defaulting Party to the Defaulting Party of the Net Settlement Amount, and whether the Net Settlement Amount is due to or due from the Non-Defaulting Party. The Notice shall include a written statement explaining in reasonable detail the calculation of such amount, provided that failure to give such Notice shall not affect the validity or enforceability of the liquidation or give rise to any claim by the Defaulting Party against the Non-Defaulting Party. The Net Settlement Amount shall be paid by the close of business on the second Business Day following such Notice, which date shall not be earlier than the Early Termination Date. Interest on any unpaid portion of the Net Settlement Amount shall accrue from the date due until the date of payment at a rate equal to the lower of (i) the then-effective prime rate of interest published under "Money Rates" by The Wall Street Journal, plus two percent per annum; or (ii) the maximum applicable lawful interest rate. 10.5 The parties agree that the transactions hereunder constitute a "forward contract" within the meaning of the United States Bankruptcy Code and that Buyer and Seller are each "forward contract merchants" within the meaning of the United States Bankruptcy Code. 10.6 The Non-Defaulting Party's remedies under this Section 10 are the sole and exclusive remedies of the Non-Defaulting Party with respect to the occurrence of any Early Termination Date. Each party reserves to itself all other rights, setoffs, counterclaims and other defenses that it is or may be entitled to arising from the Contract. 10.7 With respect to this Section 10, if the parties have executed a separate netting agreement with close-out netting provisions, the terms and conditions therein shall prevail to the extent inconsistent herewith. SECTION 11. FORCE MAJEURE 11.1. Except with regard to a party's obligation to make payment(s) due under Section 7, Section 10.4, and Imbalance Charges under Section 4, neither party shall be liable to the other for failure to perform a Firm obligation, to the extent such failure was caused by Force Majeure. The term "Force Majeure" as employed herein means any cause not reasonably within the control of the party claiming suspension, as further defined in Section 11.2. 11.2. Force Majeure shall include, but not be limited to, the following: (i) physical events such as acts of God, landslides, lightning, earthquakes, fires, storms or storm warnings, such as hurricanes, which result in evacuation of the affected area, floods, washouts, explosions, breakage or accident or necessity of repairs to machinery or equipment or lines of pipe; (ii) weather related events affecting an entire geographic region, such as low temperatures which cause freezing or failure of wells or lines of pipe; (iii) interruption and/or 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved A-8 NAESB Standard 6.3.1 April 19, 2002 '· __ , curtailment of Firm transportation and/or storage by Transporters; (iv) acts of others such as strikes, lockouts or other industrial disturbances, riots, sabotage, insurrections or wars; and (v) governmental actions such as necessity for compliance with any court order, law, statute, ordinance, regulation, or policy having the effect of law promulgated by a governmental authority having jurisdiction. Seller and Buyer shall make reasonable efforts to avoid the adverse impacts of a Force Majeure and to resolve the event or occurrence once it has occurred in order to resume performance. 11.3. Neither party shall be entitled to the benefit of the provisions of Force Majeure to the extent performance is affected by any or all of the following circumstances: (i) the curtailment of interruptible or secondary Firm transportation unless primary, in-path, Firm transportation is also curtailed; (ii) the party claiming excuse failed to remedy the condition and to resume the performance of such covenants or obligations with reasonable dispatch; or (iii) economic hardship, to include, without limitation, Seller's ability to sell Gas at a higher or more advantageous price than the Contract Price, Buyer's ability to purchase Gas at a lower or more advantageous price than the Contract Price, or a regulatory agency disallowing, in whole or in part, the pass through of costs resulting from this Agreement; (iv) the loss of Buyer's market(s) or Buyer's inability to use or resell Gas purchased hereunder, except, in either case, as provided in Section 11.2; or (v) the loss or failure of Seller's gas supply or depletion of reserves, except, in either case, as provided in Section 11.2. The party claiming Force Majeure shall not be excused from its responsibility for Imbalance Charges. 11.4. Notwithstanding anything to the contrary herein, the parties agree that the settlement of strikes, lockouts or other industrial disturbances shall be within the sole discretion of the party experiencing such disturbance. 11.5. The party whose performance is prevented by Force Majeure must provide Notice to the other party. Initial Notice may be given orally; however, written Notice with reasonably full particulars of the event or occurrence is required as soon as reasonably possible. Upon providing written Notice of Force Majeure to the other party, the affected party will be relieved of its obligation, from the onset of the Force Majeure event, to make or accept delivery of Gas, as applicable, to the extent and for the duration of Force Majeure, and neither party shall be deemed to have failed in such obligations to the other during such occurrence or event. 11.6. Notwithstanding Sections 11.2 and 11.3, the parties may agree to alternative Force Majeure provisions in a Transaction Confirmation executed in writing by both parties. SECTION 12. TERM This Contract may be terminated on 30 Day's written Notice, but shall remain in effect until the expiration of the latest Delivery Period of any transaction(s). The rights of either party pursuant to Section 7.6 and Section 10, the obligations to make payment hereunder, and the obligation of either party to indemnify the other, pursuant hereto shall survive the termination of the Base Contract or any transaction. SECTION 13. LIMITATIONS FOR BREACH OF ANY PROVISION FOR WHICH AN EXPRESS REMEDY OR MEASURE OF DAMAGES IS PROVIDED, SUCH EXPRESS REMEDY OR MEASURE OF DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY. A PARTY'S LIABILITY HEREUNDER SHALL BE LIMITED AS SET FORTH IN SUCH PROVISION, AND ALL OTHER REMEDIES OR DAMAGES AT I.AW OR IN EQUITY ARE WAIVED. IF NO REMEDY OR MEASURE OF DAMAGES IS EXPRESSLY PROVIDED HEREIN OR IN A TRANSACTION, A PARTY'S LIABILITY SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY. SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW OR IN EQUITY ARE WAIVED. UNLESS EXPRESSLY HEREIN PROVIDED, NEITHER PARTY SHALL BE LIABLE FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION DAMAGES, BY STATUTE, IN TORT OR CONTRACT, UNDER ANY INDEMNITY PROVISION OR OTHERWISE. IT IS THE INTENT OF THE PARTIES THAT THE LIMITATIONS HEREIN IMPOSED ON REMEDIES AND THE MEASURE OF DAMAGES BE WITHOUT REGARD TO THE CAUSE OR CAUSES RELATED THERETO, INCLUDING THE NEGLIGENCE OF ANY PARTY, WHETHER SUCH NEGLIGENCE BE SOLE, JOINT OR CONCURRENT, OR ACTIVE OR PASSIVE. TO THE EXTENT ANY DAMAGES REQUIRED TO BE PAID HEREUNDER ARE LIQUIDATED, THE PARTIES ACKNOWLEDGE THAT THE DAMAGES ARE DIFFICULT OR IMPOSSIBLE TO DETERMINE, OR OTHERWISE OBTAINING AN ADEQUATE REMEDY IS INCONVENIENT AND THE DAMAGES CALCULATED HEREUNDER CONSTITUTE A REASONABLE APPROXIMATION OF THE HARM OR LOSS. 45522620.8 Copyright© 2002 North American Energy Standards Board, Inc. AU Rights Reserved A-9 NAESB Standard 6.3.1 April 19, 2002 SECTION 14. MISCELLANEOUS 14.1. This Contract shall be binding upon and inure to the benefit of the successors, assigns, personal representatives, and heirs of the respective parties hereto, and the covenants, conditions, rights and obligations of this Contract shall run for the full term of this Contract. No assignment of this Contract, in whole or in part, will be made without the prior written consent of the non-assigning party (and shall not relieve the assigning party from liability hereunder), which consent will not be unreasonably withheld or delayed; provided, either party may (i) transfer, sell, pledge, encumber, or assign this Contract or the accounts, revenues, or proceeds hereof in connection with any financing or other financial arrangements, or (ii) transfer its interest to any parent or affiliate by assignment, merger or otherwise without the prior approval of the other party. Upon any such assignment, transfer and assumption, the transferor shall remain principally liable for and shall not be relieved of or discharged from any obligations hereunder. 14.2. If any provision in this Contract is determined to be invalid, void or unenforceable by any court having jurisdiction, such determination shall not invalidate, void, or make unenforceable any other provision, agreement or covenant of this Contract. 14.3. No waiver of any breach of this Contract shall be held to be a waiver of any other or subsequent breach. 14.4 This Contract sets forth all understandings between the parties respecting each transaction subject hereto, and any prior contracts, understandings and representations, whether oral or written, relating to such transactions are merged into and superseded by this Contract and any effective transaction(s). This Contract may be amended only by a writing executed by both parties. 14.5. The interpretation and performance of this Contract shall be governed by the laws of the jurisdiction as indicated on the Base Contract, excluding, however, any conflict of laws rule which would apply the law of another jurisdiction. 14.6. This Contract and all provisions herein will be subject to all applicable and valid statutes, rules, orders and regulations of any governmental authority having jurisdiction over the parties, their facilities, or Gas supply, this Contract or transaction or any provisions thereof. 14.7. There is no third party beneficiary to this Contract. 14.8. Each party to this Contract represents and warrants that it has full and complete authority to enter into and perform this Contract. Each person who executes this Contract on behalf of either party represents and warrants that it has full and complete authority to do so and that such party will be bound thereby. 14.9. The headings and subheadings contained in this Contract are used solely for convenience and do not constitute a part of this Contract between the parties and shall not be used to construe or interpret the provisions of this Contract. 14.10. Unless the parties have elected on the Base Contract not to make this Section 14.10 applicable to this Contract, neither party shall disclose directly or indirectly without the prior written consent of the other party the terms of any transaction to a third party (other than the employees, lenders, royalty owners, counsel, accountants and other agents of the party, or prospective purchasers of all or substantially all of a party's assets or of any rights under this Contract, provided such persons shall have, agreed to keep such terms confidential) except (i) in order to comply with any applicable law, order, regulation, or exchange rule, (ii) to the extent necessary for the enforcement of this Contract , (iii) to the extent necessary to implement any transaction, or (iv) to the extent such information is delivered to such third party for the sole purpose of calculating a published index. Each party shall notify the other party of any proceeding of which it is aware which may result· in disclosure of the terms of any transaction (other than as permitted hereunder) and use reasonable efforts to prevent or limit the disclosure. The existence of this Contract is not subject to this confidentiality obligation. Subject to Section 13, the parties shall be entitled to all remedies available at law or in equity to enforce, or seek relief in connection with this confidentiality obligation. The terms of any transaction hereunder shall be kept confidential by the parties hereto for one year from the expiration of the transaction. In the event that disclosure is required by a governmental body or applicable law, the party subject to such requirement may disclose the material terms of this Contract to the extent so required, but shall promptly notify the other party, prior to disclosure, and shall cooperate (consistent with the disclosing party's legal obligations) with the other party's efforts to obtain protective orders or similar restraints with respect to such disclosure at the expense of the other party. 14.11 The parties may agree to dispute resolution procedures in Special Provisions attached to the Base Contract or in a Transaction Confirmation executed in writing by both parties. _4_55_2_2_62_0_.8 ___________________ --=-A=--.::..10.:__ __________________________ _ Copyright© 2002 North American Energy Standards Board, Inc. All Rights Reserved NAESB Standard 6.3.1 April 19,2002 PURCHASE CONTRACT EXHIBITB TO JOINT GAS PURCHASE CONTRACT 1. Joint Purchase Contract. The Buyer specified below hereby becomes a party to and, except to the extent described herein, assumes all rights and obligations of a "Buyer" under the Joint Gas Purchase Contract, dated as of January 1, 2006 (the "Joint Contract"), among TMGC II (specified below), the Agent (specified below), and Local Governments and State Agencies, as therein defined, who become parties thereto, and TMGC II and the Agent hereby consent thereto. The terms of the Joint Contract are hereby incorporated herein by reference. 2. Category of Purchaser. The Buyer is [check and complete one or more]: 0 a Requirements Buyer described in Section 6.03A(_J of the Joint Contract, 0 a Conditional Buyer described in Section 6. OJA(_) of the Joint Contract, and/ or 0 an Exempt Gas Buyer, because it will accept Exempt Gas to satisfy all or any part of its Requirements without further action on its part. 3. Purchase of Gas. The Buyer agrees to receive and buy from the Agent, and the Agent agrees to sell and deliver to the Buyer, at the Delivery Point, the Buyer's Nominated Quantities of Gas during the term of this Purchase Contract, which shall not exceed the Buyer's Requirements in any Contract Year. The Buyer agrees to nominate Gas for purchase so that it will buy from the Agent not less than the Buyer's Requirements in any Contract Year (subject to the next paragraph), to the extent Gas is available for delivery to the Buyer under the Joint Contract and except as otherwise provided therein, at the price specified below. 4. Maximum Annual Quantity. The Maximum Annual Quantity of Gas that the Buyer agrees to nominate for purchase hereunder, up to its Requirements and subject to the conditions provided in the Joint Contract, in each Contract Year is: 0 its Requirements or 0 as specified in Schedule A attached hereto. 5. Price. The Buyer will pay for all Gas purchased and received by it hereunder in any period at a price equal to the Gross Price identified herein for such period less the Discount determined by TMGC II in accordance with the Joint Contract and then in effect. The Buyer will be entitled to a partial rebate of such payments when, as, and to the extent that rebates are declared by TMGC II under the Joint Contract. 6. Delivery and Gross Price. A Balancing Agreement between TMGC II and a Balancer will be used by TMGC II to deliver Gas to the Buyer, unless otherwise agreed by TMGC II and the Buyer. One or more of the Buyer's existing Suppliers have executed a Supplier-Exchanger Agreement with such Balancer. For so long as such or any replacement Balancing Agreement and Supplier-Exchanger Agreement are in effect in respect of the Buyer, the Buyer's Gross Price for each Day and Month will be the weighted average prices payable by the Buyer (if a Requirements Buyer) under its Supply Contract with each such Supplier (or substitute Supplier which has so agreed) or payable by the Balancer with the consent of the Buyer under a Supplier-Exchanger Agreement (if a Conditional Buyer), for Gas delivered to the Buyer in such Day or Month, and the Buyer's Delivery Points will be the points specified in such Supply Contracts with such Suppliers (if a Requirements Buyer) or in such Supplier- Exchanger Agreements (if a Conditional Buyer), unless otherwise agreed by TMGC II and the Buyer. Thereafter, 45522620.8 B-1 the Buyer's Delivery Points and Gross Price will be as provided in the Joint Contract or as agreed to between them in writing. one or more]: 7. Use. The Buyer will use all Gas purchased hereunder (or Gas exchanged therefor) [check D in its electric utility system to generate electric power and/or D in its gas utility system or enterprise and/or D to secure a discount in the electric energy charges paid by it or (in the case of a political subdivision corporation) its member buyers and/or 0 for consumption in its (or for resale to other Local Governments and State Agencies for consumption in their) other public facilities. The Buyer agrees that all Exempt Gas sold and delivered to it under the Joint Contract will be consumed in, or to produce electric energy consumed in, qualified service areas and qualified annexed areas and that no such Exempt Gas will be used in a private trade or business or to make a private loan, as provided more fully and except as permitted by Article Ten of the Joint Contract. 8. Address. The address of the Buyer for notices received under the Joint Contract is: Telephone No. L_) _______ _ Facsimile No. L_) ________ _ Internet: _____________ _ 9. Special Provisions. [insert special provisions, if any]. 10. Term. This Purchase Contract shall commence on the Effective Date hereof, which is the latest of the effective dates of the Balancing Agreement and initial Supplier-Exchanger Agreement referred to above and , and shall extend to . The term of this Purchase Contract shall automatically be extended by one year on each December 31, unless the Buyer, TM GC II, or the Agent has given written notice to the other two parties of its election not to extend the term of this Purchase Contract prior to such December 31, but in no event shall the term of this Purchase Contract be extended beyond December 31, , except by written amendment executed by the parties hereto. This Purchase Contract may be phased out at the election of the Buyer as described in the Joint Contract. The parties hereto have caused this Purchase Contract to be duly executed, effective as of the Effective Date described above. BUYER: Attest/Countersign: By: ............................................................... . Name: ................................................. . Name: ........................................................ . Title: .................................................... . Title: ........................................................... .. 45522620.8 B-2 Attest/Countersign: Name: ................................................. . Title: .................................................... . Attest: Name: ................................................. . Title: .................................................... . AGENT: CITY OF LA GRANGE, TEXAS By:······························································· Name: Mayor TMGCII: TEXAS MUNICIPAL GAS CORPORATION II By:······························································· Name: .......................................................... . Schedule A to Purchase Contract President The Buyer's Maximum Annual Quantity, if any, and projected Requirements (each expressed in MMBtus) in each Contract Year are as follows: 45522620.8 Year 2006 200( 2008 2009 2010 2011-2045 Maximum Annual Quantity (if applicable) B-3 Projected Requirements 46166195.2 Palo Alto Purchase Contract 1 PURCHASE CONTRACT 1. Joint Purchase Contract. The Buyer specified below hereby becomes a party to and, except to the extent described herein, assumes all rights and obligations of a “Buyer” under the Joint Gas Purchase Contract, dated as of January 1, 2006 (the “Joint Contract”), among MuniGas (specified below), the Agent (specified below), and Local Governments and State Agencies, as therein defined, who become parties thereto, and MuniGas and the Agent hereby consent thereto. The terms of the Joint Contract are hereby incorporated herein by reference. 2. Category of Purchaser. The Buyer is [check and complete one or more]: a Requirements Buyer described in Section 6.03A(__) of the Joint Contract, a Conditional Buyer described in Section 6.03A(__) of the Joint Contract, and/or an Exempt Gas Buyer, because it will accept Exempt Gas to satisfy all or any part of its Requirements without further action on its part. 3. Purchase of Gas. The Buyer agrees to receive and buy from the Agent, and the Agent agrees to sell and deliver to the Buyer, at the Delivery Point, the Buyer’s Nominated Quantities of Gas during the term of this Purchase Contract, which shall not exceed the Buyer’s Requirements in any Contract Year. The Buyer agrees to nominate Gas for purchase so that it will buy from the Agent not less than the Buyer’s Requirements in any Contract Year (subject to the next paragraph), to the extent Gas is available for delivery to the Buyer under the Joint Contract and except as otherwise provided therein, at the price specified below. 4. Maximum Annual Quantity. The Maximum Annual Quantity of Gas that the Buyer agrees to nominate for purchase hereunder, up to its Requirements and subject to the conditions provided in the Joint Contract, in each Contract Year is: its Requirements or as specified in Schedule A attached hereto. 5. Price. The Buyer will pay for all Gas purchased and received by it hereunder in any period at a price equal to the Gross Price identified herein for such period less the Discount determined by MuniGas in accordance with the Joint Contract and then in effect. The Buyer will be entitled to a partial rebate of such payments when, as, and to the extent that rebates are declared by MuniGas under the Joint Contract. 6. Delivery and Gross Price. A Balancing Agreement between MuniGas and a Balancer will be used by MuniGas to deliver Gas to the Buyer, unless otherwise agreed by MuniGas and the Buyer. One or more of the Buyer’s existing Suppliers is expected to execute a Supplier-Exchanger Agreement with such Balancer. For so long as such or any replacement Balancing Agreement and Supplier-Exchanger Agreement are in effect in respect of the Buyer, the Buyer’s Gross Price for each Day and Month will be the weighted average prices payable by the Buyer (if a Requirements Buyer) under its Supply Contract with each such Supplier (or substitute Supplier which has so agreed) or payable by the Balancer with the consent of the Buyer under a Supplier-Exchanger Agreement (if a Conditional Buyer), for Gas delivered to the Buyer in such Day or Month, and the Buyer’s Delivery Points will be the points specified in such Supply Contracts with such Suppliers (if a Requirements Buyer) or in such Supplier-Exchanger Agreements (if a Conditional Buyer), unless otherwise agreed by MuniGas and the Buyer. Thereafter, the Buyer’s Delivery Points and Gross Price will be as provided in the Joint Contract or as agreed to between them in writing. ATTACHMENT D 46166195.2 Palo Alto Purchase Contract 2 7. Use. The Buyer will use all Gas purchased hereunder (or Gas exchanged therefor) [check one or more]:  in its electric utility system to generate electric power and/or  in its gas utility system or enterprise and/or  to secure a discount in the electric energy charges paid by it or (in the case of a political subdivision corporation) its member buyers and/or  for consumption in its (or for resale to other Local Governments and State Agencies for consumption in their) other public facilities. The Buyer agrees that all Exempt Gas sold and delivered to it under the Joint Contract will be consumed in, or to produce electric energy consumed in, qualified service areas and qualified annexed areas and that no such Exempt Gas will be used in a private trade or business or to make a private loan, as provided more fully and except as permitted by Article Ten of the Joint Contract. 8. Address. The address of the Buyer for notices received under the Joint Contract is: ______________________________ Telephone No. (____) ______________________________ Facsimile No. (____) ______________________________ Internet: 9. Special Provisions. (A) The Buyer shall forecast, nominate, and sell or burn Gas such that all such Gas is (1) furnished to customers of the Buyer who purchase such Gas other than for resale or to produce electricity for sale and are located in either (a) an area throughout which the Buyer provided natural gas transmission or distribution services at all times during the 5-year period ending on the date of issue of the bonds issued by MuniGas or an affiliate to finance the acquisition of such Gas or (b) an area recognized as the natural gas service area of the Buyer under state or federal law, or (2) used by the Buyer to produce electricity that is furnished to electric customers of the Buyer who purchase such electricity other than for resale and are located in either (a) an area throughout which the Buyer provided electricity distribution service at all times during such 5-year period or (b) an area recognized as the electricity service area of the Buyer under state or federal law, all determined in accordance with written explanations provided by MuniGas to the Buyer from time to time, or (3) used by the Buyer to produce electricity that (a) is sold to a utility owned by a state or local government and is furnished by such utility to electric customers of such utility who purchase such electricity other than for resale and are located in either (i) an area throughout which such utility provided electricity distribution service at all times during such 5-year period or (ii) an area recognized as the electricity service area of such entity under state or federal law, all determined in accordance with written explanations provided by MuniGas to such entity from time to time, or (b) is sold to a local government or state agency that subsequently sells such electricity as described in clause 3(a), or (4) sold to a utility owned by a state or local government that furnishes or uses such gas solely as described in the immediately preceding clauses (1), (2), and (3), applied as if references to “the Buyer” therein were to such utility, or (5) used to fuel the pipeline transportation of such Gas. The Buyer shall not sell electricity that is produced using Gas to a local government or state agency pursuant to clause 3(b) above unless such local government or state agency has agreed in writing to use such electricity in accordance with this Section 9(A), and has agreed, upon request from MuniGas, to provide evidence from the utilities owned by state or local governments to whom it sells electricity that such electricity is furnished to its customers in accordance with the requirements set forth in this Section 9(A). (B) In no event shall any Gas produced from mineral interests located in the State of Texas and owned by the Agent, MuniGas, or any affiliated corporation, or exchanged for any Gas so produced, be available for sale by MuniGas through the Agent to the Buyer. 46166195.2 Palo Alto Purchase Contract 3 (C) Notwithstanding the Effective Date established in Section 10 of this Purchase Contract, the Buyer agrees that neither MuniGas nor the Agent shall be obligated to commence initial gas deliveries under this Purchase Contract until MuniGas, in MuniGas’ sole determination, has acquired sufficient additional Production Rights to enable MuniGas to sell and Buyer to purchase the Maximum Annual Quantity specified in Schedule A without adversely affecting its ability to meet the full requirements of all other Buyers that have equal or better priority to allocations of Gas under the terms of the Joint Contract and have become a party thereto prior to the execution of this Purchase Contract. (D) The Buyer may terminate this Purchase Contract after 180 days after the Effective Date established in Section 10, in the Buyer’s sole discretion, on at least 75 days prior written notice of termination to MuniGas and the Agent specifying the termination date, unless prior to the specified date, MuniGas and the Agent have become obligated to commence initial deliveries of Gas in accordance with paragraph 9(C) of this Purchase Contract. (E) The Buyer represents that: (1) the obligations of the Buyer under this Purchase Contract, and any renewal or extension hereof are payable as maintenance and operation costs of the Buyer’s gas utility system, and all such payments are payable prior to the debt obligations of the Buyer, (2) at the time of entering into this Purchase Contract, and each annual or other renewal and extension hereof, the Buyer has not defaulted in payment of the Buyer’s obligations under any natural gas purchase contract in the immediately preceding 10 years due to circumstances reflecting adversely on such Buyer’s credit, and (3) in the event the representations described in the immediately preceding clauses (1) or (2) cannot be satisfied at the time as of which the Buyer may elect not to extend the term of this Purchase Contract, the Buyer will notify MuniGas of such fact and exercise such election not to extend, unless otherwise agreed by MuniGas. (F) All amounts to be paid to or deposited with MuniGas hereunder shall be paid to or deposited with The Bank of New York Mellon Trust Company, N.A. (or any successor trustee designated by MuniGas in writing) by wire transfer of immediately available funds to such trustee in accordance with the following instructions or such other instructions as may be designated to the Buyer by MuniGas in writing: The Bank of New York Mellon, Dallas, Texas ABA# 021 000 018 GLA# 111-565, TAS# 224385 Attn: Jully Jiang (713) 483-7062 Ref: MuniGas (G) MuniGas and the Agent consent to the assignment of this Purchase Contract by Buyer to any Local Government or State Agency, whether within or outside the State of Texas, pursuant to the provisions of and with the effect described in Section 11.04 of the Joint Contract, provided that any change in Delivery Point shall be subject to MuniGas’ consent which shall not be unreasonably withheld in accordance with such Section and any assignment by Buyer shall be subject to the approval by MuniGas of the credit standing of the assignee as determined by MuniGas in its sole discretion. (H) MuniGas and Agent acknowledge that Buyer is subject to the California Constitution Article 1, Section 3, and the California Public Records Act, Cal. Gov. Code § 6250 et seq. (“Public Records Act”) in regard to this Purchase Contract, the Joint Contract and related documents (the “Disclosed Documents”), which may constitute public records subject to inspection and copying by the public under the authority of the California Constitution and the Public Records Act. Buyer shall, consistent with those laws, use reasonable efforts to provide MuniGas and/or the Agent with notice of any third party request to inspect and copy any of the Disclosed Documents, which MuniGas and/or the Agent might deem confidential and exempt from disclosure, in order that MuniGas and/or the Agent may timely seek to protect those documents from disclosure to the third party. MuniGas and the Agent acknowledge and agree that Buyer shall not be liable to MuniGas or the Agent if Buyer makes disclosure in accordance with the California Constitution and/or the Public Records Act before MuniGas and/or the Agent has timely obtained an order to prevent Buyer from making the requested disclosure to the third party. MuniGas and the Agent further agree that each shall defend, indemnify and hold Buyer harmless against any claim, 46166195.2 Palo Alto Purchase Contract 4 action or litigation (including, but not limited to, all judgments, costs, fees and attorneys’ fees (including on appeal)) that may result from denial by Buyer of a Public Records Act request. 10. Term. This Purchase Contract shall commence on the Effective Date hereof, which is the latest of the effective dates of the Balancing Agreement and initial Supplier-Exchanger Agreement referred to above and May 1, 2014, and shall extend to December 31, 2023. The term of this Purchase Contract shall automatically be extended by one year on each December 31, unless the Buyer, MuniGas, or the Agent has given written notice to the other two parties of its election not to extend the term of this Purchase Contract prior to such December 31, but in no event shall the term of this Purchase Contract be extended beyond December 31, 2045, except by written amendment executed by the parties hereto. This Purchase Contract may be phased out at the election of the Buyer as described in the Joint Contract. [Signature page follows] 46166195.2 Palo Alto Purchase Contract 5 The parties hereto have caused this Purchase Contract to be duly executed, effective as of the Effective Date described above. BUYER: CITY OF PALO ALTO, CALIFORNIA By:.............................................................................................. Name: ........................................................................................ Title: .......................................................................................... Attest/Countersign: ………………………………………….……….. Name: ………………………………………….. Title:…………………………………………….. AGENT: CITY OF LA GRANGE, TEXAS By:.............................................................................................. Name: Janet Moerbe Title: Mayor Attest/Countersign: ………………………………………….……….. Name: Lisa Oltmann Title: City Secretary MUNIGAS: MUNICIPAL GAS ACQUISITION AND SUPPLY CORPORATION By:.............................................................................................. Name: Glen Pape Title: President Attest: ………………………………………….……….. Name: Janetta Morris Title: Secretary 46166195.2 Palo Alto Purchase Contract 6 Schedule A to Purchase Contract The Buyer’s Maximum Annual Quantity, if any, and projected Requirements (each expressed in MMBtus) in each Contract Year are as follows: Year Maximum Annual Quantity (if applicable) Projected Requirements 2014 N/A 2015 N/A 2016 N/A 2017 N/A 2018 N/A 2019–2045 N/A [Non-BPEC] Supplier Addendum 1 ADDENDUM TO GAS SUPPLY CONTRACT This Addendum to Gas Supply Contract (this “Addendum”), dated as of ___________ __, 2014, among ___________________, ______ (hereinafter referred to as the “Buyer”), _____________ (hereinafter referred to as the “Supplier”), and BP Energy Company, a Delaware corporation (hereinafter referred to as the “Dealer”), W I T N E S S E T H: WHEREAS, the Buyer and the Supplier have entered into a contract dated as of ______________ (hereinafter, together with extensions and replacements thereof and amendments thereto entered into by the Buyer and the Supplier, referred to as the “Supply Contract”), under which, for the term, on the conditions, and up to the maximum amount specified therein, the Supplier has agreed to sell and deliver to the Buyer, at the point or points designated therein or pursuant thereto (hereinafter referred to as the “Buyer’s Point of Receipt”), a portion of the Buyer’s requirements for natural gas in accordance with transactions agreed to by them from time to time; WHEREAS, Municipal Gas Acquisition and Supply Corporation (hereinafter referred to as “MuniGas”) has offered to admit the Buyer as a party to a Joint Gas Purchase Contract, dated as of January 1, 2006 (hereinafter, as amended from time to time, referred to as the “Cooperative Contract”) under which MuniGas would sell and deliver through the City of La Grange, Texas (herein referred to as the “Agent”) to the Buyer, and the Buyer would receive and purchase from the Agent, at the Buyer’s Point of Receipt certain quantities of gas at a lower price than the price of gas delivered to the Buyer by or on behalf of the Supplier pursuant to the Supply Contract; WHEREAS, in order to enable MuniGas to perform its obligations under the Cooperative Contract without excessive transportation costs for (and to accommodate seasonal imbalances in supply of and demand for) all or a portion of the gas to be sold and delivered to the Buyer pursuant to the Cooperative Contract, MuniGas and the Dealer have entered into a Gas Exchange and Annual Balancing Agreement, dated as of January 1, 2006 (as amended from time to time, herein referred to as the “Exchange Agreement”) under which the Dealer is required to deliver certain quantities of gas to MuniGas at the Buyer’s Point of Receipt, from and to the extent of gas sold and delivered to the Dealer by the Supplier pursuant hereto, in exchange for gas delivered by MuniGas to the Dealer at one or more other locations; WHEREAS, the Supplier is willing to enter into this Addendum to sell and deliver gas to the Dealer at the Buyer’s Point of Receipt and to reduce the quantities of gas required to be received and purchased by the Buyer from the Supplier at the Buyer’s Point of Receipt pursuant to the Supply Contract; and WHEREAS, although the gas sales agreement between the Supplier and the Dealer and the amendment to the Supply Contract between the Buyer and the Supplier, respectively, are being documented together in this Addendum for convenience, they are independent two-party transactions for which other parties to this Addendum bear no liability (except only as expressly stated herein); NOW, THEREFORE, for and in consideration of the premises and of the mutual covenants, agreements, conditions, and undertakings herein set forth, the parties hereto agree as follows: 1.Sale and Delivery to the Dealer. On each day while the Supply Contract and this Addendum are in effect, the Supplier shall sell and deliver to or for the account of the Dealer, and the Dealer shall receive or cause to be received and purchased from the Supplier, at the Buyer’s Point of ATTACHMENT E [Non-BPEC] Supplier Addendum 2 Receipt and for the same price as the price for gas sold and delivered by the Supplier to the Buyer pursuant to the Supply Contract, quantities of gas equal to the Supplier’s Share of the quantities of gas nominated and confirmed for delivery to the Buyer at the Buyer’s Point of Receipt on such day pursuant to the Cooperative Contract, but not more than the lesser of (a) the maximum quantity of gas then required to be sold and delivered by the Supplier to the Buyer at the Buyer’s Point of Receipt pursuant to the Supply Contract, determined without giving effect to Section 2 hereof, or (b) the Supplier’s Share of the quantity of gas which MuniGas schedules for delivery to the Buyer on such day at the Buyer’s Point of Receipt. Such sale and purchase of gas between the Supplier and the Dealer shall be made on the same terms (including warranties and indemnities of the Supplier and the effect of force majeure) and subject to the same conditions as the terms and conditions of the Supply Contract to the same extent and for all purposes as if the Supplier and the Dealer had entered into the Supply Contract, except as otherwise provided herein and except that the Dealer shall not make (and shall not be deemed to have made) any representations, warranties, covenants, or certifications of the Buyer or the Supplier under the Supply Contract and the Supplier shall not have the right to audit the Dealer’s books and records. If more than one price is set forth in the Supply Contract for gas sold and delivered thereunder by the Supplier (e.g., due to graduated volume discounts), the price for gas sold to the Dealer pursuant to this paragraph shall be the weighted average price (determined in accordance with Section 3 hereof) for gas sold and delivered by the Supplier to the Buyer pursuant to the Supply Contract. The Buyer and the Supplier acknowledge that the net amounts payable by the Buyer to the Supplier pursuant to the Supply Contract (as amended by this Addendum) shall equal the amounts payable by the Buyer to the Supplier pursuant to the Supply Contract (determined as if not amended by this Addendum), less the amounts payable by the Dealer to the Supplier pursuant to this Addendum. As used herein, the “Supplier’s Share” for any day or month is equal to a fraction, the numerator of which is equal to quantity of gas then required to be sold and delivered by the Supplier to the Buyer at the Buyer’s Point of Receipt pursuant to the Supply Contract, determined without giving effect to Section 2 hereof, and the denominator of which is equal to the aggregate quantities of gas then required to be sold and delivered to the Buyer at the Buyer’s Point of Receipt by the Supplier and all other gas producers and dealers who have entered into Addenda with the Buyer and the Dealer substantially similar to this Addendum (determined without giving effect to such Addenda). If the Buyer specifies a Supplier’s Share that causes the limitations described in this Section to be exceeded, then such confirmation shall be deemed to confirm a sale from the Supplier to the Buyer, rather than to the Dealer, to the extent of any such excess. The Buyer shall receive from MuniGas at the Buyer’s Point of Receipt all gas there delivered by the Supplier to the Dealer hereunder, and the Dealer shall be obligated to receive gas from the Supplier hereunder only to the extent of such receipt by the Buyer. 2. Sale and Delivery to Buyer. The quantity of gas to be sold and delivered by the Supplier to the Buyer and received and purchased by the Buyer from the Supplier at the Buyer’s Point of Receipt pursuant to the Supply Contract on each day shall be reduced by the quantity of gas sold and delivered by the Supplier to or for the account of the Dealer at the Buyer’s Point of Receipt pursuant to Section 1 hereof, and the Buyer and the Supplier release each other from all obligations under the Supply Contract relating to such quantity of gas, other than the representations, warranties, covenants, and certifications of the Buyer in respect thereof that are not made by the Dealer hereunder. If more than one price is set forth in the Supply Contract for gas sold and delivered thereunder by the Supplier, then the price at which such reduced quantity of gas shall be sold to and purchased by the Buyer thereunder shall be equal to the weighted average price referred to in Section 1 hereof. 3. Payments. The Buyer shall send (or shall cause the Supplier to send) a copy of each transaction confirmation to MuniGas when and as issued or received, and the Buyer shall also compute and, on or before the last business day of each month, shall notify MuniGas and the Supplier of the Supplier’s Share of all gas confirmed for delivery by MuniGas to the Buyer at the Buyer’s Point of Receipt in such month pursuant to the Cooperative Contract. MuniGas shall provide a copy of the [Non-BPEC] Supplier Addendum 3 transaction confirmation to Dealer upon request. To the extent of gas delivered by the Supplier at the Buyer’s Point of Receipt in such month, the Supplier’s Share of the quantities so notified by MuniGas shall be deemed to be delivered to the Dealer, rather than to the Buyer, in such month, subject to the further provisions of this paragraph. The Supplier shall cause such deliveries to be invoiced to the Dealer, at the price referred to in Section 1 hereof, by the 10th day of the following month, and the Dealer shall pay for such deliveries by the later of the 25th day of such following month or 10 days after receipt of such invoice or, if the day for such payment is not a Business Day, then on the next Business Day. All other gas delivered by the Supplier at the Buyer’s Point of Receipt in such month shall be deemed to be delivered and shall be invoiced by the Supplier to the Buyer at the same price in accordance with the provisions of the Supply Contract. Solely for purposes of computing any applicable weighted average price, all gas sold and delivered by the Supplier to the Buyer or the Dealer at the Buyer’s Point of Receipt in such month pursuant to this Addendum or the Supply Contract shall be deemed to have been sold and delivered to the Buyer. The Dealer shall be entitled to net and set off amounts owing to Supplier hereunder against any other amounts owed by the Supplier to the Dealer under any other agreement between the Supplier and the Dealer. The Buyer does not guaranty and shall not be liable for any payment owed by any other party hereto to any other party hereto. 4. No Liability; Indemnity. The Supplier and the Buyer agree that the Dealer shall not be liable under any theory to the Supplier or the Buyer for (a) any breach by the Buyer of any term of the Supply Contract, the Cooperative Contract, this Addendum, or any other contract to which the Buyer is a party, (b) any breach by the Supplier of any of the terms of the Supply Contract, this Addendum, or any other contract to which it is a party, or (c) any breach by either the Supplier or the Buyer, or their agents, of any duty of care, law, regulation, or other legal obligation applicable to it, for gas sold and delivered by the Supplier to the Buyer (or to the Dealer hereunder) pursuant to the Supply Contract or any other supply arrangement applicable to any third party seller of gas to the Buyer (or to the Dealer hereunder). The Dealer and the Buyer agree that the Supplier likewise shall not be liable under any theory to the Buyer or the Dealer for (a) any breach by the Buyer of any term of the Supply Contract, the Cooperative Contract, or any other contract to which the Buyer is a party, (b) any breach by the Dealer of any of the terms of the Exchange Agreement or any other contract to which it is a party, or (c) any breach by either the Dealer or the Buyer of any duty of care, law, regulation, or other legal obligation applicable to it, for gas sold or exchanged and delivered by the Dealer pursuant to the Exchange Agreement. In addition, the Dealer shall have no obligation to nominate or confirm for delivery any quantity of gas for any period. Except for the obligations to receive and purchase gas at the price described in Section 1, the Dealer shall have no obligations or liabilities in favor of the Supplier or any other person hereunder or under the Supply Contract (whether or not in the context of force majeure), including, without limitation, obligations or liabilities (i) for taxes, warranties of title or merchantability, royalties, indemnities, scheduling fees, imbalance charges, overpull or unauthorized gas penalties or charges, operational flow order penalties or charges, or similar costs, or losses resulting from the liquidation of hedge positions or (ii) to maintain or operate any measurement or transportation facilities, to manage transportation contracts or pipeline capacity, to enter into financial hedge transactions with the Buyer, to provide risk management services or consulting services of any type (including, but not limited to, hedging strategies, projecting gas supply costs and fuel requirements, or regulatory services), to pay any early termination damages or cover damages, to provide security or collateral, to provide any type of fixed price, trigger price, or other risk management products to Buyer, or to act as agent in any capacity for Buyer or Supplier under the Supply Contract. The obligations of the Dealer to the Supplier hereunder shall not be affected by any failure by MuniGas to observe and perform its obligations under the Exchange Agreement or any imbalance existing thereunder. The Supplier acknowledges that any event which constitutes force majeure or otherwise excuses performance by the Buyer under the Supply Contract or by MuniGas under the Exchange Agreement or Cooperative Contract with respect to any receipt or purchase of gas supplied pursuant to this Addendum, including any breach by contractual counterparties under any related contract that has such effect, shall excuse performance by the Dealer hereunder. [Non-BPEC] Supplier Addendum 4 The Supplier shall indemnify the Dealer and hold it harmless from and against any loss, cost or liability accruing to the Dealer resulting from (a) any claim by the Buyer or any other person of breach by the Supplier of, or negligence or misconduct by the Supplier in performance under, the Supply Contract or this Addendum, or breach of any duty of care, law, regulation, or other legal obligation applicable to the Supplier in connection therewith or herewith, (b) any claim which attaches before title to gas sold and delivered by the Supplier to the Dealer hereunder passes to the Dealer, and (c) any failure of gas sold and delivered by the Supplier to the Dealer hereunder to meet quality standards under the Supply Contract. 5. Nondisclosure by Dealer. The Dealer shall not disclose to any person the terms of the Supply Contract (the “Confidential Information”) except for disclosures of such terms (i) to Municipal Energy Resources Partners, Ltd. (“MERP”), Municipal Energy Resources Corporation (“MERC”), MuniGas, and directors, officers, employees, contractors, auditors, agents, and representatives of and counsel to the Dealer and the Dealer’s parent companies and affiliates (the “Representatives”), MERP, MERC, or MuniGas who need the Confidential Information for purposes of performing the services provided under this Addendum, the Exchange Agreement, and all other documents executed by Dealer in connection herewith and therewith or (ii) that are requested or required (by oral questions, interrogatories, requests for information or documents in legal proceedings, subpoena, civil investigative demand, or other similar process) to be disclosed or otherwise are required to be disclosed by law or in connection with legal proceedings regarding this Addendum, or the Exchange Agreement or the enforcement hereof or thereof. Notwithstanding the foregoing, the following will not constitute Confidential Information for purposes of this Addendum, or the Exchange Agreement: (i) information which is or becomes generally available to the public other than as a result of a disclosure by the Dealer or its Representatives; (ii) information which was already known to the Dealer on a nonconfidential basis prior to being furnished to the Dealer by the Supplier or the Buyer; and (iii) information which becomes available to the Dealer on a nonconfidential basis from a source other than the Supplier or the Buyer or a representative of the Supplier or the Buyer, if such source was not subject to any prohibition against transmitting the information to the Dealer and was not bound by a confidentiality agreement with the Supplier or the Buyer. 6. Governing Law. This Addendum shall be governed by and construed in accordance with the laws of the State of Texas. 7. Notices. Except as otherwise provided in this Addendum, any notice, request, demand, statement, bill, or other document required to be given to any party by this Addendum, and any notice which any party hereto may desire to give any other party hereto, shall be in writing and will be considered duly delivered when mailed by registered mail, return receipt requested, or sent by facsimile or electronic transmission with receipt acknowledged, to the address or number of the receiving party listed opposite its signature below or to any other address or number previously furnished in writing for such purpose by the receiving party to the other parties hereto. 8. Successors and Assigns. The provisions of this Addendum shall be binding upon and inure to the benefit of the successors and assigns of each of the parties hereto. No party hereto may assign any of its rights or obligations hereunder without the consent of the other parties hereto, except to a trustee, individual or corporate, as security for bonds, securities, or other contractual obligations. No such consent shall be unreasonably withheld, provided that any party may refuse so to consent if the assignee does not meet such party’s credit requirements. Upon such consent and assignment, the assigning party shall be released from all further liability hereunder, unless otherwise agreed by it. 9. Waivers. No waiver by any party hereto of any default by any other party hereto in the observance or performance of any provision of this Addendum shall operate as a waiver of any future default, whether of a like or of a different character. [Non-BPEC] Supplier Addendum 5 10. Relationship Between the Parties. In connection with the negotiation of, the entering into, and the confirming of the execution of this Contract, each party acknowledges and agrees: (i) it is acting as principal (and not as agent or in any other capacity, fiduciary or otherwise); (ii) the other party is not acting as a fiduciary or financial or investment advisor for it; (iii) it is not relying upon any representations (whether written or oral) of the other party; (iv) the other party has not given to it (directly or indirectly through any other person) any advice, counsel, assurance, guaranty, or representation whatsoever as to the expected or projected success, profitability, return, performance, result, effect, consequence, or benefit (either legal, regulatory, tax, financial, accounting, or otherwise) of this Contract; (v) it has consulted with its own legal, regulatory, tax, business, investment, financial, and accounting advisors to the extent it has deemed necessary, and it has made its own investment, hedging, and trading decisions based upon its own judgment and upon any advice from such advisors as it has deemed necessary, and not upon any view expressed by the other party; (vi) all trading decisions have been the result of arm’s length negotiations between the parties; and (vii) it is entering into this Contract with a full understanding of all of the risks hereof and thereof (economic and otherwise), and it is capable of assuming and willing to assume those risks (economic and otherwise). 11. Entire Addendum. This Addendum and the Supply Contract contain the entire agreement among the parties, and except as stated herein or therein there are no oral promises, agreements, warranties, obligations, or conditions, precedent or otherwise, affecting it. 12. Amendments. Any change, modification, or alteration of this Addendum shall be in writing, signed by the parties hereto, and no course of dealing between or among any parties hereto shall be construed to alter any term hereof, except as expressly stated herein. No amendment to the Supply Contract shall affect the rights and obligations of the Dealer hereunder (other than changing the price at which gas is to be purchased by it hereunder) unless approved in writing by the Dealer. The Buyer shall provide the Dealer and MuniGas with a copy of each such amendment promptly after execution thereof. 13. Severability. Except as otherwise stated herein, if any provision hereof or application thereof shall be declared or rendered unlawful by a court of law or regulatory agency with jurisdiction over any party hereto or deemed unlawful because of a statutory change, the remaining applications thereof and provisions of this Addendum shall nevertheless remain valid and enforceable. 14. Corporate Obligations. No recourse under or upon any obligation, covenant, or agreement contained in this Addendum, or for any claim based thereon or otherwise arising in respect thereof, shall be had against any incorporator or sponsor, or against any past, present, or future director, officer, employee, or member of the governing body, as such, of any party hereto or of any successor, or against any person or entity with whom any such party has contracted for goods or services, either directly or through such party, whether by virtue of any constitution or statute or rule of law, or by the enforcement of any assessment, judgment, or penalty, or otherwise; it being expressly understood that this Addendum is solely a corporate obligation, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, sponsors, directors, officers, or employees, as such, of such party or any successor, or any member of its governing body, or any such contracting person, or any of them, by reason of the obligations, covenants, or agreements contained in this Addendum or implied therefrom, and that any and all such personal liability either at common law or equity or by constitution or statute of, and any and all such rights and claims against, every such incorporator, sponsor, member, director, officer, employee, or person, as such, are hereby expressly waived and released as a condition of, and in consideration for, the execution of this Addendum. [Non-BPEC] Supplier Addendum 6 15. Government Regulation. The delivery and receipt of gas by the Dealer, the Buyer, and the Supplier or their designees hereunder are subject to all valid laws with respect to the subject matter hereof and to all valid present and future orders, rules, and regulations of duly constituted governmental authorities having jurisdiction. 16. Benefits of Contract. Nothing in this Addendum, expressed or implied, shall give any benefit or any legal or equitable right, remedy, or claim under this Addendum to any person or entity other than the parties hereto, MuniGas, and their successors and assigns permitted hereby. 17. Effective Date. Notwithstanding the date hereof, this Addendum shall not become operative or effective until the first day of the month following the later of (1) the effective date for qualification of the Buyer as a “Participant” under the Exchange Agreement and (2) first effective date for designation of a “Dealer’s Point of Receipt” under the Exchange Agreement. 18. Term and Termination. This Addendum shall extend for a period of 30 years unless sooner terminated pursuant to this Section. This Addendum shall terminate on the earliest of (a) the cancellation, termination, or expiration of the Supply Contract, (b) the extension, renewal, modification, amendment, or replacement of the Supply Contract in a manner that adversely affects the rights and obligations of the Dealer hereunder (other than by changing the price at which gas is to be purchased by it hereunder) without the prior written approval of the Dealer, or (c) cancellation, termination, or expiration of the Exchange Agreement or of the rights and obligations of the Buyer under the Cooperative Contract. The Buyer, the Supplier, and the Dealer shall give the other parties notice of any such event which is known to it and would result in the termination of this Addendum. In addition, the Supplier may terminate this Addendum on account of any default by the Dealer in paying its obligations hereunder on the same terms and conditions as the Supplier may terminate the Supply Contract on account of any such default by the Buyer in paying its obligations thereunder. No such termination shall affect the obligations of the Supplier to indemnify the Dealer. [Signature page follows] [Non-BPEC] Supplier Addendum 7 IN WITNESS WHEREOF, the parties hereto have duly authorized and caused this Addendum to be executed as of the date first hereinabove written in multiple originals. Supplier’s Addresses and Nos.: ________________________________ ________________________________ ________________________________ Telephone: ( ) - Facsimile: ( ) - Internet: _________________________ ______________________________, as Supplier By: ............................................................................ Name: …………………………………………….. Title: …………………………………………….. Dealer’s Addresses and Nos.: BP Energy Company 201 Helios Way Houston, Texas 77079 For Confirmations: Telephone: (713) 323-1866 Facsimile: (713) 323-4934 For invoices and payments: Attn: Gas Accounting Telephone: (713) 323-4919 Facsimile: (713) 323-5935 For all other communications: Attn: Contract Administration Telephone: (713) 323-2000 Facsimile: (713) 323-0203 BP ENERGY COMPANY, as Dealer By: ............................................................................ Name: ....................................................................... Title: ......................................................................... Buyer’s Addresses and Nos.: _______________________________ _______________________________ _______________________________ Telephone: ( ) - Facsimile: ( ) - Internet: ________________________ _________________________________, as Buyer By: ............................................................................ Name: …………………………………………….. Title: ..…………………………………………….. [Name of Participant] Participant Addendum 1 PARTICIPANT ADDENDUM NO. 1 This Addendum to that certain Gas Exchange and Annual Balancing Agreement, dated as of January 1, 2006 (as amended from time to time, the “Exchange Agreement”), between Municipal Gas Acquisition and Supply Corporation (“MuniGas”) and BP Energy Company, a Delaware corporation (the “Dealer”), is entered into by such parties and the Participant designated herein to designate a Participant, or one or more of such Participant’s Buyer’s Points of Receipt or a new Supply Contract and Supplier for such Participant, all of which shall be as follows effective with the Day that commences on the Effective Date specified below: Participant: [Insert name of the Participant] Participant’s Address: [Insert the Participant’s address] Participant’s Buyer’s Point(s) of Receipt: [Insert description of station(s) where Supplier sells and delivers gas to the Participant] Effective Date: [Insert effective date of change] Supplier: [Insert name of Participant’s Supplier] Supplier’s Address: [Insert Supplier’s address] Supply Contract: [Describe, by name and date, the Supply Contract. A copy of the Supply Contract is to be attached as Exhibit A] Supply Contract Expiration Date: [Insert last day of term of Supply Contract] This Addendum supersedes all prior addenda to the Exchange Agreement designating the same Participant. ATTACHMENT F [Name of Participant] Participant Addendum 2 Executed and delivered to be effective as of the above Effective Date. BP ENERGY COMPANY By: ........................................................................... Name: ...................................................................... Title: ........................................................................ MUNICIPAL GAS ACQUISITION AND SUPPLY CORPORATION By: ........................................................................... Name: Glen Pape Title: President [NAME OF PARTICIPANT] By: ........................................................................... Name: ...................................................................... Title: ........................................................................ City of Palo Alto (ID # 4832) Finance Committee Staff Report Report Type: Action Items Meeting Date: 8/5/2014 City of Palo Alto Page 1 Summary Title: MuniGas Natural Gas Purchase Agreement Title: Utilities Advisory Commission Recommendation that the Finance Committee Recommend that City Council Adopt a Resolution Authorizing the City’s Participation in a Natural Gas Purchase from Municipal Gas Acquisition and Supply Corporation for the City’s Entire Retail Load, an Amount Estimated to be Approximately $150 Million over Ten Years, Waiving the City’s Choice of Law and Venue Requirements, and Authorizing the City Manager to Execute all Associated Agreements Required to Effect the Natural Gas Purchase From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the Finance Committee recommend that the City Council adopt a resolution: 1.Authorizing the City’s participation in a natural gas purchase from Municipal Gas Acquisition and Supply Corporation for the City’s entire load, an amount estimated to be approximately $150 million over ten years; and 2.Waiving the choice of law and venue requirements of Section 2.30.340(c) of Palo Alto’s Municipal Code, to permit the City to enter into the purchase transaction with MuniGas under Texas law. 3.Authorizing the City Manager to execute all associated agreements required to effect the natural gas purchase. Executive Summary Gas prepay transactions are a mechanism for municipal utilities to utilize their tax-exempt status to achieve a discount on the market price of gas. Staff has evaluated many options for prepay participation over the years and has concluded that the MuniGas transaction is the best fit for the organization. Staff recommends that the City participate in a gas prepay transaction by purchasing gas from MuniGas at a discounted price, and taking delivery of the gas from one of the City’s existing suppliers that also participates in the MuniGas program. Taking advantage ATTACHMENT G City of Palo Alto Page 2 of this low-risk opportunity will reduce the city’s gas commodity cost by about $1 million per year and save retail gas customers about 7.5% on their monthly gas commodity bill. At its June 4, 2014 meeting, the UAC voted unanimously to recommend that the Council take the recommended action. Background Gas Utility Long-term Plan The most recent Gas Utility Long-term Plan (GULP) was approved by City Council in April 2012 (Staff Report #2552, Resolution 9244). The plan covers a wide-range of areas, including the change from purchasing gas up to three years in advance to purchasing gas on the market and passing those costs directly to the customers via a rate based on the monthly market index price. GULP’s “Supply Cost Management” objective is to “lower delivered gas cost over the long term”. The associated GULP strategy is to “take advantage of the City’s low cost of capital to acquire gas supply and assets”. Standard Gas Prepay Overview While the recommendation is not that the City participate directly in a prepay transaction, the following provides background information regarding the underlying prepay structure and the various participation options that have been evaluated in the past. In October 2003 the Internal Revenue Service adopted regulations explicitly permitting tax exempt financing of public utility electricity and natural gas pre-purchases. The federal Energy Policy Act of 2005 further codified this benefit. Since that time, dozens of prepay deals worth billions of dollars have been completed by municipal utilities all over the country. In California, the Sacramento Municipal Utility District, Roseville Electric, Redding Electric Utility, Modesto Irrigation District, Silicon Valley Power, and a consortium of Southern California utilities have all prepaid for natural gas and enjoyed a discount on their gas commodity supplies as a result. Since all prepaid tax-exempt gas must be consumed by a qualified tax-exempt entity, this opportunity is not available to investor-owned utilities such as PG&E. The amount of the discount is dependent on many factors, including the cost of capital differential between the supplier and the tax-exempt entity, the length of the prepay term, the underlying gas price, the gas volume, and the marginal federal and state corporate tax rates. Figure 1 depicts the standard prepay structure. City of Palo Alto Page 3 Figure 1: Standard Gas Prepay Structure In a standard pre-pay structure, a tax-exempt financing entity formed by a municipal agency issues bonds and uses the proceeds to prepay for natural gas. The gas is delivered to the municipal utility at a market index price less a discount. Because the utility is paying a floating index price and the bond holders require fixed payments, a swap counterparty is used to convert index-based receipts for a fixed cash stream. The issuer can then pay principal and interest to the bondholders. Over the years, staff has investigated a variety of ways for the City of Palo Alto Utilities (CPAU) to participate in prepay transactions. Figure 2 shows the roles CPAU could play if involved directly in a prepay transaction. City of Palo Alto Page 4 Figure 2: Roles CPAU Could Play in a Gas Prepay The four roles CPAU could play in a gas prepay are described below: 1. Palo Alto acts alone to establish a financing entity to issue bonds and prepay for gas. This alternative has volume certainty and offers the highest level of control with respect to the contract terms. On the downside, discounts will be relatively small because the volume of gas for a Palo Alto-only deal will be small, and Palo Alto will bear all the transaction costs (estimated by staff to be approximately $2 million). 2. Palo Alto joins a consortium of municipal utilities to establish a financing entity to issue bonds and prepay for gas. This is the same as alternative 1 except that a group of municipal utilities shares the up-front costs. Discounts are larger due to the larger combined gas volume. On the other hand, compromises are inevitable in a consortium, and the process may be slowed by having additional decision makers. 3. Palo Alto is not directly involved in the prepay transaction but is listed in the bond documents as a taker of gas. The discount would be less because the bond issuer would demand some of the benefit, and Palo Alto would give up control of the contract terms. However, the staff and consultant time needed to participate would be greatly reduced. City of Palo Alto Page 5 4. Palo Alto shops for excess gas from another’s prepay deal. If a municipal buyer buying prepaid gas has a reduced need for the gas due to operational factors, that gas must be sold to another qualified municipal buyer. Discounts are minimal, and there is no volume certainty. Although, as noted above, all other California utilities of any significant size have completed prepay transactions, CPAU has been unable to take advantage of the opportunity. One obstacle that has now been removed was the laddering gas purchasing strategy. Prepaid gas is sold to the municipal utility at a market index price. In order to implement a hedging strategy, the municipal utility would need to use financial instruments to hedge the underlying index instead of purchasing physical fixed- or capped-priced products. CPAU now buys all gas on the spot market index and passes the monthly market price through to customers. Since CPAU does not hedge against market price changes, there is no need to seek approval for the use of financial instruments when purchasing all physical gas at a monthly market index price. Discussion Overview of the MuniGas Transaction Structure The MuniGas transaction includes an underlying prepay transaction identical to that illustrated in Figure 1. Figure 3 shows the roles of the various counterparties in the MuniGas prepay structure. Figure 3: MuniGas Prepay Structure In the MuniGas transaction, the tax-exempt issuer is a Texas public facility corporation created by the City of La Grange, Texas. A Texas public facility corporation is much like a California joint City of Palo Alto Page 6 action agency formed solely for financing purposes, with the exception that only one municipality, the sponsor, is necessary to form a public facility corporation in Texas. The City of La Grange has formed a public facility corporation, named TexGas I, TexGas II, etc., for each prepay deal. The City of La Grange also formed Munigas, the entity that markets the prepaid gas. The municipal buyers (e.g. municipal utilities such as CPAU) are at arm’s length from the underlying prepay transaction. Gas is purchased by the municipal buyer from MuniGas, the marketing entity, through a gas purchase agreement. Figure 4 adds the municipal buyer to the diagram. Figure 4: MuniGas Prepay Structure Including Municipal Buyers MuniGas History The first MuniGas transactions occurred in 1998 and 2003 through a financing entity then known as the Texas Municipal Gas Corporation (TMGC). In 2003, the City of La Grange formed the marketing entity, MuniGas, to expand the program. In the early deals, all of the prepaid gas was committed under long-term contracts prior to issuance of the bonds. In 2006, $2.4 billion in bonds were sold to buy a 20-year gas supply from Merrill Lynch. This transaction was the first of its kind in that not all gas was committed under contract at the time the prepay transaction was completed, and this is a unique characteristic of the MuniGas City of Palo Alto Page 7 structure. The large size and merchant nature of the transaction caused some concern in the municipal bond community as underwriters and bond counsels worried that the Internal Revenue Service might audit the transaction and ultimately prohibit the use of tax-exempt financing for the acquisition of prepaid gas supplies. This did not occur. In 2007, another $1.9 billion in bonds were sold to buy another 20-year supply from JP Morgan; again, not all the gas was committed under contract prior to the bond issuance, so it was not known which tax- exempt entity would purchase the gas. In 2008, the credit and economic crisis began to unfold. Traditional credit spreads collapsed, and prepay transaction became uneconomic. As the recession came to an end, the credit markets recovered, and MuniGas resumed prepay transactions. In 2012, $1.4 billion in bonds were sold to buy a 20 year gas supply from Macquarie US Gas Supply. Today, MuniGas sells gas to 105 municipal utilities in 20 states. Approximately 90% of the gas is sold under long-term contracts while about 10% is sold on a spot basis. MuniGas keeps a “wait list” of interested customers, and when enough long-term contracts are in place, another TexGas public facility corporation is formed and bonds are issued to execute the next prepay transaction. Discounts Discounts for the MuniGas long-term customers have ranged from about $0.28 to $0.39 per million British thermal units (MMBtu). As a point of reference, a $0.30 per MMBtu discount applied to CPAU’s retail gas load (approximately 3.2 million MMBtus) is equivalent to approximately $1 million per year. Assuming a $4 per MMBtu underlying gas price, a $0.30 per MMBtu discounts would yield a 7.5% commodity rate decrease for a CPAU customer. The discount will be reflected every month in CPAU gas customers’ monthly commodity rate. Discounts are allocated by MuniGas and are the maximum possible after program costs and bond obligations are covered. Longer-term customers are granted higher discounts than those that execute shorter-term agreements. All MuniGas transactions are combined into one pool of gas, so discounts can change slightly over the term of the contract. MuniGas endeavors, and has historically achieved, a minimum discount of $0.30 per MMBtu. Cash Flows and Using an Exchanger to Facilitate Physical Delivery of Gas All MuniGas prepay transaction are done at the industry standard trading point of Henry Hub, Louisiana. Because most municipal utilities need the gas to be delivered to some other location, an “exchanger” is used to displace the gas at Henry Hub, and the municipal buyer’s regular gas suppliers deliver the gas to the municipal utilities’ desired delivery point. In CPAU’s case, the delivery points are Malin, Oregon at the California/Oregon border and the PG&E Citygate. Figure 5 shows the somewhat complicated resulting cash flow. City of Palo Alto Page 8 Figure 5: MuniGas Cash Flow Diagram (HH is Henry Hub) The gas exchange and resulting cash flow is implemented as follows: 1. The Exchanger (British Petroleum or BP) takes delivery of the prepaid gas at Henry Hub and pays to MuniGas the Henry Hub index price. 2. The municipal buyer negotiates with its gas supplier a price for gas at its desired delivery point. This negotiation is no different from the way CPAU currently buys gas using the Council-approved master agreements and the competitive bidding process. 3. The municipal buyer’s gas supplier delivers the gas at the delivery point. 4. The municipal buyer pays to MuniGas the negotiated price less the MuniGas deal discount. 5. MuniGas pays the Exchanger the negotiated price. 6. The Exchanger passes that payment through to the municipal buyer’s supplier. For example, assume the MuniGas discount is $0.30 per MMBtu and assume CPAU negotiates with Shell, one of its suppliers, a price of PG&E Citygate index less $0.01 per MMBtu. Now the parties to the deal act as follows:  BP, the Exchanger, pays Shell for the gas at the PG&E Citygate index price, less $0.01 per MMBtu.  Shell delivers the gas to CPAU at the PG&E Citygate. City of Palo Alto Page 9  CPAU pays MuniGas the PG&E Citygate index price, less $0.31 per MMBtu ($0.30 + $0.01 per MMBtu).  MuniGas pays the Exchanger the PG&E Citygate index less $0.01 per MMBtu.  As a result: o The Exchanger is kept whole. o The gas supplier receives the negotiated price. o CPAU pays the negotiated price AND gets the MuniGas discount. Contracts and Legal Review There are six documents that apply to a buyer participating in the MuniGas program. These documents were presented to the City as non-negotiable, given the large number of parties and the complexity of the upstream transactions. The City Attorney’s Office and outside counsel reviewed the documents to analyze the legal risks involved with any proposed deviations from the City’s standard practice, in order to assess the significance of any key differences and negotiate any essential changes to the contract terms. The contracts included as attachments to this report are for reference. Final contracts listing the parties’ names and current dates will be included with the final report to Council. Upon executing the Purchase Contract, Palo Alto would become a party to the: 1. Joint Gas Purchase Contract: This Joint Contract will be between Texas Municipal Gas Corporation IV, the City of La Grange, Texas, and each of the local governments described therein1 (which includes the MuniGas NAESB). The City, as Buyer, would be required to execute the following: 2. Purchase Contract: a Purchase Contract between the City of La Grange, Texas, Texas Municipal Gas Corporation IV, and Buyer; 3. Addendum: an Addendum to Gas Supply Contract among Buyer, Supplier and BP Energy Company; and 4. Participant Addendum: an Addendum No. 1 between MuniGas Gas Acquisition and Supply Corporation, BP Energy Company and the designated Participant (which is the same as the buyer). In addition, the City must provide a: 5. Resolution Authorizing Gas Purchase Contract; and 6. Secretarial Certificate of Buyer. 1. Joint Gas Purchase Contract The main contract governing the municipal buyer’s gas purchase from MuniGas is the North American Energy Standards Board (NAESB) with special provisions. This contract is the same one CPAU uses for all its gas master agreements and the contract is executed by the municipal buyer and MuniGas. The NEASB, along with the special provisions incorporated by reference, is 1 The “MuniGas II” offering in 2006/2007 was limited to Texas municipalities. City of Palo Alto Page 10 called the Joint Purchase Contract. While most of the terms that differ from Palo Alto’s standard NAESB terms are commercial and non-controversial, three terms differ from the City’s typical requirements. The City Attorney’s office and outside counsel evaluated the differences and felt they were acceptable given the unique nature of the discount purchase deal at issue, and staff’s assessment of the commercial advantages of entering into such a transaction. Each term is discussed below: a. Early Termination Damages: Under the City’s standard NAESB Master Agreement, Early Termination Damages typically apply. This means that if a counterparty defaults, then the City as non- defaulting party has the right to designate an early termination date for the liquidation and termination of all transactions under the contract. Under this scenario, the non- defaulting party determines the amount owed by each party for all gas delivered and received and all other related unpaid charges. Then the non-defaulting party accelerates each terminated transaction at its then-market value. If the market value is higher than the contract value, the balance is owed to the City/non-defaulting party; otherwise the difference is owed to the seller. The City’s current NAESB also requires the defaulting party to pay the non-defaulting party for a long list of costs incurred in liquidating each terminated transaction, including fees, transaction costs, and attorney’s fees. MuniGas’ Joint Purchase Contract provides that Early Termination Damages do not apply. While Early Termination Damages make sense in fixed-price contracts like the City’s typical NAESBs, it makes less sense to apply them to the MuniGas deal. This is because the MuniGas “contract value” is a discount off of a floating index, and the “market value” is the floating index. The difference is the index discount. If Early Termination Damages applied, and MuniGas defaulted, it would owe Palo Alto the amount of the discount. Here, since Early Termination Damages do not apply, if MuniGas defaulted, Palo Alto would go back to buying index-priced gas without the discount. This would put the City in substantially the same, and no worse, position than it would be in had it never entered the MuniGas deal. b. One-Way Termination Under the City’s standard NAESB Master Agreement, once Early Termination Damages are calculated, One-Way Termination applies. This means that the non-defaulting party will not owe the defaulting party any money for terminated transactions, even if the market price has dropped below the contract price. MuniGas’ Joint Purchase Contract provides that Two-Way Termination applies in the event of default. This means that it is possible that a non-defaulting party could be required to pay the defaulting party a termination payment, if the market price has dropped below the contract price at the time of default. City of Palo Alto Page 11 As described above, if MuniGas defaults, the agreement will terminate and Palo Alto will be in the same position it was before entering into the deal – purchasing gas at the market price with no discount. Thus, Two-Way Termination as applied to this type of transaction poses little risk to the City. c. Choice of Law is Texas The Joint Purchase Contract and all the MuniGas agreements are governed by Texas law. This provision constitutes a departure from the gas contract requirements in Section 2.30.340(c) of Palo Alto’s Municipal Code, but was not a negotiable item. Council may waive this requirement by resolution. 2. Purchase Contract The second document is the Purchase Contract in which the municipal buyer/City declares the Maximum Annual Quantity (this can be amended) of gas requested and the initial contract term. The contract will automatically renew one year at a time beyond the initial term unless terminated by the municipal buyer. The Purchase Contract is executed by the municipal buyer, MuniGas, and the City of La Grange. By executing the Purchase Contract, the buyer/City becomes a party to the Joint Gas Purchase Contract. The Purchase Contract originally stated that the buyer’s obligations under the Purchase Contract were payable prior to the City’s debt obligations. The City successfully negotiated for the inclusion of language in the Purchase Contract to ensure that the City’s gas utility’s maintenance and operations costs are payable prior to the City’s obligations under the Purchase Contract. This is consistent with the City’s existing bond covenants and current practices. The City also successfully negotiated for the inclusion of an acknowledgement that the City is subject to the California Public Records Act, and provides for notice by the City of any Public Records Act request related to the MuniGas documents. 3. Addendum The third document is the Supplier Addendum which is executed by the municipal buyer, each of the municipal buyer’s gas supplier(s) and MuniGas. This addendum establishes the supplier’s performance to be governed by master agreements. There is also language regarding confidentiality since MuniGas and the Exchanger will be privy to pricing information negotiated between the municipal buyer and the suppliers. This confidentiality obligation is upon the dealer, and does not apply to the City’s need to comply with a Public Records Act request as described above regarding the Purchase Contract. 4. Participant Addendum The fourth document is the Participant Addendum to the Balancing and Exchange Agreement. The underlying Balancing and Exchange Agreement is between BP, the Exchanger, and City of Palo Alto Page 12 MuniGas. This addendum is largely administrative, listing the name of municipal buyer, delivery points, and the municipal buyer’s suppliers. 5 and 6. Resolution and Secretarial Certificate Lastly, MuniGas requires a Resolution and Secretarial Certificate authorizing and verifying the execution of Purchase Contract, Supplier Addendum, and Participant Addendum. Council approval of large contracts via resolution is the City’s standard business practice. Term Staff recommends a 10-year term for 100% of CPAU’s gas load. MuniGas allocates discounts to customers in accordance with the term of commitment and considers 10 years to be long-term. MuniGas will not deliver any more gas than what is used by CPAU’s customers, therefore, a decreasing annual gas demand will not expose the City to any volumetric risk. The contract may be terminated prior to 10 years with a one-year notice, but the discount will be greatly reduced for the remaining year. Conversely, the contract has an automatic one-year annual extension unless either party provides notice of termination by December 1. Risks While the MuniGas discounts are a result of a complex prepay transaction, for the municipal buyer, the contract is a relatively straight-forward gas purchase agreement. The risk of the MuniGas prepay transaction unwinding is borne by the bondholders. From the municipal buyer’s perspective, the discount to index would cease to exist and CPAU would be back to the current situation of buying market priced gas without the discount. Several events can cause a prepay transaction to fall apart, including credit deterioration of swap counterparties, chronic failure to deliver gas by prepay gas supplier and payment default by one of the prepay parties. Another situation that can cause the demise of a prepay transaction is failure to sell gas for a qualified use. Prepaid gas must be consumed by a qualified end use, such as by a municipal utility. Another risk to the underlying prepay transaction is that competition to MuniGas could result in stranded gas and the collapse of the program. No other organization has thus far been willing to get into the MuniGas business space, but it is not impossible that competition could arise. A second risk is that the Exchange Agreement with BP is not renewed. The Exchange Agreement is the contract between BP and MuniGas (Palo Alto is not a party) that establishes the roll of BP as the exchanger. In this case, CPAU would have the administrative burden of receiving gas at Henry Hub and would have to arrange for an exchange of gas to the PG&E Citygate. However, staff estimates that this burden would cost CPAU much less than the annual value of the prepay transaction. The pool of enabled gas suppliers will be limited to those enrolled in the MuniGas program. Staff considers the risk associated with this to be small because, of CPAU’s five existing suppliers (ConocoPhillips, Shell, BP, JP Morgan, and Powerex), the first three are already City of Palo Alto Page 13 involved in MuniGas transactions with other customers and a fourth is willing to become enabled through the program, should CPAU proceed. Entering into the MuniGas transaction will not constitute any contractual default with the City’s existing suppliers. Those master agreements will remain in effect. With any sort of long-term commitment comes an opportunity risk - the risk that a better opportunity with a larger discount will arise after the City has already signed contracts with MuniGas. It is even possible that a future MuniGas transaction will yield larger discounts and that CPAU will have to forego the opportunity. The MuniGas program has a history of success. Bond counsel for all MuniGas prepay transactions is Fulbright and Jaworski L.L.P, the premier legal firm regarding prepays, and each bond issuance is vetted by Attorney General of Texas. Because the delivery of the gas is governed by CPAU’s own master agreements, there is no additional operating risk. In addition, the City’s counterparty credit rating requirement of BBB- will be met. The credit rating of the most recent MuniGas issuer, TexGas III, is A3. Conclusions Gas prepay transactions offer the only opportunity for CPAU to reduce gas commodity costs significantly below market. This is an opportunity that is not available to PG&E. The MuniGas program is a very low risk way to take advantage of the City’s tax-exempt status to achieve a commodity discount for all CPAU gas rate payers and meet the council-approved GULP objectives. Staff feels that the significant economic and commercial advantages of entering into a MuniGas purchase outweigh the relatively low risks associated with accepting most of MuniGas’ contractual provisions. The index less discount price structure is a perfect fit with CPAU’s market index-based index pass-through rate. Commission Review and Recommendation The Utilities Advisory Commission (UAC) reviewed the recommended action at its June 4, 2014 meeting. The UAC discussed the merits of reducing the cost of gas compared to that of PG&E. Staff clarified that, in the worst-case scenio of the prepay deal terminating, Palo Alto would be back to the status quo of purchasing gas on the market without the MuniGas discount. After discussion, the UAC voted unanimously (4-0, with Commissioners Chang, Foster and Hall absent) to recommend that Council approve the recommended action. The draft minutes from the UAC’s June 4, 2014 minutes are provided as Attachment G. Timing Execution of the attached contracts will place CPAU on the MuniGas waitlist. When MuniGas determines that enough volume has been committed under long-term contracts, TexGas IV will be formed to issue bonds and prepay for gas and deliveries will commence, hopefully before the end of the calendar year. Council approval of the forthcoming resolution will authorize the City Manager to execute the required agreements when necessary. City of Palo Alto Page 14 Resource Impact The total gas commodity budget is approximately $15 million per year (based on a gas price of $4.50 per MMBtu), and staff anticipates a discount of $0.30 per MMBtu resulting in a saving of approximately $1 million per year. The discount will be passed through to retail gas customers. Staff time to administer the contract is anticipated to be negligible. Policy Implications Adoption of the proposed Resolution supports the objectives and strategies identified in the Council-approved Gas Utility Long-term Plan and the Council-approved Utilities Strategic Plan’s strategic objective to reduce the cost of delivering service. Environmental Review Execution of the attached contracts does not require review under the California Environmental Quality Act (CEQA) since the proposed action does not meet the definition of a project under Public Resources Code Section 21065. In the alternative, execution of the attached contracts is exempt from CEQA pursuant to Section 15061(b)(3) of the CEQA Guidelines because it can be seen with certainty that there is no possibility of significant environmental effects occurring as a result. Attachments:  Attachment A: Resolution (PDF)  Attachment B: Secretarial Certificate (PDF)  Attachment C: Joint Gas Purchase Contract (PDF)  Attachment D: Purchase Contract (PDF)  Attachment E: Supplier Addendum (PDF)  Attachment F: Participant Addendum (PDF)  Attachment G: Excerpted Draft UAC Minutes of June 4, 2014 meeting (PDF) EXCERPTED FINAL MINUTES OF THE JUNE 4, 2014 UTILITIES ADVISORY COMMISSION MEETING ITEM 1: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that City Council Approve the City’s Participation in a Natural Gas Purchase from Municipal Gas Acquisition and Supply Corporation for the City’s Entire Retail Load, an Amount Estimated to be Approximately $150 Million over Ten Years, Waive the City’s Choice of Law and Venue Requirements, and Authorize the City Manager to Execute all Associated Agreements Required to Effect the Natural Gas Purchase Senior Resource Planner Karla Dailey presented information about the MuniGas natural gas purchase program. Dailey recounted the history of pre-pay discussions and actions by the UAC. She then reviewed the relevant sections of the Gas Utility Long-term Plan. She presented an overview of pre-pay transactions and then highlighted the difference between a standard pre- pay transaction and the MuniGas structure. She compared all of the pre-pay participation options against each other including the pros and cons. Dailey described the history of the MuniGas program and the anticipated natural gas market price discounts that will result from participating. She presented a brief summary of the legal analysis and the potential risks associated with the transaction. She concluded with a list of next steps and staff’s request that the UAC recommend that City Council approve a 10-year natural gas purchase from Municipal Gas Acquisition and Supply Corporation and authorization for the City Manager to execute all required agreements. Chair Cook asked if prior consideration of the City participating in a gas pre-pay transaction was before termination of the gas laddering purchasing strategy. Dailey answered that it was and added that Palo Alto could have participated in a gas pre-pay transaction, but that financial instruments would have been needed to hedge the gas portfolio to implement the laddering strategy. Commissioner Melton asked what types of entities are the swap counterparties, and Dailey replied that banks typically serve that function. Chair Cook asked why gas suppliers are willing to provide discounts to the price of gas, and Dailey replied that it is because they get all the money up front and this is valuable to them, especially because those suppliers have a relatively high cost of capital. ATTACHMENT H Commissioner Melton asked if MuniGas was the only organization that offers this particular structure and Dailey confirmed that this is the case. Commissioner Waldfogel asked if any gas disruptions of prepaid gas occurred during the credit crisis, and Dailey answered that there were not. Commissioner Melton followed up with a question regarding any other pre-pay deals that have failed. Dailey confirmed that a pre-pay transaction involving Lehman Brothers collapsed when that firm declared bankruptcy and that the unwinding of the transaction happened exactly as the structure was designed leaving the bondholders holding the bag. Chair Cook stated that if Palo Alto decided to do this, we might not get to do it for a while since we'll have to be on a waiting list, and this was confirmed by Dailey. Chair Cook inquired about how the physical gas is delivered. Dailey explained that Palo Alto will still get the physical gas the same way we do now. All the operational details about deliveries of gas are ruled by our master agreements. The gas in this deal is delivered at Henry Hub. Chair Cook recalled the issue this winter with difficulty getting sufficient gas deliveries due to the polar vortex and asked if there is any more risk from doing the MuniGas deal than buying gas from the regular market. Dailey replied that there is no more risk with getting physical gas delivered. Commissioner Eglash pointed out that the savings shown do not include the cost of staff time to manage the contract. Dailey agreed and said that those resource needs are small and basically would involve keeping track of the gas we purchased, just as we do now. Commissioner Eglash asked about the supply risk in the unlikely event that the deal collapsed and wanted to know if Palo Alto would still be able to get the gas. Dailey replied that physical gas would still flow from our suppliers to Palo Alto. Commissioner Eglash asked what market conditions make a pre-pay deal good or bad, and Dailey replied that high gas prices yield larger discounts. Commissioner Eglash asked, compared to current gas price conditions, if there is a better time to do a deal. Dailey explained that Palo Alto could wait and enter into a transaction later when prices are higher, but that Palo Alto would forego the discount in the meantime. Commissioner Eglash confirmed that he was not in favor of waiting for more ideal market conditions. Commissioner Waldfogel said the deal looks attractive, and asked if Palo Alto’s supply cost will be lower than PG&E’s. Dailey answered yes. He then asked about the City’s ability to buy “green” gas, biogas for example, in the future. Dailey stated that we could buy other gas supply products through our master agreements and still realize the MuniGas discount. Commissioner Melton commented that as long as we buy gas from any of our suppliers that can be part of the MuniGas deal, we would be able to get the discount on all types of gas. Commissioner Eglash asked about restrictions on buying a new source of supply in the future and Chair Cook and Commissioner Eglash asked for clarification on this point with respect to gas from an anaerobic digester for electric generation. Dailey answered that the MuniGas deal is specifically for gas consumed by Palo Alto’s retail gas utility customers, so there are no restrictions regarding any types of gas purchased for the electric utility. Commissioner Waldfogel expressed concern regarding the uncertainty of our gas suppliers’ willingness to sign the supplier addendum and suggested that support for the recommendation may be conditional on making at least 4 of our suppliers signing the agreement. Action: Commissioner Eglash made a motion to support the staff recommendation. Commissioner Melton seconded the motion. The motion carried unanimously (4-0 with Commissioners Chang, Eglash, and Hall absent). Commissioner Waldfogel commented that this is a lot to absorb in the course of the meeting. The memo and the contract were long and complicated. He stated that it's a lot to take in all at once. However, he stated that it sounded like staff has thought through the risks and the alternatives, but that it deserves careful thinking Commissioner Cook added that the item might have been covered over two meetings due to its complexity. Commissioner Waldfogel suggested that these complicated issues may benefit from additional focused analysis, including the creation of a UAC subcommittee to allow a subgroup to delve deeper. Commissioner Eglash noted that the staff has worked on this for a long time and brought it forward when it made sense and he indicated that he was supportive the proposal. • CITY OF PALO ALTO ATIACHMENT I. FINANCE COMMITTEE DRAFT EXCERPT Regular Meeting Tuesday, August 5, 2014 2. Utilities Advisory Commission Recommendation that . the Finance Committee Recommend that City Council Adopt a Resolution Authorizing the City's Participation in a Natural Gas Purchase from Municipal Gas Acquisition and Supply Corporation for the City's Entire Retail Load, an Amount Estimated to be Approximately $150 Million over Ten Years, Waiving the City's Choice of Law and Venue Requirements, and Authorizing the City Manager to Execute all Associated Agreements Required to Effect the Natural Gas Purchase. Karla Dailey, Senior Resources Planner, presented a brief outline of the background, technical issues, and a proposal on the pre-pay programs .of natural gas purchases. In 2004, Staff did not recommend pursuing a gas pre-pay program because of too much uncertainty. Between 2008 and 2010 there were multiple and lengthy discussions between Staff and the Utilities Advisory Commission (UAC). The Council approved the Utilities Department plan in 2010 to take advantage of the City's low cost of capital to acquire gas supply and assets. According to the Internal Revenue Services (IRS) municipal agencies could legally leverage ability to issue low-cost, tax- exempt debt to pre-pay for gas and electricity. The pros of accomplishing a sole pre-pay program would allow for Palo Alto to have complete control, with the con being higher administrative costs. Combining efforts with other city's lowered the administrative costs which was a pro but held the con of introducing the possibility of unknown· issues from them. There had been a number of layers of structured analysis; beginning with an outside consultant who was intimately involved with the Roseville system. A legal analysis was performed by the City's legal Staff as well as outside counsel. Vice Mayor Kniss understood this type of system would be a first for Palo Alto. , Ms. Dailey stated that was correct. Vice Mayor Kniss asked why Staff and the UAC did not consider the option between the 2004 and 2010 discussions. Page lots DRAFT EXCERPT Ms. Dailey stated it was a complex structure and for one reason or another it did not feel like the right fit for the organization. Until recently Palo Alto .had a very structured and successful hedging program in place. Vice Mayor Kniss asked if the Council approved the program how competitive would it make Palo Alto compared to the surrounding cities with the gas prices. Ms. Dailey said the surrounding cities were supplied by Pacific, Gas & Electric (PG&E) which bought market index priced gas; however, they were not eligible for the pre-pay program so Palo Alto would be $0.30 lower. Chair Berman said on the commodities side. Ms. Dailey stated that was correct. Vice Mayor Kniss said $0.30 was a substantial amount. Ms. Dailey replied yes. Council Member Holman asked how the $0.30 would be passed down to the rate payers. Ms. Dailey stated the savings should equate to a 3. 75 percent discount. Council Member Holman said on the comparison of options there were a variety of discounts. She asked how the discounts were ascertained. Ms. Dailey stated the discounts were based on volume and term. Council Member Holman confirmed the method was extrapolation rather than discussion with other municipality. Ms. Dailey stated that was correct. Council Member Holman asked if there was contact with other municipalities that were a part of the MuniGas program to determine the viability of that , process. Ms. Dailey said she had conversations with Sacramento Municipal Utility Page 2 of 5 Finance Committee Regular Meeting Final Minutes 8/5/2014 DRAFT EXCERPT District (SMUD) and other communities involved in the MuniGas program and there seemed to be consensus of satisfaction. Council Member Holman stated when the Staff Report was presented to Council it should reflect the translation for rate payers. Ms. Dailey concurred. Council Member Holman asked the consequences of the remaining pre-paid amount if the program defaulted. Ms. Daily stated there was no actual pre-pay expense. The City bought gas at a discounted rate on a month to month basis. Council Member Burt agreed the program appeared to be a low risk with a return for investment. With the 3. 75 percent reduction in the cost to the rate payers he asked where that placed Palo Alto in relation to PG&E and the other municipalities. Ms. Dailey stated presently the City's distribution rates were higher than PG&E. Council Member Burt understood the City was currently higher but his question was how much closer the proposed program brought them to PG&E rates. Ms. Fong mentioned PG&E was intending to increase their distribution and transmission rates but Staff did not have their numbers readily accessible. Council Member Burt felt that was important information. Ms. Dailey stated the information would be included in the Staff report going before Council. Council 'Member Burt said the program locked the City in for a decade and precluded them from moving into a greener program in the future; if the market evolved. Ms. Dailey disagreed because Palo Alto was still having their gas delivered by the suppliers the City had the Master Agreements with. If the market was developed for green gas the City could purchase the energy through one of Page 3 of 5 Finance Committee Regular Meeting Final Minutes 8/5/2014 DRAFT EXCERPT the current suppliers while continuing to receive the MuniGas discount. Council Member Burt asked what knowledge Staff had on the drillers and suppliers of gas. Ms. Dailey stated the market gas currently purchased would be the same. Council Member Burt confirmed the suppliers commoditized it for resale. Ms. Dailey said that was correct. She mentioned Palo Alto was doing a Palo Alto Green program; however, it was initially being supplied with offsets not physical gas. Chair Berman confirmed the City was receiving a $0.30 discount per Unit of Energy (MMBtu) whereas currently the cost was $4 per MMBtu. He asked if there was a historic trend in the MMBtu's and if so, where was the trend heading. He asked whether the City's discount would remain of $0.30 whether the rate went up or down. Ms. Dailey said that was correct, the discount would. not change. A significant group of people felt because shale gas was in abundance there would .be relatively low gas prices for the distant future. Chair Berman clarified if gas prices sky rocket the City's discount would increase. Ms. Dailey stated the discount for the entire bond issuance would rise with the rise of gas prices. Vice Mayor Kniss asked for clarification of the legal aspect. Ms. Dailey explained the City's legal department did not perform a thorough vetting of what the Texas Law could mean to Palo Alto. Vice Mayor Kniss asked the City Attorney if there was a need for more explanation. Molly Stump, City Attorney, stated the law prov1s1ons in contracts were standard. Typically Palo Alto insisted on California State Law in contracts because it was generally friendlier to Palo Alto as a party. Every state in the union had a set of business laws; for the most part there was a body of law Page 4 of 5 Finance Committee Regular Meeting Final Minutes 8/5/2014 DRAFT EXCERPT that was common. The Attorney's office carefully reviewed the transaction and subsequently sent the contract to outside counsel for review. The determination was their laws were commercially reasonable and it would be appropriate for Palo Alto to use Texas Law under the contract. Chair Berman said Staff had mentioned Palo Alto would be placed on a waiting list if they entered into the agreement while MuniGas entered into a new agreement. Their history reflected a new agreement would be set for 2015. Ms. Dailey agreed MuniGas was currently building their waitlist and reviewing the market looking to identify a supplier as a counter party. Chair Berman said it sounded positive and hopefully if Council moved forward Palo Alto would not be on the waitlist for long. Ms. Dailey clarified there was a provision if a party was on the waitlist longer than 180 days there was an exit clause. MOTION: Council Member Berman moved, seconded by Vice Mayor Kniss to recommend the City Council adopt a Resolution: 1. Authorizing the City's participation in a natural gas purchase from Municipal Gas Acquisition and Supply Corporation for the City's ent.ire load, an amount estimated to be approximately $150 million over ten years; and 2. Waiving the choice of law and venue requirements of Section 2.30.340(c) of Palo Alto's Municipal Code, to permit the City to enter into the purchase transaction with MuniGas under Texas law; and 3. Authorizing the City Manager to execute all associated agreements required to affect the natural gas purchase. MOTION PASSED: 4-0 Page 5 of 5 Finance Committee Regular Meeting Final Minutes 8/5/2014 City of Palo Alto (ID # 5032) City Council Staff Report Report Type: Consent Calendar Meeting Date: 9/15/2014 City of Palo Alto Page 1 Summary Title: Net Energy Metering Aggregation Title: Adoption of a Resolution to Adopt a New Rate Schedule for Net Energy Metering Aggregation Customers, Revise Rules and Regulations 2 and 29, and Approve a Revised Interconnection Agreement for Net Energy Metering Aggregation Customers From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that the City Council adopt a resolution (Attachment A): 1. Adopting a new Utilities Electric Rate Schedule (E-NEMA) detailing charges specific to Net Energy Metering Aggregators (NEM Aggregation); 2. Revising Rule and Regulations 2 (Definitions and Abbreviations) and 29 (Net Energy Metering Service and Interconnection); and 3. Approving a revised Interconnection Agreement for Net Energy Metering (NEM) Aggregation customers. Executive Summary In May 2014, the City Council determined that the City should allow eligible NEM customers to aggregate their load from multiple meters as it would not result in an increase in the expected revenue obligations of non-participating customers. This report presents the required rate schedule addition, Rule and Regulation amendments, and new Interconnection Agreement for NEM Aggregation Customer to implement that decision. Background NEM is a billing mechanism that allows customers with onsite solar systems, or other renewable onsite generation, to reduce or completely avoid costs on their electric bill for the electricity generated by their system. State law requires all electric utilities to offer NEM to eligible customers with renewable distributed generation (sometimes referred to as customer- sited, behind-the-meter generation), up to a maximum cap of 5% of the utility’s total customer peak demand (Cal. Public Utilities Code, §2827 et seq.). In most cases—all cases for Palo Alto— NEM participants are rooftop photovoltaic (PV) systems. City of Palo Alto Page 2 In 2012, Senate Bill 594 (SB 594) modified Public Utilities Code Section 2827 to authorize utilities to allow NEM customers to install larger PV systems to offset load aggregated across multiple meters on one or more adjacent parcels, all of which are owned, leased or rented by that customer, provided that it would not result in any increase in cost to non-participants. In November 2013, the City of Palo Alto Utilities (CPAU) received its first NEM Aggregation request to install a PV system on one to two buildings sized to offset the electric load of three to four separately metered buildings located on the same parcel. SB 594 requires a local governing body to address the cost shift and determine if they will allow NEM aggregation within 180 days of receiving the first request made by an eligible customer-generator to aggregate their load. At its March 2014 meeting, the UAC recommended that Council allow NEM aggregation since it was determined to cause no cost shift to other customers. On May 5, 2014, the City Council determined that NEM Aggregation will not result in increased cost- shifting to non-participants (Resolution 9409, Staff Report 4613, Attachment F). Discussion In order to facilitate NEM Aggregation systems and clarify the differences between standard NEM customers and NEM Aggregation customers, certain changes are required including modifications to Utilities Rules, an updated Interconnection Agreement for NEM Aggregation customers and a new rate schedule, as described below. Rule and Regulation 2 and 29 updates Existing language in Rule and Regulation 29 deals primarily with the standard form of NEM, whereby a customer has a PV panel directly wired to one premise, and any net generation and/or bill credits are applicable only to that premise. The Rule language has been amended to address differences in policy and procedure between NEM and NEM Aggregation. There are two primary differences between NEM and NEM Aggregation customers: 1. NEM customers have a single meter which measures energy inflow and outflow, resulting in a ‘negative’ reading when a customer is a net generator of electricity during the month. NEM Aggregation customers may have the same, but the outflow will be spread among all beneficiary accounts, based on the relative size of load of each; and 2. Standard NEM customers have the option of choosing to be paid out annually for net- generation produced during the year, receiving net surplus compensation per Utility Rate Schedule E-NSE (Net Metering Net Surplus Electricity Compensation). NEM Aggregation customers are ineligible to receive this compensation. In addition, Rule 29 was re-written to remove redundant sections and render it more readable to the layman while still providing the same legal applicability. Finally, many of the provisions in the Interconnection Agreement that were better suited to be contained in Rule provisions have been moved and incorporated into Rule 29. City of Palo Alto Page 3 Rule and Regulation 2 has been amended to include terms and conditions which were otherwise defined within Rule and Regulation 29, or spelled out in the Interconnection Agreements. Interconnection Agreement for NEM Aggregation Customers The existing NEM Interconnection Agreement was written with the perspective of a standard NEM customer in mind, but also contained many parts that were either duplicated in Rule 29 or better suited to be incorporated into Rule 29. The proposed revisions to the Interconnection Agreement for NEM Aggregation customers meet the needs and requirements of NEM and NEM Aggregation situations and refer customers to Rule and Regulations 2 and 29 for specifics as to connection requirements, metering and billing. New Utility Rate Schedule E-NEMA (Net Energy Metering Aggregation) Cal. Public Utilities Code §2827(h)(4)(H) permits a utility to impose special charges on NEM Aggregation customers to mitigate unique incremental cost impacts from aggregation. The proposed new rate schedule addresses several special conditions applicable to NEM Aggregation customers, including billing, metering and system impact costs. Billing CPAU will need to manually process the NEM Aggregation customer accounts each month and this cannot be automated in the billing system without incurring significant costs, which would need to be charged directly to the NEM Aggregation customer. Since there is only one customer at this time, and there will likely not be very many of these customers, CPAU will manually process their bills each month. By contrast, CPAU cannot charge participants in the existing NEM program for costs associated with manual billing. Processing these accounts will involve the following: 1. The NEM Aggregation customer with the PV panel attached (Generation account) will effectively be a read-only service (the data will only be used to credit other attached services). 2. The Beneficiary accounts (those receiving service from the Generation account) will not bill automatically when reads come in, which is the normal mode of operations. In addition, the NEM Aggregation Generation account data as well as Beneficiary account data will have to be separately tracked, as credits will have to be posted manually each month before billing can occur. 3. Beneficiary accounts will then be manually billed. To account for the additional staff time for this arrangement, both at the outset and on an ongoing basis, the proposed new Electric Rate Schedule E-NEMA includes a $20 one-time setup fee per account and a $5 monthly maintenance fee for each electric service. For comparison, PG&E currently charges a $25 per account one-time setup charge plus a monthly charge of $5 per account. City of Palo Alto Page 4 Metering Any additional metering requirements for NEM aggregation that are over and above the current costs for NEM meters will be collected directly from the NEM aggregation customer, in accordance with Utilities Rules and Regulations. System Impacts The siting of an oversized generator at one meter location could result in power flows that cannot be accommodated by the distribution system and will require system upgrades. This is not an issue with current NEM customers, but could be an issue for NEM Aggregation customers. If CPAU faced large distribution system-related upgrade costs, staff may recommend revisiting Council’s cost-shift determination. In the event that NEM Aggregation requests result in an unanticipated cost-shift beyond what would occur under the existing NEM program, or CPAU is limited in collecting incremental costs associated with NEM Aggregation, Cal. Public Utilities Code §2827(h)(4)(E) specifically authorizes the City Council to reconsider the determination it made in a subsequent public proceeding. Commission Review and Recommendation The UAC reviewed the recommended action at its August 6, 2014 meeting. At the meeting, the UAC acknowledged that the policy decision had already been made by Council regarding allowing NEM Aggregation and that this action was simply to implement the policy. The UAC voted unanimously (5-0 with Commissioners Chang and Cook absent) to support staff’s recommendation. The final excerpted minutes from the UAC’s August 6, 2014 meeting are provided as Attachment G. Resource Impact The manual preparation of monthly bills and tracking methods will require additional staff time, but the proposed NEMA charges are designed to cover the cost of providing this service. Policy Implications Providing NEM Aggregation rates to customers will further promote solar development and is consistent with the Carbon Neutral Plan, the Local Solar Plan, and State and local efforts to promote distributed solar projects. Environmental Review The amendment of Utility Rules and Regulations 2 and 29 does not meet the definition of a project pursuant to section 21065 of the California Environmental Quality Act (CEQA). The adoption of a new rate schedule for NEM Aggregation for the purposes of meeting operating expenses is statutorily exempt from CEQA review pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. l5273(a). Attachments:  Attachment A: Resolution Approving Amendments to Rules and NEMA (PDF) City of Palo Alto Page 5  Attachment B: E-NEMA effective 9-16-2014 (PDF)  Attachment C: Rule 02 effective 9-16-2014 (PDF)  Attachment D: Rule 29 effective 9-16-2014 (PDF)  Attachment E: Interconnection Agreement (PDF)  Attachment F: Staff Report ID 4613 without attachments (PDF)  Attachment G: Excerpted Final UAC Minutes of August 6, 2014 Meeting (PDF) ATTACHMENT A * NOT YET APPROVED * 250113 sdl 6051942 0180057 jrm 09022014 Resolution No. _________ Resolution of the Council of the City of Palo Alto Adopting New Utility Electric Rate Schedule E-NEMA (Net Energy Metering Aggregation Rate), and Amending Utilities Rule and Regulations 2 and 29 A. On May 5, 2014 and as required by state law, the Council of the City of Palo Alto adopted a Resolution determining that Net Energy Metering Aggregation (NEM Aggregation) will not result in increased cost-shifting to non-participants. B. In order to allow for customers to participate in NEM Aggregation, the City must update its Rules and Regulations and adopt a rate schedule to collect from NEM aggregation customers the incremental costs of billing and other special charges that may be associated with NEM aggregation. The Council of the City of Palo Alto does hereby RESOLVE as follows: SECTION 1. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rate Schedule E-NEMA (Net Energy Metering Aggregation Rate) is added as attached and incorporated. Utility Rate Schedule E-NEMA shall become effective September 16, 2014. SECTION 2. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rule and Regulation 2 (Definitions and Abbreviations) is hereby amended as attached and incorporated. Utility Rule and Regulation 2, as amended, shall become effective September 16, 2014. SECTION 3. Pursuant to Section 12.20.010 of the Palo Alto Municipal Code, Utility Rule and Regulation 29 (Net Energy Metering Service and Interconnection) is hereby amended as attached and incorporated. Utility Rule and Regulation 29 as amended, shall become effective September 16, 2014. SECTION 4. The Council finds that revenue derived from the authorized adoption enumerated herein shall be used only for the purpose set forth in Article VII, Section 2, of the Charter of the City of Palo. // // // // // ATTACHMENT A * NOT YET APPROVED * 250113 sdl 6051942 0180057 jrm 09022014 SECTION 5. The Council finds that the amendment of Utility Rules and Regulations 2 and 29 does not meet the definition of a project pursuant to section 21065 of the California Environmental Quality Act (CEQA) and that adoption of a new rate schedule for NEM Aggregation for the purposes of meeting operating expenses is statutorily exempt from CEQA review pursuant to California Public Resources Code Sec. 21080(b)(8) and Title 14 of the California Code of Regulations Sec. l5273(a). After reviewing the staff reports presented to Council, the Council incorporates these documents herein and finds that sufficient evidence has been presented setting forth with specificity the basis for this claim of CEQA exemption. INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services NET ENERGY METERING AGGREGATION RATE UTILITY RATE SCHEDULE E-NEMA CITY OF PALO ALTO UTILITIES Issued by the City Council Effective 9-16-2014 Original Sheet No.E-NEMA-1 A. APPLICABILITY: This schedule applies to eligible Customers wishing to install an eligible Renewable Electric Generating Facility that is sized to offset separately metered electric loads on adjacent or contiguous properties that are solely owned, leased, or rented by that eligible Customer, and who have signed an Net Energy Metering (NEM) Interconnection Agreement for NEM Aggregation. B. TERRITORY: Applies to locations within the service area of the City of Palo Alto. C. RATES: Per Account One Time Charges: Setup fee per Customer Account $20 Monthly Meter Charges: Ongoing maintenance and billing charge $5 D. SPECIAL CONDITIONS 1. Senate Bill 594 (Wolk 2012) authorizes an eligible customer-generator with multiple meters to elect to aggregate the electrical load of the meters located on the property where the generation facility is located and on all property adjacent or contiguous to the property on which the generation facility is located, if those properties are solely owned, leased, or rented by the eligible customer-generator, as provided. 2. An eligible customer-generator electing to aggregate the electrical load of multiple meters pursuant to this subdivision shall remit service charges for the cost of providing billing services to the electric utility that provides service to the meters. {End} ATTACHMENT B DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 1 A. ABBREVIATIONS AMR - Automated Meter Reading AER - Advance Engineering Request Btu - British Thermal Unit ccf - Hundred Cubic Feet CEC - California Energy Commission CPAU - City of Palo Alto Utilities CPUC - California Public Utilities Commission. ERU - Equivalent Residential Unit FERC - Federal Energy Regulatory Commission kVar - Kilovar kVarh - Kilovar-hours kW - Kilowatt kWh - Kilowatt-hour MW - Megawatt MMBtu - One million Btus. NEC - National Electric Code, Latest Version NEM - Net Energy Metering NEMA - Net Energy Metering Aggregation NEMIA - Net Energy Metering Interconnection Agreement NRTL - Nationally Recognized Testing Laboratory PAMC - Palo Alto Municipal Code PSIG - Per square inch gauge PST - Pacific Standard Time RWQCP - Regional Water Quality Control Plant UUT - Utilities Users Tax B. GENERAL DEFINITIONS Account The identification number in CPAU’s billing system for Utility Services. ATTACHMENT C DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 2 Agency Any local, county, state or federal governmental body or quasi-governmental body, including, without limitation, the CPUC, the FERC and any joint powers agency, but excluding the City and any board, commission or council of the City. Aggregation Customer A Customer with a Renewable Electric Generating Facility wishing to install an eligible Renewable Electric Generating Facility that is sized to offset separately metered electric loads on adjacent or contiguous properties that are solely owned, leased, or rented by them, and who have signed the Net Energy Metering Interconnection Agreement for NEM Aggregation. Applicant An individual, corporation, partnership, Agency, or other legal entity or authorized agent of same, requesting CPAU to supply any or all of the following: 1. Electric Service 2. Water Service 3. Gas Service 4. Wastewater Collection 5. Refuse and Recycling Collection 6. Storm and Surface Water Drainage Service 7. Fiber Optics Service Or, an entity submitting an Application for Interconnection pursuant to Rule 27. Application (for Interconnection of Generating Facilities) An approved standard form (Load Sheet) submitted to CPAU for Interconnection of a Generating Facility. Beneficiary Account The Electric Service Meter(s) serviced by an Aggregation Customer’s Generating Facility, as listed on the Aggregation Customer’s NEMA-IA form. Bidweek Price Index The price reported in Natural Gas Intelligence “NGI’s Bidweek Survey”, California “PG&E Citygate” under the column “avg.” for the calendar month. DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 3 Billing Period Also “service period” or “billing cycle”. The normal Billing Period for CPAU Customers is approximately 30 days, with variations occurring due to staff availability, holiday scheduling, field verification of Meter readings, or any other billing-related issues requiring additional investigation prior to issuance of the bill.. British Thermal Unit Also “Btu”. The standard sub-unit of measurement comprising a Therm of natural Gas. One (1) Therm equals 100,000 Btu. Business Day Any day, except a Saturday, Sunday, or any day observed as a legal holiday by the City. Certification Test A test pursuant to Rule 27 that verifies conformance of certain equipment with approved performance standards in order to be classified as Certified Equipment. Certification Tests are performed by NRTLs. Certification; Certified; Certificate The documented results of a successful Certification Test. Certified Equipment Equipment that has passed all required Certification Tests. Charge Any assessment, cost, fee, surcharge or levy for Utility Service other than a Tax, including metered and unmetered Utility Service, capacity, connections, construction, penalties, and mandated or required Customer financial obligations for Service. Charter The Charter of the City of Palo Alto. City Attorney The individual designated as the City Attorney of the City under Section 2.08.120 of Chapter 2.08 of Title 2 of the Palo Alto Municipal Code, and any Person who is designated the representative of the City Attorney. City’s Collector DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 4 The Person(s) authorized under Section 5.20.040 of the Palo Alto Municipal Code to provide collection, removal and disposal of solid waste and Recyclable Materials pursuant to one or more written contracts with the City. City Manager The individual designated as the City Manager of the City under Section 2.08.140 of Chapter 2.08 of Title 2 of the Palo Alto Municipal Code, and any Person who is designated the representative of the City Manager. City of Palo Alto, or City The government of the City of Palo Alto, a chartered City and a municipal corporation duly organized and validly existing under the Laws of the State of California, with a principal place of business located at 250 Hamilton Avenue, Palo Alto, County of Santa Clara. For the purposes of these Rules and Regulations, the term “City” may include services provided by both the City of Palo Alto Utilities Department and the City of Palo Alto Public Works Department. City of Palo Alto Public Works Department (Public Works) The City Department responsible for providing Refuse and Recycling, Wastewater Treatment and Storm and Surface Water Drainage Utility Services. Other Utility Services such as Water, Gas, Electric, Wastewater Collection, and Fiber Optics are provided by the City of Palo Alto Utilities Department. City of Palo Alto Utilities Department (CPAU) The City Department responsible for providing Water, Gas, Electric, Wastewater Collection and Fiber Optic Utility Services. Other Utility Services such as Refuse and Recycling, Wastewater Treatment and Storm and Surface Water Drainage are provided by the City of Palo Alto Public Works Department. Code The words "the Code" or "this Code" shall mean the Palo Alto Municipal Code. Commercial Service Commercial Utility Service is provided to businesses, non-profit organizations, public institutions, and industrial Customers. The term also applies to Utility Services through Master Meters serving multi- family Residential dwellings and common areas of multi-family facilities. Compostable Materials Organic materials designated by the City as acceptable for collection and processing. Cubic Foot of Gas (cf) DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 5 The quantity of Gas that, at a temperature of sixty (60) degrees Fahrenheit and a pressure of 14.73 pounds per square inch absolute, occupies one cubic foot. Curtailment The act of reducing or interrupting the delivery of natural Gas. Customer The Person, corporation, Agency, or entity that receives or is entitled to receive Utility Service(s) from the City of Palo Alto, or in whose name Service is rendered for a particular Account as evidenced by the signature on the Application, contract, or agreement for Service. In the absence of a signed instrument, a Customer shall be identified by the receipt of any payment of bills regularly issued in the name of the Person, corporation, or Agency regardless of the identity of the actual user of the Utility Service(s). Customer-Generator: An “eligible customer-generator,” as that term is defined by the California Public Utilities Code section 2827, as the same may be amended from time to time. Dark Fiber A Fiber Optic cable provided to end-users or resellers by CPAU without any of the light transmitters, receivers, or electronics required for telecommunications over the Fiber. Infrastructure for Fiber Optic activation is provided by the reseller or end-user. Dark Fiber Infrastructure Components of the CPAU Fiber Optic Distribution System required to provide Service to Customers (licensees), that are attached, owned, controlled or used by the City, located overhead or underground within the Public Right-of-Way, the Public Utility Easements and Leased Service Properties. Dedicated Distribution Transformer A Distribution Transformer that is dedicated to serving a single premise. Demand The highest rate of delivery of Electric energy, measured in Kilowatts (kW) or kilovolt amperes (kVA) occurring instantaneously or registered over a fixed time period (normally fifteen minutes unless otherwise specified within a monthly billing cycle). Demand Charge DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 6 An electrical Charge or rate that is applied to a metered Demand reading expressed in Kilowatts to compute a Demand Charge component of a Customer’s Electric bill. Demarcation Point The Demarcation Point for a project shall be the Customer side of the panel onto which the CPAU Fiber terminates within the Customer Premises, unless otherwise specified in the Proposal for Dark Fiber Services. Distribution Services Includes, but is not limited to, Utility Service provided by the Distribution System and other Services such as billing, meter reading, administration, marketing, and Customer Services. Does not include Services directly related to the Interconnection of a Generating Facility as per Rule 27. Distribution System The infrastructure owned and operated by CPAU which is capable of transmitting electrical power, other than Interconnection Facilities, or transporting Water, Wastewater, or Gas within the City of Palo Alto. The Electric Distribution System transmits power from the City’s Interconnection with PG&E to CPAU’s Meter located on the Customer’s Premises. The Gas Distribution System transports Gas from PG&E receiving stations to CPAU’s Meter located on the Customer Premises. The Water Distribution System transports Water from the San Francisco Water Department receiving stations and CPAU wells to the meter located on the Customer Premises. The Wastewater Collection System transports sewage from the Customer’s Premises to the Water Quality Control Plant. Effluent Treated or untreated Wastewater flowing out of a Wastewater treatment facility, sewer, or industrial outfall. Electric, Electric Service Utility Service provided to residents and business owners in the City of Palo Alto consisting of generation, transmission, and distribution of electrical power for retail use. Electric Service is provided by the City of Palo Alto Utilities Department. Emergency An actual or imminent condition or situation, which jeopardizes CPAU’s Distribution System Integrity. Emergency Service DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 7 Electric Service supplied to, or made available to, Load devices which are operated only in Emergency situations or in testing for same. Energy Services Energy commodity and any applicable ancillary Services used to generate and transport such commodity from its origin to the City’s Point of Receipt. May also mean the sale of value added Services associated or related to the Provision and/or usage of energy commodity. Equivalent Residential Unit (ERU) This is the basic unit for computing storm and surface water drainage fees. All single-family Residential properties are billed the number of ERU’s specified in the table contained in Utility Rate Schedule D-1, according to parcel size. All other properties have ERU's computed to the nearest 1/10 ERU using this formula: No. Of ERU = Impervious Area (sq. ft.) / 2,500 sq. ft. Fiber Optic, Fiber Optic Service A solid core of optical transmission material. Fiber Optic Service that is provided by the City of Palo Alto Utilities Department is referred to as Dark Fiber. Fiber Optic Backbone The high-density portion of the Dark Fiber Infrastructure installed and owned by the City. Force Majeure The occurrence of any event that has, had or may have an adverse effect on the design, construction, installation, management, operation, testing, use or enjoyment of the City’s Utility Services, which is beyond the reasonable control of the parties and which event includes, but is not limited to, an Act of God, an irresistible superhuman cause, an act of a superior governmental authority, an act of a public enemy, a labor dispute or strike or a boycott which could not be reasonably contemplated by the City or Customer affected thereby, a defect in manufactured equipment (including, but not limited to, the Dark Fibers), fire, floods, earthquakes, or any other similar cause. Function Some combination of hardware and software designed to provide specific features or capabilities. Its use, as in Protective Function, is intended to encompass a range of implementations from a single- purpose device to a section of software and specific pieces of hardware within a larger piece of equipment to a collection of devices and software. Gas Any combustible gas or vapor, or combustible mixture of gaseous constituents used to produce heat by DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 8 burning. It shall include, but not be limited to, natural gas, gas manufactured from coal or oil, gas obtained from biomass or from landfill, or a mixture of any or all of the above. Gas, Gas Service Utility Service provided to residents and business owners in the City of Palo Alto consisting of procurement, transmission, and distribution of Gas for retail use. Gas Service is provided by the City of Palo Alto Utilities Department. Generating Facility All Generators, electrical wires, equipment, and other facilities owned or provided by Producer for the purpose of producing Electric power. This includes a solar or wind turbine Renewable eElectrical gGenerating fFacility that is the subject of a Net Energy Metering and Interconnection Agreement and Rule and Regulation 29. Generator A device converting mechanical, chemical or solar energy into electrical energy, including all of its protective and control Functions and structural appurtenances. One or more Generators comprise a Generating Facility. Gross Nameplate Rating; Gross Nameplate Capacity The total gross generating capacity of a Generator or Generating Facility as designated by the manufacturer(s) of the Generator(s). Initial Review The review by CPAU, following receipt of an Application, to determine the following: (a) whether the Generating Facility qualifies for Simplified Interconnection; or (b) if the Generating Facility can be made to qualify for Interconnection with a Supplemental Review determining any additional requirements. Inspector The authorized Inspector, agent, or representative of CPAU. Interconnection; Interconnected The physical connection of a Generating Facility in accordance with the requirements of the City’s Utilities Rules and Regulations so that Parallel Operation with CPAU’s Distribution System can occur (has occurred). DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 9 Interconnection Agreement An agreement between CPAU and the Producer providing for the Interconnection of a Generating Facility that gives certain rights and obligations to effect or end Interconnection. For the purposes of the City’s Utilities Rules and Regulations, the Net Energy Metering and Interconnection Agreement (for NEM and NEM Aggregation Customers), and the Power Purchase Agreements authorized by the City Council may be considered as Interconnection Agreements for purposes of defining such term. Interconnection Facilities The electrical wires, switches and related equipment that are required in addition to the facilities required to provide Electric Distribution Service to a Customer to allow Interconnection. Interconnection Facilities may be located on either side of the Point of Common Coupling as appropriate to their purpose and design. Interconnection Facilities may be integral to a Generating Facility or provided separately. Interconnection Study A study to establish the requirements for Interconnection of a Generating Facility with CPAU’s Distribution System. Internet Exchange Any Internet data center for telecommunications equipment and computer equipment for the purposes of enabling traffic exchange and providing commercial-grade data center services. Island; Islanding A condition on CPAU’s Electric Distribution System in which one or more Generating Facilities deliver power to Customers using a portion of CPAU’s Distribution System that is electrically isolated from the remainder of CPAU’s Distribution System. Junction A location on the Dark Fiber Infrastructure where equipment is installed for the purpose of connecting communication cables. Junction Site The area within the Transmission Pathway at which a Junction is located. Kilovar (kVar) A unit of reactive power equal to 1,000 reactive volt-amperes. DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 10 Kilovar-hours (kVarh) The amount of reactive flow in one hour, at a constant rate of Kilovar. Kilowatt (kW) A unit of power equal to 1,000 watts. Kilowatt-hour (kWh) The amount of energy delivered in one hour, when delivery is at a constant rate of one Kilowatt; a standard unit of billing for electrical energy. Law Any administrative or judicial act, decision, bill, Certificate, Charter, Code, constitution, opinion, order, ordinance, policy, procedure, Rate, Regulation, resolution, Rule, Schedule, specification, statute, tariff, or other requirement of any district, local, municipal, county, joint powers, state, or federal Agency, or any other Agency having joint or several jurisdiction over the City of Palo Alto or City of Palo Alto Utilities or Public Works Customers, including, without limitation, any regulation or order of an official or quasi-official entity or body. Licensed Fibers One or more fibers comprising a part of the Dark Fiber Infrastructure that are dedicated to the exclusive use of the Customer under the Provisions of the Dark Fiber License Agreement, Proposal to Dark Fiber Services Agreement and the Utilities Rules and Regulations. Licensed Fibers Route A defined path of Licensed Fibers that is identified by specific End Points. Load(s) The Electric power Demand (kW) of the Customer at its Service Address within a measured period of time, normally 15 minutes, or the quantity of Gas required by a Customer at its Service Address, measured in MMBtu per Day. Main Wastewater Line Any Wastewater line not including a building connection (Service) sewer. Master-metering Where CPAU installs one Service and Meter to supply more than one residence, apartment dwelling unit, mobile home space, store, or office. DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 11 Maximum Generation For a customer with a non-utility generator located on the customer’s side of the Point of Common Coupling, the Maximum Generation for that non-utility generator during any billing period is the maximum average generation in kilowatts taken during any 15-minute interval in that billing period provided that in case the generator output is intermittent or subject to violent fluctuations, the City may use a 5-minute interval. Meter The instrument owned and maintained by CPAU that is used for measuring either the Electricity, Gas or Water delivered to the Customer. Metering The measurement of electrical power flow in kW and/or energy in kWh, and, if necessary, reactive power in kVar at a point, and its display to CPAU as required by Rule 27. Metering Equipment All equipment, hardware, software including Meter cabinets, conduit, etc., that are necessary for Metering. Meter Read The recording of usage data from Metering Equipment. Minimum Charge The least amount for which Service will be rendered in accordance with the Rate Schedule. Momentary Parallel Operation The Interconnection of a Generating Facility to the Distribution System for one second (60 cycles) or less. Nationally Recognized Testing Laboratory (NRTL) A laboratory accredited to perform the Certification Testing requirements under Rule 27. Net Electricity Consumer A Customer-Generator whose Generating Facility produces less electricity than is supplied by CPAU during a particular period, as such definition may otherwise be modified or supplemented by any definition in California Public Utilities Code section 2827(h)(2), as the same may be amended from time to time. DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 12 Net Energy Metering Net Energy Metering means measuring the difference between the electricity supplied through CPAU’s Electric utility Distribution System and the electricity generated by the customer-generator’s facility and delivered to CPAU’s Electric utility Distribution System over a specified twelve-month period. Net Generation Metering Metering of the net electrical power of energy output in kW or energy in kWh, from a given Generating Facility. This may also be the measurement of the difference between the total electrical energy produced by a Generator and the electrical energy consumed by the auxiliary equipment necessary to operate the Generator. Net Nameplate Rating The Gross Nameplate Rating minus the consumption of electrical power of a Generator or Generating Facility as designated by the manufacturer(s) of the Generator(s). Net Surplus Customer-Generator A Customer-Generator who’s Generating Facility produces more electricity than is supplied by CPAU, during a particular period, as such definition may otherwise be modified or supplemented by any definition in California Public Utilities Code section 2827(h)(3), as the same may be amended from time to time. Net Surplus Electricity Compensation A per kilowatthour rate offered by CPAU to the Net Surplus Customer-Generators (excluding Aggregation Customers) for net surplus electricity, as such definition may otherwise be modified or supplemented by any definition in California Public Utilities Code section 2827(b)(8), as the same may be amended from time to time. Non-Islanding Designed to detect and disconnect from an Unintended Island with matched Load and generation. Reliance solely on under/over voltage and frequency trip is not considered sufficient to qualify as Non- Islanding. Occupied Domestic Dwelling Any house, cottage, flat, or apartment unit having a kitchen, bath, and sleeping facilities, which is occupied by a Person or Persons. Parallel Operation The simultaneous operation of a Generator with power delivered or received by CPAU while DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 13 Interconnected. For the purpose of this Rule, Parallel Operation includes only those Generating Facilities that are Interconnected with CPAU’s Distribution System for more than 60 cycles (one second). Performance Test, Performance Tested After the completion of any Fiber Interconnection work, the City will conduct a Performance Test of each Fiber constituting a part of the proposed leased fibers to determine its compliance with the Performance Specifications. Performance Specifications These specifications will include, but not be limited to, criteria relating to end-to-end optical time domain reflectometer data plots that identify the light optical transmission losses in each direction along the leased fibers whenever the testing is possible, measured in decibels at a wavelength of 1310 or 1550 nanometers for singlemode Fiber, as a Function of distance, measured in kilometers. Person Any individual, for profit corporation, nonprofit corporation, limited liability company, partnership, limited liability partnership, joint venture, business, family or testamentary trust, sole proprietorship, or other form of business association. PG&E Citygate The PG&E Citygate is the point at which PG&E’s backbone transmission system connects to PG&E’s local transmission system. Point of Common Coupling (PCC) The transfer point for electricity between the electrical conductors of CPAU and the electrical conductors of the Producer. Point of Common Coupling Metering Metering located at the Point of Common Coupling. This is the same Metering as Net Generation Metering for Generating Facilities with no host load. Point of Delivery (POD) Unless otherwise specified, the following definitions apply: For Electric, that location where the Service lateral conductors connect to the Customer’s Service entrance equipment; for overhead Services, the POD is at the weather-head connection; for under-ground Services, the POD is located at the terminals ahead of or at the Meter; for multiple Meter arrangements with connections in a gutter, the POD is at the Meter terminals (supply-side); for multiple Meter arrangements in a switchboard, the POD is DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 14 typically at the connectors in the utility entrance section; for Natural Gas, the POD is the point(s) on the Distribution System where the City delivers natural Gas that it has transported to the Customer. Point of Interconnection The electrical transfer point between a Generating Facility and the Distribution System. This may or may not be coincident with the Point of Common Coupling. Point of Service (POS) Where CPAU connects the Electric Service lateral to its Distribution System. For Fiber Optics Service, this is where CPAU connects the Fiber Service to the backbone. This point is usually a box located in or near the street or sidewalk and can be in the Public Right-of-Way. This point is at a mutually agreed upon location established at the time of installation. Pole Line Overhead wires and overhead structures, including poles, towers, support wires, conductors, guys, studs, platforms, cross arms braces, transformers, insulators, cutouts, switches, communication circuits, appliances attachments, and appurtenances, located above ground and used or useful in supplying Electric, communication, or similar or associated Service. Power Factor The percent of total power delivery (kVA) which does useful work. For billing purposes, average Power Factor is calculated from a trigonometric function of the ratio of reactive kilovolt-ampere-hours to the Kilowatt-hours consumed during the billing month. Power Factor is a ratio that reflects the reactive power used by a Customer. CPAU maintains an overall system Power Factor above 95% to reduce distribution system losses caused by low Power Factor. Power Factor Adjustment CPAU must install additional equipment to correct for Customers that maintain a low Power Factor, and may make a Power Factor Adjustment to a Customer’s bill to account for those costs and the additional energy costs and losses incurred by CPAU due to the Customer’s low Power Factor. Premises All structures, apparatus, or portion thereof occupied or operated by an individual(s), a family, or a business enterprise, and situated on an integral parcel of land undivided by a public street, highway, or railway. Primary Service CPAU Electric distribution Service provided to a Customer’s Premises at a voltage level equal to or DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 15 greater than 1000 volts. Producer The entity that executes an Interconnection Agreement with CPAU. The Producer may or may not own or operate the Generating Facility, but is responsible for the rights and obligations related to the Interconnection Agreement. Proposal for Dark Fiber Services A project-specific Service agreement that acts as a supplemental document for the Dark Fiber License Agreement. This Service agreement shall include the proposed Interconnection fees, applicable Fiber licensing fees, term of the Service, and summary of licensed Fiber elements. Protective Function(s) The equipment, hardware and/or software in a Generating Facility (whether discrete or integrated with other Functions) whose purpose is to protect against Unsafe Operating Conditions. Provision Any agreement, circumstance, clause, condition, covenant, fact, objective, qualification, restriction, recital, reservation, representation, term, warranty, or other stipulation in a contract or in Law that defines or otherwise controls, establishes, or limits the performance required or permitted by any party. Prudent Utility Practices The methods, protocols, and procedures that are currently used or employed by utilities to design, engineer, select, construct, operate and maintain facilities in a dependable, reliable, safe, efficient and economic manner. Public Right-of-Way The areas owned, occupied or used by the City for the purposes of furnishing retail and/or wholesale Electricity, Gas, Water, Wastewater, Storm and Surface Water Drainage, Refuse and recycling or communications commodity and/or distribution Service, and the means of public transportation, to the general public, including but not limited to, the public alleys, avenues, boulevards, courts, curbs, gutters, lanes, places, roads, sidewalks, sidewalk planter areas, streets, and ways. Public Utility Easements The areas occupied or used by the City for the purpose of providing Utility Service to the general public, and all related Services offered by the City’s Utilities Department and/or Public Works Department, the rights of which were acquired by easements appurtenant or in gross, or are other interests or estates in real property, or are the highest use permitted to be granted by the nature of the City’s interest in and to DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 16 the affected real property. This term incorporates all public Service easements for Utility Services that have been recorded by the City with the Recorder of the County of Santa Clara, California. Public Works Department See City of Palo Alto Public Works Department. Rate Schedule One or more Council-adopted documents setting forth the Charges and conditions for a particular class or type of Utility Service. A Rate Schedule includes wording such as Schedule number, title, class of Service, applicability, territory, rates, conditions, and references to Rules. Recyclable Materials Materials designated by the City as acceptable for recycling collection and processing. Renewable Electric Generating Facility A Generating Facility eligible for NEM under California Public Utilities Code section 2827 et seq. as the same may be amended from time to time. Reserved Capacity For a customer with one or more non-utility generators located on the customer’s side of the Point of Common Coupling, the Reserved Capacity for each billing period is the lesser of 1) the sum of the Maximum Generation for that period for all non-utility generation sources; or 2) the maximum average customer demand in kilowatts taken during any 15-minute interval in the billing period provided that in case the load is intermittent or subject to violent fluctuations, the City may use a 5-minute interval. Residential Service Utility Service provided to separately metered single family or multi-family, domestic dwelling. Rules and Regulations See Utilities Rules and Regulations Scheduling Coordinator An entity providing the coordination of power schedules and nominations to effect transportation and distribution of Gas, Electric power and energy. Secondary Service CPAU Electric distribution Service provided to a Customer’s Premises at a voltage level less than 1000 volts. DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 17 Service(s) Utility Services offered by the City of Palo Alto include Electric, Fiber Optics, Gas, Water, Wastewater Collection services provided by the Utilities Department (CPAU); and Refuse and Recycling, Wastewater Treatment, and Storm and Surface Water Drainage Services provided by the Public Works Department. Service Address The official physical address of the building or facility assigned by CPAU’s Planning Department, at which Customer receives Utility Services. Service Charge A fixed monthly Charge applicable on certain Rate Schedules that does not vary with consumption. The Charge is intended to recover a portion of certain fixed costs. Service Drop The overhead Electric Service conductors from the last pole or other aerial support to and including the splices, if any, connecting to the service entrance conductors at the building or other structure. Or, in the case of Fiber Optic Drops, the overhead Fiber Optics cable from the last pole or other aerial support to the building or other structure to and including the termination box. Services or Service Lines Facilities of CPAU, excluding transformers and Meters, between CPAU’s infrastructure and the Point of Delivery to the Customer. Service Territory The geographic boundaries within the City of Palo Alto limits served by the physical Distribution System of the CPAU. Short Circuit (Current) Contribution Ratio (SCCR) The ratio of the Generating Facility’s short circuit contribution to the short circuit contribution provided through CPAU’s Distribution System for a three-phase fault at the high voltage side of the distribution transformer connecting the Generating Facility to CPAU’s system. Simplified Interconnection An Interconnection conforming to the minimum requirements as determined under Rule 27, Section I. Single Line Diagram; Single Line Drawing DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 18 A schematic drawing, showing the major Electric switchgear, Protective Function devices, wires, Generators, transformers and other devices, providing sufficient detail to communicate to a qualified engineer the essential design and safety of the system being considered. Special Facilities See CPAU’s Rule and Regulation 20 governing Special Facilities. Splice A point where two separate sections of Fiber are physically connected. Standard Refuse Container A Standard Refuse Container shall have the meaning described in the Palo Alto Municipal Code. A Standard Container shall also include a wheeled container with a capacity of not to exceed 32 gallons. Standby Service Back-up Energy Services provided by CPAU. Storm and Surface Water Drainage Utility Service provided to residents and business owners in the City of Palo Alto. Storm and Surface Water Drainage Service is provided by the City of Palo Alto Public Works Department. Supplemental Review A process wherein CPAU further reviews an Application that fails one or more of the Initial Review Process screens. The Supplemental Review may result in one of the following: (a) approval of Interconnection; (b) approval of Interconnection with additional requirements; or (c) cost and schedule for an Interconnection Study. System Integrity The condition under which a Distribution System is deemed safe and can reliably perform its intended Functions in accordance with the safety and reliability rules of CPAU. Tax Any assessment, Charge, imposition, license, or levy (including any Utility Users Tax) and imposed by any Agency, including the City. Telemetering The electrical or electronic transmittal of Metering data in real-time to CPAU. DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 19 Temporary Service Service requested for limited period of time or of indeterminate duration such as, but not limited to, Service to provide power for construction, seasonal sales lots (Christmas trees), carnivals, rock crushers or paving plants. Temporary Service does not include Emergency, breakdown, or Standby Service. Therm A Therm is a unit of heat energy equal to 100,000 British Thermal Units (Btu). It is approximately the energy equivalent of burning 100 cubic feet (often referred to as 1 ccf) of natural Gas. Since Meters measure volume and not energy content, a Therm factor is used to convert the volume of Gas used to its heat equivalent, and thus calculate the actual energy use. The Therm factor is usually in the units therms/ccf. It will vary with the mix of hydrocarbons in the natural Gas. Natural Gas with a higher than average concentration of ethane, propane or butane will have a higher Therm factor. Impurities, such as carbon dioxide or nitrogen lower the Therm factor. Transfer Trip A Protective Function that trips a Generating Facility remotely by means of an automated communications link controlled by CPAU. Transmission Pathway Those areas of the Public Right-of-Way, the Public Utility Easements and the Leased Service Properties in which the Dark Fiber Infrastructure is located. Trap Any approved equipment or appliance for sealing an outlet from a house-connection sewer to prevent the escape of sewer Gas from a main line through a building connection (service) sewer. Underground Utility District An area in the City within which poles, overhead electric or telecommunication wires, and associated overhead structures are prohibited or as otherwise defined in Section 12.04.050 of the PAMC. Unintended Island The creation of an Island, usually following a loss of a portion of CPAU’s Distribution System, without the approval of CPAU. Unsafe Operating Conditions Conditions that, if left uncorrected, could result in harm to personnel, damage to equipment, loss of System Integrity or operation outside pre-established parameters required by the Interconnection DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 20 Agreement. Utilities Department See City of Palo Alto Utilities Department. Utilities Director The individual designated as the Director of Utilities Department under Section 2.08.200 of Chapter 2.08 of Title 2 of the Palo Alto Municipal Code, and any Person who is designated the representative of the director of utilities. Utility(ies) Rules and Regulations, Rules and Regulations The compendium of Utilities Rules and Regulations prepared by the City’s Utilities and Public Works Departments and adopted by ordinance or resolution of the Council pursuant to Chapter 12.20 of the Palo Alto Municipal Code, as amended from time to time. Utility(ies) Service(s), Service(s) Electric, Fiber optics, Water, Gas, Wastewater collection services provided by the City of Palo Alto Utilities Department (CPAU) and Refuse and Recycling, Wastewater Treatment and Storm and Surface Water Drainage services provided by the City of Palo Alto Public Works Department. Utilities User Tax (UUT) City of Palo Alto Tax imposed on Utility Charges to a Water, Gas, and/or Electric Service user. This may include Charges made for Electricity, Gas, and Water and Charges for Service including Customer Charges, Service Charges, Standby Charges, Charges for Temporary Services, Demand Charges, and annual and monthly Charges, as described in Chapter 2.35 of the Palo Alto Municipal Code. Wastewater Utility Service provided to residents and business owners in the City of Palo Alto. Wastewater Utility Services include collection and treatment of Wastewater. Wastewater Collection Service is provided by the City of Palo Alto Utilities Department, and Wastewater Treatment Service is provided by the City of Palo Alto Public Works Department. Water Utility Service provided to residents and business owners in the City of Palo Alto for retail use. Water Service is provided by the City of Palo Alto Utilities Department. Water Column (WC) DEFINITIONS AND ABBREVIATIONS RULE AND REGULATION 2 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 39-16-2014 Sheet No 21 Pressure unit based on the difference in inches between the heights of water columns as measured in a manometer. 6” WC = 0.217 psi; 7” WC = 0.25 psi. Yard Trimmings Yard Trimmings means those materials defined in Section 5.20.010 of the Palo Alto Municipal Code. (END) NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 1 A. APPLICABILITY Y 1.This Rule and Regulation 29 is applicable to any City of Palo Alto Utilities (“CPAU”) Customer that is an eligible Customer-Generator under the California Public Utilities Code that desires to participate in Net Energy Metering (“NEM”) customer-generator of CPAU who signs the Net Energy Metering and Interconnection Agreement or Net Energy Metering Aggregation (“NEM Aggregation”) with a Renewable Electric Generation Facility, not to exceed 1 MW on premises within CPAU service territory to operate in parallel with the CPAU distribution system. B. SCOPE Notwithstanding the requirements and charges set forth in this Rule 29, CPAU reserves the right to impose any requirements set forth in Rule 27 that are additional to or more stringent than those set forth in this Rule 29, including those related to billing and charges, on NEM and NEM Aggregation Customers to the maximum extent permitted by state law (Cal. Pub. Util. Code § 2827 et seq., as the same may be amended from time to time). C. CUSTOMER ELIGIBILITY 1.General Requirements. In order to be eligible to participate in NEM or NEM Aggregation, a Customer must: a.Be a Customer-Generator, pursuant to the definition set forth in Rule and Regulation 2. b.Construct, design, install, interconnect, operate and maintain a Renewable Electric Generation Facility (or combination of such facilities) that is: i. A customer-generator includes: (1) an “eligible customer-generator,” as that term is defined in Section 331(h) of the California Public Utilities Code to refer to a residential or small commercial Customer, and, (2) a customer-generator who is other than a residential or small commercial Customer, as defined, of CPAU, which includes a ATTACHMENT D NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 2 medium commercial and a large commercial (industrial) Customer, who uses a solar or wind turbine electrical Generating Facility, or a hybrid system of both. The facility must be located: O oOn the customer-generatorCustomer-Generator’s owned, leased or rented Premises, , ii. must haveOf a total capacity of not more than one (1) megawatt MW (or 1,000 KilowattskW), iii. ), must be Interconnected and operated in parallel with CPAU’s Electric utility Distribution System, and must beI intended primarily to offset part or all of the customer- generatorCustomer-Generator’s own Electric Service requirements, and iv. Is not used to sell to any third person, or otherwise provide Electric Service to any real estate parcel, premise, or location other than those that are the subject of the Customer-Generator’s Interconnection Agreement (IA) 2. Additional Requirements for NEM Aggregation. In addition to those eligibility requirements set forth in Section 1(a) of this Rule and Regulation 29, a CPAU Customer is only eligible to participate in NEM Aggregation where: a. The Customer-Generator elects to aggregate Electric Service of the meters located on the property where the Renewable Electric Generation Facility is located across properties that are adjacent or contiguous with that property; and b. All properties across which the Customer-Generator elects to aggregate are solely owned, leased, or rented by the eligible Customer. NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 3 D. BILLING FOR NEM 1. General Rules a. Twelve Month True Up Period i. At the end of each twelve--month period following: aa. The date of Interconnection of the Renewable Electric Generating Facility, or bb. For a Customer with a date of Interconnection of the Generating Facility commencing prior to February 1, 2010, the day after CPAU’s receipt of the Customer’s net surplus electricity election form, ii. CPAU will determine whether the Customer-Generator is a Net Electricity Consumer or a Net Surplus Customer-Generator during that period. b. CPAU will bill the Customer-Generator for the electricity used during that twelve- month period, whether the Customer-Generator is considered a Net Electricity Consumer or a Net Surplus Customer-Generator. c. CPAU shall provide the Customer-Generator with net electricity consumption information with each monthly bill; that information shall include either the current monetary balance owed to CPAU or the current amount of excess electricity produced since the last twelve-month period. d. If the Customer-Generator terminates the contractual relationship with CPAU, then CPAU shall reconcile the Customer-Generator’s consumption and production of electricity during any part of the twelve-month period following the last annual settlement and reconciliation, using the procedures as outlined in this Rule. e. For a Customer-Generator who has submitted an affirmative election, CPAU will provide either Net Surplus Electricity Compensation in accordance with Electric Utility Rate Schedule E-NSE-1, for any net surplus electricity generated during the prior twelve-month settlement period, or bill credits resulting from net surplus NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 4 electricity generation to be applied against electricity-related charges subsequently incurred by the Customer-Generator. f. If the Customer-Generator fails to make an affirmative election to receive Service pursuant to Net Surplus Electricity Compensation, then CPAU shall retain any excess electricity (expressed in Kilowatt-hours) generated during the prior twelve-month settlement period, and it shall not be obligated to pay Net Surplus Electricity Compensation, nor shall it be obligated to allow the application of net surplus electricity credits to be used against Energy charges subsequently incurred by the Customer-Generator. g. CPAU will allow a Customer to change the election option once each twelve-month settlement period provided that the Customer provides notice to CPAU one month prior to the beginning of new settlement period. 2. Monthly Billing a. Medium and large commercial Customer-Generators will be required to pay any balances due to CPAU on a monthly basis. b. Except as annual billing is provided for in this Rule 29, residential and small commercial Customer-Generators will default to owing balances due on a monthly basis, but may request annual billing as allowed for in California Public Utilities Code sections 2827 (g) and (h)(2)(c). c. Standby service charges for backup or maintenance electric service will be waived, provided that the Customer-Generator qualifies for participation in net energy metering at the Service Address d. For a Net Surplus Customer-Generator in a given month, any credits created will be carried forward to future months, to be used for future electric charges, until the end of the Customer-Generators Twelve Month True-Up Period. 3. Annual Billing NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 5 a. Customers may request annual billing as allowed for in California Public Utilities Code sections 2827 (g) and (h)(2)(c).. b. Bill payment will not be considered delinquent, unless the Customer-Generator does not pay a final billing statement within twenty (20) days of the date of issuance of that final billing statement. c. For annually billed residential or small commercial Customer-Generators, the net balance of money owed to CPAU will be carried forward until the end of the twelve- month period. d. To accommodate annual billing, a Customers Electricity Service may be transferred to a separate Utility Account so as not to interrupt monthly billing for other recurring, non-electric Utility Services. 4. Additional Billing Rules Applicable to NEM Aggregation Customers a. For each monthly billing period, the amount of electricity generated from the Aggregation Customer’s Generating Facility during that billing period will be accounted for on a per kWh basis. b. The Aggregation Customer’s energy consumption will be totaled for each Beneficiary Account that is listed to receive kwh energy credits from the Generating Facility per the Customer’s Interconnection Agreement. c. Each Beneficiary Account will be allotted a portion of the Generating Facilities energy equal to that Beneficiary Accounts relative share of Aggregation Customer’s total usage for the billing period. d. The total amount of energy produced by a Generating Facility will be allotted in each billing period. e. The billing for Beneficiary Accounts will be the same as NEM customers, as outlined in Section 2(a) above, with the restriction that no Beneficiary Account is eligible for Net Surplus Electricity Compensation in accordance with Electric Utility Rate Schedule E-NSE-1, but may only carry forward energy credits. NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 6 D. APPLICATION AND INTERCONNECTION PROCESS 1. Application Process CPAU shall process a request for the establishment of NEMet Energy Metering and Interconnection from the customer-generatorCustomer-Generator within the time period not exceeding that for Customers requesting new Electric Service; provided, however, that . Ssuch time period will not exceed thirty (30) days from the date of (1) receipt of a completed Application form for Net Energy Metering Service and Interconnection from the customer- generatorCustomer-Generator, (2) Electric inspection clearance from CPAU in accordance with California Public Utilities Code 2827(c)(2), and (3) building inspection clearance from the City of Palo Alto Building Inspection Division. If CPAU is unable to process the request within the thirty-day period or other applicable period, then CPAU shall notify the customer- generatorCustomer-Generator of the reason for its inability to process the request and the expected completion date. 2. Interconnection Process The Customer-Generator will be required to sign either an Interconnection Agreement, as applicable, or an agreement containing substantially the terms and conditions of the above referenced agreements and agree to be subject to applicable Utility Rates and Charges and Utility Rules and Regulations in order to be eligible for NEM Service provided by CPAU. CPAU will make available all necessary forms and contracts for NEM Service for download from the Internet. D. GENERATING FACIITY DESIGN AND OPERATING REQUIREMENTS 1. Safety Standards The facility will meet all applicable federal, state and local safety and performance standards, including those established by the National Electrical Code (NEC), the Institute of Electrical and Electronic Engineers, and accredited testing laboratories such as Underwriters Laboratories (UL) and, as applicable, the rules of the California Public Utilities Commission regarding safety and reliability. The Customer-Generator whose facility meets those NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 7 standards and rules will not be required to install additional controls, perform or pay for additional tests, or purchase additional liability insurance. 2. Design Standards In addition to the requirements more generally set forth in section D.1, Customer-Generator will: a. Conform to the applicable National Electric Code (NEC) Standards [NEC 690] and applicable building codes. b. Have a dedicated circuit from the inverter to the Service panel with a circuit breaker or fuse [NEC 690-64(b)(1)]. c. Have an overcurrent device at the Service panel will be marked to indicate solar power source [NEC 690-64(b)(4)]. d. Establish the following minimum specifications for Parallel Operation with CPAU’s Electric utility Distribution System. e. Install a visible break, lockable AC disconnect switch in the dedicated circuit to the inverter. This switch will be located where it is easily accessible by CPAU personnel and will be equipped with a CPAU padlock [CPAU Rule and Regulation 27]. f. Use an inverter that is UL 1741-aprpoved and have the following specifications for Parallel Operation with CPAU’s Electric utility Distribution System: i. Inverter output will automatically disconnect from CPAU’s utility source upon the loss of CPAU’s utility voltage and will not be reconnected until at least five (5) minutes after normal utility voltage and frequency have been restored [UL 1741]. ii. Inverter will automatically disconnect from CPAU’s utility source within 120 cycles (2 seconds) if CPAU’s utility voltage isles than 106 volts or greater than 132 volts on a 120-volt base [UL 1741]. iii. Inverter will automatically disconnect from CPAU’s utility source within 10 cycles (0.17 seconds) if CPAU’s utility frequency fluctuations is less than 59.3 hertz or greater than 60.5 hertz [UL 1741] cycle. NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 8 iv. Inverter output will comply with IEEE 519 standards for harmonic distortion [CPAU Rule and Regulation 27]. E. METERING B. TERRITORY: Within the jurisdictional boundaries of the City of Palo Alto. C. SPECIAL CONDITIONS: 1. Net Energy Metering Net Energy Metering means measuring the difference between the electricity supplied through CPAU’s Electric utility Distribution System and the electricity generated by the customer-generator’s facility and delivered to CPAU’s Electric utility Distribution System over a specified twelve-month period. 2. Metering Equipment 1. NEMet Energy Metering mayshall be accomplished by using a single Meter capable of registering the flow of electricity in two different directions. If the customer- generatorCustomer-Generator’s existing Meter is not capable of measuring the flow of electricity in two directions, then the customer-generatorCustomer-Generator shall be responsible for all expenses involved in purchasing and installing a Meter that is able to measure electricity flow in two directions. 2. In lieu of one Meter, an additional Meter to monitor the flow of electricity in each direction may be installed with the consent of the customer-generatorCustomer-Generator, at the expense of CPAU. The additional Meter shall be used only to provide the information necessary to accurately bill or credit the customer-generatorCustomer-Generator and/or to collect solar or wind Electric generating system performance information for research purposes. NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 9 3. Billing for Net Energy Metering a. At the end of each twelve-month period following the date of Interconnection of the facility, or for a Customer with a date of Interconnection of the facility commencing prior to February 1, 2010, the day after CPAU’s receipt of the Customer’s net surplus electricity election form, and at each annual settlement anniversary date thereafter, CPAU will determine whether the customer-generator is a net electricity consumer or a net surplus customer-generator, as such terms are defined in California Public Utilities Code sections 2827(h)(2) and 2827(h)(3) during that period. CPAU will bill the customer- generator for the electricity used during that twelve-month period, whether the customer-generator is considered a net electricity consumer or a net Ssurplus customer-generator. b. At the end of the twelve-month period, where the electricity supplied by CPAU during that period exceeds the electricity generated by the customer-generator’s facility during that same period, the customer-generator is a net electricity consumer during that period, and the customer-generator will owe compensation to CPAU. The compensation shall be calculated according to the terms and conditions of the NEMIA or other applicable contract referred to in Section A above and/or to the applicable utility rates and Charges for baseline quantity of ellectricity, to which class of utility Customers the customer- generator would be assigned. The net balance of money owed by the net electricity consumer to CPAU will be carried forward as a monetary value until the end of the twelve-month period in the case of a residential or small commercial Customer, or the residential or small commercial Customer may elect to pay the balance due at the end of the month immediately following the twelve-month period. If the customer-generator is a medium commercial or large commercial (industrial) Customer, then payment of any net balance due shall be made on a monthly basis. C. At the end of the twelve-month period, where the electricity supplied by the customer-generator’s facility during that period exceeds the electricity supplied by CPAU during that period, the customer- generator is a net surplus customer-generator during that period. Upon the City’s receipt of the customer-generator’s affirmative election, CPAU either will provide net surplus electricity compensation, as such term is defined in California Public Utilities Code section 2827(b)(8) , in accordance with Electric Utility Rate Schedule E-NSE-1, for any net surplus electricity generated during the prior twelve-month period, or will allow bill credits due to the net surplus electricity to be applied as a credit for electricity related charges subsequently supplied by CPAU to the customer-generator. If the customer-generator fails to make an affirmative election to receive Service pursuant to net surplus electricity compensation, then CPAU shall retain any excess electricity (expressed in Kilowatt-hours) NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 10 generated during the prior twelve-month period, and it shall not be obligated to pay net surplus electricity compensation nor shall it be obligated to allow the application of net surplus electricity to be used as a credit for Energy subsequently supplied by CPAU. d. CPAU will allow a Customer to change the election option once each settlement period provided that the Customer provides notice to CPAU one month prior to the beginning of new settlement period. e. CPAU shall provide the customer-generator with net electricity consumption information with each monthly bill; that information shall include either the current monetary balance owed to CPAU or the current amount of excess electricity produced since the last twelve-month period. f. A Residential or Small Commercial Customer may elect to pay the electricity Charge (measured in Kilowatt-hours) portion of the billing statement at the annual settlement. For a Residential or Small Commercial Customer who does not elect billing at the annual settlement or medium commercial or large commercial (industrial) Customer, electricity Charges are due and payable per applicable monthly billing schedules. For the customers electing billing at the annual settlement, the customer-generator’s bill payment will not be considered delinquent, unless the customer-generator does not pay a final billing statement within twenty (20) days of the date of issuance of that final billing statement. For Residential Customers electing single billing for the twelve-month settlement period, for each monthly period, the net balance of moneys owed to the electric service provider for net consumption of electricity or credits owed to the customer-generator for net generation of electricity shall be carried forward until the end of each twelve-month period. Any excess kilowatt-hours generated during the billing cycle shall be carried over to the following billing period, calculated according to the procedures set forth in this section, and appear as a credit on the customer-generator's account, until the end of the annual period when paragraph (3) of subdivision (b) shall apply. For all customer-generators on monthly billing, and for each monthly period, the net balance of moneys owed to the electric service provider for net consumption of electricity shall be paid in accordance with the electric service provider's normal billing cycle, except that if the residential and small commercial customer-generator is a net electricity producer over a normal billing cycle, any excess kilowatt-hours generated during the billing cycle shall be carried over to the following billing period, calculated according to the procedures set forth in this section, and appear as a credit on the customer-generator's account, until the end of the annual period when paragraph (3) of subdivision (b) shall apply. h. If an electric service provider providing net metering to a residential or small commercial NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 11 customer-generator ceases providing that electrical service to that customer during any twelve-month period, and the customer-generator enters into a new net metering contract or tariff with a new electric service provider, the twelve-month period, with respect to that new electric service provider, shall commence on the date on which the new electric service provider first supplies electric service to the customer-generator. i. If the customer-generator terminates the contractual relationship with CPAU, then CPAU shall reconcile the customer-generator’s consumption and production of electricity during any part of the twelve-month period following the last annual settlement and reconciliation. If the electricity supplied by the customer-generator’s facility during that period exceeds the electricity supplied by CPAU during that period, the customer-generator will be deemed a net surplus customer-generator during that period, and compensation will be provided in accordance with Electric Utility Rate Schedule E-NSE-1. If the electricity supplied by CPAU during that period exceeds the electricity generated by the customer- generator’s facility during that same period, the customer-generator is a net electricity consumer during that period, and the customer-generator will owe compensation to CPAU based upon the applicable Electric Rate Schedule. 4. Safety Standards The facility will meet all applicable federal, state and local safety and performance standards, including those established by the National Electrical Code, the Institute of Electrical and Electronic Engineers, and accredited testing laboratories such as Underwriters Laboratories and, as applicable, the rules of the California Public Utilities Commission regarding safety and reliability. The customer-generator whose facility meets those standards and rules will not be required to install additional controls, perform or pay for additional tests, or purchase additional liability insurance. Interconnection Standards (Design) a. Customer-Generator will conform to the applicable National Electric Code (NEC) Standards [NEC 690] and applicable building codes. b. Customer-Generator will have a dedicated circuit from the inverter to the Service panel with a circuit breaker or fuse [NEC 690-64(b)(1)]. c. Customer-Generator's overcurrent device at the Service panel will be marked to indicate solar power source [NEC 690-64(b)(4)]. d. Customer-Generator's inverter will establish the following minimum specifications for Parallel NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 12 Operation with CPAU’s Electric utility Distribution System. e. Customer-Generator will install a visible break, lockable AC disconnect switch in the dedicated circuit to the inverter. This switch will be located where it is easily accessible by CPAU personnel and will be equipped with a CPAU padlock [CPAU Rule and Regulation 27]. f. Customer-Generator’s inverter will be UL 1741-aprpoved and have the following specifications for Parallel Operation with CPAU’s Electric utility Distribution System: 1. Inverter output will automatically disconnect from CPAU’s utility source upon the loss of CPAU’s utility voltage and will not be reconnected until at least five (5) minutes after normal utility voltage and frequency have been restored [UL 1741]. 2. Inverter will automatically disconnect from CPAU’s utility source within 120 cycles (2 seconds) if CPAU’s utility voltage isles than 106 volts or greater than 132 volts on a 120-volt base [UL 1741]. 3. Inverter will automatically disconnect from CPAU’s utility source within 10 cycles (0.17 seconds) if CPAU’s utility frequency fluctuations is less than 59.3 hertz or greater than 60.5 hertz [UL 1741] cycle. 4. Inverter output will comply with IEEE 519 standards for harmonic distortion [CPAU Rule and Regulation 27]. 3. Customer-Generator grants to CPAU, its officers, employees, agents and representatives the non-exclusive right of ingress and egress on, over and across the Premises upon reasonable prior notice for the purpose of inspecting and approving the installation and operation of the Facility and authenticating the accuracy of the meter(s), or in the event of an emergency or in regard to a disconnection of the Facility, without notice, if in CPAU’s Director of Utilities’ sole judgment, a condition hazardous to life or property exists, and immediate action is necessary to protect life or property from damage or interference directly caused by the Equipment or as a result of the lack of properly operating protective devices. F. GENERAL REQUIREMENTS 1. Customer-Generator will obtain and maintain the required governmental authorizations, permits, and any policy or policies of insurance, including, without limitation, commercial general liability, property, and professional liability insurance, as may be required by applicable laws, subject only to subsection c below. NET ENERGY METERING SERVICE AND INTERCONNECTION RULE AND REGULATION 29 CITY OF PALO ALTO UTILITIES RULES AND REGULATIONS Issued by the City Council Effective 039-0816-20112014 Sheet No. 13 2. CPAU will not be obligated to accept or pay for, and it may require Customer-Generator to interrupt or reduce, the delivery of available energy generated by the Facility under the following: (a) whenever CPAU in its sole judgment determines that the interruption or reduction is necessary in order for CPAU to construct, install, maintain, repair, replace, remove, investigate, or inspect any part of CPAU’s electric utility distribution system; or (b) if CPAU determines that the interruption or reduction is necessary on account of an emergency, voluntary or involuntary outage, event of force majeure, or compliance with prudent electrical practices. 3. Notwithstanding any other provision of this Agreement, if CPAU determines that either (a) the operation of the Facility may threaten or endanger the health, safety or welfare of CPAU’s personnel or CPAU’s or its personnel’s property, or (b) the continued operation of the Facility may endanger the operational integrity of CPAU’s electric utility distribution system, CPAU will have the right to temporarily or permanently disconnect the Facility from CPAU’s electric utility distribution system upon the delivery of reasonable notice to Customer-Generator; provided, however, CPAU may act without giving prior notice to Customer-Generator, if CPAU determines that it is impracticable to provide the notice. The Facility will remain disconnected until such time as CPAU’s Director of Utilities is reasonably satisfied that the conditions referred to in this subsection have been corrected or sufficiently addressed. 4. Customer-Generator will (a) maintain the Facility, which interconnects with CPAU’s electric utility distribution system, in a safe and prudent manner and in conformance with all applicable laws, rules and regulations, including, without limitation, the requirements of this Section 3, and (b) obtain any governmental approvals, authorizations and permits required for the construction and operation of the Facility. 1.5. Customer-Generator will reimburse CPAU for any and all losses, damages, claims, penalties, or liability that CPAU may incur or sustain as a result of Customer-Generator’s failure to obtain and maintain any and all governmental approvals, authorizations and permits that may be required for the construction, installation, operation, repair and maintenance of the Facility. 1 NEM INTERCONNECTION AGREEMENT FOR NEM AGGREGATION NET ENERGY METERING AND INTERCONNECTION AGREEMENT FOR NEM AGGREGATION This Net Energy Metering Interconnection Agreement (the “Agreement”), dated, ________________, ______ (the “Effective Date”), is entered into by and between the CITY OF PALO ALTO, a California chartered municipal corporation (“CPAU” or “City"), and ____________________________(“Customer-Generator”) located at the addresses stated below (the “Premises”) (individually, a “Party”, and, collectively, the “Parties”) to govern Customer-Generator’s participation in CPAU’s Net Energy Metering Aggregation (“NEM Aggregation Program”). SECTION 1 TERM; TERMINATION 1.1 This Agreement takes effect on the Effective Date, and it continues until a Party gives thirty (30) days’ prior written notice of termination to the other Party (the “Term”). SECTION 2 APPLICABLE RULES, RATES & OTHER REQUIREMENTS 2.1 In addition to those obligations specifically set forth in this Agreement and those applicable to all electric customers under CPAU’s Utilities Rules and Regulations, the Customer-Generator shall comply with all requirements set forth in the following documents (collectively, the “Applicable Requirements”), including, without limitation, those related to eligibility, interconnection, metering and billing. Such Applicable Requirements, which may be amended from time to time, shall be incorporated into this Agreement by reference, as if fully set forth herein: (A) California Public Utilities Code section 2827 et seq.; (B) CPAU’s Utilities Rule and Regulation 29 – Net Energy Metering Service & Interconnection; (C) CPAU’s Utilities Rule and Regulation 27 – Generating Facility Interconnection; and (D) Utility Rate Schedule E-NEMA. 2.2 Amendments to Utility Rules, Rates. CPAU may, from time to time, modify CPAU’s Utility Rules and Regulations and its Utility Rate Schedule E-NEMA. Any such amendment requires action of the Council at a duly noticed public meeting and is made available to the public in accordance with the requirements of the Ralph M. Brown Act (Cal. Govt. Code § 6500 et seq.). 2.3 Order of Precedence. In the event of any conflict or inconsistency between the Applicable Requirements identified in this Section 2, the Applicable Requirements shall have the order of precedence as set forth in Section 2.1. If a claimed inconsistency, interpretation or conflict cannot be resolved through the order of precedence, the City shall have the sole power to decide which document or provisions hall govern as may be in the best interests of the City. 2.4 Non-Utility Permits, Licenses. In addition to those Applicable Requirements set forth in Section 2.1, Customer- Generator agrees to obtain all applicable licenses, permits, and other authorizations required by the City to construct, operate and maintain the Facility. SECTION 3 INDEMNITY AND LIABILITY 3.1 To the fullest extent permitted by law, Customer-Generator shall protect, indemnify, defend and hold harmless the City, its Council members, officers, employees and agents (each an “Indemnified Party”) from and against any and all demands, claims, or liability of any nature, including death or injury to any person, property damage or any other loss, including all costs and expenses of whatever nature including reasonable ATTACHMENT E 2 NEM INTERCONNECTION AGREEMENT FOR NEM AGGREGATION attorney’s fees, experts fees, court costs and disbursements (“Claims”) resulting from, arising out of or in any manner related to negligent performance or nonperformance by Customer-Generator, its officers, employees, agents or contractors under this Agreement, regardless of whether or not it is caused in part by an Indemnified Party. 3.2 Notwithstanding the above, nothing in this Section 3 shall be construed to require Customer-Generator to indemnify an Indemnified Party from Claims arising from the active negligence, sole negligence or willful misconduct of an Indemnified Party. 3.3 The provisions of this Section 3 shall not be construed to relieve any insurer of its obligations to pay any insurance claims in accordance with the provisions of any valid insurance policy. 3.4 Neither the City, nor its Council members, officers, employees and agents shall be liable for damages of any kind to the Facility or the Premises caused by any electrical disturbance on the CPAU system or on the system of another, whether or not the electrical disturbance results from the negligence of CPAU. SECTION 4 NOTICE 4.1 All notices to the Parties under this Agreement should be directed in writing, as follows: CITY: CUSTOMER-GENERATOR: City of Palo Alto – Department of Utilities ____________________________ 250 Hamilton Ave. ____________________________ Palo Alto, CA 94301 _____________________________ ATTN.: Utilities Marketing Services ATTN.: ______________________ Telephone No.: (650) 329-2241 Telephone No.: ________________ Facsimile No.: (650) 617-3140 Facsimile No.: _________________ Email Address: ______________________ Email Address: _________________________ SECTION 5 MISCELLANEOUS 5.1 Choice of Law, Venue. The laws of the State of California shall govern this Agreement. Proper venue for legal action regarding this Agreement will be the state courts of California or in the United States District Court for the Northern District of California in the County of Santa Clara, State of California. 5.2 Survival. All obligations provisions of this Agreement allocating liability between CPAU and Customer- Generator shall survive the termination of the Agreement. 5.3 Waiver. The waiver of any breach of a specific provision of this Agreement does not constitute a waiver of any other breach of that term or any other term of this Agreement. 5.4 Successors and Assigns. The provisions of this Agreement shall inure to the benefit and shall apply to and bind the successors and assigns of the Parties. 5.5 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be an original an all of which together shall constitute one agreement. 5.6 No Third-Party Beneficiaries. This Agreement is made solely for the benefits of the Parties hereto, with no intent to benefit any non-signator third parties. /// 3 NEM INTERCONNECTION AGREEMENT FOR NEM AGGREGATION IN WITNESS WHEREOF, the Parties by their duly appointed representatives have executed this Agreement in Palo Alto, County of Santa Clara, as of the Effective Date. CITY OF PALO ALTO CUSTOMER-GENERATOR ___________________________ _____________________________ ASSISTANT CITY MANAGER APPROVED AS TO FORM: _____________________________ ___________________________________ SENIOR DEPUTY CITY ATTORNEY APPROVED: ___________________________________ DIRECTOR OF UTILITIES EXHIBIT “A”: CUSTOMER-GENERATOR, FACILITY, BENEFICIARY ACCOUNT INFORMATION EXHIBIT “B”: UTILITY RULE AND REGULATION 27 EXHIBIT “C”: UTILITY RULE AND REGULATION 29 4 NEM INTERCONNECTION AGREEMENT FOR NEM AGGREGATION EXHIBIT “A” CUSTOMER-GENERATOR AND FACILITY INFORMATION Name (if different from above): _______________________________________________________ Mailing Address: __________________________________________________________________ CPAU Electric Service Account Number: _________________________________________________ Service Address of the Facility site(s): ___________________________________________________ Description of solar or wind turbine electrical generating facility or hybrid system of both (the “Facility”): Inverter Model Number(s): ___________________________ System Equipment Rating: _______ kW Date on which the Facility will be ready for operation: ______________________________________ BENEFICIARY ACCOUNT INFORMATION * (1) CPAU Electric Service Account Number: _________________________________________ CPAU Electric Service Rate: ____________ or other applicable utility rate schedule(s) Service Address: ______________________________________________________________ ____________________________________________________________________________ (2) CPAU Electric Service Account Number: _________________________________________ CPAU Electric Service Rate: ____________ or other applicable utility rate schedule(s) Service Address: ______________________________________________________________ ____________________________________________________________________________ (3) CPAU Electric Service Account Number: _________________________________________ CPAU Electric Service Rate: ____________ or other applicable utility rate schedule(s) Service Address: ______________________________________________________________ ____________________________________________________________________________ *Use additional sheets if necessary. There is no need to restate the Customer-Generator account. City of Palo Alto (ID # 4613) City Council Staff Report Report Type: Consent Calendar Meeting Date: 5/5/2014 City of Palo Alto Page 1 Summary Title: Net Energy Metering Aggregation Title: Utilities Advisory Commission Recommendation that the City Council Adopt a Resolution Determining That Net Energy Metering Aggregation Will Not Result in Increased Cost-Shifting to Non-Participants From: City Manager Lead Department: Utilities Recommendation Staff and the Utilities Advisory Commission (UAC) recommend that Council adopt the attached resolution (Attachment A) to: determine that allowing eligible customers to aggregate their load from multiple meters will not result in an increase in the expected revenue obligations of non-participating customers because Net Energy Metering (NEM) Aggregation, which is subject to the same cap as the existing NEM program, will not increase costs to non-NEM participants beyond the cost-shift that already occurs under the existing NEM program. Executive Summary NEM is a billing mechanism that allows customers with onsite solar systems, or other renewable onsite generation, to reduce or completely avoid costs on their electric bill for the electricity generated by their system. To encourage installation of solar energy systems, state law requires utilities in California to offer NEM to customers until the total installed capacity is 5% of peak demand. There are currently 595 NEM customers in Palo Alto representing four Megawatts (MW) of capacity. The Utilities department (CPAU) estimates its 5% cap (9.5 MW) will be reached by the end of 2017. Since 1996, state law has provided incentives for customers to install solar generation systems that offset electricity use associated with one onsite meter. In 2012, the State Legislature expanded the program to authorize utilities to allow eligible customers to install larger solar generation systems that are sized to offset separately metered electric loads on adjacent properties belonging to the customer (NEM Aggregation). However, the new law also recognizes a growing concern about cost shifting between NEM and non-NEM customers. Therefore a utility’s authority to allow NEM Aggregation is conditional: before allowing NEM Aggregation, CPAU’s ratemaking authority (the City Council) must specifically determine that allowing customers to aggregate their load from multiple meters will not increase costs for ATTACHEMNT F City of Palo Alto Page 2 customers that are non-participants. In other words, aggregation cannot result in more cost- shifting from those that participate to those that do not. The Council must make this determination within 180 days of the first NEM Aggregation request it receives. In November 2013, CPAU received its first request from a customer for NEM Aggregation. The UAC reviewed the staff recommendation at its March 26, 2014 meeting and voted unanimously to recommend that City Council determine that NEM Aggregation will not result in an increased cost shift for non-participants as long as NEM Aggregation is included in the 5% NEM program cap. The UAC and staff recommend that City Council make this finding because: (1) Costs for customers that do not participate in NEM will not increase with NEM Aggregation beyond the costs they would have borne already had CPAU reached the 5% NEM cap using the existing NEM program alone; (2) New restrictions introduced for the NEM Aggregation program help protect against incremental cost shifts due to aggregation compared to the existing NEM program (3) NEM Aggregators will not avoid any additional public purpose program or other non- commodity charges than they would have avoided under the existing NEM program; and (4) CPAU has the authority to recover some billing-related charges from NEM Aggregators it cannot otherwise recover from existing NEM program customers. Staff will bring NEM Aggregation back to the UAC and the City Council for formal changes to Rule and Regulation 29 (Net Energy Metering Service and Interconnection), Utility Rate Schedule E-NSE-1 (Net Metering Net Surplus Electricity Compensation) and any required new rate schedules to establish the application and aggregation approval procedures and billing and other cost recovery charges to be imposed on NEM aggregators allowed under state law. Background In 2006, Senate Bill 1 (SB1) established the California Solar Initiative, with the goal of installing 3,000 MW of solar energy systems on new and existing residential and commercial sites and placing solar energy systems on 50% of new homes by 2020. State law also requires all electric utilities to offer NEM to eligible customers with renewable distributed generation (sometimes referred to as customer-sited, behind-the-meter generation), up to a maximum cap of 5% of the utility’s total customer peak demand. (Cal. Pub. Util. Code, §2827 et seq.) In most cases, and in all cases for Palo Alto, NEM participants are rooftop photovoltaic (PV) systems. Existing NEM Program –One Installation Sized for One Meter NEM is a special billing arrangement that provides a bill credit to customers with PV systems for the electricity their PV system generates. At times the PV system may generate excess electricity (above the customer’s demand) and this excess is sent back into the electric utility City of Palo Alto Page 3 grid. The customer’s electric meter keeps track of how much excess electricity is generated and this excess is then credited against the customer’s consumption from the grid during the times that the PV system is generating less than the customer’s demand. In some cases, the NEM customer has a PV system sized such that the excess generation more than meets their consumption from the utility grid over the course of a year and they are “net-surplus customers.” These net-surplus customers often end up with a zero annual electric bill, even though they continue to take service during the hours when their system is not meeting their own demand, the utility still has to provide them with billing and customer service, and they continue to have access to public benefit programs. Initially, the electric utilities were able to “keep” this net-surplus generation, but in 2009, Assembly Bill 920 (AB 920) modified the Public Utilities Code Section 2827 and required electric utilities to compensate NEM customers for “net surplus electricity” at the end of each twelve month period. Cost-Shifts Associated with Existing NEM Program While the existing NEM program has been a positive influence on rooftop PV expansion, the success of the program has raised concerns about ratepayer equity involving cost-shifts from NEM to non-NEM customers. Over the last few years, as interest has grown in expanding the NEM program, there has also been pressure to address the ratepayer equity concerns. To this end, the California Public Utilities Commission (CPUC) issued a report in 20101, followed by another report in 20132 in response to AB 2514 (which directed the CPUC to perform certain studies on who benefits, and who bears the economic burden, if any, of the existing NEM program). The studies highlight the existence of a cost shift for Investor Owned Utilities (IOUs) customers, and are informing the increasing debate on the costs and benefits of NEM, rate design, and balancing the cost shift issue with other state and local goals and policies. The results may also impact future efforts to increase the current NEM cap. Palo Alto’s Experience with NEM The City’s history of supporting distributed generation started in 1999 with CPAU’s launch of its first rooftop PV incentive program. As of the end of 2013, the City has 595 PV systems installed through the City’s PV Partners program, with a total of 4.04 MW of capacity representing 2.2% of the City’s peak demand. Out of 595 total NEM customers, 61 customers, or around 10%, were net-surplus customers in 2013. All NEM customers connect to CPAU’s system, are billed, and compensated for net surplus energy in accordance with applicable CPAU Rules and Regulations and Rate Schedules (Rule and Regulation 29, Utility Rate Schedule E-NSE-1). At current projections, CPAU estimates the NEM cap may be reached in 2017. Under current rules, CPAU will close NEM access to new customers once the cap is reached. In November 2013, CPAU received its first NEM Aggregation request. The NEM Aggregation request involves a proposal to install a PV system on one to two buildings sized to offset the electric load of three to four separately metered buildings located on the same parcel. SB 594 requires a local governing body to address the cost shift and determine if they will allow NEM 1 Introduction to the Net Energy Metering Cost Effectiveness Evaluation (March 2010). 2 California Net Energy Metering Ratepayer Impacts Evaluation (October 2013). City of Palo Alto Page 4 Aggregation within 180 days of receiving the first request made by an eligible customer- generator to aggregate their load. Therefore, the City must make this determination by May 13, 2014. Discussion In 2012, Senate Bill 594 (SB 594) modified Public Utilities Code Section 2827 to authorize utilities to allow NEM customers to install larger PV systems to offset load aggregated across multiple meters on one or more adjacent parcels, all of which are owned, leased or rented by that customer. However, before authorizing NEM Aggregation, the City Council must determine that NEM will not result in any increase in cost to non-participants: A local publicly owned electric utility or electrical cooperative shall only allow eligible customer-generators to aggregate their load if the utility's ratemaking authority determines that allowing eligible customer-generators to aggregate their load from multiple meters will not result in an increase in the expected revenue obligations of customers that are not eligible customer-generators Cal. Pub. Util. Code §2827(h)(4)(E)). The City Council must also specifically determine “if there are any public purpose or other non- commodity charges that the eligible customer-generator would pay pursuant to the net energy metering or co-energy metering program of the utility as it exists prior to aggregation, that the eligible customer-generator would not pay if permitted to aggregate the electrical load of multiple meters…”Cal. Pub. Util. Code §2827(h)(4)(E)). The UAC and staff are proposing that the City Council make a determination that is similar to the California Public Utilities Commission’s (CPUC) determination that NEM Aggregation will not result in cost shifting between NEM customers and non-participating customers of the IOUs so long as the NEM Aggregation customers are included in the 5% NEM program cap. The CPUC determined that allowing eligible customers to aggregate their load from multiple meters will not result in an increase in the expected revenue obligations of non-participating customers over and above the existing NEM program, because the aggregation will occur within the current NEM cap. The CPUC’s approving Resolution E-4610 states: “Senate Bill 594 does not change or raise the net energy metering cap, which is presently set at 5% of an electric utility’s aggregate customer peak demand. The same amount of net energy metering capacity will be installed regardless of passage of Senate Bill 594 -- assuming that the net energy metering program cap will be fully subscribed.” The UAC and staff recommend that the City Council make the requisite determinations to allow NEM Aggregation to proceed based on the following findings: City of Palo Alto Page 5 1. Non-NEM Participant Cost Obligations Will Not Increase with NEM Aggregation Beyond Any Costs Already Borne Under the Existing NEM Program Non-NEM participants already bear certain costs associated with the existing NEM program. CPAU does not expect those cost obligations to increase, or even change if Council allows NEM Aggregation. Palo Alto’s electric rates are aligned with cost of service principles, so the costs paid by energy users across different tiers and customer classes is proportional to the cost to serve them. CPAU primarily recovers the costs associated with providing electric service to customers through volumetric, or consumption, based charges. While the cost of providing service to most customers is recovered through these consumption based charges, some of these costs are fixed in nature i.e., CPAU continues to incur these fixed costs even when customers reduce their usage. For every NEM customer, the utility avoids certain costs to serve that customer, but continues to incur other costs. If CPAU’s lost revenue from the NEM customer’s reduced electric bill exceeds CPAU’s avoided costs this creates a cost shift to non-NEM customers in that rate class. This cost shift will vary depending on the customer class, the size of the PV system, and the individual energy usage characteristics. Attachment B provides a representative example to illustrate the cost-shift concept under the existing NEM program, which CPAU does not anticipate will change under a NEM Aggregation scenario. The UAC and staff recommendation here is not based on the existence or non- existence of a cost shift under the existing NEM program, but rather that any cost shift is no different under NEM Aggregation than under the existing NEM program. In addition, CPAU expects to prepare an updated electric cost of service analysis in Fall 2014. This will be another opportunity to analyze the NEM cost shift issue, both for the existing NEM program and any NEM Aggregation that may occur, and explore alternate rate structures that could mitigate cost-shifting as appropriate. While it is possible NEM Aggregation will accelerate CPAU reaching its NEM cap, thereby resulting in the full cost shift occurring earlier, the City has only received one application, and has no reason to anticipate an influx of new aggregation requests that would dramatically accelerate NEM subscription. In addition, NEM Aggregation provides the ability to position a PV system in the most efficient manner to capture loads that otherwise could not participate (i.e. a historic building) or do not have the right rooftop orientation for a PV system. City of Palo Alto Page 6 2. New Restrictions Introduced for the NEM Aggregation Program Help Protect Against Incremental Cost Shifts Due to Aggregation Compared to the Existing NEM Program Under NEM Aggregation, key parameters of the NEM program are specifically limited or remain fixed. These limitations ensure the existing NEM program parameters are maintained and may even provide relief to non-participants not available under the existing program. The key parameters that SB 594 either held constant or further limited, include the following: A. All NEM Aggregators remain subject to the 5% NEM cap applicable to the existing NEM program. B. An eligible customer with multiple meters may elect to aggregate the electrical load of the meters located on the property where the PV system is located and on all properties adjacent or contiguous to the property on which the PV system is located, if those properties are solely owned, leased, or rented by the eligible customer. C. An eligible customer may only elect to aggregate the electrical load of multiple meters if their PV system, or a combination of PV systems, has a total generating capacity of not more than one megawatt (1MW). D. If a customer elects to aggregate, the customer will be ineligible to receive compensation for any net surplus energy their aggregated PV system generates. The customer would remain ineligible to receive net surplus compensation for the PV system in question even if the customer stops aggregating. E. If different rate schedules are applicable to service at any of the meters being aggregated for purposes of NEM, the electricity generated by the PV system shall be allocated to each of the meters in proportion to the electrical load served by those meters. For example, if the eligible customer receives electric service through three meters, two meters being at a residential rate that each provide service to 25% of the customer’s total load, and a third meter, at a commercial rate, that provides service to 50% of the customer’s total load, then 50% of the electrical generation from the PV system shall be allocated to the third meter that provides service at the commercial rate and 25% of the generation shall be allocated to each of the two meters providing service at the residential rate. Limitation A holds the overall, existing cost-shift to non-participants constant, even though the composition of installations participating in the program may change from those solely offsetting single meters to include those that now offset aggregated load. Limitations B and C ensure that allowing NEM Aggregation does not expand the NEM program beyond the current facility size and single customer limits. Limitation D discourages over-sizing of the PV system as the customer will be ineligible for net surplus energy compensation, and any net surplus energy will be retained by the City’s electric utility to the benefit of all customers. By contrast, CPAU City of Palo Alto Page 7 must pay net surplus compensation to participants in the existing NEM program. Limitation E, requiring a “pro-rata” allocation of PV generation to offset usage from buildings under different rate schedules, will ensure that any cost shifts that do occur will be equally allocated over the relevant rate classes. 3. NEM Aggregators Will Not Avoid Any Additional Public Purpose Program Or Other Non- Commodity Charges Than They Would Have Avoided Under The Existing NEM Program Customers choosing NEM Aggregation will not get differential rate treatment relative to existing NEM program participants in regards to avoided rate components. The existing NEM customers can already bypass the Public Benefits and other fixed costs of service. CPAU expects the same mix of customers looking to aggregate that would otherwise want to participate in the existing NEM program. As such, there is no expectation of any dramatic changes in customer class participation that would lead to any meaningful change in the distribution of avoided charges between customer classes above and beyond what is already occurring. 4. NEM Aggregation Provides Some Opportunities for Cost-Recovery and Potential Savings that are Unavailable under the Existing NEM Program Cal. Pub. Util. Code §2827(h)(4)(H) permits a utility to impose special charges on NEM Aggregation customers, to mitigate unique incremental cost impacts from aggregation. CPAU has identified several special conditions that will need to be addressed during development of the rate schedule applicable to NEM Aggregation customers, including: A. Billing: CPAU will need to manually process the NEM Aggregation customer accounts each month and this cannot be automated in the billing system without incurring significant costs, which would need to be charged directly to the NEM Aggregation customer. Considering there is only one customer at this time, and there will likely not be very many of these customers, CPAU will manually process their bills each month. Following a Council determination to allow NEM Aggregation, staff will propose a NEM Aggregation rate schedule with cost-of-service based bill processing charges. By contrast, CPAU cannot charge participants in the existing NEM program for costs associated with manual billing. B. Metering: There may be additional metering requirements for NEM Aggregation that are over and above the current costs for NEM meters. These incremental costs would be collected from the NEM Aggregation customer. C. System Impacts: City of Palo Alto Page 8 The siting of an oversized generator at one meter location could result in power flows that cannot be accommodated by the distribution system and will require system upgrades. This is not an issue with current NEM customers, but could be an issue for NEM Aggregators. It is not clear that CPAU has legal authority to charge an NEM Aggregation customer in the event the proposed generator will require distribution system upgrades.3 In the event that CPAU faced large distribution system-related upgrade costs, staff may recommend revisiting Council’s cost-shift determination as described below. Opportunity to Revisit Cost-Shifting Determination The UAC and staff recommendation is also subject to CPAU’s expectation that it can collect the incremental cost of metering, billing and other potential large costs that are unique to the NEM Aggregation customer. In the event that NEM Aggregation requests result in an unanticipated cost-shift beyond what would occur under the existing NEM program, or CPAU is limited in collecting incremental costs associated with NEM Aggregation, §2827(h)(4)(E) specifically authorizes the City Council to reconsider the determination it makes here in a subsequent public proceeding. Commission Review and Recommendation The UAC reviewed the staff recommendation at its March 26, 2014 meeting. Commissioners asked for clarification on the staff recommendation and staff explained that State law requires that certain language and determinations be included in the report, but the recommendation is to approve NEM Aggregation. Commissioners discussed the policy impacts of approving NEM Aggregation on renewable generation in Palo Alto and the relationship between NEM Aggregation and community solar. They also discussed the current applicant, the basis for the other two publically owned utilities that rejected NEM Aggregation, and any concerns that NEM Aggregation could result in an increase to the existing NEM cap. The UAC voted unanimously (5-0, with Commissioners Chang and Waldfogel absent) to recommend that Council adopt a Resolution approving NEM Aggregation. Excerpted draft minutes from the March 26, 2014 UAC meeting are included in Attachment C. Next Steps Following the Council’s determination that NEM Aggregation will not result in an increase in costs for non-participants, staff will bring NEM Aggregation back to the UAC and the City Council for formal approval of the program and its design, which will include necessary changes 3 Section 2827(h)(4)(E) of the California Public Utilities Code requires that NEM Aggregation avoid cost-shifting to non-participants. At the same time, existing statute (see Cal. Pub. Util. Code §2827(g)) precludes CPAU from collecting certain additional costs associated with NEM, including interconnection charges, beyond those otherwise applicable to non-NEM participants. Only “service charges for the cost of providing billing service” to NEM aggregators are expressly exempt from this existing prohibition against imposing additional charges on NEM aggregators (see Cal. Pub. Utl. Code §2827(h)(4)(H)) As a result, it is not clear that CPAU would have the necessary legal authority to charge an NEM Aggregation customer for additional costs that are not billing or meter related, such as distribution upgrades. City of Palo Alto Page 9 to Rule and Regulation 29 (Net Energy Metering Service and Interconnection), Utility Rate Schedule E-NSE-1 (Net Metering Net Surplus Electricity Compensation) and any required new rate schedules to establish application and aggregation approval procedures and billing and other cost recovery charges to be imposed on NEM aggregators allowed under state law. Resource Impact Staff does not anticipate the preparation of rate schedules and determining billing and special charges will require additional resources. The preparation of monthly bills and special charges will require additional staff time, but staff will propose additional billing and special charges to ensure cost recovery. Policy Implications Approving NEM Aggregation will further promote solar development within the City of Palo Alto and is consistent with the Carbon Neutral Plan, the City’s renewable portfolio standard, and the State and local efforts to promote distributed solar. Environmental Review A determination that NEM Aggregation will not result in cost-shifting to non-NEM participants beyond those already imposed under the existing NEM program does not meet the California Environmental Quality Act’s (CEQA) definition of a “project” under California Public Resources Code §21065, thus no environmental review is required. Attachments:  Attachment A: Resolution Approving NEM Aggregation (PDF)  Attachment B: Net Energy Metering Example (PDF)  Attachment C: Excerpted Draft UAC Minutes of March 26th, 2014 meeting (PDF) EXCERPTED FINAL MINUTES OF THE AUGUST 6, 2014 UTILITIES ADVISORY COMMISSION MEETING ITEM 3: ACTION: Staff Recommendation that the Utilities Advisory Commission Recommend that City Council Adopt a new Rate Schedule for Net Energy Metering Aggregation Customers, Revised Rules and Regulations 2 and 29, and a Revised Interconnection Agreement for Net Energy Metering Aggregation Customers Director Fong said that no presentation was planned for this item, but that Resource Planner Eric Keniston was available to answer questions. Keniston noted this item implemented a policy previously approved by the Council and previously reviewed by UAC. Commissioner Waldfogel inquired if saying there would be no increased revenue obligations (page 1 of the report) and no increased costs (page 2) referred to the same thing. Keniston said yes. Commissioner Waldfogel asked whether this could result in any revenue reduction. Keniston noted that there was no existing system that would be affected by this program, and so it would not result in a revenue reduction. Abendschein clarified that it allows an existing customer to use more of their existing roof space, rather than build several smaller systems. Commissioner Waldfogel said he supported this program as a way to encourage larger solar installations on new sites. He had been concerned about whether it would provide a windfall to existing installations, and it did not. Commissioner Eglash said that it did not increase the impact on ratepayers any more than any other net energy metering installation. ACTION: Commissioner Hall made a motion to support the staff recommendation. Commissioner Eglash seconded the motion. The motion carried unanimously (5-0 with Chair Cook and Commissioner Chang absent). ATTACHMENT G RESOLUTION OF THE COUNCIL OF THE CITY OF PALO ALTO EXPRESSING APPRECIATION TO LINDA CLERKSON UPON HER RETIREMENT WHEREAS, Linda Clerkson has worked for the citizens of Palo Alto for three decades, serving in recent years as the Communications Manager for the City, in which position she kept the public and City staff informed about routine and critical matters facing the city, always with tact and aplomb; and WHEREAS, Linda handled publicity and coordination for major community events, such as the Electric Utilities 100-Year Anniversary Celebration in 2000 to the Amgen Bicycle Tour in 2008; and WHEREAS, Linda proved herself invaluable under emergency conditions, spearheading public information efforts during incidents ranging from rolling blackouts during the Energy Crisis, to the major drought in the late 1980s to the citywide power outage in 2010 to more recent winter storm flooding; and WHEREAS, Linda worked extensively with all City departments to coordinate the design features of the revised City website, including creation of a detailed Web-users style guide; and WHEREAS, Linda, while working for the City Utilities Department, had accomplishments including management of the Summer Savers program, which employed dozens of young people and weatherized hundreds of homes; coordination of multiple award-winning residential and commercial resource efficiency programs; and management of the Schools Outreach program, including the implementation of the nationally-recognized Michael the Energy Mastermind interactive computer program in schools and retail stores. NOW, THEREFORE, BE IT RESOLVED, that the City Council of the City of Palo Alto, recognizes Linda Clerkson for her unwavering and enthusiastic commitment to the people of Palo Alto and thank her for thirty years of superior service on their behalf. INTRODUCED AND PASSED: ATTEST: APPROVED: ___________________ ______________________ City Clerk Mayor APPROVED AS TO FORM: ____________________ ______________________ City Attorney City Manager City of Palo Alto (ID # 5051) City Council Staff Report Report Type: Action Items Meeting Date: 9/15/2014 City of Palo Alto Page 1 Summary Title: Enforcement of Emergency Dry Year Water Use Restrictions Title: Adoption of a Resolution Establishing the Enforcement Process for Violations of the Three Outdoor Water Use Restrictions Adopted by Council on August 4, 2014 (Resolution 9449) From: City Manager Lead Department: Utilities Recommendation Staff recommends that Council adopt a Resolution (Attachment A) establishing the enforcement process for violations of the outdoor water use restrictions adopted by Council on August 4, 2014 (Resolution 9449). Executive Summary On August 4, 2014 Council adopted three new water use restrictions in response to the State Water Resource Control Board’s (SWRCB) July 15th emergency regulations to ensure water agencies, their customers, and state residents increase conservation in urban settings, with particular emphasis on outdoor irrigation (ID # 4973, Resolution 9449). Following Council adoption of the new water use restrictions, staff across City departments have been coordinating and tracking reports of water use violations. Staff’s primary response to reports of water waste is education-based, with notices left at reported properties and continued outreach about the City’s water conservation rebates and services. However, City Council action is required to establish the enforcement process for the new outdoor irrigation restriction, especially for situations in which the education-based approach is ineffective. Staff therefore recommends making violations of the three recently adopted outdoor water use restrictions enforceable by penalties of up to $100 per violation. Background In response to the SWRCB’s July 15 emergency regulations, staff submitted a report to City Council on August 4, 2014 that provided background, discussed how the specific measures fit with the City’s existing water use prohibitions, and proposed an additional outdoor irrigation restriction on the use of potable water in the City. The SWRCB’s emergency regulations prohibit all Californians from using potable water for activities such as driveway washing, irrigation that results in runoff, in hoses without automatic shut-off nozzles, or in decorative City of Palo Alto Page 2 fountains (with certain limited exceptions) and also require urban water suppliers, such as the City of Palo Alto, to activate the sections of their Water Shortage Contingency Plans that restrict outdoor irrigation. The City already includes two of the new statewide prohibitions in Section 12.32.010 of the Palo Alto Municipal Code (PAMC) – irrigation runoff and use of hoses without automatic shut-off nozzles. Council’s action on August 4 adopted the two remaining statewide prohibitions on use of potable water – washing down sidewalks and driveways and the use of non-recirculating fountains or decorative water features – and a restriction on landscape irrigation between 10:00 a.m. and 6:00 p.m., except for drip systems, soaker hoses, and hand watering. Staff has quickly implemented an early stage drought response plan and begun the education and outreach process with customers. To date, staff has received and responded to more than 40 alleged violations and one second violation. A variety of enforcement options are available for violations of the City’s municipal code and Utilities Rules and Regulations, including the issuance of administrative citations, fines, infractions punishable by penalties, misdemeanors, flow restrictions and termination of service. The SWRCB’s water use regulations are state law. Local law enforcement personnel are empowered to enforce state law and issue fines of up to $500 per day per infraction, under the authority of California Code of Regulations Title 23, Section 864(b). However, Council action is required to establish a mechanism to enforce violations of the 10am to 6pm irrigation restriction, if staff’s initial education-based approach is ineffective. Discussion Staff is currently focusing efforts on educating customers on the water use restrictions and is leveraging this opportunity to increase outreach to customers on conservation programs that will result in both short and long-term water efficiency gains. Staff is optimistic this approach will be effective and no fines or other punitive measures will be required to ensure compliance. If additional action is required, staff’s proposal will provide for the imposition of fines of $100 per day per violation of the three outdoor water use restrictions Council approved on August 4, 2014. Table 1 describes the SWRCB water use regulations, the City’s current enforcement authority and the proposed changes. City of Palo Alto Page 3 Table 1: Current and Proposed Enforcement Additions SWRCB Potable Water Use Prohibitions Location Current Enforcement Authority Proposed Addition Statewide Prohibitions Runoff from Outdoor Irrigation Palo Alto Municipal Code 12.32.010(a)  Administrative Compliance Order (PAMC 1.16)  Administrative Penalty of $100 - $500 for violation of PAMC 12.32 or Utilities Rules and Regulations (PAMC 1.12)  Infraction penalty up to $250 (PAMC 1.08.010(b))  Misdemeanor (PAMC 1.08.010(a))  Flow Restriction (PAMC 12.32.020)  Discontinuance of Service (Utilities Rule and Regulation 21H)  Fines up to $500/day (CA Code of Regs, Title 23, Sec. 864(b)). None Use of a hose without a nozzle to wash vehicles PAMC 12.32.010(b) Use of water to clean driveways and sidewalks Resolution 9449 Fines up to $500/day. (CA Code of Regs, Title 23, Sec. 864(b)). Fine $100 (PAMC 12.20.010) Use of potable water in non-circulating fountains Resolution 9449 Urban Water Supplier Requirement Landscape irrigation is prohibited between 10am and 6pm, except for drip irrigation, soaker hoses and hand watering. Resolution 9449 None Enforcement of the three outdoor water use restrictions adopted on August 4 (Reso. 9449) will be managed by City Utilities Staff. Although a variety of enforcement options remain available for violations of all of the City’s water use restrictions in the City’s Municipal Code and Utilities Rules and Regulations, staff is focusing efforts on educating customers, and initial results indicate this approach is working. Staff does not anticipate there will be many instances where a customer purposefully disregards warnings and a fine will be necessary. At this time, staff is taking the following steps when addressing violations of the City’s existing water use City of Palo Alto Page 4 restrictions and SWRCB regulations: 1st Violation: Doorhanger/Email/Phone call to customer 2nd Violation: Doorhanger/Email/Phone call to customer 3rd Violation: Certified letter from the Utility Director notifying customer of violation and potential future fines 4th Violation: Fines The steps outlined above recognize that most violations are due to the fact customers are unaware of the prohibitions and the notification process accounts for normal occurances (i.e vacation) and provides reasonable notice and an opportunity for customers to address the problem. Staff may opt to use one or more of other available enforcement mechanisms outlined in Table 1 if the desired results are not achieved. The ultimate goal will remain reduced water waste. Timeline If approved, the proposed enforcement changes will go into effect immediately and will remain in effect for the 270 day term set by the State Water Resources Control Board for the SWRCB emergency water regulations, or as extended by the SWRCB. Resource Impact Staff is in the process of hiring an hourly Water Waste Coordinator. The Water Waste Coordinator will log incidents, coordinate field crews to respond to reports, track number of incidents per site and help with issuance of certified letters and enforcement. Funding for this position will be covered by the water fund at an estimated cost of $29,000. Policy Implications The recommended actions are consistent with the Council approved policy embodied in the August 4, 2014 staff report (ID# 4973) and the State’s and City’s efforts to reduce water waste during a severe drought. Environmental Review Council’s adoption of the proposed Resolution is categorically exempt from CEQA under CEQA Guidelines 15307 (Actions by Regulatory Agencies for Protection of Natural Resources). Attachments:  Attachment A: Resolution Enforcing Process for Water Restrictions (PDF) Not Yet Approved Resolution No. _________ Resolution of the Council of the City of Palo Alto Establishing the Enforcement Process For Violations of the Three Outdoor Water Use Restrictions Adopted by Council on August 4, 2014 (Resolution 9449) R E C I T A L S A. On January 17, 2014, Governor Edmund G. Brown Jr. issued Proclamation No. 1-17- 2014 declaring a State of Emergency to exist in California due to severe drought conditions and calling on Californians to reduce their water usage by 20 percent. B. On April 25, 2014, the Governor issued an Executive Order to strengthen the state’s ability to manage water and directed the State Water Resources Control Board (SWRCB) under its authority in California Water Code Section 1058.5 to adopt emergency regulations as it deems necessary to address water shortage conditions. C. On July 15, 2014, the State Water Resources Control Board adopted California Code of Regulations, Title 23, Sections 863, 864, and 865, emergency regulations finding a drought emergency in California and imposing water conservation measures on individuals and water suppliers. D. On August 4, the City Council adopted Resolution 9449, implementing outdoor water use restrictions in compliance with the SWRCB emergency directive. E. The City has implemented an education-based compliance plan and is working with customers to fully comply with the SWRCB water use restrictions. F. Chapter 12 of City’s Municipal Code, City Utilities Rule and Regulation 21, and the Council-approved Urban Water Management Plan include a variety of tools to encourage responsible management of the City’s water resources. G. Violations of the City’s water use restrictions codified in Chapter 12.32 of the Palo Alto Municipal Code, are enforceable as misdemeanors, infractions, administrative penalties, or via the written warning and flow restrictor process outlined in Municipal Code Section 12.32.020(a) through (f). H. Violations of the City’s Utilities Rules and Regulations prohibiting water waste, codified in Rule and Regulation 21, are also enforceable via administrative citations of $500 per day. I. Violations of the State’s emergency water use regulations are enforceable by fines of up to $500 per day, under California Code of Regulations, Title 23, Section 864(b). J. The City wishes to establish an enforcement procedure for violations of the three water use restrictions adopted by Resolution 9449 (Exhibit A), by directing staff to first attempt to achieve compliance via educational outreach, followed by the issuance of fines of $100 per violation per day for willful or repeated violations. 140901 jb 6053121 1 ATTACHMENT A Not Yet Approved The Council of the City of Palo Alto RESOLVES as follows: SECTION 1. Findings: A. Article 10, Section 2 of the California Constitution declares that waters of the State are to be put to beneficial use, that waste, unreasonable use, or unreasonable method of use of water be prevented, and that water be conserved for the public welfare. B. Governor Brown issued emergency water shortage declarations on January 17 and April 25, 2014, and conservation of current water supplies and minimization of the effects of water supply shortages that are the result of drought are essential to the public health, safety and welfare. C. City regulation of the time and manner of certain water use, design of rates, method of application of water for certain uses, and establishment of enforcement procedures for violations of water use restrictions are an effective and immediately available means of conserving water, and is authorized by Palo Alto Municipal Code Section 12.20.010. SECTION 2. Violations of the following Council-adopted outdoor water use restrictions (Resolution 9449) are punishable by fines of $100 per violation: a.No outdoor irrigation of ornamental landscapes or turf with potable water is permitted between the hours of 10am and 6pm, except for drip irrigation, soaker hoses and hand watering; b.The application of potable water to driveways and sidewalks is prohibited, except where necessary to address an immediate health and safety need or to comply with a term and condition in a permit issued by a state or federal agency; and c.The use of potable water in a fountain or other decorative water feature is prohibited, except where the water is part of a recirculating system. SECTION 3. Each day that a violation of the outdoor water use restrictions described in Section 2 occurs is a separate offense. SECTION 4. Utilities Department staff shall take primary responsibility for enforcement of the outdoor water use restrictions adopted by Resolution 9449 and described in Section 2, above. SECTION 5. While nothing in this resolution is intended to limit or otherwise restrict the potential application of all available civil and criminal penalties for violations of the state and local water use restrictions described herein, Council recognizes the value of an education-based approach in encouraging water conservation. Therefore, Council directs staff to first attempt to achieve compliance by providing customers reasonable notice of the alleged violation and an opportunity to correct the problem, before issuing fines for willful and repeated violations. SECTION 6. If fines are ultimately imposed, the person or persons to whom notice was provided shall have five business days from the date of service of the notice to request a hearing before the city manager or his/her designee in order to present any facts or arguments they may have as to why fines should not be imposed. If a hearing is requested, the city manager or his/her 140901 jb 6053121 2 Not Yet Approved designee shall schedule a date and time for said hearing as soon as possible after the request is filed, but not later than five business days after the filing of such request for hearing. At the hearing, the person who received notice of the water use restriction violation may offer evidence as to why a fine should not be imposed. Utilities personnel shall be allowed to offer whatever evidence they may have as to why the fine should be imposed. The city manager or his/her designee shall make a final determination as to whether or not a fine shall be imposed. SECTION 7. This resolution will go into effect immediately and will remain in effect for the 270 day term set by the State Water Resources Control Board for the SWRCB’s July 15, 2014 emergency water regulations, as extended by the SWRCB, or as directed by Council. SECTION 8. Council’s adoption of the proposed Outdoor Water Use Restrictions is categorically exempt from CEQA under CEQA Guidelines 15307 (Actions by Regulatory Agencies for Protection of Natural Resources). INTRODUCED AND PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: ___________________________ ___________________________ City Clerk Mayor APPROVED AS TO FORM: APPROVED: ___________________________ ___________________________ Senior Deputy City Attorney City Manager ___________________________ Director of Utilities ___________________________ Director of Administrative Services 140901 jb 6053121 3 Resolution No. 9449 Resolution of the Council of the City of Palo Alto Implementing Outdoor Water Use Restrictions in Compliance with the State Water Resources Control Board's July 15, 2014 Emergency Drought Regulations RECITALS A. On January 17, 2014, Governor Edmund G. Brown Jr. issued Proclamation No. 1- 17-2014 declaring a State of Emergency to exist in California due to severe drought conditions and calling on Californians to reduce their water usage by 20 percent. B. On April 25, 2014, the Governor issued an Executive Order to strengthen the state's ability to manage water and directed the State Water Resources Control Board (SWRCB) under its authority in California Water Code Section 1058.5 to adopt emergency regulations as it deems necessary to address water shortage conditions. C. On July 15, 2014, the State Water Resources Control Board adopted California Code of Regulations, Title 23, Sections 863, 864, and 865, emergency regulations finding a drought emergency in California and imposing water conservation measures on individuals and water suppliers. D. Section 864 applies to all Californians and prohibits"'certain activities in promotion of water conservation, many of which are already required by Palo Alto Municipal Code 12.32.010. E. Section 865 requires mandatory outdoor irrigation restrictions and reporting by water suppliers, including urban water suppliers like the City of Palo Alto. F. The City of Palo Alto receives 100% of its potable supplies from the San Francisco Public Utilities Commission (SFPUC). G. The SFPUC has requested a 10% voluntary water consumption reduction in response to the drought and their determination of available supplies in the regional water system. H. The SFPUC has not declared a water shortage emergency nor imposed mandatory cutbacks upon Palo Alto or any of SF PUC's wholesale customers. I. The City of Palo Alto has responded to SFPUC's voluntary water consumption reduction request and has achieved an approximate 17% reduction in water use relative to 2013. 140722 jb 0180048 Exhibit "A" City of Palo Alto (ID # 5045) City Council Staff Report Report Type: Action Items Meeting Date: 9/15/2014 City of Palo Alto Page 1 Summary Title: 405 Curtner Tentative Map for 6 residential condos Title: PUBLIC HEARING: 405 Curtner Condominium Map. Approval of a Tentative Map to Subdivide One Parcel Totaling 12,375 Square Feet Into Six Condominium Units Within the RM-30 Zone District located at 405 Curtner Avenue. The six-unit development on this site was approved on October 29, 2013 and the Planning and Transportation Commission unanimously recommend map approval allowing the approved units to be sold rather than rented. Environmental Assessment: Categorically exempt from the provisions of the California Environmental Quality Act (CEQA) per CEQA Guidelines Sections 15303 and 15061(b)(3) From: City Manager Lead Department: Planning and Community Environment Recommended Motion: Motion to accept the Planning & Transportation Commission’s recommendation and approve the tentative map based on the Record of Land Use Action (RLUA) in Attachment A containing Findings and Conditions of Approval. Executive Summary Salvator Caruso (the architect), acting on behalf of Curtner Investment Group LLC (the Owner), is requesting approval of a Tentative Map application that would subdivide an approved but not yet constructed residential project into six multi-family condominium units. On August 13, 2014, the Planning and Transportation Commission (Commission) unanimously recommended Council approval of the Tentative Map for six “air space” condominiums and one common area. The project site is a vacant, 12,375 square foot (sf) parcel of land within the RM-30 zone district, fronting on Curtner Avenue. In October 2013, the Director of Planning and Community Environment approved a 7,425 sf, three-story, six-unit multifamily residential building on the site based on a recommendation from the Architectural Review Board. The six units would each contain 3 bedrooms within 1,237 sf of floor area, plus a 460 sf, two-car garage. Design and compatibility policies were addressed by the ARB during public hearings, as was the project’s compliance with the RM-30 zoning development standards. The site is on the City’s housing City of Palo Alto Page 2 element inventory. The Director’s approval was consistent with the ARB’s recommendation, and conditions of the Director’s approval were provided to the Commission as background when they considered the tentative map (Attachment B). The approved design includes preservation of on-site oak trees and a driveway of permeable stone pavers along the southeasterly edge of the property. Consistent with the ARB approved project plans, the Tentative Map includes an emergency vehicle access easement (EVAE) along the driveway within the common area, to be maintained by the homeowners. The EVAE is not intended to serve other properties, only emergency services to the subject property. The RLUA conditions include the requirement for the applicant to pay in-lieu below market rate housing fees for a fractional (0.9) housing unit; this fee is to be paid after sale of the units, since the City’s current ordinance establishes a fee that is dependent on the sales price. The RLUA indicates that the subject Tentative Map is consistent with the Palo Alto Comprehensive Plan, Zoning Ordinance, and Performance Criteria, and with the previously approved Architectural Review entitlement. Background The 12,375 sf project site is a relatively flat, vacant parcel located in the Multifamily Residential RM-30 zone district. The site contains 10 trees, most of which are located along the left side of the property. Three of the existing trees are Valley Oaks, and one is a large Coast Live Oak. Of the four oak trees, three are large enough to be considered protected trees under City ordinance. All of the oak trees will be retained. The property is bounded by two-story multi- family uses to the north east, a vacant parking lot for the former Compadres Restaurant to the south east, an oil change shop and physical therapy office use to the south west, and Curtner Avenue to the northwest with single-story multifamily uses across the street. The property is located close to El Camino Real. It is the first residential parcel on Curtner Avenue behind the Agile Physical Therapy office and the oil change shop that front on El Camino. Beyond the commercial properties that line El Camino Real, the neighborhood is an eclectic mix of one- and two-story multifamily buildings on both sides of Curtner Avenue. The project site was shown as a “housing inventory site on Existing Residential Zones” on the Housing Inventory Sites Area Map of the City’s 2007-2014 Housing Element, and is also shown on the July 2014 Administrative Draft of the City’s 2015-2023 Housing Element submitted for review by the State’s Department of Housing and Community Development (HCD). Approved Project Design Over four public hearings, the Architectural Review Board (ARB) reviewed an Architectural Review application for the construction of a 7,425 sf, six-unit, multi-family residential building on the 0.28-acre vacant site. The ARB hearings took place on June 20, 2013, August 1, 2013, September 19, 2013, and October 17, 2013. The ARB recommended approval of the project on October 17, 2013, and on October 29, 2013, the Director of Planning approved a new, 35-foot- City of Palo Alto Page 3 tall, three-story building with six 1,237.5 sf housing units, each with three bedrooms, three bathrooms, a two car garage, multiple balconies, and a ground level patio. The approved design includes five garages featuring side-by-side spaces, and one garage featuring a tandem configuration. The garages will be accessed by a driveway at the right side of the property, extending from the street to the rear of the lot. The property would be separated from the adjacent commercial property by a six-foot-tall, split-face cement block wall with bamboo, primarily planted on the project side of the new wall, along the driveway. The rear and left side of the project would be enclosed by a seven-foot-tall, decorative wood fence. The building’s exterior materials include smooth cement plaster finish combined with horizontal Ipe wood siding at the front and rear of the building and along two sections on the right side of the building, brushed-metal finish garage doors and dark metal balcony railings and window trims. The roof design features an inverted L shape that is repeated at the front and rear elevations as well as each side of the building, to break up the building mass and provide a strong visual element, serve as weather protection overhangs for the entries and balconies, and provide solar shading at the upper floor level. The electric and gas meters on the front face of the building will be screened by a five-foot-tall stucco wall. Pedestrian access to the units’ front doors will be via a winding pathway extending from the sidewalk along the left side of the building, through the landscaped garden area containing the six remaining trees, and around the back of the building to connect up with the driveway. This path is accentuated by two bollard light fixtures at the sidewalk. The front door of the street facing unit will face the street while the other entries will be located along the pedestrian path and around the rear of the building. Four of the ten existing trees will be removed and a new Elm tree will function as a street tree at the front of the property. Zoning Compliance The site is within the Medium Density Multiple-Family Residences zoning district (RM-30 district), which allows a maximum of 30 dwelling units per acre. The six units approved on approximately 0.28 acres equates to 21.12 dwelling units per acre (of gross land area), and therefore less than the allowed maximum density for the site. The project and its subdivision comply with the applicable RM-30 zone development standards. Trees As noted above, four of the ten existing trees on the property will be removed, leaving six trees on site that will be protected during construction. Four of the remaining trees are oak trees, protected by City Ordinance. There ARB approval conditions address retention and preservation of these trees (including the pruning of the largest of the oaks to accommodate the new building to ensure the pruning activity will not be a detriment to the tree). Summary of Key Issues The application for a Tentative Map [File number13PLN-00521] to enable the approved City of Palo Alto Page 4 apartments to be sold as condominiums was submitted on December 16, 2013, and the Commission unanimously recommended approval of the map on August 13, 2014. The standards for reviewing Tentative Maps are set forth in Title 21 of the Palo Alto Municipal Code and California Government Code Section 66474. Palo Alto Municipal Code Section 21.12.090 requires the Commission to review whether the proposed subdivision complies and is consistent with the Subdivision Map Act (in particular Government Code 66474), Title 21 of the Palo Alto Municipal Code, the Palo Alto Comprehensive Plan, and other applicable provisions of the Palo Alto Municipal Code and State law. The necessary findings for approval of the Tentative Map are contained in State law and incorporated into Title 21 of the Municipal Code. Under the Subdivision Map Act, the PTC and Council must consider a series of “reverse” findings. If the findings cannot be made, the subdivision must be approved. In particular, under Government Code Section 66474, the Council shall deny a Tentative Map if it makes any of the following findings: a) That the proposed map is not consistent with applicable general and specific plans. b) That the design or improvement of the proposed subdivision is not consistent with applicable general and specific plans. c) That the site is not physically suitable for the type of development. d) That the site is not physically suitable for the proposed density of development. e) That the design of the subdivision or the proposed improvements are likely to cause substantial environmental damage or substantially and avoidably injure fish or wildlife f) or their habitat. g) That the design of the subdivision or type of improvements is likely to cause serious public health problems. h) That the design of the subdivision or the type of improvements will conflict with easements, acquired by the public at large, for access through or use of, property within the proposed subdivision. Many of these findings relate the "design" and "improvement" of the proposed subdivision. In this context, the terms "design" and "improvement" are defined in the Subdivision Map Act as follows: "Design" means: (1) street alignments, grades and widths; (2) drainage and sanitary facilities and utilities, including alignments and grades thereof; (3) location and size of all required easements and rights-of-way; (4) fire roads and firebreaks; (5) lot size and configuration; (6) traffic access; (7) grading; (8) land to be dedicated for park or recreational purposes; and (9) other specific physical requirements in the plan and configuration of the entire subdivision that are necessary to ensure consistency with, or implementation of, the general plan or any applicable specific plan as required pursuant to Section 66473.5 (Government Code, Subdivision Map Act Section 66418). City of Palo Alto Page 5 “Improvement” refers to: (a) any street work and utilities to be installed, or agreed to be installed, by the subdivider on the land to be used for public or private streets, highways, ways, and easements, as are necessary for the general use of the lot owners in the subdivision and local neighborhood traffic and drainage needs as a condition precedent to the approval and acceptance of the final map thereof; and (b) any other specific improvements or types of improvements, the installation of which, either by the subdivider, by public agencies, by private utilities, by any other entity approved by the local agency, or by a combination thereof, is necessary to ensure consistency with, or implementation of, the general plan or any applicable specific plan. (Government Code, Subdivision Map Act Section 66419) The design and improvement of the subdivision should be distinguished from the design of the approved structure to be located within the subdivision, which as previously mentioned, was reviewed by the ARB and approved in October 2013. There are no streets created or additional off-site improvements to consider as part of this application. The only off-site improvements, included as part of the approved project as conditions of approval are the replacement of the existing sidewalk, curb, and gutter (matching “in-kind” the existing improvements). Policy Implications The proposed Tentative Map is consistent with the Comprehensive Plan, in that the site is designated “Multi-family Residential,” a land use category that supports “residential uses.” Multi-family residential uses are also consistent with the site’s RM-30 zoning. Design and compatibility policies were addressed by the ARB during public hearings, as was the project’s compliance with the RM-30 zoning development standards. The site is near transit, where higher density housing is encouraged and the additional dwelling units would help to offset the the city’s jobs to housing imbalance. As noted earlier, the project site was shown on the Housing Inventory Sites Area Map of the City’s 2007-2014 Housing Element, and is also shown in the July 2014 Administrative Draft of the City’s 2015-2023 Housing Element submitted for HCD review. Resource Impact The proposal includes six new housing units within an existing urabanized area. This small number of new dwellings will not impact the City’s ability to provide for utility or emergency services. Development Impact fees must be paid for any net new housing units built on the site. Since the site is currently vacant and the proposal inlcudes six for-sale residential condomimium units, the impact fees shall be applicable to all six of the new units. The fees include Community Center, Libraries, Parkland Dedication Fee and the Citywide Transportation Impact Fee. The estimated total fees, at the rates currently in effect, are $260,677.20. These fees must be paid at the rates in effect at that time, prior to issuance of a building permit. Timeline Tentative Map Application submittal: December 16, 2013 Application complete: July 21, 2014 City of Palo Alto Page 6 P&TC hearing: August 13, 2014 City Council hearing: September 15, 2014 Following approval of a Tentative Map, the applicant would submit an application for a Final Map. The Final Map would be reviewed by City staff for conformance with the approved Tentative Map and would then be placed on the City Council’s consent calendar for approval. Environmental Review The project is within an existing urbanized area and only proposes a total of six new residential units. It is categorically exempt from the provisions of the California Environmental Quality Act (CEQA) per CEQA Guidelines Sections 15303 and 15061(b)(3). Attachments:  Attachment A: Record of Land Use Action (DOCX)  Attachment B: Site Location Map (PDF)  Attachment C: Applicant's Project Description Letter, December 13, 2013 (PDF)  Attachment D: Director's ARB Approval Letter, October 29, 2013 (PDF)  Attachment E: ARB Sense Minutes October 17, 2013 (DOC)  Attachment F: PTC Draft Excerpt Verbatim Minutes August 13, 2014 (PDF) ATTACHMENT A APPROVAL NO. 2014-0X RECORD OF THE COUNCIL OF THE CITY OF PALO ALTO LAND USE ACTION FOR 405 CURTNER AVENUE: TENTATIVE MAP APPLICATION [FILE NO.13PLN-00521] On September 15, 2014, the City Council approved the Tentative Map application for the creation of six condominium multi-family units on a single parcel. Making the following findings, determination and declarations: SECTION 1. BACKGROUND. The City Council of the City of Palo Alto (“City Council”) finds, determines, and declares as follows: A. On December 16, 2013, Kirk Tang applied for a Tentative Map application for the creation of six multi-family condominium units on a single parcel. B. The RM-30 zoning district has a minimum lot size requirement of 8,500 square feet. The existing lot size, at 12,375 square feet, exceeds the 8,500 square foot minimum by 3,875 square feet. The Parcel Map would create six residential air space condominiums and the parcel size would remain as is. Staff has determined that the proposed project is in compliance with the applicable RM-30 development standards. C. Following staff review, the Planning and Transportation Commission (Commission) reviewed and recommended approval of the Tentative Map on August 13, 2014, adding a condition requiring the applicant to pay an in lieu BMR fee for .9 unit. SECTION 2. ENVIRONMENTAL REVIEW. In conformance with the California Environmental Quality Act (CEQA) the project is categorically exempt per CEQA Guidelines Sections 15303 and 15061(b)(3). The project is within an existing urbanized area and only proposes a total of six new residential units. SECTION 3. TENTATIVE MAP FINDINGS A legislative body of a city shall deny approval of a Preliminary Parcel Map, if it makes any of the following findings (California Government Code Section 66474): 1. That the proposed map is not consistent with applicable general and specific plans as specified in Section 65451: This finding cannot be made in the affirmative. The proposed Tentative Map is consistent with applicable Comprehensive Plan policies and programs and the design requirements of the Subdivision Ordinance, in that the project would be consistent with the Subdivision Ordinance (PAMC Section 21.20) and that the proposed map is consistent with the RM-30 zone district (PAMC 18.13, the design requirements of the Subdivision Ordinance (PAMC 21.20), and would be consistent with the City’s Housing Element and Comprehensive Plan Goal H- 2: Support the construction of housing near schools, transit, parks, shopping, employment and cultural institutions and Policy H1.4 Assure that new developments provide appropriate transitions from higher density development to single family and low density residential districts in order to preserve neighborhood character in that the project includes a three story building adjacent to the commercially zoned properties of El Camino Real, creating a protective buffer to the residential neighborhood beyond. 2. That the design or improvement of the proposed subdivision is not consistent with applicable general and specific plans: This finding cannot be made in the affirmative. The site is physically suitable for the proposed six unit multi-family condominium proposal. The existing parcel would not be altered in terms of size or street access. The units are within the density range allowed by existing zoning and Comprehensive Plan land use designation and is compatible with the pattern and scale of neighboring development. There is no specific plan designated for the area; 3. That the site is not physically suitable for the type of development: This finding cannot be made in the affirmative. The site can accommodate the proposed six multifamily residential condominium units. The site is adjacent to other commercial and multi-family residential uses and is zoned to allow the prosed use and the proposed density. 4. That the site is not physically suitable for the proposed density of development: This finding cannot be made in the affirmative. The subdivision would be consistent with the site’s development regulations of the RM-30 zone district. The proposed density of 6 units is less than the allowable density of 30 dwelling units per gross acre (8.5 units). 5. That the design of the subdivision or the proposed improvements is likely to cause substantial environmental damage or substantially and avoidably injure fish or wildlife or their habitat: This finding cannot be made in the affirmative. The subdivision would not cause environmental damage or injure fish, wildlife, or their habitat. The project site is located in an established urban area with no riparian or tree habitat for the candidate, sensitive, or special status species in the area. The project will comply with Mitigation Measures to protect nesting common birds. 6. That the design of the subdivision or type of improvements is likely to cause serious public health problems: This finding cannot be made in the affirmative. The subdivision of the existing parcel will not cause serious health problems. The resulting 6 condominium units will not cause a public health problem in that it is designed to provide access for emergency services, will supply necessary utility services, such as sanitation and water, and is designed per City and State standards to ensure public safety. 7. That the design of the subdivision or the type of improvements will conflict with easements, acquired by the public at large, for access through or use of, property within the proposed subdivision. In this connection, the governing body may approve a map if it finds that alternate easements, for access or for use, will be provided, and that these will be substantially equivalent to ones previously acquired by the public. This subsection shall apply only to easements of record or to easements established by judgment of a court of competent jurisdiction and no authority is hereby granted to a legislative body to determine that the public at large has acquired easements for access through or use of property within the proposed subdivision. This finding cannot be made in the affirmative. The subdivision of the existing parcel will not conflict with existing public easements. New utility easements will be created as necessary. Because none of the statutory findings authorizing denial can be met, the City Council hereby approves the subject “Tentative Map”. SECTION 5. Conditions of Approval. Development Impact Fees 1. The development impact fees for this project are estimated to be $260,677.20, itemized as follows: Community Center, Libraries, Parkland Dedication Fee and the Citywide Transportation Impact Fee. California Government Code Section 66020 provides that a project applicant who desires to protest the fees, dedications, reservations, or other exactions imposed on a development project must initiate the protest at the time the development project is approved or conditionally approved or within ninety (90) days after the date that fees, dedications, reservations or exactions are imposed on the Project. Additionally, procedural requirements for protesting these development fees, dedications, reservations and exactions are set forth in Government Code Section 66020. IF YOU FAIL TO INITIATE A PROTEST WITHIN THE 90-DAY PERIOD OR FOLLOW THE PROTEST PROCEDURES DESCRIBED IN GOVERNMENT CODE SECTION 66020, YOU WILL BE BARRED FROM CHALLENGING THE VALIDITY OR REASONABLENESS OF THE FEES, DEDICATIONS, RESERVATIONS, AND EXACTIONS. If these requirements constitute fees, taxes, assessments, dedications, reservations, or other exactions as specified in Government Code Sections 66020(a) or 66021, this is to provide notification that, as of the date of this notice, the 90-day period has begun in which you may protest these requirements. 2. This matter is subject to the California Code of Civil Procedures (CCP) Section 1094.5; the time by which judicial review must be sought is governed by CCP Section 1094.6. 3. To the extent permitted by law, the Applicant shall indemnify and hold harmless the City, its City Council, its officers, employees and agents (the “indemnified parties”) from and against any claim, action, or proceeding brought by a third party against the indemnified parties and the applicant to attack, set aside or void, any permit or approval authorized hereby for the Project, including (without limitation) reimbursing the City for its actual attorneys’ fees and costs incurred in defense of the litigation. The City may, in its sole discretion, elect to defend any such action with attorneys of its own choice. 4. The applicant shall pay an in-lieu below market rate housing fee for 0.9 unit. Public Works Engineering 5. Off-site Improvements will be constructed per conditions of approval of the building Permit and Street Work Permit. 6. Closure Calculations shall be provided for the parcel and submitted with the Final Map application. 7. Notes shall be provided on the plans to indicate that public easement will be recorded through separate documents. Recording information shall be provided on the map if it’s available prior to map recordation. 8. A current Title Report shall be provided with the Final Map application. 9. The applicant shall be required to provide payment to cover the costs of Siegfried Engineering’s review, signature, and stamping of the Final Map. The estimated cost is $960.00. 10. The Final Map shall be a wet signed and stamped Mylar copy. The map shall be signed by the Owner, Notary, and surveyor. 11. The Final Map shall be recorded with the county of Santa Clara prior to building permit issuance. Planning 12. The subdivider shall be responsible for installing any required off-site improvements, including utilities, to the satisfaction of the Utilities, Public Works, and Planning Departments. These improvements shall be guaranteed by bond or other form of guarantee acceptable to the City Attorney. 13. The subdivider shall grant the necessary public utility easements to the City for the location and maintenance of required utilities. The required easements shall be shown on the face of the subdivision map. 14. The subdivider shall preserve all existing trees shown for preservation on the site plan and shall include all trees in the final landscape plans. 15. All exterior building and landscape improvements shall be maintained as shown on the approved plans unless approved for revision by the City’s Architectural Review Board. 16. The project is subject to meeting all the requirements of Palo Alto Municipal Code Chapter 18.44, the City’s Green Building Ordinance. 17. The final subdivision map shall be filed with the Planning Division within two years of the approval of the tentative subdivision map. 18. Apply all conditions (ARB approval 10/29/13) for protection of four protected trees on the site, Urban Forestry Section PRIOR TO DEMOLITION, BUILDING OR GRADING PERMIT ISSUANCE 19. BUILDING PERMIT SUBMITTAL- PROJECT ARBORIST CERTIFICATION LETTER. Prior to submittal for staff review, attach a Project Arborist Certification Letter that he/she has; (a) reviewed the entire building permit plan set submittal and, (b)* verified all his/her updated TPR mitigation measures and changes are incorporated in the plan set, (c) affirm that ongoing Contractor/Project Arborist site monitoring inspections and reporting have been arranged with the contractor or owner (see Sheet T-1) and, (d) understands that design revisions (site or plan changes) within a TPZ will be routed to Project Arborist/Contractor for review prior to approval from City. * (b above) Other information. Building Permit submittal set shall be accompanied by the project site arborist’s typed certification letter that the plans have incorporated design changes to be consistent with the following minimum Standards, Regulations and information: a. Applicant/project arborist’s final revised Tree Protection Report (TPR) with design changes and corresponding mitigation measures. (e.g.: a Pier/grade beam?=soils report w/ specs required by Bldg. Div.; a Standard foundation?= mitigation for linear 24” cut to all roots in proximity) b. Palo Alto Tree Technical Manual Standards, Section 2.00 and PAMC 8.10.080. c. Specialty items. Itemized list of any activity impact--quantified and mitigated, in the Tree Protection Zone (TPZ) for each tree. d. Oaks. That landscape and irrigation plans are consistent with CPA Tree Technical Manual, Section 5.45 and Appendix L, Landscaping under Native Oaks and PAMC 18.40.130. 20. BUILDING PERMIT/REVISIONS--COVER LETTER. Please provide a separate cover letter with Correction List along with the revised drawings when resubmitting. Cite the most significant tree impact notations and indicate the sheet number and/or detail where the correction has been made and provide: 1) corresponding revision number and 2) bubble or highlights for easy reference. Responses such as “see plans or report” or “plans comply” are not acceptable. Your response should be clear and complete to assist the re-check and approval process for your project. 21. SITE PLAN REQUIREMENTS. The final Plans submitted for building permit shall include the following information and notes on the relevant plan sheets: a. SHEET T-1, BUILDING PERMIT. The building permit plan set will include the City’s full-sized, Sheet T-1 (Tree Protection-it's Part of the Plan!), available on the Development Center website at http://www.cityofpaloalto.org/civicax/filebank/documents/31783. The Applicant shall complete and sign the Tree Disclosure Statement and recognize all relevant Tree Activity Inspections that apply to this project. Inspections and contractor monthly reporting to Urban Forestry by the project arborist are mandatory. (All projects: check #1; with tree preservation report: check #2-6; with landscape plan: check #7.) b. The Tree Preservation Report (TPR). All sheets of the Applicant’s TPR approved by the City, (Title of certified arborist report entered here, dated ___________________, 20__) shall be printed on numbered Sheet T-1 (T-2, T-3, etc) and added to the sheet index. 22. Show Protective Tree Fencing Type. The Plan Set (esp. site, demolition, grading, foundation, irrigation, tree disposition, utility, etc.) must delineate/show Type I or Type II fencing around all Regulated Trees, as a bold dashed line enclosing the Tree Protection Zone as shown on Standard Dwg. #605, Sheet T-1, and the City Tree Technical Manual, Section 6.35-Site Plans; and Project Arborist’s direction for each tree enclosing the Tree Protection Zone. SITE PLAN REQUIREMENTS. The Site Plans must show Type I or Type II fencing around the Street Trees a bold dashed line enclosing the Tree Protection Zone as shown on Standard Dwg. #605, Sheet T-1, and the City Tree Technical Manual, Section 6.35-Site Plans; and/or Project Arborist direction for each tree. Plans with Public Trees shall show (a) full extension of Type II street tree fencing to enclose the entire planter strip or, (b) Type I protection to the outer branch dripline for rolled curb & sidewalk or no-sidewalk situations. c. Add Site Plan Notes. (delete where not applicable) i. Note #1. Apply to the site plan stating, "All tree protection and inspection schedule measures, design recommendations, watering and construction scheduling shall be implemented in full by owner and contractor, as stated in the Tree Protection Report on Sheet T-1 and the approved plans”. ii. Note #2. All civil plans, grading plans, irrigation plans, site plans and utility plans and relevant sheets shall add a note applying to the trees to be protected, including neighboring trees stating: "Regulated Tree--before working in this area contact the Project Site Arborist at ( enter phone number here ____"; iii. Note #3. “Basement or foundation plan. Soils Report and Excavation for basement construction within the TPZ of a protected tree shall specify a vertical cut (stitch piers may be necessary) in order to avoid over-excavating into the tree root zone. Any variance from this procedure requires Urban Forestry approval, please call (650) 496-5953.” iv. Note #4. Utility plan sheets shall include the following note: “Utility trenching shall not occur within the TPZ of the protected tree. Contractor shall be responsible for ensuring that no trenching occurs within the TPZ of the protected tree by contractors, City crews or final landscape workers. See sheet T-1 for instructions.” 23. TREE REMOVAL—PROTECTED & RIGHT-OF-WAY TREES. Existing trees (Publicly-owned or Protected) to be removed, as shown accurately located on all site plans, require approval by the Urban Forestry Tree Care Permit prior to issuance of any building, demolition or grading permit, and shall also be referenced in the required Street Work Permit from Public Works Engineering a. Add a note for each tree to be removed, “Tree Removal. Contractor shall obtain a completed Urban Forestry Tree Care Permit # ________________ separate from the Building or Street Work Permit. Permit notice hanger and conditions apply. Contact (650-496-5953).” b. The completed Tree Care Permit shall be printed on Sheet T-2, or specific approval communication from staff clearly copied directly on the relevant plan sheet. The same Form is used for private protected tree removal requests available from the Urban Forestry webpage: http://www.cityofpaloalto.org/gov/depts/pwd/trees/default.asp 24. NEW RIGHT-OF-WAY TREES--PLAN REQUIREMENTS. New trees shall be shown on all relevant plans: site, utility, irrigation, landscape, etc. in a location 10’ clear radius from any (new or existing) underground utility or curb cut. a. Add note on the Planting Plan that states, “Tree Planting. Prior to in-ground installation, Urban Forestry inspection/approval required for tree stock, planting conditions and irrigation adequacy. Contact (650-496-5953).” b. Plans shall state Urban Forestry approved species, size and include relevant Standard Planting Dwg. #603, #603a or #604 (reference which), and shall note the tree pit dug at least twice the diameter of the root ball. c. Landscape plan shall include planting preparation details for trees specifying digging the soil to at least 30-inches deep, backfilled with a quality topsoil and dressing with 2-inches of wood or bark mulch on top of the root ball keeping clear of the trunk by 1-inch. d. Add note on the Planting & Irrigation Plan that states, “Irrigation and tree planting in the right-of-way requires a street work permit per CPA Public Works standards.” e. Automatic irrigation shall be provided to all trees. Standard Dwg. #513 shall be included on the irrigation plans and show two bubbler heads mounted on flexible tubing placed at the edge of the root ball. Bubblers shall not be mounted inside an aeration tube. The tree irrigation system shall be connected to a separate valve from other shrubbery and ground cover, pursuant to the City's Landscape Water Efficiency Standards. 25. NEW RIGHT-OF-WAY TREES--SOIL. Unless otherwise approved, each new large* tree shall be provided with 1,200 cubic feet of rootable soil area, utilizing Standard Dwg. #604/513. Rootable soil shall mean compaction less than 90% over the area, not including sidewalk base areas except when mitigated. Sidewalk Mitigation in lieu of compacted root conditions may use Alternative Base Material methods such as: structural grid, Engineered Soil Mix base or other method as approved. a. Minimum soil volume for tree size growth performance (in cubic feet): Large: 1,200 cu.ft. Medium: 800 cu.ft. Small: 400 cu.ft. b. Landscape Plan. When qualifying for parking area shade ordinance compliance (PAMC 18.40.130) trees shall be labeled (as S, M or L). c. Engineered Soil Mix (ESM). When applied, Engineered Soil Mix base material shall be utilized in specified areas, such as a sidewalk base or channeling to a landscape area, to achieve expected shade tree rooting potential and maximum service life of the sidewalk, curb, parking surfaces and compacted areas. Plans and Civil Drawings shall use CPA Public Works Engineering ESM Specifications, Section 30 and Standard Dwg. #603a. Designated areas will be identified by cross- hatch or other symbol, and specify a minimum of 24" depth. The technology may be counted toward any credits awarded for LEED or Sustainable Sites certification ratings. 26. LANDSCAPE PLANS. a. Include all changes recommended from civil engineer, architect and staff, including planting specifications if called for by the project arborist, b. Provide a detailed landscape and irrigation plan encompassing on-and off-site plantable areas out to the curb as approved by the Architectural Review Board. A Landscape Water Use statement, water use calculations and a statement of design intent shall be submitted for the project. A licensed landscape architect and qualified irrigation consultant will prepare these plans, to include: i. All existing trees identified both to be retained and removed including street trees. ii. Complete plant list indicating tree and plant species, quantity, size, and locations. iii. Irrigation schedule and plan. iv. Fence locations. v. Lighting plan with photometric data. vi. Trees to be retained shall be irrigated, aerated and maintained as necessary to ensure survival. vii. All new trees planted within the public right-of-way shall be installed per Public Works (PW) Standard Planting Diagram #603 or 604 (include on plans), and shall have a tree pit dug at least twice the diameter of the root ball. viii. Landscape plan shall include planting preparation details for trees specifying digging the soil to at least 30-inches deep, backfilled with a quality topsoil and dressing with 2-inches of wood or bark mulch on top of the root ball keeping clear of the trunk by 1-inch. ix. Automatic irrigation shall be provided to all trees. For trees, Standard Dwg. #513 shall be included on the irrigation plans and show two bubbler heads mounted on flexible tubing placed at the edge of the root ball. Bubblers shall not be mounted inside an aeration tube. The tree irrigation system shall be connected to a separate valve from other shrubbery and ground cover, pursuant to the City's Landscape Water Efficiency Standards. Irrigation in the right-of-way requires a street work permit per CPA Public Works standards. x. Landscape Plan shall ensure the backflow device is adequately obscured with the appropriate screening to minimize visibility (planted shrubbery is preferred, painted dark green, decorative boulder covering acceptable; wire cages are discouraged). c. Add Planting notes to include the following mandatory criteria: i. Prior to any planting, all plantable areas shall be tilled to 12” depth, and all construction rubble and stones over 1” or larger shall be removed from the site. ii. Note a turf-free zone around trees 36” diameter (18” radius) for best tree performance. d. Add note for Mandatory Landscape Architect (LA) Inspections and Verification to the City. The LA of record shall verify the performance measurements are achieved with a separate letters of verification to City Planning staff, in addition to owner’s representative for each of the following: i. All the above landscape plan and tree requirements are in the Building Permit set of plans. ii. Percolation & drainage checks have been performed and are acceptable. iii. Fine grading inspection of all plantable areas has been personally inspected for tilling depth, rubble removal, soil test amendments are mixed and irrigation trenching will not cut through any tree roots. iv. Tree and Shrub Planting Specifications, including delivered stock, meets Standards in the CPA Tree Technical Manual, Section 3.30-3.50. Girdling roots and previously topped trees are subject to rejection. 27. TREE PROTECTION VERIFICATION. Prior to demolition, grading or building permit issuance, a written verification from the contractor that the required protective fencing is in place shall be submitted to the Building Inspections Division. The fencing shall contain required warning sign and remain in place until final inspection of the project. DURING CONSTRUCTION 28. EXCAVATION RESTRICTIONS APPLY (TTM, Sec. 2.20 C & D). Any approved grading, digging or trenching beneath a tree canopy shall be preformed using ‘air-spade’ method as a preference, with manual hand shovel as a backup. For utility trenching, including sewer line, roots exposed with diameter of 1.5 inches and greater shall remain intact and not be damaged. If directional boring method is used to tunnel beneath roots, then Table 2-1, Trenching and Tunneling Distance, shall be printed on the final plans. 29. PLAN CHANGES. Revisions and/or changes to plans before or during construction shall be reviewed and responded to by the (a) project site arborist, (name of certified arborist of record and phone #), or (b) landscape architect with written letter of acceptance before submitting the revision to the Building Department for review by Planning, PW or Urban Forestry. 30. CONDITIONS. All Planning Department conditions of approval for the project shall be printed on the plans submitted for building permit. 31. TREE PROTECTION COMPLIANCE. The owner and contractor shall implement all protection and inspection schedule measures, design recommendations and construction scheduling as stated in the TPR, and is subject to code compliance action pursuant to PAMC 8.10.080. The required protective fencing shall remain in place until final landscaping and inspection of the project. Project arborist approval must be obtained and documented in the monthly activity report sent to the City. A mandatory Monthly Tree Activity Report shall be sent monthly to the City (pwps@cityofpaloalto.org) beginning with the initial verification approval, using the template in the Tree Technical Manual, Addendum 11. 32. TREE DAMAGE. Tree Damage, Injury Mitigation and Inspections apply to Contractor. Reporting, injury mitigation measures and arborist inspection schedule (1-5) apply pursuant to TTM, Section 2.20-2.30. Contractor shall be responsible for the repair or replacement of any publicly owned or protected trees that are damaged during the course of construction, pursuant to Title 8 of the Palo Alto Municipal Code, and city Tree Technical Manual, Section 2.25. 33. GENERAL. The following general tree preservation measures apply to all trees to be retained: No storage of material, topsoil, vehicles or equipment shall be permitted within the tree enclosure area. The ground under and around the tree canopy area shall not be altered. Trees to be retained shall be irrigated, aerated and maintained as necessary to ensure survival. PRIOR TO OCCUPANCY 34. URBAN FORESTRY DIGITAL FILE & INSPECTION. The applicant or architect shall provide a digital file of the landscape plan, including new off-site trees in the publicly owned right-of-way. A USB Flash Drive, with CAD or other files that show species, size and exact scaled location of each tree on public property, shall be delivered to Urban Forestry at the tree and landscape inspection. 35. LANDSCAPE INSPECTION LETTER. The Planning Department shall be in receipt of a verification letter that the Landscape Architect has inspected all trees, shrubs, planting and irrigation and that they are installed and functioning as specified in the approved plans. 36. PROJECT ARBORIST INSPECTION LETTER. The contractor shall call for a final inspection by the Project Arborist to evaluate all trees to be retained and protected, as indicated in the approved plans, of the activity, health, welfare, mitigation remedies for injuries, if any, and for the long term care of the trees for the new owner. a. The final project arborist letter report shall be provided to the Planning Department prior to written request for temporary or final occupancy. The final report may be used to navigate any outstanding issues, concerns or security guarantee return process, when applicable. 37. PLANNING INSPECTION. Prior to final sign off, contractor or owner shall contact the city planner (650-329-2441) to inspect and verify Special Conditions relating to the conditions for structures, fixtures, colors and site plan accessories. POST CONSTRUCTION (Required for all commercial projects with landscape plan) 38. MAINTENANCE. All landscape and trees shall be maintained, watered, fertilized, and pruned according to Best Management Practices-Pruning (ANSI A300-2001 or current version). Any vegetation that dies shall be replaced or failed automatic irrigation repaired by the current property owner within 30 days of discovery. Electric Utilities Department 39. All six electric meters shall be at the same location and served by one service. Water Gas Wastewater Department 40. Prior to demolition, the applicant shall submit the existing water/wastewater fixture unit loads (and building as-built plans to verify the existing loads) to determine the capacity fee credit for the existing load. If the applicant does not submit loads and plans they may not receive credit for the existing water/wastewater fixtures. 41. The applicant shall submit a request to disconnect all utility services and/or meters including a signed affidavit of vacancy. Utilities will be disconnected or removed within 10 working days after receipt of request. The demolition permit will be issued by the building inspection division after all utility services and/or meters have been disconnected and removed. FOR BUILDING PERMIT 42. The applicant shall submit completed water-gas-wastewater service connection applications - load sheets for City of Palo Alto Utilities for each unit or place of business. The applicant must provide all the information requested for utility service demands (water in fixture units/g.p.m., gas in b.t.u.p.h, and sewer in fixture units/g.p.d.). The applicant shall provide the existing (prior) loads, the new loads, and the combined/total loads (the new loads plus any existing loads to remain). 43. The applicant shall submit improvement plans for utility construction. The plans must show the size and location of all underground utilities within the development and the public right of way including meters, backflow preventers, fire service requirements, sewer mains, sewer cleanouts, sewer lift stations and any other required utilities. Plans for new wastewater laterals and mains need to include new wastewater pipe profiles showing existing potentially conflicting utilities especially storm drain pipes, electric and communication duct banks. Existing duct banks need to be daylighted by potholing to the bottom of the ductbank to verify cross section prior to plan approval and nstarting lateral installation. Plans for new storm drain mains and laterals need to include profiles showing existing potential conflicts with sewer, water and gas. 44. The applicant must show on the site plan the existence of any auxiliary water supply, (i.e. water well, gray water, recycled water, rain catchment, water storage tank, etc.). 45. The applicant shall be responsible for installing and upgrading the existing utility mains and/or services as necessary to handle anticipated peak loads. This responsibility includes all costs associated with the design and construction for the installation/upgrade of the utility mains and/or services. 46. The applicant's engineer shall submit flow calculations and system capacity study showing that the on-site and off-site water and sanitary sewer mains and services will provide the domestic, irrigation, fire flows, and wastewater capacity needed to service the development and adjacent properties during anticipated peak flow demands if required by CPAU engineer. Field testing may be required to determined current flows and water pressures on existing water main. Calculations must be signed and stamped by a registered civil engineer. The applicant is required to perform, at his/her expense, a flow monitoring study of the existing sewer main to determine the remaining capacity. The report must include existing peak flows or depth of flow based on a minimum monitoring period of seven continuous days or as determined by the senior wastewater engineer. The study shall meet the requirements and the approval of the WGW engineering section. No downstream overloading of existing sewer main will be permitted. 47. For contractor installed water and wastewater mains or services, the applicant shall submit to the WGW engineering section of the Utilities Department four copies of the installation of public water, gas and wastewater utilities improvement plans (the portion to be owned and maintained by the City) in accordance with the utilities department design criteria. All utility work within the public right-of-way shall be clearly shown on the plans that are prepared, signed and stamped by a registered civil engineer. The contractor shall also submit a complete schedule of work, method of construction and the manufacture's literature on the materials to be used for approval by the utilities engineering section. The applicant's contractor will not be allowed to begin work until the improvement plan and other submittals have been approved by the water, gas and wastewater engineering section. After the work is complete but prior to sign off, the applicant shall provide record drawings (as-builts) of the contractor installed water and wastewater mains and services per City of Palo Alto Utilities record drawing procedures (see last condition). For projects that take more than one month to complete, the applicant shall provide progress record drawings of work completed on a monthly basis. 48. An approved reduced pressure principle assembly (RPPA backflow preventer device) is required for all existing and new water connections from Palo Alto Utilities to comply with requirements of California administrative code, title 17, sections 7583 through 7605 inclusive. The RPPA shall be installed on the owner's property and directly behind the water meter within 5 feet of the property line. RPPA’s for domestic service shall be lead free. Show the location of the RPPA on the plans. 49. An approved reduced pressure detector assembly is required for the existing or new water connection for the fire system to comply with requirements of California administrative code, title 17, sections 7583 through 7605 inclusive (a double detector assembly may be allowed for existing fire sprinkler systems upon the CPAU’s approval). Reduced pressure detector assemblies shall be installed on the owner's property adjacent to the property line, within 5’ of the property line. Show the location of the reduced pressure detector assembly on the plans. 50. All backflow preventer devices shall be approved by the WGW engineering division. Inspection by the utilities cross connection inspector is required for the supply pipe between the meter and the assembly. 51. Existing wastewater laterals that are not plastic (ABS, PVC, or PE) shall be replaced at the applicant’s expense. 52. Existing water services (including fire services) that are not a currently standard material shall be replaced at the applicant’s expense. 53. The applicant shall pay the capacity fees and connection fees associated with new utility service/s or added demand on existing services. The approved relocation of services, meters, hydrants, or other facilities will be performed at the cost of the person/entity requesting the relocation. 54. Each unit or place of business shall have its own water and gas meter shown on the plans. Each parcel shall have its own water service, gas service and sewer lateral connection shown on the plans. 55. A separate water meter and backflow preventer is required to irrigate the approved landscape for landscaping areas in excess of 1,500 SF (including tree canopies). Show the location of the irrigation meter on the plans. This meter shall be designated as an irrigation account an no other water service will be billed on the account. The irrigation and landscape plans submitted with the application for a grading or building permit shall conform to the City of Palo Alto water efficiency standards. 56. A new water service line installation for domestic usage is required. For water meters 4” and larger the applicant's contractor must provide and install an 4’ by 8’ meter vault with meter reading lid covers and other required control equipment in accordance with the utilities standard detail WD-05. Water meters 4” and larger shall be in a PUE on private property, water meters 2” and smaller shall be located in the public right of way per the CPA WGW Utilities Standards. Show the location of the new water service and meter on the plans. 57. A new water service line installation for fire system usage is required. Show the location of the new water service on the plans. The applicant shall provide to the engineering department a copy of the plans for fire system including all fire department's requirements. 58. A new gas service line installation is required. Show the new gas meter location on the plans. The gas meter location must meet the WGW Utility Standards. The City of Palo Alto normal service pressure is 7” WC (.25 PSI). Increased pressure must be requested in writing and is only provided if the houseline size calculates out at greater than 2” diameter for domestic (note: domestic can only be increased to 14” WC max.) and greater than 4” diameter for commercial at standard houseline pressure (7” WC) or the appliance requires increased pressure at the inlet. Further, due to meter limitations there must a minimum of 800 CFH demand for pressures greater than 14” WC. The only available pressure increments above 7” WC are 14” WC (1/2 psi), 1#, 2# and 5# after approval. Pressures in excess of 14” WC will require testing the house piping at not less than 60 psig for not less than 30 minutes per the California Plumbing Code section 1204.3.2, witnessed by Palo Alto Building Inspection. The City of Palo Alto will not provide increased pressure just to save contractor money on the houseline construction. Requests to increase the pressure will be evaluated with the following submittals: The manufacturer’s literature for the equipment requiring increased pressure; the specific pressure you are requesting; the gas load; and the length of house gas piping from the gas meter to where the gas houseline starts branching off. 59. A new sewer lateral installation per lot is required. Show the location of the new sewer lateral on the plans 60. The applicant shall secure a public utilities easement for facilities installed in private property. The applicant's engineer shall obtain, prepare, record with the county of Santa Clara, and provide the utilities engineering section with copies of the public utilities easement across the adjacent parcels as is necessary to serve the development. 61. Where public mains are installed in private streets/PUEs for condominium and town home projects the CC&Rs and final map shall include the statement: “Public Utility Easements: If the City’s reasonable use of the Public Utility Easements, which are shown as P.U.E on the Map, results in any damage to the Common Area, then it shall be the responsibility of the Association, and not of the City, to Restore the affected portion(s) of the Common Area. This Section may not be amended without the prior written consent of the City”. See attached P.U.E. marked up map. 62. All existing water and wastewater services that will not be reused shall be abandoned at the main per WGW utilities procedures. 63. Flushing of the fire system to sanitary sewer shall not exceed 30 GPM. Higher flushing rates shall be diverted to a detention tank to achieve the 30 GPM flow to sewer. 64. Sewage ejector pumps shall meet the following conditions: 1. The pump(s) shall be limited to a total 100 GPM capacity and 2. The sewage line changes to a 4” gravity flow line at least 20’ from the City clean out. 3. The tank and float is set up such that the pump run time not exceed 20 seconds each cycle. 65. Utility vaults, transformers, utility cabinets, concrete bases, or other structures cannot be placed over existing water, gas or wastewater mains/services. Maintain 1’ horizontal clear separation from the vault/cabinet/concrete base to existing utilities as found in the field. If there is a conflict with existing utilities, Cabinets/vaults/bases shall be relocated from the plan location as needed to meet field conditions. Trees may not be planted within 10 feet of existing water, gas or wastewater mains/services or meters. New water, gas or wastewater services/meters may not be installed within 10’ or existing trees. Maintain 10’ between new trees and new water, gas and wastewater services/mains/meters. 66. To install new gas service by directional boring, the applicant is required to have a sewer cleanout at the front of the building. This cleanout is required so the sewer lateral can be videoed for verification of no damage after the gas service is installed by directional boring. 67. All utility installations shall be in accordance with the City of Palo Alto utility standards for water, gas & wastewater. 68. The applicant shall obtain an encroachment permit from Caltrans for all utility work in the El Camino Real right-of-way as necessary. The applicant must provide a copy of the permit to the WGW engineering section. 69. The applicant shall obtain a construction permit from Santa Clara county valley water district for the utility service line to be installed by the City of Palo Alto Utilities as necessary. SECTION 6. Term of Approval. Tentative Map Approval. Within two years of the approval or conditional approval of a tentative map the subdivider shall cause the subdivision or any part thereof to be surveyed, and a final map, as specified in Chapter 21.08, to be prepared in conformance with the tentative map as approved or conditionally approved, and in compliance with the provisions of the Subdivision Map Act and this title and submitted to the city engineer PASSED: AYES: NOES: ABSENT: ABSTENTIONS: ATTEST: APPROVED: ________________________ ________________________ City Clerk Director of Planning and Community Environment APPROVED AS TO FORM: __________________________ Senior Assistant City Attorney ATTACHMENT B Attachment C _____________________________________________________________________ City of Palo Alto October 10, 2012 Page 1 of 1 1 Architectural Review Board 2 Action Minutes 3 October 17, 2013 4 5 6 7 Major Reviews: 8 9 405 Curtner Avenue [13PLN-00098]: Request by Salvatore Caruso on behalf of Zhen Zhen Li 10 for Architectural Review of a new 7,425 sq. ft., three-story building with six residential 11 condominium units on a vacant, 12,375 sq. ft. site. Zone District: Residential Multiple-Family 12 (RM-30). Environmental Assessment: Exempt from the provisions of the California 13 Environmental quality Act (CEQA) per CEQA Guidelines Section 15303. This item was 14 continued from the ARB meeting of September 19, 2013. 15 16 RECOMMENDATION 17 Staff recommended the Architectural Review Board (ARB) recommend approval of the 18 proposed project based upon the findings contained in Attachment A and conditions of 19 approval contained in Attachment B. 20 21 No public comment. 22 23 Architectural Review Board Action: Board Member Popp moved seconded by Board Member 24 Gooyer to approve the project with the photovoltaic system to return for staff level review 25 ensuring that it is as compact and it is as close to the roof as possible. 26 27 Vote: Approval, 4-1-0-0 (Lew “no”) 28 ATTACHMENT E 1 Planning and Transportation Commission 1 Draft Verbatim Minutes 2 August 13, 2014 3 4 EXCERPT 5 6 Public Hearing7 405 Curtner Avenue [13PLN-00521]: (**Quasi-Judicial) Request by Kirk Tang on behalf of Curtner8 Investment Group LLC for Planning and Transportation Commission review and recommendation of a9 Tentative Map for six multi-family residential condominium units on a vacant 12,375 square foot parcel10 within a building previously approved by the Planning Director for six dwellings following review and11 recommendation by the Architectural Review Board. Environmental Assessment: Exempt from the12 provisions of CEQA per CEQA Guidelines Section 15303 and 15061(b)(3). For more information contact13 Russ Reich at russ.reich@cityofpaloalto.org14 15 Chair Michael: Alright, let’s reconvene the meeting. If people can take their seats and our next item if I16 can find my agenda is public hearing on 405 Curtner Avenue, which is a request by Kirk Tang on behalf17 of the Curtner Investment Group for Planning and Transportation Commission (PTC) review and18 recommendation of a Tentative Map for six multi-family residential condominium units and so on. And19 this is a quasi-judicial matter so we will begin with any required disclosures if any Commissioners have20 had contact with the applicant or the property. Any disclosure to make? So hearing no disclosures let’s21 go to the staff report from Chief Planning Official Amy French.22 23 Amy French, Chief Planning Official: Thank you. The application before you is a Tentative Map. It’s a24 condominium map involving one parcel, one existing site on which a 6 unit building that has been25 approved by the Architectural Review Board (ARB), Director following ARB recommendation has been26 approved. On the screen you’ll see I simplified the picture to show the outer out boundaries of this27 parcel. It gets a bit confusing when you look at this map and you see the underlying lot lines. Those lot28 lines from the early, from the turn, last century go away at the final map. And then when the final map29 gets recorded it comes back to the City and we adjust our maps that we have in house, but for now you30 see the underlying lot line. So the site will be 75 feet by 165 feet, Parcel A. The emergency vehicle31 access on the left hand side of the screen there is 21.5 feet and it will be consistent with the driveway32 that serves the six units.33 34 So I’ve listed all of the seven findings as you may recall with the subdivision findings there are negative35 findings. So it gets a bit confusing. So you… the map is not inconsistent with the general plan. The way36 it requires you to make a finding is that if you find that it’s inconsistent you can’t approve it, but so that’s37 why I’ve rephrased these as the map is not inconsistent so it’s clear. So here we go Point 1 is about the38 zoning. This site happens to appear on the Housing Sites both in the new Draft Housing Element and in39 the Certified Housing Element of 2007 to 2014. It’s adjacent to high density. It’s consistent with the40 Comp Plan, subdivision ordinance, zone district policies. The existing lot exceeds the minimum lot size41 for the district. All these findings we found can be made and I’ve listed them here on the PowerPoint you42 have at places. I’m not going to read through them, but you have it in bold type.43 44 So the Planning Commission areas of discussion are the applicability of subdivision findings and the45 layout of the design and improvements. And then here we have the next steps, which is this goes to46 Council the Tentative Map at a public hearing. Then there is the following action by the Council there is47 the review of the improvements by Public Works. And these would be consistent with the improvements48 that were approved already in the ARB process. And then a Final Map application would come in and be49 acted upon by Council that would become recorded. And following that recordation the building permit50 can be issued. Ok, I’d be happy…. Oh, I should mention the applicant is here for any questions. Doesn’t51 feel the need to make a speech.52 53 Chair Michael: So would the applicant like to make any statement or no? Ok. That’s fine. So we have54 one speaker card.55 Attachment F 2 1 Vice-Chair Keller: From Herb Borock. You’ll have three minutes. 2 3 Herb Borock: Thank you. My comments are related to the Commissioner questions and staff responses. 4 The first one which is on the Below Market Rate (BMR) in-lieu fee, the staff response is that that concern 5 is taken care of in the condition the ARB approval that requires executing a BMR agreement at the time 6 of the Final Map. I recall that last year the California Supreme Court ruled and I’m paraphrasing here 7 that counting time as to when a developer can challenge fees such as this BMR fee starts counting time 8 when they know how much it is and made aware of it, but I’ve noticed I guess this is the second one I’ve 9 noticed where instead of placing that fee in at the earliest time when an applicant gets approval that it’s 10 somehow delayed down the line. The first time I noticed that was around the time of the Supreme Court 11 decision when the large housing project on El Camino Real was before the City Council and essentially 12 didn’t have the amounts of the fees in the approvals and somehow it would done be sometime in the 13 future. And so I believe they should be done at the earliest possible time and since you have an 14 opportunity now with the Tentative Map it wasn’t done at the ARB development agreement, development 15 approval, but since this is going to the Council that dollar amount should be in now so that if there’s any 16 concerns from the applicant that it’s not an appropriate fee we should start counting time now as to any 17 rights to challenge the fee. Thank you. 18 19 Chair Michael: Ok, so that concludes the public hearing. We come back to the Commission. So before I 20 go to colleagues one question Amy, so the ARB had four hearings on this project and so they’ve 21 examined it in depth and it’s been approved by the ARB? Can you just clarify that? 22 23 Ms. French: Yes, the application for major ARB was allowed to have three public hearings. The ARB 24 struggled a bit and the applicant waived the right to a decision after the third hearing and allowed the 25 fourth hearing to be held to get to resolution and then the Director approved the architectural review 26 application. The application approval was not appealed to the City Council therefore it became effective. 27 28 Chair Michael: Ok, and then my next question is just as to the Commission purview is fairly specific we 29 are to approve the Tentative Map and that’s it? 30 31 Ms. French: Yes. The findings are in front of you and the Record of Land Use Action (ROLUA) also on the 32 PowerPoint in bold type. If anyone has questions about the findings and the evidence to allow you to 33 make the findings we’re here to discuss any questions and if there’s conditions of approval on the ROLUA 34 that you wanted to ask about, question, I did throw a screen up here on the slide on the screen here 35 about BMR housing. As Mr. Borock mentioned we do have a condition in my response to questions that 36 about BMR housing, but because it’s not a housing unit we don’t technically need a BMR housing 37 agreement. What we need is the money, the in-lieu fee and how it’s calculated is based on the sales 38 price after the time of sale. And so we get into a bit of a delayed payment of that fee and so we can talk 39 about that further if you’d like. Tim Wong the Housing Planner is here. 40 41 Chair Michael: Ok, that helps. And then finally before I open it up to the Commission so we don’t or we 42 haven’t often reviewed Tentative Maps recently. This is kind of something we want to fine tune our 43 process for. On Page 2 of the report it very helpfully explains that there are “necessary findings which 44 are actually reverse findings,” which only a lawyer could love. But I note that starting on Page 7, which 45 is Attachment A, there’s a series of sections which go through each and every one of these reverse 46 findings and just wanted to call attention to my colleagues on the Commission that the to the extent that 47 the PTC is actually making a finding or a reverse finding the basis upon which that finding has is 48 explained is set forth in very clear detail from Pages 7 through 9. So with that let me open it up to any 49 questions that the Commission may have. Commissioner Gardias. 50 51 Commissioner Gardias: Thank you Chair. So I have a question to the applicant or to the staff, whoever 52 can answer this. It’s about the easement. There were some information in response to Vice-Chair’s 53 questions about the easement, who owns this easement, but I didn’t find this response comprehensive. 54 For whose benefit this easement is today? That’s my first question. If you could just help me with 55 understanding who has the benefit of the easement? 56 3 1 Ms. French: My understanding is it’s an emergency vehicle access easement. So the fire trucks and 2 paramedics though they don’t actually need to use it because the structure is no more than 150 feet, 3 which they can use their hoses for fire, but they can drive an ambulance let’s say back down that 4 driveway. Its emergency vehicles can use it and then of course the owners can use it because that 5 parcel will be owned by the homeowners. 6 7 Commissioner Gardias: Of course, but then if this is for the fire truck, right, it means that for the 8 structures on this lot also on the adjacent lots. Is this correct? 9 10 Ms. French: I don’t believe it’s needed for the adjacent lot because there’s a parking lot there that serves. 11 The applicant can weigh in. 12 13 Salvatore Caruso, Salvatore Caruso Design Corporation: If I may? Thank you very much for the question. 14 No, it does not serve the adjacent property. Absolutely not. It serves only this property and that has 15 been clarified and that has been reviewed by Department of Public Works in the due diligence process of 16 reviewing the Tentative Map. 17 18 Commissioner Gardias: Ok so where I am getting to (interrupted) 19 20 Chair Michael: So could you just identify yourself for the record? 21 22 Mr. Caruso: I’m so sorry. Salvatore Caruso, 980 El Camino Real. 23 24 Chair Michael: Thank you. 25 26 Mr. Caruso: Thank you. 27 28 Commissioner Gardias: Thank you very much. So for perspective… so thank you very much. So there is 29 no need pretty much for others to use this easement, right? 30 31 Mr. Caruso: Correct. 32 33 Commissioner Gardias: So my follow up question and this is where I’m getting to, I would like to 34 understand if there could be some benefit of this easement for the adjacent properties? That would be 35 my final question. And then it might of not been today, but then if there is some sort of agreement or 36 possibility of agreement that some other lots that have those adjacent lots between Curtner and Ventura 37 they don’t have that easy access as your lot has. So my final question would be is there a possibility of 38 opening this easement for the benefit of other lots that are adjacent to it between Ventura and Curtner? 39 40 Mr. Caruso: So the, this easement abuts two properties that face El Camino Real to the left of the 41 diagram that’s up there now. And both of those properties have full access to El Camino Real. They 42 front El Camino and the one on the corner both El Camino and Curtner. So there really is no shortage of 43 access if you will to fire truck access to either of the three parcels in question. 44 45 Commissioner Gardias: Right, thank you very much. I am specifically concerned with this, there is an L 46 shaped lot that doesn’t have an access, this middle lot doesn’t have an access to anything. 47 48 Mr. Caruso: I apologize I can’t see it from here I’m so far away. 49 50 Ms. French: I might jump in on that. The L shaped parcel is in one ownership and it’s a, it’s come 51 through for preliminary architectural review for a mixed-use project. So it’s the L is all one concept for 52 development that would have access on both Curtner and El Camino with the curb cut on Curtner. 53 54 Commissioner Gardias: Ok, all those properties, right? 55 56 4 Ms. French: That whole L. 1 2 Commissioner Gardias: From El Camino to the (interrupted) 3 4 Ms. French: Yes. 5 6 Commissioner Gardias: Ok, so there is no need pretty much to use this easement whatsoever. 7 8 Ms. French: At this point in time it has not been identified as a need by the Fire Department for that 9 other project. 10 11 Commissioner Gardias: Ok. I just wanted to clarify this (interrupted) 12 13 Mr. Caruso: Thank you so much. 14 15 Commissioner Gardias: Ok, thank you. 16 17 Mr. Caruso: You’re welcome. 18 19 Chair Michael: Commissioner King. 20 21 Commissioner King: Thank you. So I just have a clarifying question on the in-lieu fees and I’m not sure 22 which one of you might answer. So the one part is the time starting for the potential to appeal that fee 23 and so that it looks like we’re going to do something that that’s the goal of doing the appraisal and 24 collecting the fees up front? 25 26 Cara Silver, Senior Assistant City Attorney: Yes, thank you. Cara Silver, Senior Assistant City Attorney. 27 So first of all we have two different types of impact fees in this case. We have some impact fees that can 28 be quantified right away and we typically send out a notice quantifying that amount and then the appeal 29 period begins right away. The housing impact fee however, is not quantifiable right away because it’s 30 dependent on the sales price of the first unit. And that of course won’t happen until the project’s built 31 out. So we send out a notice that puts the developer on notice that there is going to be this impact fee 32 levied and describes the methodology and so the developer has the ability at this stage to contest the 33 actual methodology or the legality of imposing that condition. And then when the fee amount is actually 34 quantified then we send out another notice with the actual amount and if at that point the developer 35 wants to contest the way we calculate the fee or state that the sales price was not what we thought it to 36 be they have an additional opportunity at that time. I will say that we are updating our BMR program 37 and we are looking at other ways to liquidate that housing fee at an earlier point of time. It has been an 38 administrative problem that we’ve identified at the staff level. 39 40 Commissioner King: Thank you. And then do we get to collect that out of escrow so with all due respect 41 to the applicant that nobody could skip out on the fees, it comes out at the time of sale? 42 43 Ms. Silver: Yes, we typically have not done that. And I know that there have been some suggestions that 44 we implement some type of program and so that is possible to do that to estimate the amount, have 45 them post an escrow amount or letter of credit or something like that and then collect the differential at a 46 later time, but at this point we’re not suggesting that for this particular project. 47 48 Commissioner King: Ok, thank you. 49 50 Chair Michael: Commissioner Tanaka. 51 52 Commissioner Tanaka: I have two quick questions. So first question is: was there any public outreach 53 done on this, around this property as usual or and maybe you can describe what happened? 54 55 5 Ms. French: Well, we did advertise for public hearings before the ARB for the ARB application. There was 1 no public outreach for this application, the Tentative Map. 2 3 Commissioner Tanaka: Ok. Was there any feedback from the surrounding properties at all about what’s 4 happening here? From any of the neighbors? 5 6 Ms. French: I can’t recall. I’m sure the owner, sorry the applicant, Mr. Caruso would be willing to share 7 his recollection. 8 9 Mr. Caruso: Actually the neighborhood was in support. There was the neighbor directly adjacent on 10 Curtner that came out and spoke in support and the neighbor at the corner of El Camino and Curtner also 11 that was in support of the project. And there was no other commentary from any other public and we 12 did make sure that all adjacent neighbors across the street as well and down the road a bit were all fully 13 informed personally. We went around door to door and made sure people knew what was happening 14 whether or not they received the postings of course from the City. 15 16 Commissioner Tanaka: Ok, and then second question is this if for staff and I realize this hasn’t been 17 designed yet, but assuming this is approved how big could each unit be? 18 19 Ms. French: Right, so each unit has been approved at a specific size through the architectural review 20 process. And again the applicant would know offhand and I can look it up on the plans and get back to 21 you. 22 23 Vice-Chair Keller: It’s in the staff report at the top of Page 4. 24 25 Commissioner Tanaka: Ok. That’s fine. Thank you. 26 27 Chair Michael: Let’s see, any other comments? Vice-Chair Keller. 28 29 Vice-Chair Keller: Thank you. So the to answer Commissioner Tanaka’s question there are six units each 30 of which is 1,237.5 square feet in area. And each of the units is three bedrooms, three bathroom with a 31 and not counted as part of that is a two car garage. And when we think about as an aside when we 32 think about small units and what small units mean I think that the idea that you can fit this many 33 bedrooms in this kind of that many baths in just over 1,200 square feet gives us some interesting data 34 input to what small units mean. So that informs that larger discussion. 35 36 Is the L shaped lot is that the Compadres lot? 37 38 Ms. French: Yes. 39 40 Vice-Chair Keller: Ok, thank you. And is staff recommending that we have a conditional Tentative Map 41 approval to require a paying in-lieu fee for the 0.9 unit or is the staff not recommending that? 42 43 Ms. French: I have a plan to put that into the ROLUA for the Council. If you as a Commission choose to 44 provide support for that, that’s fine. I put the slide up here to say that adding a condition of approval 45 making sure that it’s understood that they’re going to pay in-lieu fees instead of execute an agreement 46 it’s paying the fees. That’s what we’re doing here. 47 48 Vice-Chair Keller: Great. Thank you. And to the applicant do you have any intention of appealing 49 (interrupted) 50 51 Mr. Caruso: Appealing? No. No. We’re fully aware; we’ve been in great communication. Staff has been 52 fantastic over the last several months in communicating to us exactly what the fees were. We have no 53 problem with it on the public record. 54 55 Vice-Chair Keller: Thank you. 56 6 1 Mr. Caruso: You’re welcome. 2 3 MOTION 4 5 Vice-Chair Keller: So let me offer a Motion that the PTC recommend that the City Council approve the 6 Tentative Map based on the ROLUA and that the Commission agrees that the Tentative Map findings are 7 appropriately met. And an additional conditional approval Tentative Map as recommended by staff that 8 the applicant be required to pay in-lieu fees for the 0.9 unit because there’s no BMR agreement and no 9 unit provided. 10 11 Chair Michael: Commissioner Gardias. Is there a second? 12 13 Commissioner Gardias: I can second, but I was going (interrupted) 14 15 Chair Michael: Well first is there a second? 16 17 SECOND 18 19 Commissioner Gardias: I have a… I have a second too. I can second this Motion. 20 21 Chair Michael: Ok, ok. 22 23 Commissioner Gardias: But still I would like to just continue with asking questions. 24 25 Vice-Chair Keller: You will be able to. 26 27 Chair Michael: Hold off a minute. So Vice-Chair Keller speak to your Motion and then Commissioner 28 Gardias will be recognized. 29 30 Vice-Chair Keller: Thank you. So I think that this project is meets with the required findings and so it 31 should be approved and I think that the improvement of clarifying the BMR agreement and hopefully 32 when this come… that the BMR ordinance come back to us to clarify this in general. But I think that this 33 project does meet all the requirements and so I’m happy to recommend its approval. 34 35 Chair Michael: Commissioner Gardias. 36 37 Commissioner Gardias: Real quick question. Thank you. So going back to the easement, I mean this is 38 not from the perspective of this property, but from the perspective of the former Compadres property. 39 Apparently there is a development going? So I don’t know how far they are down the road with the 40 development, but I would like to understand, if there is a need for a fire truck access, and then giving 41 that there is this L shaped lot, they may squeeze a route they may not squeeze a route, but the Fire 42 Department may need an access to this L shaped lot through some other properties. I’d like to 43 understand if this easement may be used and then of course they may be some gate or some other 44 access to the adjacent properties for the Fire Department if that would be considered. 45 46 Mr. Caruso: My general answer would be no because that particular easement is to serve this property. 47 The way the easement rights work is they are not global to benefit entire societies. They are sort of just 48 made for specific purposes as defined by the law. And the concern would be is that if that becomes a 49 general easement access etcetera, etcetera that suddenly we have a road being established, not an 50 emergency access entity, but rather a road going right adjacent to six units. 51 52 The desire of doing the six unit project was not to be part of a large complex or a much larger 53 development, but to preserve a smaller home nature. In fact the way this project is designed in fact is 54 there are individual gardens and terrace spaces and balcony spaces to really be able to foster, which is 55 very difficult in Palo Alto, a young family a place to start that is not multimillions of dollars. So this was 56 7 designed in a very specific way to address a very specific need, which is believe it or not a more 1 affordable level of housing in Palo Alto that the square footage is more limited, it’s more accessible, while 2 still providing a quality of life with private gardens, etcetera. Because sometimes you might find 3 something smaller, but it’s more an apartment format and not really something that has the character 4 and nature of individuality and I wish to preserve that and not make this something part of a giant big 5 complex etcetera. So that was the main motivation if you will in doing this project. 6 7 Commissioner Gardias: I understand this. The, my intent was to propose… was to respect of course 8 privacy as you designed it. It’s not about this. It’s about emergency access the Fire Department may 9 eventually need if it’s required because of some aspect, of hardship on some other lots and that may also 10 happen on the other side of that L shaped lot. And I understand that from your perspective it’s your lot, 11 right, and you don’t want to be disturbed by somebody else’s trespassing the property, but I’m just 12 talking about the fire restrictions. 13 14 Ms. French: I would just also say those two lots that face El Camino the non-Compadres site it’s a corner 15 lot and again fire trucks don’t really need to drive anywhere because they are already on a road. Those 16 hoses that they have go 150 feet and so there’s really no trouble for those sites on El Camino. And 17 again, the L shaped parcel has two frontages and so there are two opportunities. My understanding of 18 the Compadres site and I don’t want to talk too much about it because this may be coming to this body 19 with as many units as they are looking out for housing, but my the preliminary review indicated no 20 driveway on El Camino, but certainly a fire truck could pull up along El Camino on the curb and stretch 21 their hoses. So I think because of the two frontages for that L shaped parcel we’re still ok. 22 23 Commissioner Gardias: Very good, thank you. 24 25 Mr. Caruso: Thank you. 26 27 Commissioner Gardias: Thank you. 28 29 Chair Michael: So I’m just going to indicate that I’m going to support the Motion. One of the issues that I 30 had in looking at this was I know that the City is in the process of updating the Housing Element for 2014 31 to 2021 and what I was curious about is whether this site is identified on the draft inventory of the 32 updated Housing Element. And Amy French just put up a new slide. Do you want to speak to what the 33 slide says? 34 35 Ms. French: Yes. This was the first finding. I breezed through these earlier so as not to take too much 36 time, but yes, the Housing Element the Housing Element of 2007 to 2014 as adopted by the Department 37 of Housing and Community Development (HCD) does show this on the Housing Inventory Sites Map as a 38 residential housing opportunity site. Similarly it’s shown on the draft of the July 7, 2014, draft for 2015 39 to 2023, which I don’t know if this body has seen yet. But, yes? Ok. Well, so you saw it on that map as 40 well. 41 42 Chair Michael: Ok. So if there are no other comments we could vote. One quick comment. 43 44 Vice-Chair Keller: Yes, I believe it was on the on that Housing Inventory Site List for six units and there 45 are six units being built. 46 47 VOTE 48 49 Chair Michael: So a vote on the Motion. All in favor please say aye (Aye). Any opposed? So Motion 50 passes unanimously. Let’s just take a five minute break and then come back and reconvene on Planned 51 Community (PC) zoning reform. 52 53 MOTION PASSED (7-0) 54 55 Mr. Caruso: Thank you very much. 56 8 1 Chair Michael: You’re quite welcome, good luck with your project. 2 3 Commission Action: Commission approved based on Record of Land Use Action (ROLUA) with 4 additional COA “applicant shall pay an in-lieu BMR fee for .9 unit.” Motion by Vice-chair Keller, Second by 5 Commissioner Gardias, approved 7-0 6 7 City of Palo Alto (ID # 5102) City Council Staff Report Report Type: Action Items Meeting Date: 9/15/2014 City of Palo Alto Page 1 Summary Title: Response to SCC Grand Jury Report Title: Refer Real Property Procedures and Related Matters to Policy & Services; Approve Response to Santa Clara County Civil Grand Jury Report “Reduced Transparency and Inhibited Public Input and Scrutiny on Important Land Use Issues" (Continued from September 8, 2014) From: City Manager Lead Department: City Manager On September 8, 2014, Council reviewed a draft response to the Santa Clara County Civil Grand Jury Report “Reduced Transparency and Inhibited Public Input and Scrutiny on Important Land Use Issues.” (Attachment A). The Council discussed potential revisions to the draft, as well as related policy matters that Council may wish to consider at a later date or refer to the Policy & Services Committee. The Council determined that the Mayor should designate an ad hoc subcommittee to consider Council Members’ revisions to the Grand Jury response and related concerns and return to Council on September 15th. The Mayor designated Council Members Burt and Schmid to work with staff to revise the response and propose further policy-level considerations at a later date. The ad hoc committee, which is not subject to the Brown Act’s open meeting requirements, met on September 9th and 10th and makes the following recommendations to the full Council: 1.Refer the following policy matters to the Policy & Services Committee for further discussion and recommendations to the full Council: a.Receive and review an inventory of lands donated to the City b.Consider potential revisions to Policy & Procedure 1-48 (Procedure for Sale/Transfer of Surplus City-Owned Real Property), including to add additional guidance and clarity regarding unsolicited offers to lease or purchase City land and the timing of real property closed sessions c.Public prescreening with Council of projects requiring zone changes d.Receive a report on software solutions supporting responses to requests for documents under the Public Records Act, to be provided to City Council by April 1, 2015 11 City of Palo Alto Page 2 2. Approve the revised “Response to the Civil Grand Jury Report on Reduced Transparency and Inhibited Public Input on Important Land Issues” and authorize the Mayor to send a letter to the Grand Jury with the City’s response by the deadline of September 18, 2014 (Attachment B). The draft Grand Jury response incorporates the referrals to Policy & Services and action steps the City will take to implement the Grand Jury recommendations. If the Council does not approve the referrals to Policy & Services, the Council should direct staff to modify the Grand Jury response to remove those references. Attachments:  Attachment A: Original Council Report September 8, 2014 (PDF)  Attachment B: REDLINE Grand Jury Response (DOCX)  Attachment C: Sept 2014 Grand Jury Response-Clean Copy (DOCX) City of Palo Alto (ID # 5073) City Council Staff Report Report Type: Action Items Meeting Date: 9/8/2014 City of Palo Alto Page 1 Summary Title: Response to SCC Grand Jury Report Title: Response to SCC Grand Jury Report on Reduced Transparency and Inhibited Public Input and Scrutiny on Important Land Issues From: City Manager Lead Department: City Manager Recommendation Staff recommends that Council approve the following response to the 2013-2014 Santa Clara County Civil Grand Jury Report, “The City of Palo Alto’s Actions Reduced Transparency and Inhibited Public Input and Scrutiny on Important Land Issues.” Staff further recommends that the Mayor be authorized to send a letter to the Grand Jury with the City’s response by the deadline of September 18, 2014. Background From the Santa Clara County Civil Grand Jury website: “The Civil Grand Jury is an investigatory body. . . CIVIL WATCHDOG RESPONSIBILITIES This is the major function of present day grand jurors, and considerable effort is devoted to these responsibilities. The Grand Jury may examine all aspects of county and city government and special districts to ensure that the best interests of Santa Clara county citizens are being served. The Grand Jury reviews and evaluates procedures, methods and systems utilized by county/city government to determine whether more efficient and economical programs may be employed. . . Most Grand Jury “watchdog” findings are contained in reports describing problems encountered and making recommendations for solutions.” The Santa Clara Civil Grand Jury typically produces eight to ten reports a year. In recent years, the City of Palo Alto, along with other Santa Clara cities, have participated in Grand Jury interviews that informed subsequent reports on topics related to “Unsustainable Employee Costs”, “Rethinking Fire Department Response Protocol and Consolidation”, “Emergency Dispatch in Santa Clara County”, “Rehiring Pensioners”, “Pension and Other Post-Employment Benefits”, “Law Enforcement Public Complaint Procedures”, and “Public Disability Retirement Rates”. City of Palo Alto Page 2 On June 19, 2014, the Civil Grand Jury of Santa Clara County issued a report that discussed the City’s compliance and response with the Brown Act and the California Public Records Act, and the level of transparency associated with the Lee Gift Deed Property and the 27 University Avenue development proposal. A copy of the Grand Jury Report is included as Attachment A. Discussion State law requires the City to respond separately to each Finding and each Recommendation. To Findings, the City has to “agree or disagree.” To Recommendations, the City has to state that it has implemented, will implement or will not implement the recommendation. Staff has made this the first sentence in the Response section to each Finding and Recommendation. The City’s detailed response to the findings and recommendations are included in Attachment B. The City agrees with Recommendations 1, 2, and 7but has provided further explanation and additional clarifying details in response to the Findings and Recommendations of 3 through 7. The City’s response to the Grand Jury meets the requirements set out in law. Further staff commentary related to the events focused on in this Grand Jury report are provided for Council in this cover letter. 27 University This project got off to a bad start, and certainly off on the wrong foot. The initial action requested of Council on March 5, 2012 to allocate funding to allow for the City to actively shape some of the potential design features in response to initial suggestions by John Arrillaga did not establish enough detail for public review and commentary. The fact that Council members had received individual briefings by staff (permissible) on Mr. Arrillaga’s interest in a project of significant scale at that location compounded eventual community criticism for the project and process. And although the purpose for that funding was to inform a potential future project, by the time the specifics of the project design parameters came forward (September 24, 2012) too much time had passed. More importantly, the scale of the potential project, particularly building heights, far overshadowed potential public benefits related to a new regional theater, significant parking, and improvements to the intermodal transit center and surrounding road network. Given the dramatic change the concept presented for the area, it is natural that many folks would take the concept as a surprise and for many, out of character for the City. From that point on, however, the Council directed that numerous public sessions take place, including Planning and Transportation Commission, Architectural Review Board, Historic Resources Board, and Parks and Recreation Commission meetings to review and comment on the proceedings, including several other Council Action items in late 2012 and into 2013. City of Palo Alto Page 3 The Council ultimately directed that an essential start-over on the public process be designed with numerous new public outreach meetings. But as heightened interested in the Comprehensive Plan review and revision unfolded through 2013, it made sense that any consideration of 27 University take place only in the context of the Comprehensive Plan. Conclusion: There was a lack of clarity of objective and transparency at the start of the consideration of 27 University. Council changed that mid-course but much damage had been done to the project’s possibilities and to confidence in the process. Closed Sessions Related to Potential Lease or Sale of 7.7 Acres Closed sessions are appropriate and permissible for real property negotiations. Council could have conducted these discussions in public. Staff had scheduled these as closed sessions. But even though permitted by law and serving good purposes, closed sessions can contribute to uncertainty or suspicion. The facts are that the Council never did authorize a sale or initiate the process necessary to sell the property. Some can criticize that the City should never have even discussed Mr. Arrillaga’s proposal. There was a silver lining to this request coming forward, though, in that the current Council and staff discovered the history of this parcel and the long overdue and delayed dedication as parkland, which this Council did accomplish this summer. Public Record Requests The City receives numerous public records requests, some formal, most informal. The vast majority are responded to very quickly. There are challenges at times as requests come in at different entry points into the organization and response can be both time consuming and involve numerous departments, requiring coordination and oversight. The response to the Grand Jury Report speaks well to the current changes the City has made, and is investigating, including coordinated software to monitor intake and response. Attachments:  Attachment A: Santa Clara County Grand Jury Report (PDF)  Attachment B: City of Palo Alto Grand Jury Response (DOCX)  Attachment C: Palo Alto Municipal Code Section 2.30.210 (h) (DOCX)  Attachment D: Policy and Procedures 1-11/ASD (PDF)  Attachment E: Policy and Procedure 1-48/ASD (PDF) 1 Attachment A. Santa Clara County Grand Jury Report 2013-2014 SANTA CLARA COUNTY CIVIL GRAND JURY REPORT THE CITY OF PALO ALTO’S ACTIONS REDUCED TRANSPARENCY AND INHIBITED PUBLIC INPUT AND SCRUTINY ON IMPORTANT LAND ISSUES Summary The 2013-2014 Santa Clara County Civil Grand Jury (Grand Jury) received complaints questioning the transparency of the City of Palo Alto (City) and claiming there was inconsistent compliance by the City with open government statutes from June 2011 – December 2013. The Grand Jury investigated those complaints as they specifically related to three important land use examples. The Grand Jury found: The City disregarded its own written Policy and Procedures (P&P) and deed restrictions on 7.7 acres of land next to Foothills Park gifted to the City by the Lee Family (“Lee Gift Deed Property”) when it leased the property to an adjacent landowner who used the land in a manner inconsistent with the provisions of the deed; The City disregarded its own written P&P by considering the sale of the same city-owned Lee Gift Deed Property to the same landowner prior to declaring it to be surplus; The City held a closed session meeting1 to discuss the price and terms of an offer to purchase the Lee Gift Deed Property. At the time of the closed session, the property could not be legally sold because of the deed restrictions and failure to declare it surplus; Initial discussions between the same landowner, who is also a developer, and the City about a controversial development of 27 University Avenue was done in a manner that was permissible but undertaken in a way to avoid public scrutiny unlike other similar large-scale projects; The City allocated city money toward design review of the 27 University Avenue proposal to address existing transit and traffic issues at that site 1 Closed session meetings are meetings to which the public and the press do not have access. 2 Attachment A. Santa Clara County Grand Jury Report and in the surrounding area before obtaining substantial public input on the 27 University Avenue proposal; and The public’s efforts to obtain information about the above matters through California Public Records Act (CPRA) requests were sometimes ignored by the City. Further deficiencies in City’s CPRA practices were discovered by the Grand Jury. Background The Ralph M. Brown Act (Brown Act)2 was passed in 1953. Among other things, it serves to encourage transparency and public participation in government. It guarantees the public’s right to attend and participate in meetings of local legislative bodies. It also requires proper notification of public meetings and establishes rules for members of local legislative bodies. It is the intent of the Brown Act that deliberations of local legislative bodies be conducted openly and that their actions be carried out in public, with very limited exceptions. The California Public Records Act (CPRA)3 was signed into law in 1968. The essence of the CPRA is to provide public access to information. The fundamental principle of the CPRA is that any document that is a public record must be provided to the public upon request, unless there is a specific statutory exemption. Complainants, elected officials, and City management staff told the Grand Jury that residents of the City have high expectations regarding the transparency of their City government and its compliance with open governance laws. Residents expect that staff and elected officials will consistently follow state statutes, local ordinances, and the City’s written P&P that have been enacted to provide for the notification and participation of the citizenry. However, in recent complaints to the Grand Jury, several Palo Alto residents allege that compliance with the Brown Act and the CPRA has been inconsistent, if not violated. The complainants further assert that the City has not consistently followed its adopted P&P in dealing with City owned real estate. The actions of City staff and public officials have raised questions regarding the processes used when considering the lease and potential sale of City owned land and the process employed in guiding proposals to develop private property in the City. Complainants have also charged the City staff with not responding in a timely manner, and sometimes not at all, to numerous requests for public documents regarding a proposed major development of private property. 2 California Government Code §54950 et seq., The California open meeting law. 3 California Government Code §6250 et seq. 3 Attachment A. Santa Clara County Grand Jury Report The Grand Jury’s investigation revealed that the City views itself as a model of transparency and governmental process. The public’s concern regarding the City’s lack of transparency and failure to adhere to its processes are exemplified by the matters discussed below, which the Grand Jury finds to be significant exceptions to the City’s overall claims of transparency. Methodology During its investigation, the Grand Jury interviewed thirteen individuals (the complainants, other private individuals, elected officials, and City management staff) and researched or reviewed many documents as provided in Appendix A. Discussion The Lee Gift Deed Property Leases: The Lee family donated a 7.7 acre parcel of land adjacent to Foothills Park to the City by gift deed, recorded August 3, 1981. The gift deed required that the “property shall be used for conservation, including park and recreation purposes.” In 1983, an adjacent landowner began using the Lee Gift Deed Property for stonemasonry work and as a construction staging area during the construction of a residence on the adjacent parcel. Due to a reservation4 in the deed by the Lee family, the City did not become the title owner of that parcel until March 17, 1996. Effective April 1994, the City had adopted P&P 1-11/ASD pertaining to leasing of City owned property. The purpose of the policy “is to ensure that decisions regarding use of City property are made in the best interests of the citizens and taxpayers of Palo Alto.” One of the criterions for leasing City owned property is that it must be compatible with or supportive of the primary public use of the City owned property. The policy sets forth criteria to be considered in awarding the lease (i.e., the extent it satisfies a public need, consistency with city goals, degree of public access, and other matters). The policy also requires public notification. The City first leased the Lee Gift Deed Property to the adjoining landowner in a document dated April 5, 1996, but it stated that the lease term began on March 17, 1996. The lease was for twelve months, to be used “for TENANT’S continued use of the PREMISES as a staging area for construction of a residence on the adjacent parcel owned by TENANT.” The lease rate was $1,100.00 per year plus a $1,500.00 security deposit. A May 16, 1996, letter from the City Real Property Manager (RPM) to the lessee asked if the lessee wanted to extend the lease or buy the property. The letter also stated: “Whatever the case, both scenarios need to be presented to the City 4 See Lee Gift Deed Appendix A 4 Attachment A. Santa Clara County Grand Jury Report Council for action.” The City provided no documentation to the Grand Jury that either scenario (lease or purchase) was ever presented to the City Council for action.5 On September 5, 1996, the RPM wrote to the lessee acknowledging the lessee’s verbal offer to purchase the Lee Gift Deed Property at one-and-one-half times its appraised value. The appraised value at that time was between $100,000.00 and $115,000.00.6 A subsequent letter from the lessee to a City Real Property Analyst, dated January 20, 1997, contained an offer to buy the Lee Gift Deed Property for $300,000.00, with a rapid close of escrow. No documentation was provided to the Grand Jury indicating that this written offer to purchase the Lee Gift Deed Property was ever brought to the attention of the City Council or the public. However, the City did provide information to the Grand Jury that the lessee held over7 for one year and forty-five days after the expiration of the first lease. The City also provided the Grand Jury with a letter dated April 10, 1998, from the RPM to the lessee, indicating that City staff concluded “that it would be in the public’s best interest to keep the land as park/open space as required under the Gift Deed.” [Emphasis added.] This letter is the first instance in any of the records provided to the Grand Jury that City staff acknowledged the use restriction set forth in the Lee Gift Deed. Despite the acknowledgement by City staff that the deed restriction on the Lee Gift Deed Property required the land to be used as “park/open space,” the City entered into a second one-year lease with the same individual from May 1, 1998 to April 30, 1999. The lease rate was $1,125.00 per year and the $1,500.00 security deposit from the prior lease was transferred over to this new lease. This new lease expanded the allowable use of the property as a construction staging area to any “additional services and uses which are ancillary to and compatible with…” the use as a construction staging area. Once again, the Grand Jury was not provided with any documentation that this new lease was brought to the attention of the City Council or the public. According to records provided by the City, the lessee held over five years and ten months after the second lease expired. The City did not provide the Grand Jury with any information regarding whether either the City Council or the public was ever made aware of this lengthy holdover. 5 The City Manager drafted an information report to the City Council dated February 15, 1996, advising that the adjacent landowner was using the property for construction staging and indicating that there might be a forthcoming proposal to buy, lease, or exchange the property. The memorandum indicated that no action was required. 6 Independent written appraisal dated March 11, 1995 7 The first lease provided that if the lessee did not vacate the property at the end of the lease term, he would be considered a month to month tenant. This is called a “holdover.” 5 Attachment A. Santa Clara County Grand Jury Report The Grand Jury was told that the City Manager had authority to execute a lease of City land for up to three years without City Council approval. However, the Grand Jury was provided no justification for two holdovers totaling six years and ten months with no notice to either the City Council or the public. Efforts by the Grand Jury to obtain detailed information and documents regarding these leases of the Lee Gift Deed Property to the adjacent landowner were unsuccessful. This lack of a complete paper trail regarding the leases and the lengthy holdovers (six years and five months) of the Lee Gift Deed Property is troubling to the Grand Jury. What is clear is that the lease history of the Lee Gift Deed Property proceeded without the City following its own P&P regarding the leases. There are no indications that any of the lease negotiations, the uses of the Lee Gift Deed Property by the lessee (contrary to the deed’s use limitations), or the lengthy holdovers by the lessee were done within the parameters of the City’s P&P governing leases. Ultimately, during the course of this Grand Jury’s inquiry into the matter, the City Council took action to annex the parcel to the adjacent Foothills Park in spring 2014. Proposed Purchase of the Lee Gift Deed Property: The same adjacent landowner who had previously leased and offered to purchase the Lee Gift Deed Property presented a Real Estate Purchase Contract and Receipt for Deposit to the Deputy City Manager, dated September 14, 2012 to purchase the property. The landowner offered $175,000.00 to purchase the Lee Gift Deed Property. During its investigation, the Grand Jury was told that the September 2012 offer to buy the Lee Gift Deed Property was unsolicited and came as a surprise to the City. Upon further investigation, however, the Grand Jury learned that in the spring of 2012, the City had commissioned a formal independent appraisal of the property.8 The appraisal stated, “The intended user/use for which this appraisal assignment was contracted is for the use of the City of Palo Alto, for decision making purposes related to the possible sale or exchange of the property.” The appraised value was $175,000.00, which was exactly the same amount the landowner offered to pay. The same adjacent landowner who offered to purchase the Lee Gift Deed Property on September 14, 2012, sent a letter, also dated September 14, 2012, to the then mayor. In that letter, the adjacent landowner (who is also a developer [hereafter landowner/developer]) offered to build three athletic fields with natural 8 Written appraisal dated May 2012 9 As defined in California Government Code §54221(a) and Palo Alto P&P 1-48/ASD 6 Attachment A. Santa Clara County Grand Jury Report grass and related irrigation improvements as part of the renovation of the Palo Alto Municipal Golf Course. Given the history of interest in the Lee Gift Deed Property by the landowner/developer and the fact that his offer matched the City’s appraisal exactly, the Grand Jury believes the offer was not a surprise to the City. Further, the fact that a Special Meeting of the City Council was quickly agendized, noticed, and held on September 18, 2012, to discuss the $175,000.00 offer to purchase the Lee Gift Deed Property in closed session raises further questions about how long the City knew about the matter in advance. Under the Brown Act, a legislative body may convene a closed session to discuss the price and terms of the sale of city owned land (real estate negotiation exception). Members of the public were aware that the property was being considered for sale only because the proposed purchase was listed on the City Council’s agenda as a closed session item, with the property identified only by assessor’s parcel number. This closed session discussion lasted almost two hours. The minutes prepared for the September 18, 2012, City Council Special Meeting state that the Council took no reportable action in closed session. Following the closed session, staff sent emails to council members to arrange for council members and staff to visit the Lee Gift Deed Property. The Grand Jury was not able to ascertain exactly how many of council members actually visited the site; however, emails reflect that staff arranged for the council members to meet at the site in a manner that avoided reaching a quorum, which would have created problems with the Brown Act. As discussed above, the Lee Gift Deed Property had specific deed restrictions requiring that the property be used for conservation purposes, including park and recreation use. Even if the City was not hindered by the deed restrictions and assuming it could sell the property, the City would then have to comply with state law and the City’s own P&P regarding the sale of surplus property. The City has a detailed P&P for the sale of surplus city-owned real property (P&P 1-48/ASD). It requires the City Real Property Manager (RPM) to identify “potential surplus city real property,” to notify appropriate city departments and other public agencies9 and to forward a report with a staff recommendation to the City Council. If the City Council decides to declare the property surplus and to sell it by “an open and competitive bid process,” the RPM needs to obtain an independent appraisal and prepare a Bid Proposal Package for the City Council’s consent 7 Attachment A. Santa Clara County Grand Jury Report calendar.10 If the bid package is approved by the City Council, the RPM must advertise and market the property, schedule and evaluate bids, and forward a report with a staff recommendation to the City Council. Notably, under the law pertaining to surplus property,11 the City was required to give first priority to an offer by a local agency seeking to use the property for certain uses benefitting the public, including park or recreational purposes. Prior to the September 18, 2012, City Council closed-session meeting to discuss the price and terms of the sale of the Lee Gift Deed Property, none of the aforementioned procedures involving the Lee Gift Deed Property had ever been initiated by City staff. The deed restrictions remained and the property had not been identified as surplus. No evidence was presented to the Grand Jury that any City departments or appropriate public agencies had been notified of the property’s availability. The RPM had not recommended the sale and the City Council had not determined the property to be surplus. No reason was ever articulated to the Grand Jury why an allegedly unsolicited offer to buy the Lee Gift Deed Property dated September 14, 2012, merited or required a rapidly called Special Meeting of the City Council in closed session on September 18, 2012; especially, since the deed restrictions remained and the land had never been formally declared to be surplus pursuant to the Government Code and the City’s own P&P, and therefore could not be legally sold. Members of the public were aware that the property was being considered for sale only because the proposed purchase was listed on a City Council agenda as a closed session item, with the property identified only by assessors parcel number. The Brown Act requires that all items be discussed in a public meeting unless there is a specific statutory exception which allows discussion in closed session. A property cannot be legally sold by the City until after it has been declared surplus. Therefore, it would have been more appropriate and transparent for the City Council to first discuss whether property could or should be declared surplus in a public meeting before convening a closed session to discuss price and terms. A closed session on price and terms should occur only after the City Council has properly declared the property to be surplus pursuant to the City’s policy. 10 Consent calendars are part of the City Council meeting agendas. They consist of those items which are considered routine, non-controversial, easily explained, for which a staff recommendation has been prepared, for items the City Council has previously discussed, and for which no further discussion is required. Items on consent calendars are not discussed individually during a regular Council meeting but are approved as a group by one vote. An item may be removed from the consent calendar at the request of the Mayor or any City Council member. 11 Government Code §54227. 8 Attachment A. Santa Clara County Grand Jury Report The Grand Jury determined that the Lee Gift Deed Property had not been declared to be surplus land pursuant to Government Code §54220 et seq. and Palo Alto P&P 1-48/ASD. Therefore, it was inappropriate and non-productive to discuss, in a closed session, the price and terms of the sale of land that could not be legally sold at that time. In 2005–2006, the City appropriately followed the City’s P&Ps with respect to a parcel at 2460 High Street, near the Oregon Expressway, when it determined the property to be surplus. Thus, the Grand Jury concludes that the City is aware of the proper procedure for declaring property to be surplus. P u b lic Not if ica tio n of th e City Cou n cil’s Bu sine ss Regarding the 27 University Avenue Proposal: Historically, the City has demonstrated its ability to engage the public about significant City projects in an open and transparent manner. For instance, in April 2008 a well-publicized meeting was held to elicit public comment about the proposed Oregon Expressway Improvement Project. The City demonstrated its ability to convey information about community projects in an open and transparent manner by publicizing community meetings, eliciting public comment, scheduling a community workshop, establishing an e-mail address and phone number for public comment, and creating a questionnaire for residents’ input. The Grand Jury investigated complaints about a significant reduction in the transparency of City government over the last few years. In particular, the Grand Jury inquired into concerns about whether the actions of City staff and public officials avoided public vetting and skirted the intent of the Brown Act in responding to proposals to develop privately owned property known as 27 University Avenue. On June 11, 2011, the Palo Alto City Council entered into a historic development agreement with the Stanford University Medical Center (SUMC). 12 The agreement provided approximately $40,000,000.00 to the City, in consideration for which the City would allow the SUMC to replace, retrofit, and enhance its facilities located in the City of Palo Alto. The agreement also allows the SUMC to expand its hospital, clinic, and medical office facilities to meet patient demand. Pursuant to the agreement, the SUMC is required to provide the City with certain community benefits and mitigation measures. Shortly after the SUMC Development Agreement was signed, the same landowner/developer involved in the Lee Gift Deed Property approached City staff and proposed a major development on land owned by Stanford University. The land is located at the corner of University Avenue and El Camino Real, 12 SUMC, also known in the agreement as the SUMC parties, is collectively Stanford Hospital and Clinics, Lucile Salter Packard Children’s Hospital at Stanford, and the Board of Trustees of the Leland Stanford Junior University. 9 Attachment A. Santa Clara County Grand Jury Report adjacent to the Palo Alto Caltrain Station and a Valley Transit Authority bus transit station. It became known as the 27 University Avenue proposal. The site is currently occupied by the MacArthur Park restaurant. In its investigation the Grand Jury learned that in late September 2011, three- dimensional images had been prepared by the landowner/developer’s staff and provided to City staff for review and comment. The initial proposal submitted to City staff contained building designs that conflicted with existing City development standards (e.g. height) and were unacceptable to City staff. A revised proposal included a complex of four office towers, two of which significantly exceeded Palo Alto’s long-standing fifty-foot height limit. The revised proposal also included an offer to build the shell of a new performing arts theater and improved utilization of the nearby transit center. Further, the revised 27 University Avenue proposal included an expanded pedestrian and bike connection between downtown Palo Alto and the Stanford Shopping Center, to address major pedestrian and bicycle safety problems. The developer’s proposals represented an unprecedented opportunity to address major traffic problems at an intersection where little change had taken place for many years, despite decades of planning attempts. On September 27, 2011, the City Manager emailed the entire City Council informing them that the developer would probably be contacting each of them to set up meetings to explain his proposal to them. What followed were numerous meetings between members of the City Council, City staff, and representatives of the developer regarding his proposal. There were no public notices of these meetings. During interviews of City officials, the Grand Jury was told that these meetings were deliberately kept to no more than three council members at a time, in order not to constitute a quorum of the City Council, which would have violated the Brown Act. No minutes or notes were kept. Staff and council members reviewed detailed design drawings, but the public remained uninformed of the proposals or the designs for five more months. It was not until March 5, 2012, nine months after the landowner/developer first approached the City staff, that the first public meeting of the City Council was held regarding this developing proposal. At that meeting, the City Council authorized $250,000.00 from the SUMC Development Agreement “to be used to develop pedestrian, bicycle and transit connections, as well as, public space design and preliminary design review and initial environmental review of 27 University Avenue and surrounding areas.”13 According to a staff report, this was consistent with the community benefits and mitigation measures outlined in the SUMC Development Agreement. On September 24, 2012, the City Council 13 March 05, 2012 - Action Minutes 10 Attachment A. Santa Clara County Grand Jury Report authorized an additional $286,000.00 from the SUMC Development Agreement funds to be spent on this proposal. Meanwhile, significant public opposition to the 27 University Avenue proposals had arisen. Several emailed Public Records Requests (PRRs) that had been sent to the City regarding these proposals remained unanswered for several more months. However, the City did respond promptly to a PRR by the Palo Alto Weekly (Weekly) regarding these proposals. Articles and editorials in the Weekly highlighted the lack of transparency regarding these significant proposals. According to the City’s own records, other PRRs regarding these proposals remained unanswered as of November 5, 2013. Public opposition was focused on the controversial nature of these proposals – the scale, the proposed building heights, potential traffic impacts, et cetera. Residents felt frustrated by the inability to get sufficient information or good explanations regarding what discussions had taken place among the developer, city staff, and City Council members between September 2011 and March 2012. Although staff reports dated March 5, 2012, and thereafter provided explanations of what had been proposed, the City did not always respond in a timely manner to PRRs from the public regarding the proposals. Interactions between City council members and the developer were conducted without public knowledge until March 2012. The opposition to the proposal to develop 27 University Avenue became so intense that the City Council effectively dropped it from consideration in December 2013. The Grand Jury notes that at the time the City Council allocated the SUMC funds, no formal land use application by the developer had been filed. Such a large expenditure of public funds and staff time for a design study linked to development of 27 University Avenue, for which no land use application had been filed, raises questions about the wisdom of spending the SUMC funds in this manner. Given that the money was allocated toward the design and study of 27 University Avenue and surrounding areas, it is unknown if the results are useful if the 27 University Avenue proposal never goes forward. Public Records Requests (PRRs) As discussed above, the CPRA provides public access to any document that is a public record. Upon request, the government agency must respond to the request for a public record unless there is a specific statutory exemption. There is no time limit per se in which the documents must be delivered to the requester but a response is required within 10 days. An additional 14 days may be requested if the request meets certain criteria. 11 Attachment A. Santa Clara County Grand Jury Report Palo Alto's P&P 1-43/CLK supplements the CPRA. According to the P&P, it is the City's policy to “facilitate an efficient and timely response to all requests for access to, or copies of, public information within reasonable limitations imposed by workload and pursuant to the Public Records Act...” However, the Grand Jury learned through its investigation that the city staff’s compliance with the CPRA and the City’s written procedures is not consistent. In Palo Alto, PRRs are made in at least three ways: by telephone, by going to City Hall to request the records verbally or in writing at “the counter,” or by letter or email. The Grand Jury limited its investigation to PRRs made by letter or email in evaluating the city's compliance with the CPRA and the City's P&P. Currently, the majority of written requests are made via email. The City's procedure for providing public records allows employees to fulfill routine requests (i.e., easily accessible documents.) The Department head is responsible with ensuring that routine requests are fulfilled within the required time frame. The P&P also allows his/her discretion in determining whether to keep a copy of the routine request and response. Under the policy, if a request is for non-routine records, or involves more than one department, a Request Form should be filled out and delivered to the City Manager, who copies the City Clerk, assigns a lead department and determines whether the City Attorney should be contacted. The request will be forwarded to the Department Director for follow-up and the City Manager will insure compliance. The City Clerk is responsible for notifying the respective department regarding the ten-day response requirement. The Grand Jury reviewed numerous copies of PRRs sent to several City officials, including members of the City Council. Responses, even after repeated requests, remained unanswered for several months, or were not responded to at all. In one case, in a follow up request, a response to the PRR was received only after the City was cited sections of the CPRA. The City could not explain why it failed to respond to these multiple PRRs. The Grand Jury requested a log of all PRRs for the years 2011-2013. In response, the City created a log from its documents reflecting the name of the requestor; date of the PRR; and the completion date of the City’s response for the Grand Jury. 14 The Grand Jury's review of the newly created log clearly showed that many PRRs had no response date at all. Thus, the Grand Jury is unable to ascertain from the log if the City responded timely or at all. With respect to some entries on the log, the Grand Jury’s own investigation was able to confirm that no response was ever given. 14 Currently, the City's P & P only requires that a master file be kept of non-routine requests. 12 Attachment A. Santa Clara County Grand Jury Report The completeness of the newly created log was also questioned. The Grand Jury reviewed copies of multiple PRRs that were not on the log nor responded to. The Grand Jury conducted its own test of the City's compliance with the CPRA. It submitted two requests for documents to the City Clerk (Clerk). One request was sent via email and the other by US mail. Both requests were submitted on September 11, 2013. The US mail request for documents did not identify the requester as a Grand Jury member and requested the City's P&P regarding the sale of City owned surplus land. This was a routine request, to which the City responded within the statutory ten-day limit. The other request identified the requester as a Grand Juror, cited the CPRA, and also sought a copy of the City's P&P addressing the City process for declaring City owned land to be surplus. The Grand Jury believes this document was a routine request. The City did not respond to the email request in ten days. On September 29, 2013, the requester sent a follow up request. Finally, the Grand Jury received the response on October 1, 2013, a full nineteen days after the initial request. The Grand Jury learned that it is the Clerk's practice to remind departments if a PRR was not responded to in a timely manner, but that the Clerk has no authority to enforce compliance by other departments. On some occasions, despite follow up reminders by the Clerk, the responsible department(s) never did respond to PRRs. Further, the Grand Jury was provided no evidence that the Clerk sends follow up reminders on outstanding PRRs unless the requester kept following up with the Clerk. Conclusions The State of California has specific provisions in the Government Code and the City has developed its own P&P designed to provide the public a sense of assurance of governmental transparency and consistency. In fact, the City has prided itself, publicly and repeatedly, on the transparency of its government operations as evidenced in the Mayor’s Monthly Newsletter that begins with the statement “Open government means transparency and accountability to citizens.” Nevertheless, the Grand Jury has found that the City has failed to meet expectations of transparency with respect to the following: The lease and use of the Lee Gift Deed Property that had been given to the City to be used for “conservation, including park and recreation purposes.” Despite this restriction, the City leased the property to an adjacent landowner for approximately nine years, including holdovers, and allowed the lessee to use the property for construction staging; 13 Attachment A. Santa Clara County Grand Jury Report The City held a closed session meeting to discuss the adjacent landowner/developer’s offer to buy the Lee Gift Deed Property. At that time, the Lee Gift Deed Property had not been determined to be surplus and therefore could not be legally sold; The City’s failure to engage the public in initial discussions pertaining to the 27 University Avenue proposal and the allocation of SUMC funds; and The City’s failure to consistently respond to requests for public records in a timely manner and operational deficiencies for tracking PRRs and responses. Findings and Recommendations Finding 1 From 1996 to 2005, the City of Palo Alto leased the Lee Gift Deed Property to an adjacent landowner for construction staging even though the property was required to be used for conservation, including parks and recreation. Recommendation 1 The City of Palo Alto should adhere to use restrictions of all property donated to the City. Finding 2 The City of Palo Alto leased the Lee Gift Deed Property without following its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property. Recommendation 2 The City of Palo Alto should follow its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property when leasing City-Owned Real Property. Finding 3 On September 18, 2012, the City of Palo Alto held a closed session meeting, under the real-estate negotiation exception to the Brown Act, to discuss price and terms of the sale of the Lee Gift Deed Property. Prior to the meeting, the public was not aware that the City was considering the sale of the Lee Gift Deed Property and had no opportunity for public debate on the future use or sale of the property. 14 Attachment A. Santa Clara County Grand Jury Report Recommendation 3 The City of Palo Alto should seek public input about the disposition of surplus City-owned land before the City Council meets to discuss that property. Finding 4a The City of Palo Alto had not complied with its own Policy and Procedure 1- 48/ASD regarding the sale/transfer of surplus City-owned property when it discussed, in closed session, the price and terms of an offer to purchase the Lee Gift Deed Property. Finding 4b At the time of the closed session the Lee Gift Deed Property could not be sold because of the deed restriction and because it had not yet been declared surplus. Recommendation 4 The City of Palo Alto should always comply with its own Policy and Procedure 1- 48/ASD regarding the Sale/Transfer of Surplus City-Owned Real Property. Finding 5a The March 5, 2012, City Council meeting was the first time the public was made aware of a proposal to develop 27 University Avenue. Finding 5b The City of Palo Alto approved expenditure of Stanford University Medical Center funds for the 27 University Avenue proposal before the public had the opportunity for public debate on the proposal. Recommendation 5 The City of Palo Alto should obtain early input from its constituency about significant development proposals before allocating City funds to the proposals. Finding 6 The City of Palo Alto does not consistently respond to requests for public records in a timely manner. 15 Attachment A. Santa Clara County Grand Jury Report Recommendation 6 The City of Palo Alto should consistently respond to requests for public records in a timely manner. Finding 7 The City of Palo Alto’s current system for tracking and documenting non-routine PRR and the City’s response to the request fails to capture all requests or responses. Recommendation 7 The City of Palo Alto should re-examine its system for handling non-routine PRR to ensure that it has a mechanism to evaluate compliance with the CPRA and its own P&P. 16 Attachment A. Santa Clara County Grand Jury Report APPENDIX Documents Reviewed Assessor’s Parcel Maps of APN 182-46-006 (7.7 acres of land adjacent to Foothills Park) and APN 120-31-010 (27 University Avenue) California Government Code §54222 et seq.15 The California Public Records Act, California Government Code §6250 et seq. The City of Palo Alto City Council Procedures and Protocols Handbook The City of Palo Alto’s Policy and Procedures 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property The City of Palo Alto’s Policy and Procedures 1-43/CLK, effective September 2004, regarding Public Records Requests The City of Palo Alto’s Policy and Procedures 1-48/ASD regarding Sale/Transfer of Surplus City-Owned Real Property The City of Palo Alto’s response to a Grand Jury request for a log of all public records requests from 2011-2013 Documents from the City of Palo Alto website, including agendas, minutes, and staff reports, associated with the 7.7 acres near Foothills Park Documents from the City of Palo Alto website, including agendas, minutes, and staff reports associated with the proposed development of 27 University Avenue The Gift Deed of 7.7 acres near Foothills Park from the Lee Family to the City of Palo Alto In excess of 300 pages of emails, newspaper clippings, letters, and staff reports submitted by two of the complainants The lease agreements of the 7.7 acres near Foothills Park Photos of the 7.7 acres near Foothills Park Portions of the Palo Alto City Charter 15 California law relating to the sale of public land 17 Attachment A. Santa Clara County Grand Jury Report Portions of the Palo Alto Municipal Code The Ralph M. Brown Act, California Government Code. §54950 et seq. The responses from the City of Palo Alto to Public Records Act requests from Grand Jury members The Stanford University Medical Center (SUMC) Development Agreement with the City of Palo Alto Several architectural plans and renderings of 27 University Avenue proposal(s) Written responses by City of Palo Alto staff to written questions proposed by the Grand Jury 18 Attachment A. Santa Clara County Grand Jury Report h This report was PASSED and ADOPTED with a concurrence of at least 12 grand jurors on this 161 day of June, 2014. Foreperson Michael M. L Foreperson pro tem An1ta A. Robles Secretary ffkJ!kn Wilma Faye nderwood Secretary Attachment B City of Palo Alto’s Response to the Civil Grand Jury Report on Reduced Transparency and Inhibited Public Input on Important Land Issues Finding 1 From 1996 to 2005, the City of Palo Alto leased the Lee Gift Deed Property to an adjacent landowner for construction staging even though the property was required to be used for conservation, including parks and recreation. RESPONSE: The City agrees with the finding. The City notes that the officials and employees who took these actions have long since left the City’s service. Recommendation 1 The City of Palo Alto should adhere to use restrictions of all property donated to the City. RESPONSE: The City has implemented the recommendation. The City’s Real Estate Division has reviewed use restrictions on donated property for consistency with current uses. Finding 2 The City of Palo Alto leased the Lee Gift Deed Property without following its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property. RESPONSE: The City agrees in part with the finding. This pertains to decisions made many years ago. Local law allows the City Manager to enter into leases up to three years. (Palo Alto Municipal Code Section 2.30.210(h). Consistent with the Municipal Code, Policy & Procedure 1-11/ASD states that it does not apply to short term leases. The initial lease of the Lee Gift Deed Property – which was signed by a prior City Manager nearly 15 years ago – was a short-term lease. While it is true that the lease did not comply with P&P 1- 11/ASD, it is also true that under the Municipal Code and P&P 1-11/ASD, it was not required to do so. The lease, however, was allowed to hold over beyond the authority of the prior City Manager. At that point, both the Municipal Code and P&P 1-11/ASD required additional process, which did not occur. Recommendation 2 The City of Palo Alto should follow its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property when leasing City-owned Real Property. RESPONSE: The City has implemented the recommendation. The City’s Real Estate Division has reviewed short-term leases to ensure consistency with the City Manager’s authority and the Municipal Code and P&P 1-11. Long-term leases are entered into in a manner that is consistent with P&P 1- 11/ASD. Finding 3 On September 18, 2012, the City of Palo Alto held a closed session meeting, under the real- estate negotiation exception to the Brown Act, to discuss price and terms of the sale of the Lee Gift Deed Property. Prior to the meeting, the public was not aware that the City was considering the sale of the Lee Gift Deed Property and had no opportunity for public debate on the future use or sale of the property. RESPONSE: The City agrees in part with the finding. Real property in Palo Alto is a valuable asset. It is not often that the City sells or even seriously contemplates selling any of its real property assets. On the occasions when it does so, property may be designated for sale after a survey that identifies the property as appropriate for sale through the process described in P&P 1-48. But this is not the exclusive way in which a property may initially be brought to City staff’s attention for potential sale. From time to time, a third party (which may be a private individual, company, non-profit, educational institution or other governmental entity) may approach the City to initiate discussions about a real property transaction. In those situations, the City may preliminarily consider a specific offer as part of determining whether to formally initiate the sale process as described in P&P 1-48. When credible unsolicited offers are made for the purchase of City-owned property, City staff has an obligation and a responsibility to bring those forward to Council for consideration. City staff initiated the closed session on September 18, 2012, to inform and receive direction from the Council regarding an unsolicited proposal by Mr. Arrillaga to purchase the Lee Gift Deed Property for a specific price. When Mr. Arrillaga made this proposal, it was not the first time that he had proposed to acquire the Lee Gift Deed Property. Although the parcel is in a remote location and in the 2011-2012 timeframe was not familiar to current City staff or Council Members, Mr. Arrillaga in fact had a long history of attempting to acquire the parcel. He was the neighboring landowner, and between 1983 and 1996 had exclusive use and access to the parcel as the owner of the estate initially reserved by the Lee family and then sold to Arrillaga. As noted above, Mr. Arrillaga ccontinued to lease the property for almost 9 years from the City. Throughout the years, the City of Palo Alto had responded to Mr. Arrillaga’s periodic questions about acquiring the parcel. Beginning in late 2011, Mr. Arrillaga again began asking City staff about acquiring long-term access to the parcel, either through a long-term lease or purchase. Staff intermittently answered his questions about the procedures that would be required for long-term lease or purchase, including Council action, an open public process, surplus property designation, significant consideration and the ongoing need to comply with the deed restriction. Anticipating the need to provide information to the Council, staff ordered an appraisal of the property, which was completed in May 2012 and came in at $175,000. The City conducted an initial closed session on June 4, 2012. The staff informed Mr. Arrillaga that it was not conceivable that the Council would consider selling the parcel at that price, and that additional/offsetting parkland may need to be a factor to even be considered and that possibility uncertain. The City later received a general proposal for funding and construction of playing fields at the Baylands. The City also received a proposal to purchase the Lee Gift Deed Property for $175,000. City staff had a responsibility to bring the purchase offer to the Council for preliminary direction and did so on September 18, 2012. Following the Closed Session and Council tours of the property, neither City staff nor the Council elected to move forward to consider the sale of the property by placing an item on the Council’s open session agenda. Recommendation 3 The City of Palo Alto should seek public input about the disposition of surplus City-owned land before the City Council meets to discuss that property. RESPONSE: The City has implemented the recommendation as described here. The City has implemented procedures to ensure public debate about disposition of real property well before transactions are finalized, and also understands that greater attention must be paid to open public process early in any potential transaction. At the same time, a recommendation to always seek public input before meeting lawfully in private to discuss a parcel of City-owned real property exceeds the requirements of local and state law and should not be implemented in a manner that may injure the public interest. City law and policy do not dictate a uniform order of steps for initial consideration of complex real property transactions. State law provides some flexibility as well. Consistent with City law and policy and state law, the City’s staff should retain leeway to use their professional judgment as to the order and timing of the various steps in order to best meet the public interest. While the City should and will place increased emphasis on transparency, it must remain free to balance that interest and the public interest in effective negotiations. Accordingly, Recommendation 3 will be implemented in a manner that it is consistent with the public interest. Finding 4a The City of Palo Alto had not complied with its own Policy and Procedure 1-48/ASD regarding the sale/transfer of surplus City-owned property when it discussed, in closed session, the price and terms of an offer to purchase the Lee Gift Deed Property. RESPONSE: The City agrees with this finding. As of September 18, 2012, the City had not implemented the procedures in P&P 1-48/ASD with respect to the Lee Gift Deed Property. In addition, the prior history related to the Lee Gift Deed, dating back many years before but never implemented, only became clear as part of research into the property by current staff, in response to Mr. Arrillaga’s more recent interest. City staff have always been clear to all parties, including Mr. Arrillaga and the Council, that to pursue a sale of the property, the City would have had to comply with the procedures set forth in P&P 1-48. Finding 4b At the time of the closed session the Lee Gift Deed Property could not be sold because of the deed restriction and because it had not yet been declared surplus. RESPONSE: The City agrees in part and disagrees in part with this finding. Properties that are subject to deed restrictions are bought and sold with frequency. The deed restriction on the Lee Gift Deed Property did not require that the property remain in City ownership. It required only that the property be used for conservation purposes, including parks and recreation. A private party, non-profit entity or other governmental entity could comply with this deed restriction. There are many such parcels of land throughout the Bay Area and the state. Thus the deed restriction did not prevent the City from selling the property. The new owner would have been obligated to meet the deed restriction. If the City had decided to sell the property, it would have followed the procedures to declare the property surplus. Because there was no interest in selling the property, these procedures were not pursued. Recommendation 4 The City of Palo Alto should always comply with its own Policy and Procedure 1-48/ASD regarding the sale/transfer of surplus City-owned real property. RESPONSE: The City has implemented this recommendation. The City has not sold any properties without following its procedures regarding the sale of surplus properties. The City has not sold any of its interest in the Lee Gift Deed Property. In fact, on August 18, 2014, the City Council approved an ordinance dedicating the Lee Gift Deed Property as parkland, and declaring it a part of Foothills Park. The Parks and Recreation Commission is considering best uses for the property, consistent with its status as parkland and the deed restriction. Finding 5a The March 5, 2012, City Council meeting was the first time the public was made aware of a proposal to develop 27 University Ave. RESPONSE: The City agrees with this finding. The property at 27 University Avenue is an important parcel that serves a gateway to the City’s downtown, as well as a transition to El Camino Real and Stanford University. The parcel is the site of complex transit connections. It has been the subject of numerous attempts over many years to develop comprehensive planning solutions, including the work of the Dream Team beginning in the 1990’s. Developer John Arrillaga renewed those efforts beginning in 2011 and 2012. The City has already acknowledged that the public process around this round of planning for 27 University Ave could have been better, with the early start to this project flawed, despite good intentions. The City’s intention was always to try to guide the preliminary concept in a better direction. While the concept as initially described by Mr. Arrillaga was focused on new office buildings, the city saw the opportunity to begin a master plan and redesign of the transit center and road network at this gateway entrance to the City. There was also the potential to explore the addition of a major public benefit through a regional community theater. The Grand Jury report acknowledges the unique nature of this project: “the developer’s proposals represented an unprecedented opportunity to address major traffic problems at an intersection where little change has taken place for many years, despite decades of planning attempts.” The City’s efforts were directed toward shaping the proposed concept into an improved design in order for the public to have a concrete concept on which to comment. Finding 5b The City of Palo Also approved expenditure of Stanford University Medical Center funds for the 27 University Avenue proposal before the public had the opportunity for public debate on the proposal. RESPONSE: The City agrees in part with this finding and disagrees in part. The Stanford University Medical Center funds were specifically designated to be used to develop pedestrian and bicycle connectivity projects between the intermodal transit center and the existing intersection at El Camino Real and Quarry Road. The City agrees that the first allocation of these funds occurred with only general details about a proposal from John Arrillaga, for which these funds were intended to be used to allow the City to steer a potential design into alignment with urban design goals for any potential project. (March 5, 2012). The City disagrees in that the second allocation of funding (which included funding from the Intermodal Transit Funds and from the Stanford Infrastructure Funds, with Stanford concurrence) took place on September 24, 2012, following Council discussion and action on the massing concepts for 27 University, letter of intent with TheatreWorks, and preparation of potential advisory ballot measure for Council consideration. Recommendation 5 The City of Palo Alto should obtain early input from its constituency about significant development proposals before allocating City funds to the proposals. RESPONSE: The City has implemented this recommendation, as described here. Early input from constituents is critically important. City staff is placing an increased emphasis on early and effective public engagement in planning efforts. At the same time, it is sometimes true that complex concepts require preparation in order for the public to have significant substantive material to react to and provide input on. This may require staff and consultant time for preparation. Finding 6 The City of Palo Alto does not consistently respond to requests for public records in a timely manner. RESPONSE: If the finding intends to state that the City’s public records practices are not perfect in every case and could be improved, the City agrees. If the finding intends to state that the City’s practices fall outside reasonable, customary and even best practices in this arena, the City disagrees. The City receives many requests for routine information every single day and does a good job of responding promptly to the public. Formal requests under the Public Records Act come from many different points across the City organization. For formal Public Records Requests, we recently have added an FAQ and a request form to the Public Records Request webpage that can be submitted online to better track requests. The City also receives Public Records Requests via email, traditional mail and orally, which often need to be coordinated internally to ensure appropriate departments are responding. The City strives to provide an initial response to Public Records Requests within ten days and generally meets this standard. Recommendation 6 The City of Palo Alto should consistently respond to requests for public records in a timely manner. RESPONSE: The City has implemented this recommendation. In addition to the FAQ and online form that have been implemented to increase coordination and accountability, the City is exploring additional software solutions to automate tracking and responses to Public Records Requests. Additional training for City staff is also being planned. Finding 7 The City of Palo Alto’s current system for tracking and documenting non-routine PRR and the City’s response to the request fails to capture all requests or responses. RESPONSE: The City agrees with this finding. While the City’s system does a reasonably good job of capturing most requests and responses, the City agrees that its current system does not capture all requests and responses and could be improved. The City is evaluating additional software solutions in this area. Recommendation 7 The City of Palo Alto should re-examine its system for handling non-routine PRR to ensure that it has a mechanism to evaluate compliance with the CPRA and its own P&P. RESPONSE: The City is implementing this recommendation. The City is in the process of evaluating software systems to better track requests, assist in streamlining and coordinating responses, prompt timely responses, and support the efforts of City staff to comply with the Public Records Act. Attachment C. Palo Alto Municipal Code Section 2.30.21.0 2.30.210 City manager contract award authority. The city manager may award and sign the following contracts: (h) Contracts to rent, lease, or license city property to other parties. The authority granted under this section is distinct from the authority of the director of community services to grant individuals and groups permits for the exclusive use of buildings, facilities and areas of city parks and open spaces described in Title 22 of this code. The city manager may award and sign contracts to rent, lease or license city property to other parties regardless of the price for a term not exceeding three years. Notwithstanding the preceding sentence, the city manager may enter into and sign contracts to rent, lease or license property at the Cubberley site for terms up to five years. (Ord. 4827 § 1 (part), 2004) POLICY AND PROCEDURES 1-11/ASD Revised: October 2006 LEASED USE OF CITY LAND/FACILITIES POLICY STATEMENT The purpose of this policy is to ensure that decisions regarding use of City real property are made in the best interests of the citizens and taxpayers of Palo Alto. The development and operation of facilities by others (profit and/or non-profit entities) on City-owned property is appropriate only when such development and operation will further public use or provide a public benefit. Such facilities and operations must be consistent with existing City policies, plans, services and/or procedures. Open competitive and/or bid processes will be used to solicit proposals or provide opportunities to others prior to awarding an Option to Lease. This policy shall not apply to short-term interim leases where no significant change in use is proposed PROCEDURE A. Criteria for Permitting Leased Use of City Property by Others The proposed leased use must be compatible with, incidental to, and/or supportive of, the primary public use of the City-owned property, e.g. a snack stand in a district park, or the pro shop and coffee shop at the Golf Course. In the event of park dedicated land, the proposed use shall be consistent with the provisions set forth in the Charter of the City of Palo Alto, Article VIII, and the Palo Alto Municipal Code (PAMC), Sections 22.04 and 22.08 et. seq., which require that uses of park dedicated land be park, playground, recreation or conservation related uses. B. Option to Lease In all cases where there are significant approval requirements (significant tenant construction and/or rehabilitation), financing requirements (fundraising drives, obtaining financing from lending institutions, etc.), or other tenant pre-operation conditions, the Council shall award an Option to Lease setting forth all pre-construction/operation conditions as conditions to the tenant's obtaining the lease. The option term shall be for a reasonable period of time consistent with the nature of the conditions of the option. Prior to awarding an Option to Lease for a specific use, consideration shall be given to particular information. (Specific application and the relative importance of each of the following considerations will vary from site to site and by specific uses proposed.) Applications for leased use shall provide the following information: 1. The extent to which the proposed leased use satisfies a public need (e.g., by a significant number of Palo Alto residents and taxpayers) for the proposed services and/or uses. Page 1 of 4 POLICY AND PROCEDURES 1-11/ASD Revised: October 2006 2. Consistency of the proposed use with existing City goals and objectives (set forth in the Comprehensive Plan, Zoning Ordinance, Municipal Code, and general municipal services objectives). 3. Consistency of the proposed use with existing plans for the property or facility (e.g., an approved Master Plan). 4. The impact of the proposed use (compatible services and uses, traffic impacts, noise impacts, energy conservation, etc.) upon: a. the immediate neighborhood; b. the community generally; and c. the environment (The proposed tenant shall, during the Option period, satisfy the City's environmental review process.) 5. The degree of public access, including City shared use of the facility or co- sponsorship of programs and/or services, i.e. the numbers of people, especially Palo Alto residents and taxpayers, that will be served by the proposed use and/or service. (It is the general intent of the City to maximize public access to its facilities and services, especially if park land is involved.) 6. The fees that will be charged to Palo Alto citizens. (It is the intent of the City to provide public access to its facilities at prices and/or fees that are fair and reasonable to the public. In the case of parklands, any fees and charges should be minimum and consistent with the fees and charges of comparable City-provided services.) 7. The monetary consideration to be provided to the City. 8. The history and assessment of the proposed group's ability to carry out the construction, if any, and operation of the facility and services as proposed. 9. A five-year pro-forma financial analysis of the proposed use, setting forth the project revenues and expenses for this period of time. Page 2 of 4 POLICY AND PROCEDURES 1-11/ASD Revised: October 2006 C. Public Notification 1. Prior to awarding an Option to Lease (or Lease if there are no pre-construction or pre-operation conditions), the City shall provide a reasonable and appropriate opportunity to other groups or entities to respond to possible use of City facilities. Such reasonable and appropriate opportunities shall take one of the following forms: a. A Notice of Intent to Award an Option to Lease (or Lease if there are no pre-construction or pre-operation conditions) generally outlining the conditions of the Option and Lease, shall be published twice in a local newspaper of general circulation. The Notice shall provide at least 30 days notice to the public prior to a public hearing for Council action to award the Option to Lease. In addition, copies of the notice shall be mailed to property owners and tenants within 300 feet of the subject property in accordance with Section 18.77.080(d) of the Palo Alto Municipal Code (PAMC). b. A Request for Proposals will be sent to groups or entities likely to have an interest in submitting a proposal, subsequent to a public hearing and Notice of Intent to Request Proposals being published in the appropriate media. At a minimum, the Notice of Request for Proposals shall be announced in a local newspaper of general circulation and copies of the notice mailed to property owners and tenants within 300 feet of the subject property in accordance with PAMC Section 18.77.080(d). The Notice shall provide at least 30 days notice to the public prior to the public hearing. 2. The City’s Real Estate Division shall be responsible for the public notification by mail and newspaper in accordance with either C(1)(a) or (b) above. D. Tenant Improvements 1. Construction of tenant improvements shall take place only after Council approval (as well as Planning Commission and Architectural Review Board approval when otherwise required by City procedures) of plans for such tenant proposed construction is obtained. In the event of park dedicated lands, Council approval shall be obtained by ordinance subject to referendum (PAMC Sections 22.08.005 and 22.08.006). 2. Generally, improvements to the real property shall become the property of the City upon termination of the Lease. Tenant-provided fixtures shall remain the property of the tenant. Page 3 of 4 POLICY AND PROCEDURES 1-11/ASD Revised: October 2006 E. Terms of the Lease 1. Tenant shall be required to provide the City with adequate compensation for the rights granted by the City to the Tenant. Determination of appropriate consideration shall begin with the estimated fair market rental value of the lease premises for the use proposed. Consideration shall, however, be given to non-monetary benefits to be provided by the tenant. These proposed non-monetary public benefits must be clearly articulated and must provide an actual benefit to a significant portion of the citizens and taxpayers of Palo Alto. 2. The lease term shall be the minimum period of the time required to: a. amortize tenant's investment in any permitted and approved tenant construction; and b. be consistent with the nature of the proposed tenant operation. NOTE: Questions and/or clarification of this policy should be directed to the Administrative Services Department Page 4 of 4 POLICY AND PROCEDURES 1-48/ASD Effective: October 2006 PROCEDURE FOR SALE/TRANSFER OF SURPLUS CITY-OWNED REAL PROPERTY POLICY STATEMENT It is the policy of the City of Palo Alto that the disposal of City real property be accomplished through a public bid process. The process involves notification of City departments and public agencies prior to the City Council declaring any property to be surplus. To assure the highest return for sale of its assets, the process involves an appraisal of fair market value and an open and competitive bid process. The City Council may reject any or all bids and accept that bid which will, in its opinion, best serve the public interest. PROCEDURE A. The Real Property Manager shall identify potential surplus City real property by: 1) Conducting periodic reviews of the Real Property Inventory; and/or 2) Notification from City departments which no longer have use for a particular property. B. Upon identifying a potential surplus real property, the Real Property Manager shall: 1. Notify City departments that the property may be available for their use, subject to Council approval as outlined below. 2. In accordance with Government Code Section 54222, notify public agencies of the property’s availability for sale. C. The Real Property Manager shall forward information about the property together with the responses from other departments and the public agencies referred to in #B2 above to the Council with a staff recommendation to: 1. Formally declare the real property surplus and instruct the Real Estate Division to dispose of the property using open bid procedures; or 2. Transfer control of the property to one or more other City departments; or 3. Negotiate an agreement with one of the public agencies referred to in #B2 above. POLICY AND PROCEDURES 1-48/ASD Effective: October 2006 D. Should the decision be to declare the property surplus and sell it by bid: 1. The Real Estate Division shall appraise (or have appraised) the property to determine a minimum bid. 2. The Real Estate Division shall prepare a “Bid Proposal Package” to be placed on the Council Consent Calendar for approval. 3. Upon approval by the Council, the Real Estate Division shall: a. Place an ad in the Real Estate Section of the local newspapers. b. Send flyers advising of the offering to all interested parties and persons on the Real Estate Division “Surplus Property Mailing List.” c. Send the Proposal Package to persons expressing further interest in the offering. 4. The bid opening shall be scheduled by the Real Property Manager and the Manager, Purchasing and Contract Administration. At the bid opening the Purchasing Division shall: b. Open Sealed Bids c. Accept oral bidding beginning at 5% above the highest written bid. 5. The Real Estate Division shall forward the results of the bidding to the Council with staff recommendation regarding an award of deed. 6. The City Council may reject any or all bids and accept that bid which will, in its opinion, best serve the public interest. Note: Questions and/or clarifications of this policy should be directed to the Administrative Services Department. Attachment B City of Palo Alto’s Response to the Civil Grand Jury Report on Reduced Transparency and Inhibited Public Input on Important Land Issues Finding 1 From 1996 to 2005, the City of Palo Alto leased the Lee Gift Deed Property to an adjacent landowner for construction staging even though the property was required to be used for conservation, including parks and recreation. RESPONSE to Finding 1: The City agrees with the finding. The City notes thatshould not have leased the parcel except for “conservation purposes, including parks and recreation.” The lease agreements were executed and administered under two prior administrations. The officials and employees who took these actions have long since left the City’s service. Recommendation 1 The City of Palo Alto should adhere to use restrictions of all property donated to the City. RESPONSE to Recommendation 1: The City has implemented the recommendation. The City’s Real Estate Division has reviewed use restrictions on donated property for consistency with current uses. The Council has directed staff to publish a list of land donated to the City, in a format that is easily accessible to the public. Finding 2 The City of Palo Alto leased the Lee Gift Deed Property without following its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property. RESPONSE to Finding 2: The City agrees in part with the finding. This pertains to decisions made many years ago. Local law allows the City Manager to enter into leases up to three years. (Palo Alto Municipal Code Section 2.30.210(h).).) Consistent with the Municipal Code, Policy & Procedure 1-11/ASD states that it does not apply to short term leases. The initial lease of the Lee Gift Deed Property – which was signed by a prior City Managercity manager nearly 15 years ago – was a short-term lease. While it is true that the lease didwas not required to comply with P&P 1- 11/ASD, it is also true that under the Municipal Code and P&P 1-11/ASD, it was not required to do so. The lease, however, was. A prior administration allowed the lease to hold over beyond the authority of the prior City Managergranted to the city manager in the Municipal Code. At that point, both the Municipal Code and P&P 1- 11/ASD required additional process, which did not occur. Recommendation 2 The City of Palo Alto should follow its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property when leasing City-owned Real Property. RESPONSE to Recommendation 2: The City has implemented the recommendation. Current City administration interprets existing City law and policy to require that Council approve leases that hold-over past the City Manager’s authority, and has adhered to this requirement. The City’s Real Estate Division has reviewed short-term leases to ensure consistency with the City Manager’s authority and the Municipal Code and P&P 1-11. Long-term leases are entered into in a manner that is consistent with P&P 1-11/ASD. Finding 3 On September 18, 2012, the City of Palo Alto held a closed session meeting, under the real- estate negotiation exception to the Brown Act, to discuss price and terms of the sale of the Lee Gift Deed Property. Prior to the meeting, the public was not aware that the City was considering the sale of the Lee Gift Deed Property and had no opportunity for public debate on the future use or sale of the property. RESPONSE to Finding 3: The City agrees in part with the finding. Real property in Palo Alto is a valuable asset. It is not often that the City sells or even seriously contemplates selling any of its real property assets. On the occasions when it does so, property may be designated for sale after a survey that identifies the property as appropriate for sale through the process described in P&P 1-48. But this is not the exclusive way in which a property may initially be brought to City staff’s attention for potential sale. FromIn addition, from time to time, a third party (which may be a private individual, company, non-profit, educational institution or other governmental entity) may approach the City to initiate discussions about a real property transaction. In those situations, the City may preliminarily consider a specific offer as part of determining whether to formally initiate the sale process as described in P&P 1-48. When credible unsolicited offers are made for the purchase of City-owned property, City staff has an obligation and a responsibility to bring those forward to Council for consideration. City staff initiated the closed session on September 18, 2012, to inform and receive direction from the Council regarding an unsolicited proposal by Mr. Arrillaga to purchase the Lee Gift Deed Property for a specific price. For the closed session on September 18, 2012, (and one on June 4, 2012), staff listed the property by the assessor’s parcel number, because the property does not have a street address. After the September 18th agenda was published but before the meeting occurred, the staff realized that more information would be helpful. On September 18th, before the closed session, the Mayor orally listed properties adjacent to the Lee Gift Deed Property. When Mr. Arrillaga made approached the staff in late 2011 about acquiring the Lee Gift Deed Property, staff research revealed that this proposal, it was not the first time that heMr. Arrillaga had proposed to acquire the Lee Gift Deed Property.land. Although the parcel is in a remote location and in theprior to late 2011-2012 timeframe was not familiar to current City staff or Council Members, Mr. Arrillaga in fact had a long history of attempting to acquire the parcel. He was the neighboring landowner, and between 1983 and 1996 had exclusive use and access to the parcel as the ownercontrol of the property because the Lees had sold him the estate initiallythat they had reserved byon the Lee familyparcel, including the exclusive right of access and then sold to Arrillaga. Asuse. After 1996, as noted above, Mr. Arrillaga ccontinuedcontinued to lease the property for almost 9 years from the City. Throughout the years, the City of Palo Alto had responded to Mr. Arrillaga’s periodic questions about the process for acquiring the parcel. Beginning in late 2011, Mr. Arrillaga again began asking City staff about acquiring long-term access to the parcel, either through a long-term lease or purchase. Staff intermittently answered his questions about the procedures that would be required for long-term lease or purchase, including Council action, an open public process, surplus property designation, significant consideration and the ongoing need to comply with the deed restriction. Anticipating the need to provide information to the Council, staff ordered an appraisal of the property, which was completed in May 2012 and came in at $175,000. The City conducted an initial closed session on June 4, 2012. The staff informed Mr. Arrillaga that it was not conceivable that the Council would consider selling the parcel at that price, and that additional/offsetting parkland may need to be a factor to even be considered and that possibility uncertain. The City later received a general proposal for funding and construction of playing fields at the Baylands. The City also received a proposal to purchase the Lee Gift Deed Property for $175,000. City staff had a responsibility to bring the purchase offer to the Council for preliminary direction and did so on September 18, 2012. (As described below, the Council has referred to its Policy & Services Committee a review of Policy & Procedure 1-48, which may include guidance regarding whether future such meetings should occur in open or closed session.) Following the Closed Session and Council tours of the property, neither City staff nor the Council elected to move forward to consider the sale of the property by placing an item on the Council’s open session agenda. On August 18, 2014, the City Council approved an ordinance dedicating the Lee Gift Deed Property as parkland, and declaring it a part of Foothills Park. The Parks and Recreation Commission is considering best uses for the property, consistent with its status as parkland and the deed restriction. Recommendation 3 The City of Palo Alto should seek public input about the disposition of surplus City-owned land before the City Council meets to discuss that property. RESPONSE to Recommendation 3: The City has implemented the recommendation as described here. The City . First, the Council has implementeddirected that all real property closed session agendas include sufficient user- friendly descriptions of the subject property so that the public can identify and locate the property, and provide input to the Council before any closed session. Second, the City’s existing procedures to ensure public debate about disposition of real property well before transactions are finalized, and also understands that greater attention must be paid to open public process early in any potential transaction. At the same time, a recommendation to always seek public input notice and involvement before meeting lawfully in private to discuss a parcel of City-owned real property exceeds the requirements of local and state law and is sold. In addition, the Council has determined that City policy should not be implemented in a manner that may injure the public interestbe reviewed and revised to provide additional clarity on how staff should handle unsolicited purchase offers and when closed sessions should be scheduled. City law and policy do not dictate a uniform order of steps for initial consideration of complex real property transactions. State law provides some flexibility as well. Consistent with City law and policy and state law, the City’s staff should retain leeway to use their professional judgment as to the order and timing of the various steps in order to best meet the public interest. While the City should and will place increased emphasis on transparency, it must remain free to balance that interest and the public interest in effective negotiations. Accordingly, Recommendation 3 will be implemented in a manner that it is consistent with the public interest. Finding 4a The City of Palo Alto had not complied with its own Policy and Procedure 1-48/ASD regarding the sale/transfer of surplus City-owned property when it discussed, in closed session, the price and terms of an offer to purchase the Lee Gift Deed Property. RESPONSE to Finding 4a: The City agrees with this finding. As of September 18, 2012, the City had not implementedyet initiated the procedures in P&P 1-48/ASD with respect to the Lee Gift Deed Property. In addition, the prior history related to the Lee Gift Deed, dating back many years before but never implemented, only became clear as part of research into the property by current staff, in response to Mr. Arrillaga’s more recent interest. City staff have always been clear to all parties, including Mr. Arrillaga and the Council, that to pursue a sale of the property, the City would have had to comply with the procedures set forth in P&P 1-48. Finding 4b At the time of the closed session the Lee Gift Deed Property could not be sold because of the deed restriction and because it had not yet been declared surplus. RESPONSE to Finding 4b: The City agrees in part and disagrees in part with this finding. Properties that are subject to deed restrictions are bought and sold with frequency. The deed restriction on the Lee Gift Deed Property did not require that the property remain in City ownership. It required only that the property be used for conservation purposes, including parks and recreation. A private party, non-profit entity or other governmental entity could comply with this deed restriction. There are many such parcels of land throughout the Bay Area and the state. Thus the deed restriction did not prevent the City from selling the property. The new owner would have been obligated to meet the deed restriction. If the City had decided to sell the property, it would have followed the procedures to declare the property surplus. Because there was no interest in selling the property, these procedures were not pursued. Recommendation 4 The City of Palo Alto should always comply with its own Policy and Procedure 1-48/ASD regarding the sale/transfer of surplus City-owned real property. RESPONSE to Recommendation 4: The City has implemented this recommendation. The City has not sold any properties without following its procedures regarding the sale of surplus properties. The City has not sold any of its interest in the Lee Gift Deed Property. In fact, on August 18, 2014, the City Council approved an ordinance dedicating the Lee Gift Deed Property as parkland, and declaring it a part of Foothills Park. The Parks and Recreation Commission is considering best uses for the property, consistent with its status as parkland and the deed restriction. The City will implement this recommendation. The Council has tasked its Policy & Services Committee with reviewing city policies on sale of real property and revising the policies to provide additional guidance and clarity regarding unsolicited offers and the use and timing of closed sessions. Finding 5a The March 5, 2012, City Council meeting was the first time the public was made aware of a proposal to develop 27 University Ave. RESPONSE to Finding 5a: The City agrees with this finding. The property at 27 University Avenue is an important parcel that serves a gateway to the City’s downtown, as well as a transition to El Camino Real and Stanford University. The parcel is the site of complex transit connections. It has been the subject of numerous attempts over many years to develop comprehensive planning solutions, including the work of the Dream Team beginning in the 1990’s. Developer John Arrillaga renewed those efforts beginning in 2011 and 2012. The City has already acknowledged that the public process around this round of planning for 27 University Ave couldshould have been better, with the early start to this project flawed, despite good intentions. The City’s intention was always to try to guide the preliminary concept in a better direction. While the concept as initially described by Mr. Arrillaga was focused on new office buildings, the city saw the opportunity to begin a master plan and redesign of the transit center and road network at this gateway entrance to the City. There was also the potential to explore the addition of a major public benefit through a regional community theater. The Grand Jury report acknowledges the unique nature of this project: “the developer’s proposals represented an unprecedented opportunity to address major traffic problems at an intersection where little change has taken place for many years, despite decades of planning attempts.” The City’s efforts were directed toward shaping the proposed concept into an improved design in order for the public to have a concrete concept on which to comment. Finding 5b The City of Palo Also approved expenditure of Stanford University Medical Center funds for the 27 University Avenue proposal before the public had the opportunity for public debate on the proposal. RESPONSE to Finding 5b: The City agrees in part with this finding and disagrees in part. The Stanford University Medical Center funds were specifically designated to be used to develop pedestrian and bicycle connectivity projects between the intermodal transit center and the existing intersection at El Camino Real and Quarry Road. The City agrees that the first allocation of these funds at a Council meeting on March 5, 2012, occurred with only general details about a proposal from John Arrillaga, for which these. The funds that were allocated on March 5th were intended to be used to allow the City to steer a potential design into alignment with urban design goals for any potential project. (March 5, 2012). The City disagrees in that the second allocation of funding (which included funding from the Intermodal Transit Funds and from the Stanford Infrastructure Funds, with Stanford concurrence) took place at a Council meeting on September 24, 2012, following Council discussion and action on the massing concepts for 27 University, a letter of intent with TheatreWorks, and preparation of a potential advisory ballot measure for Council consideration. The funds that were allocated on September 24th were drawn from the Intermodal Transit Funds and from the Stanford Infrastructure Funds, with Stanford concurrence. Recommendation 5 The City of Palo Alto should obtain early input from its constituency about significant development proposals before allocating City funds to the proposals. RESPONSE to Recommendation 5: The City has implemented this recommendation, as described here.. Early input from constituents is critically important. City staff is placing an increased emphasis on early and effective public engagement in planning efforts. At the same time, it is sometimes true that complex conceptsWhile complex planning concepts sometimes require preparation in order for the public to have significant substantive material to react to and provide input on. This (which may require staff and consultant time for preparation), over the past year, Council and City staff have made substantial efforts to involve the public earlier and in a more vigorous way in planning matters. The Council has referred to its Policy & Services Committee a proposed policy that any major zone change must come to Council for a public pre-screening. Finding 6 The City of Palo Alto does not consistently respond to requests for public records in a timely manner. RESPONSE to Finding 6: If the finding intends to state The City agrees that the City’s it has not satisfied every public recordsrecord request in the optimal timeframe, though its practices are not perfect in every case and could be improved, the City agrees. If the finding intends to state that the City’s practices fall outsidewithin reasonable, and customary and even best practicesstandards for similar cities in this arena, the City disagrees. region. The City receives many requests for routine information every single day and does a good job of responding promptly to the public. Formal requests under the Public Records Act come into the City from many different points across the City organization. For formal Public Records Requests, we recently have added an FAQ and a request form to the Public Records Request webpage that can be submitted online to better track requests. The City also receives Public Records Requests via email, traditional mail and orally, which often need to be coordinated internally to ensure appropriate departments are responding. The City strives to provide an initial response to Public Records Requests within ten days and generally meets this standard. Recommendation 6 The City of Palo Alto should consistently respond to requests for public records in a timely manner. RESPONSE to Recommendation 6: The City has implementedis implementing this recommendation. In addition to the FAQ and online form that have been implemented to increase coordination and accountability, the City is exploringwill provide additional software solutions to automate tracking and responses to Public Records Requests. Additional training for City staff is also being planned. Finding 7 The City of Palo Alto’s current system for tracking and documenting non-routine PRR and the City’s response to the request fails to capture all requests or responses. City’s response to the request fails to capture all requests or responses. RESPONSE to Finding 7: The City agrees with this finding. While the City’s system does a reasonably good job of capturing most requests and responses, the City agrees that its current system does not capture all requests and responses, and that the system could be improved. The City is evaluating additionalwill provide software solutions in this area and increase staff training. Recommendation 7 The City of Palo Alto should re-examine its system for handling non-routine PRR to ensure that it has a mechanism to evaluate compliance with the CPRA and its own P&P. RESPONSE to Recommendation 7: The City is implementing this recommendation. The City is in the process of evaluating options and will provide software systems to better track requests, assist in streamlining and coordinating responses, prompt timely responses, and support the efforts of City staff to comply with the Public Records Act. The City will provide additional training for staff who work on Public Records requests. The Council has directed staff to update the Council on software solutions by April 1, 2015. Attachment C City of Palo Alto’s Response to the Civil Grand Jury Report on Reduced Transparency and Inhibited Public Input on Important Land Issues Finding 1 From 1996 to 2005, the City of Palo Alto leased the Lee Gift Deed Property to an adjacent landowner for construction staging even though the property was required to be used for conservation, including parks and recreation. RESPONSE to Finding 1: The City agrees with the finding. The City should not have leased the parcel except for “conservation purposes, including parks and recreation.” The lease agreements were executed and administered under two prior administrations. The officials and employees who took these actions have long since left the City’s service. Recommendation 1 The City of Palo Alto should adhere to use restrictions of all property donated to the City. RESPONSE to Recommendation 1: The City has implemented the recommendation. The City’s Real Estate Division has reviewed use restrictions on donated property for consistency with current uses. The Council has directed staff to publish a list of land donated to the City, in a format that is easily accessible to the public. Finding 2 The City of Palo Alto leased the Lee Gift Deed Property without following its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property. RESPONSE to Finding 2: The City agrees in part with the finding. This pertains to decisions made many years ago. Local law allows the City Manager to enter into leases up to three years. (Palo Alto Municipal Code Section 2.30.210(h).) Consistent with the Municipal Code, Policy & Procedure 1-11/ASD states that it does not apply to short term leases. The initial lease of the Lee Gift Deed Property – which was signed by a prior city manager nearly 15 years ago – was a short-term lease that was not required to comply with P&P 1-11/ASD. A prior administration allowed the lease to hold over beyond the authority granted to the city manager in the Municipal Code. At that point, both the Municipal Code and P&P 1-11/ASD required additional process, which did not occur. Recommendation 2 The City of Palo Alto should follow its P&P 1-11/ASD regarding the Procedure for Leasing of City-Owned Real Property when leasing City-owned Real Property. RESPONSE to Recommendation 2: The City has implemented the recommendation. Current City administration interprets existing City law and policy to require that Council approve leases that hold-over past the City Manager’s authority, and has adhered to this requirement. The City’s Real Estate Division has reviewed short-term leases to ensure consistency with the City Manager’s authority and the Municipal Code and P&P 1-11. Long-term leases are entered into in a manner that is consistent with P&P 1-11/ASD. Finding 3 On September 18, 2012, the City of Palo Alto held a closed session meeting, under the real- estate negotiation exception to the Brown Act, to discuss price and terms of the sale of the Lee Gift Deed Property. Prior to the meeting, the public was not aware that the City was considering the sale of the Lee Gift Deed Property and had no opportunity for public debate on the future use or sale of the property. RESPONSE to Finding 3: The City agrees in part with the finding. Real property in Palo Alto is a valuable asset. It is not often that the City sells or even seriously contemplates selling any of its real property assets. On the occasions when it does so, property may be designated for sale after a survey that identifies the property as appropriate for sale through the process described in P&P 1-48. In addition, from time to time, a third party (which may be a private individual, company, non-profit, educational institution or other governmental entity) may approach the City to initiate discussions about a real property transaction. City staff initiated the closed session on September 18, 2012, to inform and receive direction from the Council regarding an unsolicited proposal by Mr. Arrillaga to purchase the Lee Gift Deed Property for a specific price. For the closed session on September 18, 2012, (and one on June 4, 2012), staff listed the property by the assessor’s parcel number, because the property does not have a street address. After the September 18th agenda was published but before the meeting occurred, the staff realized that more information would be helpful. On September 18th, before the closed session, the Mayor orally listed properties adjacent to the Lee Gift Deed Property. When Mr. Arrillaga approached the staff in late 2011 about acquiring the Lee Gift Deed Property, staff research revealed that this was not the first time that Mr. Arrillaga had proposed to acquire the land. Although the parcel is in a remote location and prior to late 2011 was not familiar to current City staff or Council Members, Mr. Arrillaga in fact had a long history of attempting to acquire the parcel. He was the neighboring landowner, and between 1983 and 1996 had control of the property because the Lees had sold him the estate that they had reserved on the parcel, including the exclusive right of access and use. After 1996, as noted above, Mr. Arrillaga continued to lease the property for almost 9 years from the City. Throughout the years, the City of Palo Alto had responded to Mr. Arrillaga’s periodic questions about the process for acquiring the parcel. Beginning in late 2011, Mr. Arrillaga again began asking City staff about acquiring long-term access to the parcel, either through a long-term lease or purchase. Staff intermittently answered his questions about the procedures that would be required for long-term lease or purchase, including Council action, an open public process, surplus property designation, significant consideration and the ongoing need to comply with the deed restriction. Anticipating the need to provide information to the Council, staff ordered an appraisal of the property, which was completed in May 2012 and came in at $175,000. The City conducted an initial closed session on June 4, 2012. The staff informed Mr. Arrillaga that it was not conceivable that the Council would consider selling the parcel at that price, and that additional/offsetting parkland may need to be a factor to even be considered and that possibility uncertain. The City later received a general proposal for funding and construction of playing fields at the Baylands. The City also received a proposal to purchase the Lee Gift Deed Property for $175,000. City staff had a responsibility to bring the purchase offer to the Council for preliminary direction and did so on September 18, 2012. (As described below, the Council has referred to its Policy & Services Committee a review of Policy & Procedure 1-48, which may include guidance regarding whether future such meetings should occur in open or closed session.) Following the Closed Session and Council tours of the property, neither City staff nor the Council elected to move forward to consider the sale of the property by placing an item on the Council’s open session agenda. On August 18, 2014, the City Council approved an ordinance dedicating the Lee Gift Deed Property as parkland, and declaring it a part of Foothills Park. The Parks and Recreation Commission is considering best uses for the property, consistent with its status as parkland and the deed restriction. Recommendation 3 The City of Palo Alto should seek public input about the disposition of surplus City-owned land before the City Council meets to discuss that property. RESPONSE to Recommendation 3: The City has implemented the recommendation. First, the Council has directed that all real property closed session agendas include sufficient user-friendly descriptions of the subject property so that the public can identify and locate the property, and provide input to the Council before any closed session. Second, the City’s existing procedures ensure public notice and involvement before real property is sold. In addition, the Council has determined that City policy should be reviewed and revised to provide additional clarity on how staff should handle unsolicited purchase offers and when closed sessions should be scheduled. Finding 4a The City of Palo Alto had not complied with its own Policy and Procedure 1-48/ASD regarding the sale/transfer of surplus City-owned property when it discussed, in closed session, the price and terms of an offer to purchase the Lee Gift Deed Property. RESPONSE to Finding 4a: The City agrees with this finding. As of September 18, 2012, the City had not yet initiated the procedures in P&P 1-48/ASD with respect to the Lee Gift Deed Property. City staff have always been clear to all parties, including Mr. Arrillaga and the Council, that to pursue a sale of the property, the City would have had to comply with the procedures set forth in P&P 1-48. Finding 4b At the time of the closed session the Lee Gift Deed Property could not be sold because of the deed restriction and because it had not yet been declared surplus. RESPONSE to Finding 4b: The City agrees in part and disagrees in part with this finding. Properties that are subject to deed restrictions are bought and sold with frequency. The deed restriction on the Lee Gift Deed Property did not require that the property remain in City ownership. It required only that the property be used for conservation purposes, including parks and recreation. A private party, non-profit entity or other governmental entity could comply with this deed restriction. There are many such parcels of land throughout the Bay Area and the state. Thus the deed restriction did not prevent the City from selling the property. The new owner would have been obligated to meet the deed restriction. If the City had decided to sell the property, it would have followed the procedures to declare the property surplus. Because there was no interest in selling the property, these procedures were not pursued. Recommendation 4 The City of Palo Alto should always comply with its own Policy and Procedure 1-48/ASD regarding the sale/transfer of surplus City-owned real property. RESPONSE to Recommendation 4: The City will implement this recommendation. The Council has tasked its Policy & Services Committee with reviewing city policies on sale of real property and revising the policies to provide additional guidance and clarity regarding unsolicited offers and the use and timing of closed sessions. Finding 5a The March 5, 2012, City Council meeting was the first time the public was made aware of a proposal to develop 27 University Ave. RESPONSE to Finding 5a: The City agrees with this finding. The property at 27 University Avenue is an important parcel that serves a gateway to the City’s downtown, as well as a transition to El Camino Real and Stanford University. The parcel is the site of complex transit connections. It has been the subject of numerous attempts over many years to develop comprehensive planning solutions, including the work of the Dream Team beginning in the 1990’s. Developer John Arrillaga renewed those efforts beginning in 2011 and 2012. The City has already acknowledged that the public process around this round of planning for 27 University Ave should have been better, with the early start to this project flawed, despite good intentions. The City’s intention was always to try to guide the preliminary concept in a better direction. While the concept as initially described by Mr. Arrillaga was focused on new office buildings, the city saw the opportunity to begin a master plan and redesign of the transit center and road network at this gateway entrance to the City. There was also the potential to explore the addition of a major public benefit through a regional community theater. The Grand Jury report acknowledges the unique nature of this project: “the developer’s proposals represented an unprecedented opportunity to address major traffic problems at an intersection where little change has taken place for many years, despite decades of planning attempts.” The City’s efforts were directed toward shaping the proposed concept into an improved design in order for the public to have a concrete concept on which to comment. Finding 5b The City of Palo Also approved expenditure of Stanford University Medical Center funds for the 27 University Avenue proposal before the public had the opportunity for public debate on the proposal. RESPONSE to Finding 5b: The City agrees in part with this finding and disagrees in part. The Stanford University Medical Center funds were specifically designated to be used to develop pedestrian and bicycle connectivity projects between the intermodal transit center and the existing intersection at El Camino Real and Quarry Road. The City agrees that the first allocation of these funds at a Council meeting on March 5, 2012, occurred with only general details about a proposal from John Arrillaga. The funds that were allocated on March 5th were intended to be used to allow the City to steer a potential design into alignment with urban design goals for any potential project. The City disagrees in that the second allocation of funding took place at a Council meeting on September 24, 2012, following Council discussion and action on the massing concepts for 27 University, a letter of intent with TheatreWorks, and preparation of a potential advisory ballot measure for Council consideration. The funds that were allocated on September 24th were drawn from the Intermodal Transit Funds and from the Stanford Infrastructure Funds, with Stanford concurrence. Recommendation 5 The City of Palo Alto should obtain early input from its constituency about significant development proposals before allocating City funds to the proposals. RESPONSE to Recommendation 5: The City has implemented this recommendation. Early input from constituents is critically important. While complex planning concepts sometimes require preparation in order for the public to have significant substantive material to react to and provide input on (which may require staff and consultant time for preparation), over the past year, Council and City staff have made substantial efforts to involve the public earlier and in a more vigorous way in planning matters. The Council has referred to its Policy & Services Committee a proposed policy that any major zone change must come to Council for a public pre-screening. Finding 6 The City of Palo Alto does not consistently respond to requests for public records in a timely manner. RESPONSE to Finding 6: The City agrees that it has not satisfied every public record request in the optimal timeframe, though its practices are within reasonable and customary standards for similar cities in the region. The City receives many requests for routine information every single day and does a good job of responding promptly to the public. Formal requests under the Public Records Act come into the City from many different points across the City organization. For formal Public Records Requests, we recently have added an FAQ and a request form to the Public Records Request webpage that can be submitted online to better track requests. The City also receives Public Records Requests via email, traditional mail and orally, which often need to be coordinated internally to ensure appropriate departments are responding. The City strives to provide an initial response to Public Records Requests within ten days and generally meets this standard. Recommendation 6 The City of Palo Alto should consistently respond to requests for public records in a timely manner. RESPONSE to Recommendation 6: The City is implementing this recommendation. In addition to the FAQ and online form that have been implemented to increase coordination and accountability, the City will provide additional software solutions to automate tracking and responses to Public Records Requests. Additional training for City staff is also being planned. Finding 7 The City of Palo Alto’s current system for tracking and documenting non-routine PRR and the City’s response to the request fails to capture all requests or responses. RESPONSE to Finding 7: The City agrees with this finding. While the City’s system does a reasonably good job of capturing most requests and responses, the City agrees that its current system does not capture all requests and responses, and that the system could be improved. The City will provide software solutions in this area and increase staff training. Recommendation 7 The City of Palo Alto should re-examine its system for handling non-routine PRR to ensure that it has a mechanism to evaluate compliance with the CPRA and its own P&P. RESPONSE to Recommendation 7: The City is implementing this recommendation. The City is evaluating options and will provide software to better track requests, assist in streamlining and coordinating responses, prompt timely responses, and support the efforts of City staff to comply with the Public Records Act. The City will provide additional training for staff who work on Public Records requests. The Council has directed staff to update the Council on software solutions by April 1, 2015.