HomeMy WebLinkAbout2004-05-10 City Council (5)City of Palo Alto
City Manager’s Repar
4
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:
SUBJECT:
MAY 10, 2004 CMR:244:04
FINANCE COMMITTEE RECOMMENDATION TO ADOPT AN
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
APPROVING A CUSTOM PRODUCTS CONTRACT WITHTHE
WESTERN AREA POWER ADMINISTRATION FOR THE
PROCUREMENT OF ELECTRICITY AND AUTHORIZINGTHE
CITY MANAGER TO PURCHASE UP TO $10 MILLION OF
CUSTOM PRODUCTS FROM THE WESTERN AREA POWER
ADMINISTRATION
COMMITTEE REVIEW AND RECOMMENDATIONS
On April 20, 2004, the Finance Committee voted unanimously to reconamend that
Council adopt the attached Ordinance authorizing the City Manager to execute a Custom
Product Contract, substantially similar to the one attached, with the Western Area Power
Administration for the option to purchase electric power Custom Products with a cost not
to exceed $2,000,000 per year and not to exceed $10,000,000 during the term of the
a~’eement from January 1, 2005 tl~’ough September 30, 2010; and to execute electric
commodity day-ahead schedule finning service transactions under the terms of the
a~’eement and subject to proposed parameters and limitations.
ATTACHMENTS
A: Ordinance of the Council of the City of Pato Alto Authorizing the Negotiation and
Execution of the Western Area Power Administration Custom Products Contract
and To Subscribe to the Day-Ahead Finning Service Product Under Specified
Terms and Conditions During the Period January 1, 2005 Tl~’ough September 30,
2010, Inclusive
B: Excerpt of Finance Committee Minutes from April 20, 2004
C:CMR:!91:04 Ordinance of the Council of the City of Palo Alto Approving A
Custom Products Contract With The Western Area Power Administration For The
CMR:244:04 Page 1 of 2
Procurement of Electricity And Authorizing the City Manager to Purchase Up To
$10 Million of Custom Products From the Western Area Power Administration
PREPARED BY:Tom Kaba~enior Resource Originator
Dee Zichowic, Administrative
DEPARTMENT APPROVAL:
CITY MANAGER APPROVAL:
,r of Utilities
~ON
Assistant City Manager
CMR:244:04 Page 2 of 2
*** NOT YET APPROVED ***
Attachment A
0RDiN_~NCE NO.
ORDiN_~NCE OF THE COUNCIL OF THE CITY OF PAL0 ALTO
AUTHORIZING THE NEGOTIATION AND EXECUTION OF THE
WESTERN AREA POWER ~MIN!ST~hTION CUSTOM PRODUCTS
CONTRACT ~ND TO SUBSCRIBE TO THE DAY-~EAD FIRMING
SERVICE PRODUCT UNDER SPECIFIED TERMS AND
CONDITIONS DURING THE PERIOD JANUARY I,2005
THROUGH SEPTEMBER 30, 2010, INCLUSIVE
The Council of the City of Pa!o Alto does ORDAIN as
follows:
SECTION !. Findings. The City Council finds as follows:
A. On October 16, 2000, the City entered into a Contract
No. O0-SNR-0033 ("Base Resource Contract") with the Western Area
Power Administration ("Western"). Under this contract, the City
wil! receive less electric capacity and energy than is currently
made available under the existing contract with Western. The Base
Resource Contract will begin on January i, 2005 and will expire on
December 31, 2024.
B. On November 13, 2001, the Council by minute order
approved four primary energy portfolio objectives ("Objectives"),
including the objective to ensure !ow and stable electric supply
rates for customers.
C. On October 21, 2002, the Council by minute order
approved seven electric portfolio planning and management
guidelines to guide staff in deve!oping and managing the City’s
!ong-term electric acquisition plan ("LEAP Guidelines"). LEAP
Guideline ! regarding Electric Portfolio Dependence on Western
states: While maintaining the flexibility to adopt favorable
’custom products’ offered by Western, manage a supply portfolio
independent of Western beyond the Base Resource Contract.
D. On August 4, 2003, the Council by minute order approved
the LEAP Implementation Plan and it also adopted Ordinance No.
4801, authorizing the purchase of energy and capacity during the
2005-2007 period. One element of the implementation plan is to
pursue any low-cost high value prospects to acquire supply-related
resources that may arise from time to time.
E. In accordance with the City’s LEAP Guidelines and
Implementation Plan, the City must annually purchase and,
incidental to purchases, sel! electricity to meet the needs of its
electric customers by entering into one or more contracts with
varying terms. The City’s Energy Risk Management Policies provide
that the City wil! purchase only as much electricity as is needed
*** NOT YET APPROVED ***
to meet its load requirements established at the time a transaction
is executed.
F. A portion of the City’s electricity demands are
supplied by existing contracts, including the Base Resource
Contract, contract for output derived from partial ownership in the
Calaveras Hydroelectric Plant with the Northern California Power
Agency, an energy exchange contract with Seattle City Light, and a
25 I~q purchase of power for five years starting in 2005. The
balance of the City’s electricity needs must be purchased from
suppliers at market-based prices.
G. The balance of electricity the City needs will depend
on the output from the Base Resource Contract and the Calaveras
Hydroelectric Plant, both of which depend on hydrologic conditions.
After 2004, the City will be required to purchase about one-third
of its total electricity needs in an average hydro!ogic year. In
a dry year, the City must purchase about one-half of its annual
needs. In wet years, the City may have a surplus of electricity
and could afford to sell about one-fifth of its projected annual
needs.
H. To deal with generator unit contingencies that exist
under the Base Resource Contract, the City may execute a
subscription to the Day-~ead Firming service offered by Western in
accordance with Western’s Custom Products Contract, subject to the
City’s ability to terminate the subscription with 60 days notice.
Under this service Western would procure replacement energy (to be
paid for by subscriber) for short-term interruptions to day-ahead
energy schedules.
I. The City may purchase electricity from Western who may
in turn purchase electricity from suppliers for delivery between
January i, 2005 through September 30, 2010, inclusive.
SECTION 2. The Council hereby approves the negotiation and
execution of the Western Area Power Administration’s Custom
Products Contract, and authorizes the Mayor to sign the Custom
Products Contract. The Counci! further authorizes the City Manager
or his designated representative, the Director of Utilities, to
negotiate one or more individua! transactions thereunder, with the
Western Area Power Administration. The authorization shal! extend
to individual transactions executed under the Custom Product
Contract, in accordance with the following key provisions: (a) the
maximum annual expenditure per fisca! year under any and all
separate transactions thereunder shall not exceed two million
dollars ($2,000,000) per year, and (b) the maximum expenditure
under any and all separate transactions thereunder shall not exceed
ten million dollars ($i0,000,000) in the aggregate. The City may
enter into additional transactions that would raise the aggregate
040414 cl 0072380
2
*** NOT YET APPROVED ***
expenditure above $ !0 million, provided that any such transaction
must receive the prior approval of the Counci!.
SECTION 3. No standard form contract and any transaction
entered into thereunder with any qualified electricity supplier
executed by the City Manager or his designated representative and
approved as to form by the City Attorney under the authority of
this ordinance shall extend beyond September 30, 2010.
SECTION 4. The Council hereby finds that this ordinance is
exempt from the provisions of the California Environmental Quality
Act pursuant to Section 15061(b) (3) of the California Environmental
Quality Act Guidelines, because it can be seen with certainty that
there is no possibility of significant environmental effects
occurring as a result of the adoption of this ordinance.
SECTION 5. This ordinance shall be effective on the
thirty-first day after the date of its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM:APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director of Administrative
Services
040414 cl 0072380
CMR:244:04 - ATTACHMENT B
FINANCE COMMITTEE MINUTES EXCERPT
MARCH 20, 2004
ITEM NO.2: Ordinance of the Council of the City of Palo Alto Creating a Custom
Product Contract With WAPA For the Procurement of Electricity and Authorizing
the City Manager to Purchase Up To $10 Million Worth of Custom Products From
WAPA
Kleinberg: We will move on to the next matter on our agenda which is an Ordinance of
the Council of the City of Palo Alto creating a custom product contract with WAPA, the
Western Area Power Administration, for the procurement of electricity and authorizing
the City Manager to purchase up to $10 Million worth of custom products from WAPA.
And up comes Mr. Ulrich to talk to us about custom WAPA products. Thank you.
Ulrich: As usual, we have a very detailed presentation to give you, but we’ll -- Mr. Kabat
and I, who is the smart individual who has worked on this and is very knowledgeable in
the benefits to the City’s electric supply we’ll go through it in some detail in a
presentation. There are just a couple things I’d like to point out at where this all fits.
Last year, we presented to you our energy procurement plan and our long range supply
forecast. This fits in with the partial demise of our Western contract that we’ve had for
40 years. And we, and you as a city council, approved purchase and re-extension of the
base contract for Western for an additional 20 years.
As an additional benefit of that contact, we’re allowed to procure what’s called a custom
product component and we have until June of this year to come up with and negotiate the
contract.
So attached to this CMR is the contract. And briefly, it would allow us, the one product
that we’re recommending, to have a source of power available if there is a failure
somewhere in the supply coming to Palo Alto. And this would give us what’s called Day
Ahead Schedule Firming that Tom will explain in a little bit more detail.
The other dear benefits are that, one, it is not a contract that we have to live with forever.
It gives a clause or an ability to cancel the contract. There is minimal risk in this in that it
is for short durations of energy purchase so it does not require us to try to speculate on
very much on what the price would be. We’ve reviewed this and analyzed it with our risk
oversight committee. Our risk manager in ASD is here this evening if you have some
questions on more detail. But we believe it’s a product that we should avail ourselves of
if we need it, because it fits nicely in our supply needs.
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 1 OF !i
CMR:244:04 - ATTACHMENT B
So I’ll ask Tom to go through a brief presentation, give you a little bit more specifics
about our recommendation.
Kabat: Thank you, John. So this presentation’s just briefly about the content of the
CMR. The threshold question we’re facing though is that Western has put a June 30th
deadline on entering the contract. And it’s an enabling contract that will enable us to
subscribe to products under the contract. And so what we face is the decision, should we
preserve that flexibility to make future subscription decisions by signing the contract by
June 30th. Staff is recommending that we do that. Then go onto describe some of the
contents.
So we are seeking the recommendation from the Finance Committee for approve -- for
council approval of executing the master agreement. We’ve been talking to Council for a
couple of years about the changes coming to the Western contract, the 40 year first phase
of the contract is ending at the end of this year. And then the product turns from a very
firm product to what’s called a run of river project that’s operated just as the water
schedules come out, the water schedules are developed to meet other needs not power.
And then the power is calculated, what’ll occur out of that, we’re given a schedule of how
we can arrange our power deliveries from that for what’s called the day ahead period,
which may be two to three days out.
And then there is some chance that a generator will have a problem during that two to
three days out. If it does, it wouldn’t be available to generate and the schedule would
change. And we would just be informed that what we thought we were counting on
wasn’t going to an’ive. And so if we don’t subscribe to this service, we would go out and
make the replacement purchase. If we do subscribe to this service, Western, who is
managing this for 80 different people, would go out and make the aggregated purchase to
cover the shortage of the equipment failure or other schedule change.
So that’s the gist of what’s happening in the transition of one aspect of our Western
contract. Council has approved a leap implementation plan to pursue some cost saving
opportunities that may be presented through Western Custom Products. And so this is
the first one that’s coming along.
So this Western master agreement for custom products it provides a contracting
mechanism for us to order or subscribe to separate services that are not part of the base
resource contract that Council’s already approved. It doesn’t commit us to subscribe to
any of them.
So we’ll be looking at each one on a case by case basis and we’re here tonight with the
master agreement and also discussing the first product, the Day Ahead Firming. So the
use of this Day Ahead Firming service then, if Western would go out and buy the
replacement power, it means that we don’t have to go buy it, or we at NCPA don’t have to
FINANCE COMMITTEE (4/20/04) MINTJTES EXCERPT PAGE 2 OF II
CMR:244:04 - ATTACHMENT B
hold back resources and not dispatch them and wait to use them to replace units that fall
offline. So it may be a nice way to avoid having to sit and decide and wait.
The size of the service we’re looking at, based on our participation with Western, may be
something around a 15 megawatt size. It reduces the short term supply volume risks that
we face due to these interruptions. None of these would ever result in power outages
here. They’re just economic impact of going to replace power. So it’s not about keeping
the lights on. And then this would also simplify covering short term unit outages in
Western’s hydro system.
The description of the Western master a~-eement is that they’ve chosen a five year and
three month -- five year and nine month period. After that it’ll be every five years, just
have a hiccup in the starting. But they want to end on each federal fiscal year, end of
September. We call it a custom contract because of the 80 customers, different ones will
subscribe to different services. And not everyone’s forced to take everything. We can
terminate our subscription with a 60-day written notice. And then we prepay for products
that we buy so that Western doesn’t want to carry any credit risk for us. So we would
prepay for 90 days of service and then just keep rolling money out to them as it was
needed.
The timing of decisions, again we have a deadline of June 30th for the subscription to the
initial contract. And then this runs through mid-2010 and will be replaced probably by a
very similar a~eement then.
We think there’s some. net value to subscribing to the first selwice, this Day Ahead
Firming service. It’s offered now. And we think the savings may be somewhere along
the order of half a million a year. And the spending may be something like a million
dollars. Now, the spending is a ~oss spending. The savings of a half of million is the
savings we’d realize by not holding back other units from dispatch. If we’r6 able to
commit other units to dispatch and let Western go to the market to buy replacement
power, we think that that’ll generate a net savings of about a half a million dollars. This
is already included in budgets and rates. This is not a new need cropping up. It’s
something we’ve known about for awhile and need to handle those contingencies.
Okay. The term of the a~eement, five and three quarters years and I think we’ve been
over this. Oh, except the dollar volumes. We’re asking that the Finance Committee
recommend council approval of the a~eement not to exceed $2 million a year spending
and not more than 10 million over the five and three quarter’s years. And then the
authority to transact will reside I guess with the City Manager, under the constraints that
are outlined in this CMR.
Okay. And then our recommendation, you can see here, is for approval that contract to
the Council and to authorize the City Manager to purchase up to $10 million of custom
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 3 OF II
CMR:244:04 - ATTACHMENT B
products over the term of the contract and to subscribe at this time only to the Day Ahead
Firming service.
Ulrich: Could we answer any questions?
Kleinberg: First of all, let me just be sure that nobody in the audience wanted to speak to
this. And seeing nobody rushing up, then, yes, let’s have some questions. Anybody have
questions?
Freeman: Is the five, is the half a million in savings realized only if all the NCPA
participants or players participate in this?
Kabat: I don’t know if-- well, I don’t know that it depends on all folks participating. That
was our -- our share of savings.
Freeman: Is the, at least the understand I have, and maybe correct me, is that we would
not have to use NCPA power when we’re supposed to be using this other hydro power in
emergency situations if we got this service. Is that -- am I doing that right?
Kabat: That’s right.
Freeman: But if we don’t get the service, then we’d have to go to the NCPA and use what
they would have in reserves, or whatever. But would -- what would happen to that
reserves if other NCPA players say, ah, we don’t want to get this service? I mean.
Kabat: Specifically, one of the resources that would be held back likely would be
Calaveras Hydro Electric Plant, which is a quickly dispatched plant. And we’re a large
participant in that plant. If we subscribe to this service, our Calaveras won’t be held back
for that. If someone else does not subscribe and they had some Calaveras, maybe theirs
and maybe any other combustion turbines or other units they had shares of would be held
back for those other purposes. So I don’t know that it depends on others actions.
Freeman: So it’s not a turn on, or turn off of turbines or anything. It’s just what they’ll
allow you to have and what you won’t allow -- be allowed to have. Is that more like?
Kabat: Right. It’s where the dispatch of the units goes.
Freeman: Okay. And then my second question is, can we get a review of the risk
analysis, because it’s $10 million over five years, 2 million a year?
Kabat: Our Risk Manager hopefully can address that.
Van Orsdol: Good evening, I’m Karl Van Orsdol the Energy Risk Manager. The 10
million that CPAU is asking for over the five years is for this, as well as other yet to be
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 4 OF II
CMR:244:04 - ATTACHMENT B
determined products. So the -- the Day Ahead Firming, I think the total, Tom, you asked
for, you expect to use for five years is
Kabat: Well, actually I.
Van Orsdol: One million a year, was it?
Kabat: Yeah. Right. This has been scaled down. The money we’re asking for is only
for -- only for use with Day Ahead Firming. If we come back later, we will need to ask
for authority to spend other money.
Van Orsdol: Okay. So theres two basic risks. One is the credit risk that CPAU will have
to Western, because they will be paying in advance. But of course, Western is a Federal
agency and so there is essentially no credit risk there.
The second possible credit risk would be if Western purchases power on behalf of Palo
Alto and in the pretty much 72-hour period between the time that Palo Alto orders it and
it would be delivered, when they day ahead, it’s really up to about 72 hours in advance,
that company default on the contract, which is extremely unlikely on the magnitude of
1000tl~ of one percent. So therefore, for this particular contract, I believe there is a very
little credit risk, very little market risk because the, unless an unexpected market
upheaval happens in three days, you’re going to be expecting to get approximately you’re
going to know that the market price will be. So for this particular product there seems to
be very limited risks.
Freeman: I’m not quite sure where I, I understand what you mean by the credit risk
because we provide the money up front.
Van Orsdol: Well, as Tom explained, under -- under WAPA rules, the participants like
Palo Alto, you provide - pay for the energy prior to its delivery. Correct? So the credit --
so we essentially have an outstanding credit risk to the federal government.
Freeman: Thank you very much.
Oiakian: So I just want to make sure I understand this. We’re subscribing to this product
that WAPA is providing, correct? We’re not guaranteeing we’re going to buy anything
from them.
Kabat: Right.
Qiakian: Right? And the thing that triggers us maybe buying something from them is all
of a sudden with have a shortage in our normal contract and they’re going to have to go
out into the market and replace that. And we’re looking at just the short term shortages.
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 5 OF II
CMR:244:04 - ATTACHMENT B
Kabat: Yes, that’s right.
Ojakian: Okay. So, you know, I was trying to think about this, was there some
advantage or disadvantage? They’re going to buy it at market rate, it sounds like,
Kabat: That’s right.
Ojakian: So the only other option we have, needing to make up the difference of our
reliability standards is we’d have to go through some other mechanism and buy it at
market rate.
Kabat: That’s right, or hold our own units back and not run them to generate market rate
savings.
Oiakian:Right. That’s true. But assuming that we do have to go out, what’s the
advantage of having the Feds do it versus us going through NCPA and doing it?
Kabat: For the Day Ahead Firming, it may just be a coordination issue. It may be a little
quicker since they’ll know that they need. And also you have convenience and
magnitudes. Our share, if it’s a small unit that goes out, out small shares of small units
may end up being very small awkward volumes to transact. They may be able to transact
larger volumes, since they’ve aggregated this.
Oiakian: But there’s certainly no disadvantage to doing this through the federal
government. So the last question I have is, the $2 million, or the 15 megawatts, that’s
what percentage of our load, or our annual purchasing, or costs?
Kabat: No. Dollars. So it’s about -- up to 5 to 7% is the $2 million size.
Ojakian: Okay. So it’s, right. But it’s 5% of our total, which is not a significant amount.
So this is sort of a safety gap measure for a particular type of situation that may or may
not happen.
Kabat: I believe there will be a number of units that fail to come up on schedule. I see it
now. I monitor the system now and it does occur.
Oiakian: Right. I think that’s probably a fair assessment. Okay. Thank you.
Kleinberg: Okay. I just have a couple questions. This is hard to get your hands around a
little bit here. When it says, on page three of the CMR, in the paragraph concerning
forward market fixed price and volume purchases, in the middle it says, staff may return
to request council authority for making fixed priced forward purchases after various risk
management issues have been resolved. What are they and when would that happen and,
you know, what’s going on here? I mean its
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 6 OF ii
CMR:244:04 - ATTACHMENT B
Kabat: Yeah. So that para~aph is referring to future subscription opportunities that we
would again come through the full process of internal risk oversight and then come to the
Council again.
Kleinberg: It’s only the Day Ahead stuff. It’s only the Day Ahead that we’ve done a risk
analysis on.
Kabat: Right. Although this discussion of forward market prices is not the Day Ahead
Firming that -- it’s a different
Kleinberg: No, I know, that’s what I said. This is not the Day Ahead. That one is the
one that we’re talking about tonight for authorization for $2 million a year and that’s the
one the risk management. But if in fact it’s, in other words, basically this para~aph says
ignore this. I mean basically it says we haven’t done the risk analysis. We’re not asking
for this. It% not going to happen tonight.
Kabat: Right.
Ulrich: We’re just giving you a, you know, a hint of things that we could come back for
but we’re not prepared to do that. I think the key is that we have to move forward with the
custom product, the one that we have here, so we meet the deadline to subscribe to
custom products so we can come back at a later time.
Kleinber~: Come back to do this.
Ulrich: On this individual one.
Kleinberg: So subscribing to -- meeting their deadline, the June 30th deadline, We open
ourselves up to the possibility of subscribing for any of things, at which point we would
do the risk analysis, at which point we -- but we could be talking about exponential
millions of dollars in the hands of the City Manager. And so I guess at that point we’ll be
even more circumspect about what we’re, I mean, in other words, we’re setting a
precedent tonight, or not tonight yet, but we’re discussing a potential precedent, which
could then be repeated in a number of, you said there’s a variety of services out there.
Ulrich: Well this is -- this is within authority that the City Manager already has in, you
know, in the dollar limit. So it’s not trying to expand that. It’s offering a product that we
believe is, you know, appropriate to help us manage the business. So we would not make
an assumption by your approving this that there’s all of a sudden an opportunity for us to
expand authority or do something outside of our risk management tolerance. We would
come back with a recommendation, if we do come back, giving you the pros and cons of
whether to take one of these other custom products or not.
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 7 OF II
CMR:244:04 - ATTACHMENT B
Kleinber~: Also when it says, at the bottom of that page, the City may terminate this
a~eement on 60 days notice, that means we would not be able to ever re-up again,
because it’s all or nothing?
Kabat: It’s not defined in the contract whether we re-up again or not.
Kleinberg: So we’d be awfully, we wouldn’t really be trying to terminate this very
quickly, because it’s not clear we’d ever re-up again.
Ulrich: Of course you have that, I think this is nice to have, because you have an option
of doing it, but before we would recommend termination, we would sure evaluate what
the risk is of terminating the contract, or the pro proponent of why to do it. So.
Kleinberg: Okay, and so, just to be -- cover all this. Signing the contract doesn’t commit
us to one cent. We could let the contract continue. We could pick up what services we
want. We don’t have to use any services if we don’t want. We have just told them that
we are a potential buyer. That’s all we’re saying. And we’re a~eeing to the provisions in
the contract if we buy. Is that right? Am I getting that?
Kabat: That’s right. And also staff is at this meeting asking to authorize the City
Manager to execute the Day Ahead Firming service
Kleinberg: And that will be the first one that we do want to do.
Ulrich: Correct.
Kleinber~: I understand that.
Ulrich: I just want to be, I don’t want the, I don’t want you to feel, when you say
voluntary, sure it’ll be voluntary, but we have every expectation that because of the nature
of the business there will be failures and we’ll immediately go and use this if we think its
appropriate to do so.
Kleinber~: So then I have a question. Somewhere I remember that we were going to
build some generators. I thought I recalled that that was going to help us with those
momentary small outages, when it’s the -- the little, yeah, ~vhat is this designed to do as
opposed to that?
Ulrich: Well, there are a couple of things we have in place that you approved a couple
years ago through the height of the energy crisis. A very small generator out at the
Municipal Service Center. That primary would be if you suspected you were going to
have a rolling blackout, it gives us some level of protection there to keep that rolling
blackout from happening. The other one is that we went to the Policy and Service
Committee a couple of weeks ago with a recommendation to do a study on whether its
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 8 OF ii
CMR:244:04 - ATTACHMENT B
appropriate to look for local generation within Palo Alto as a long term supply that would
be an inte~al part of the LEAP, long range plan. That’s another one of the guidelines
that you approved to allow us to do that. Now whether that comes to pass, we’re going to
come to the council I think in the first meeting in May with a recommendation from the
policy and service whether to move forward with that analysis.
Kleinberg: So those attempts at some small modicum of self-sufficiency don’t bridge this
gap. That’s what we have to do this? I’m just trying to find the inte~ation and the
relationships here.
Ulrich: Yeah.
Kabat: That’s right. This is a different gap. Those other two gaps actually help -- those
other two bridges help keep lights on. All -- and we could potentially use the loca!
generators to cover schedule changes from Western.
Kleinberg: That’s exactly my question.
Kabat: It may be a bit uneconomical but it could be done, the running cost of those units
may be above the market.
Kleinberg: That’s what I, that’s exactly what my question is, if we’re putting money into
some self-efficiency local generation units, you know, why can’t we use those? But if it’s
more, it’s less expensive to go out on the market with WAPA and do this, that’s kind of
interesting.
Ulrich: Well, I’ll.go a little bit out on a limb. If we eventually had a power plant, had
that kind of resource available, you could always look at that as an option to utilize iri this
situation if it worked. But, you know, that’s going to be some time from now. This is the
one and only time to sign up for this product. I mean, the benefit of it is that that’s
another level of options that you’ll be able to have if and when you need them.
Kleinberg: Okay. And so then.
Ulrich: So they’re -- they’re not intended to be a redundant or provide more than we
actually need.
Kleinberg: Okay. And then just curious, why is -- why is there such a deadline? Do it
now or you lose your opportunity. What is that all about?
Ulrich: Well, the, you know, basically the end of the 40 year contact that was signed
back in 1964 provided for and this City, along with other users of the Western contract,
went out and negotiated a 20-year extension of the hydro electric portion of the contract.
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE 9 OF II
CMR:244:04 - ATTACHMENT B
Provided in that was a year following the deadline for the base contzact, you had an
opportunity to sign up for these custom products. So it gave an extra year to do that.
Kleinberg: Okay. Okay, I see that. And then just, this may be very obvious to you, and
so, you know, forgive me, but in looking at the draft contract, I’m sorry, well, in looking
at the draft contract, I noticed that there were sections that said that they referred to
certain kind of customers and not other customers and skip this section and skip the next
section. In other words, this is the sort of the template and we would come up with the
exact custom contract for us.
Kabat: Yes, that’s right. And so they, we are called a variable resource customer
Kleinberg: We are.
Kabat: Yep.
Kleinberg: Okay.
Kabat: And then we are not called a Federal power customer
Kleinber~: Federal customer. Right.
Kabat: Those are Federal agencies.
Kleinberg: And the supplemental power customers, is that, are we that?
Kabat: Yes.
Kleinberg: That’s what we are. Okay. I was just trying to figure, I was actually looking
through the contract. So I was trying to understand all that.
Kleinberg: All right. Any other questions, comments,
0iakian: I’d make a motion.
Kleinberg: Thank you for the motion, Mr. 0jakian.
0iakian: I’d make the motion to accept the ordinance in our CRM that’s attachment A.
Kleinberg: Any comment on that? Would you like to make a comment? And you’re
second? Any other comments?
Freeman: Is there a cost for the subscription?
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE !0 OF ii
CMR:244:04 - ATTACHMENT B
Kabat: No, there’s not.
Freeman: Okay. The only money that is expended is the money that has to be sitting in
there in case we need to use it within that time period. And that amount is?
Kabat: I haven’t seen an estimate for it, but they say they want 90 days up front. And my
guess is it’ll be a quarter of a million dollars.
Freeman: And if we don’t use that?
Kabat: They would return it.
Freeman: Okay. Okay. Thank you.
Kleinberg: Okay, with that, then no more conversation. All those in favor of the motion
say Aye.
Aye(in unison)
Kleinberg: And that was unanimous. Thank you so much to your staff and I’d like to
thank you.
Ulrich: Thank you.
Kleinberg: Thank you very much, Tom.
Yeats: Based upon the unanimous support, this would come back on Council’s consent
calendar.
Kleinber~: Thank you. And I think the minutes will be with them and so a lot of those
questions might be answered. Thank you, Tom, so much.
FINANCE COMMITTEE (4/20/04) MINUTES EXCERPT PAGE Ii OF II
CMR:244:04 - ATTACHMENT C
TO:CITY COUNCIL
ATTENTION:FINANCE COMMITTEE
FROM:CITY MANAGER DEPARTMENT: UTILITIES
DATE:APRIL 20, 2004 CMR:191:04
SUBJECT:ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
APPROVING A CUSTOM PRODUCTS CONTRACT WITHTHE
WESTERN AREA POWER ADMINISTRATION FOR THE
PROCUREMENT OF ELECTRICITY AND AUTHORIZINGTHE
CITY MANAGER TO PURCHASE UP TO $10 MILLION OF
CUSTOM PRODUCTS FROM THE WESTERN AREA POWER
ADMINISTRATION
REPORT IN BRIEF
Council has approved a 20 year Base Resource contract with the Western Area Power
Administration (Western) to replace the cun-ent contract ending on December 31, 2004.
Western is offering the attached Custom Product Contract as a vehicle to subscribe to
certain market-based services in conjunction with the City’s Base Resource Contract.
These services include day-ahead schedule finning to assure replacement of power when
plant outages or changes to operations occur. The Council has approved the Long-term
Electric Acquisition Plan (LEAP), which sets out how supplies will be purchased;
including the guidelines that among other things, directed staff to maintain the flexibility
to adopt favorable custom products offered by Western. Additionally, the LEAP
implementation plan directed staff to pursue low cost, high value prospects to acquire
supply-related resources. Therefore, staff requests the authority to transact under the
Western Custom Product Contract under certain limitations set forth in the attached
ordinance.
CMR:lgl:04 Page 1 of 6
RECOMMENDATION
Staff recommends the Finance Committee recommend that the Council adopt the
attached ordinance authorizing the City Manager to execute a Custom Product Contract,
substantially similar to the one attached, with the Western Area Power Administration for
the option to purchase electric power Custom Products with a cost not to exceed
$2,000,000 per year and not to exceed $10,000,000 during the term of the a~’eement
from January 1, 2005 through September 30, 2010; and to execute electric commodity
day-ahead schedule finning service transactions under the terms of the a~’eement and
subject to proposed parameters and limitations.
BACKGROUND
City of Palo Alto Utilities’ (CPAU) existing Western Commercial Finn Power contract is
an importam resource providing electricity from a share of the Central Valley Project
(CVP) net output and a share of Western’s inte~’ation contracts at cost-based prices
tln’ough December 31, 2004. Palo Alto has executed a Base Resource Contract with
Western for the years 2005-2024 to provide the City with an initial 11.62% share of CVP
net output. Council approved the Western Base Resource Contract on October 16, 2000
(CMR 378:00). As a si~aatory of the Base Resource Contract, the City is entitled to
execute the attached Custom Product Contract for additional products and services not
included in the Base Resource. These additional custom products can partially replace
some of the expiring features of the cm-rent contract. Western developed the attached
Custom Product Contract as an enabling aga’eement to allow sig-natories the flexibility to
subscribe to market purchases procured by Western at signatories’ request. Western set a
June 30, 2004 deadline for customers to execute the Custom Product Contract.
Signatories can later subscribe to theunderlying services and products as they see fit.
DISCUSSION
Staff is requesting that Council adopt an ordinance authorizing the City Manager to
execute the Custom Product Contract with the Western Area Power Administration for
power purchases with a cost not to exceed $2,000,000 per year and not to exceed
$10,000,000 during the term of the aN-eement. Western will provide a sigaaed version of
the attached Custom Product Contract for Palo Alto to execute for the January 1, 2005 -
September 30, 2010 time period. Custom products will likely be available and
-economically attractive for part or all of that period. Western offers sigaaed standardized
CMR: 191:04 Page 2 of 6
Custom Product Contracts to all customers. The customization is that different customers
can subscribe to different selwices and purchases in Exhibit A of the Contract.
Western proposed two products for subscription under the Western Custom Product
Contract. The first is a day ahead schedule firming service that would allow Western to
purchase energy on the City’s behalf to replace any energy lost due to generator outages
after the schedules were established. The second product available is fixed volume,
fixed market priced forward energy purchase contracts for one to 60 months duration.
The day ahead schedule firming se~wice would only be utilized when an event such as a
sudden generator outage caused a shortage of deliverable energy compared to schedules
already committed up to 72 hours ahead. In that event, Western would procure short
term replacement energy from the marlcet to keep schedules intact and delivered. For
utilities that do not subscribe to the day ahead firming service, Western would simply
inform them of the sudden change to their scheduled energy delivered and leave it to the
utility to handle the shortfall (presumably by buying from the market or increasing the
output of the utility’s other generation units). Using Western to make the short term
purchases will free up other generation resources that otherwise may have to be held back
as replacement reserves. Additionally, using this day ahead firming se~wice is expected
to reduce NCPA real-time dispatch administrative costs.
The forward market fixed price and volume purchases may be used to make purchases
that are free of California Independent System Operator charges and that may enjoy
lower transmission costs. They may also be able to be used to shift the timing of delivery
of part of Palo Alto’s share of CVP hydro energy to higher-value daytime hours. -Staff is
not proposing to take advantage of the fixed forward purchase opporktnities at this time.
Staff may return to request Council authority for making fixed price fol~,ard purchases
after various risk managernent issues have been resolved. On December 15, 2003 (CMR:
465:03) Council authorized the mayor to execute five Electric Master Agreements.
Council also authorized the City Manager or designee to manage Electric Master
Agreements (EMAs) with the five energy marketing companies. The EMAs are not
intended to provide, nor would be a cost effective vehicle to provide, the day ahead
firming service.
Day ahead firming purchases produces very little risk exposure because the volumes are
small, the durations are short and there is minimal uncertainty in credit quality for
counter parties in the front 3 days. Additionally, the City may terminate this a~eement
on 60 days notice.
CMR:191:04 Page 3 of 6
Limits of Authorization
Staff is proposing limits and parameters for Council’s authorization to the City Manager:
Authority to be delegated to the City Manager to subscribe to Western’s Day
ahead firming service where Western would buy electricity to meet day ahead
firming requirements as needed.
2.All transactions must be consistent with Council-approved Energy Risk
Management Policies [CMR:400:02].
o All transactions in excess of $65,000 to be reported on a quarterly basis to Council
as part of regular reporting (per the Energy Risk Management Policies and
Guidelines).
4.The maximum annual dollar limit on Western custom Product purchases is $2
million per year.
o The rnaximum total dollar amount of aggregated electricity transactions for the
Westerncustom products is $10 million for the entire 5.75 year period. This limit
gives staff needed flexibility in case electricity costs increase above expectations
or there are variations in hydrologic conditions.
All transactions that lie outside the authority delegated to the City Manager require
Council approval.
Staff would recommend subscription to custom products and se~wices when cost saving
oppom~nities would benefit utilities rate payers. Purchases made tl~’ough the Custom
Product Contract would be paid for 90 days ahead of the start of delivery. Palo Alto can
terminate arrangements under the contract with 60 days notice.
ALTERNATIVES
The aggregate cost of all transactions to be executed under the Western Custom Products
over the term of the aN’eement is expected to be between $1 million and $10 million.
Therefore, the request for City Manager authority of a maximum of $10 million may
appear much larger than necessary. Unfortunately, the actual quantities and costs for the
electricity required to meet load are not known at this time. If electricity costs do not
deviate N-eatly from expectations, and the hydrologic years over the telTn of the
CMR:191:04 Page 4 of 6
a~eements are neither dry nor wet, and generator reliability is normal, the City could
transact for less than $10 million of Western custom products.
However, the total volume and cost of transactions in a wet year or a dry year can be
higher than in a normal hydrologic year. Market costs for electricity could also increase
significantly. Finally, generator reliability could be different from its long-term average.
As an alternative to approving an ordinance allowing purchase of up to $10 million of
custom products from Western, Council could further limit the dollar amount, volume
amount or the type of purchases that can be entered into, with the likely effect of
decreasing the efficiencies and savings that can be achieved by using Western Custom
product to fill a niche in the Palo Alto electric portfolio.
RESOURCE IMPACT
Net savings to CPAU from its participation in the Custom Product Contract are estimated
at about $500,000 per year for the term of the a~-eement and could range between $0 and
$1 million per year. As discussed, net savings depend on many variables including
Federal CVP hydrology, generator outages andCVP pumping load variations.
Entering into the a~eelnent has no fixed cost. Subscription to selwices and products
under the contract will have 1-narket-based costs passed on to the City.
POLICY IMPLICATIONS
The proposed agn’eement complies with CPAU’s Portfolio Planning Objectives 1 and 2
approved by Council on November 13, 2001 [CMR: 425:01] 1: Ensure low and stable
supply rates for customers; and 2: Provide superior financial performance to customers
and the City by maintaining a supply cost advantage compared to the market cost and the
retail supply rate advantage compared to PG&E.
The proposed aN-eement complies with the Council approved Long-tenn Electric
Acquisition Plan (LEAP) Guideline 1: Electric Portfolio Dependence on Western: While
maintaining the flexibility to adopt favorable ’custom products’ offered by Western,
manage a supply portfolio independent of Western beyond the Base Resource Contract."
The proposed a~-eement complies with, and is subject to, continuing adherence to the
CPAU’s Energy Risk Management Policies, Guidelines, and Procedures. Furthermore,
all transactions undertaken by the City to manage this a~’eement are subject to review
and approval in conformance with internal risk management policies and procedures.
CMR: 191:04 Page 5 of 6
This recommendation is also consistent with the Council-approved Utilities Strategic
Plan [CMR 418:00 and 432:021 Strategy 2: Preserve a supply cost advantage compared to
the market price; and Strategy 3: Streamline and manage business process to allow the
City of Palo Alto Utilities to work efficiently and cost-effectively.
In terms of the City’s Sustainability Policy, neither CPAU’s participation in, nor the
existence of the Custom Product Contracts affect the physical operation of the Central
Valley Project with respect to fiver releases. CVP rese~woir management and river
releases are made for the five higher purposes of flood control, navigation, water
delivery, recreation, and fish and wildlife restoration and enhancelnent. Power
generation is only a byproduct of reservoir and river operation for the five higher
purposes. Power generation is not a driver of reservoir and river operation.
ENVIRONMENTAL REVIEW
Execution of the Custom Product Contract purchase a~-eement does not constitute a
project for the pro-poses of the California Environmental Quality act.
ATTACHMENTS
A:Ordinance authorizing the City Manager to execute the attached Custom Product
Contract
B:Western Custom Product Contract 04-SNR-00656 January 1, 2005- September30,
20t0
C: Form 410: Certification of Nondiscrimination
PREPARED BY:
TOM KABAT, Senior Originator
DEPARTMENT HEAD:
:or of Utilities
CITY MANAGER APPROVAL:
~ON
Assistant City Manager
CMR:!91:04 Page 6 of 6
*** NOT YET APPROVED ***
19104 Attachment A
ORDINANCE NO.
ORDINANCE OF THE COUNCIL OF THE CITY OF PALO ALTO
AUTHORIZING THE NEGOTIATION AND EXECUTION OF THE
WESTERN AREA POWER ~MINIST~ATION CUSTOM PRODUCTS
CONTRACT AND TO SUBSCRIBE TO THE DAY-~EAD FIRMING
SERVICE PRODUCT UNDER SPECIFIED TERMS AND
CONDITIONS DURING THE PERIOD JANUARY i,2005
THROUGH SEPTEMBER 30, 2010, INCLUSIVE
The Council of the City of Palo Alto does ORDAIN as
follows:
SECTION i. Findings. The City Council finds as fol!ows:
A. On October 16, 2000 the City entered into a Contract
No. O0-SNR-0033 ("Base Resource Contract") with the Western Area
Power Administration ("Western" Under this contract, the City
wil! receive less electric capacity and energy than is currently
made available under the existing contract with Western. The Base
Resource Contract will begin on January i, 2005 and will expire on
December 31, 2024.
B. On November 13, 2001, the Council by minute order
approved four primary energy portfolio objectives ("Objectives"),
including the objective to ensure !ow and stable electric supply
rates for customers.
C. On October 21, 2002, the Council by minute order
approved seven electric portfolio planning and management
guidelines to guide staff in deve!oping and managing the City’s
!ong-term electric acquisition plan ("LEAP Guidelines"). LEAP
Guideline ! regarding Electric Portfolio Dependence on Western
states: While maintaining the flexibility to adopt favorable
’custom products’ offered by Western, manage a supply portfolio
independent of Western beyond the Base Resource Contract.
D. On _August 4, 2003, the Council by minute order approved
the LEAP Implementation Plan and it also adopted Ordinance No.
4801, authorizing the purchase of energy and capacity during the
2005-2007 period. One element of the implementation plan is to
pursue any low-cost high value prospects to acquire supply-related
resources that may arise from time to time.
E. In accordance with the City’s LEAP Guidelines and
Implementation Plan, the City must annually purchase and,
incidental to purchases, sel! electricity to meet the needs of its
electric customers by entering into one or more contracts w~th
varying terms. The City’s Energy Risk Management Policies provide
that the City wil! purchase only as much electricity as is needed
*** NOT YET APPROVED ***
to meet its load requirements established at the time a transaction
is executed.
F. A portion of the City’s electricity demands are
supplied by existing contracts, including the Base Resource
Contract, contract for output derived from partial ownership in the
Calaveras Hydroelectric Plant with the Northern California Power
Agency, an energy exchange contract with Seattle City Light, and a
25 HW purchase of power for five years starting in 2005. The
balance of the City’s electricity needs must be purchased from
suppliers at market-based prices.
G. The balance of electricity the City needs will depend
on the output from the Base Resource Contract and the Calaveras
Hydroelectric Plant, both of which depend on hydrologic conditions.
After 2004, the City will be required to purchase about one-third
of its tota! electricity needs in an average hydro!ogic year. In
a dry year, the City must purchase about one-half of its annual
needs. In wet years, the City may have a surplus of electricity
and could afford to sell about one-fifth of its projected annual
needs.
H. To deal with generator unit contingencies that exist
under the Base Resource Contract, the City may execute a
subscription to the Day-Ahead Firming service offered by Western in
accordance with Western’s Custom Products Contract, subject to the
City’s ability to terminate the subscription with 60 days notice.
Under this service Western would procure replacement energy (to be
paid for by subscriber) for short-term interruptions to day-ahead
energy schedules.
I. The City may purchase electricity from Western who may
in turn purchase electricity from suppliegs for delivery between
January i, 2005 through September 30, 2010, inclusive.
SECTION 2. The Council hereby approves the negotiation and
execution of the Western Area Power Administration’s Custom
Products Contract, and authorizes the Mayor to sign the Custom
Products Contract. The Counci! further authorizes the City Manager
or his designated representative, the Director of Utilities, to
negotiate one or more individual transactions thereunder, with the
Western Area Power Administration. The authorization shall extend
to individua! transactions executed under the Custom Product
Contract, in accordance with the fol!owing key provisions: (a) the
maximum annual expenditure per fisca! year under any and al!
separate transactions thereunder shall not exceed two million
dollars ($2,000,000) per year, and (b) the maximum expenditure
under any and all separate transactions thereunder shall not exceed
ten million dollars ($i0,000,000) in the aggregate. The City may
enter into additional transactions that would raise the aggregate
040414 cl 0072380
2
*** NOT YET APPROVED ***
expenditure above $ !0 million, provided that any such transaction
must receive the prior approval of the Counci!.
SECTION 3. No standard fo_rm contract and any transaction
entered into thereunder with any qualified electricity supplier
executed by the City Manager or his designated representative and
approved as to form by the City Attorney under the authority of
this ordinance shall extend beyond September 30, 2010.
SECTION 4. The Council hereby finds that this ordinance is
exempt from the provisions of the California Environmental Quality
Act pursuant to Section 15061(b) (3) of the California Environmental
Quality Act Guidelines, because it can be seen with certainty that
there is no possibility of significant environmental, effects
occurring as a result of the adoption of this ordinance.
SECTION 5. This ordinance shall be effective on the
thirty-first day after the date of its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSTENTIONS:
ABSENT:
ATTEST:
City Clerk Mayor
APPROVED AS TO FORM:APPROVED:
Senior Asst. City Attorney City Manager
Director of Utilities
Director of Administrative
Services
040414 ct 0072380
19104 Attachment B
Contract 04-SNR-00
UNITED STATES
DEPARTMENT OF ENERGY
WESTERN AREA POWER ADMINISTRATION
SIERRA NEVADA REGION
CUSTOM PRODUCT CONTRACT
FOR
VARIABLE RESOURCE SERVICE
WITH
VARIABLE RESOURCE CUSTOMER
Contract 04-SNR-00
U N ITED STATES
DEPARTMENT OF ENERGY
WESTERN AREA POWER ADMINISTRATION
SIERRA NEVADA REGION
CUSTOM PRODUCT CONTRACT
FOR
VARIABLE RESOURCE SERVICE
WITH
VARIABLE RESOURCE CUSTOMER
Section Table of Contents Pa__a_g#_
1.Preamble .................................................................................................................................1
2.Explanatory Recitals ..............................................................................................................1
3.Agreement ..............................................................................................................................2
4.Effective Date and Term of Contract .....................................................................................2
5.Definition of Terms ................................................................................................................3
6.[Final Day-Ahead Base Resource Schedule Firming] ...........................................................4
7.[Supplemental Power Furnished by Western] ........................................................................4
8.Additional Services Necessary to Provide Custom Product(s) ..............................................5
9.Delivery Arrangements .......................................................................................................:..5
10.Scheduling, Metering, and Transmission Organizations .............................................i .........5
11.Western Rates ....................................................................................................." ....................6
12.General Power Contract Provisions .......................................................................................6
13.[Reimbursable Financing and skip to 14] OR [Creditworthiness ..................................[6][7]
!4.Advance Funding .................................................................................................................7]
15.Default Provisions ................................................................................................................10
16.Enforceability .......................................................................................................................10
17.[Exhibits Made Part of Contract .........................................................................................11 ]
Certificate/Resolution
General Power Contract Provisions (July 10, 1998)
[Exhibit A (Variable Resource - Supplemental Power)]
Contact 04-SNR-00
LrNITED STATES
DEPARTMENT OF ENERGY
WESTERN AREA POWER ADMINISTRATION
SIERRA NEVADA REGION
CUSTOM PRODUCT CONTRACT
FOR
VARIABLE RESOURCE SERVICE
WITH
VARIABLE RESOURCE CUSTO!VfER
1.PREAMBLE:
This Contract is made this __ day of ., 2004, pursuant to the Acts of Congress
approved June 17, 1902, (32 Stat. 388); August 26, 1937, (50 Stat. 844); August 4, 1939, (53
Stat. 1187); and August 4, 1977, (91 Stat. 565); and Acts amendatory or supplementary to the
foregoing Acts; between the UNITED STATES OF AMERICA, acting by and through the
Administrator, WESTERN AREA POWER ADMINISTRATION, Department of Energq¢,
hereinafter called Western, represented by the officer executing this Contract, or a duly
appointed successor, also sometimes hereinafter called the Contracting Officer; and the
VARIABLE RESOURCE CUSTOMER, hereinafter referred to as VRC or Contractor, a type of
entity, its successors or assigns; also hereinafter referred to individually as Party and together as
Parties.
8 EXPLANATORY RECITALS:
2.1 The Parties entered into Base Resource Contract 00-SNR-003 on
2000. The Base Resource Contract provides the terms and conditions whereby Western
will provide Base Resource Electric Service to VRC.
2.2 Westem’s final 2004 Power Marketing Plan, published in the Federal ReNster on
June 25, 1999 (64 FRN 34417), provides for Western to develop Custom Products for
customers who request them. Section [8.7] of the Base Resource Contract allows for
Western to develop a Custom Product for VRC.
[2.3 In addition to its Base Resource, VRC requests to purchase Supplemental Power
from Western to serve its load.]
[2.4 VRC [also] requests Western to provide other sources of power, if necessary, to
ensure Final Day-Ahead Base Resource Schedules are firm.]
2.5 Western is willing to provide the Custom Products in accordance with VRC’s
request[s] in Section[s] [2.3] [and] [2.4] above.
3. AGREEMENT:
The Parties agree to the terms and conditions set forth herein.
EFFECTIVE DATE AND TERM OF CONTRACT:
4.1 This Contract shall become effective upon execution by the Parties and shall
remain in effect until September 30, 2010.
4.2 Service under tiffs Contract shall begin on or after January 1, 2005.
Western may suspend or terminate service under this Contract pursuant to Section
4.4 All obligations incurred under this Contract shall be preserved until satisfied.
Contract 04-SNR-00 ]-]c~ys 2
5.DEFINITION OF TERMS:
As used herein, the following terms whether singular or plural, or used with or without initial
capitalization, shall have the following meanings:
5.1 "Base Resource" means CVP and Washoe Project power output, as determined by
Western to be available for marketing, after (1) meeting the requirements of Project Use
and First Preference Customers, and (2) any other adjustments required for maintenance,
regulation, reserves, transformation losses, and ancillary services.
5.2 "Custom Product" means a combination of products and services, excluding
provisions for load growth, which may be made available by Western per customer
request, using the customer’s Base Resource and supplemental purchases made by
Western.
5.3 "Final Day-Ahead Base Resource Schedule" means that amount of Base Resource
that Western declares to VRC for each hour of a 24-hour period under VRC’s Base
Resource Contract. The Final Day-Ahead Base Resource Schedule will be provided prior
to the active day. Scheduling procedures are more fully described in Exhibit C of VRC’s
Base Resource Contract.]
5.4 "Firming" means to ensure that the amount of power to be provided in accordance
with a schedule is available by obtaining another resource when necessary.]
5.5 "Supplemental Power" means firm capacity and energy provided by Western that a
customer needs in addition to its Base Resource to meet its load.]
5.6 "Variable Resource Customer" means a customer who is responsible for managing
its own power portfolio and will purchase Final Day-Ahead Base Resource Schedule
Contract 04-SNR-00 Klcq, a 3
Firming and/or Supplemental Power from Westem in addition to its Base Resource
percentage.
[6.FINAL DAY-A!lEAD BASE RESOURCE SCHEDULE FIRMING:
6.1 In the event that Western is unable to provide the Base Resource as stated in
VRC’s Final Day-Ahead Base Resource Schedule(s), Western will provide another source
of power to V-RC in order to firm VRC’s Final Day-Ahead Base Resource Schedule(s).
6.2 Western will continue to provide Final Day Ahead Base Resource Schedule
Firming to VRC for the duration of VRC’s Final Day-Ahead Base Resource Schedule(s) or
until Base Resource generation is restored to a level necessary to support VRC’s Final
Day-Ahead Base Resource Schedule(s), whichever time period is shorter.
6.3 VRC shall be responsible for all costs associated with Western’s provision of Final
Day-Ahead Base Resource Schedule Firming to VRC.
6.4 Either party may terminate this service upon sixty (60) days advance written notice
to the other party.]
[7.SUPPLEMENTAL POVCER FURNISHED BY WESTERN:
7.1 Western may provide Supplemental Power to those Variable Resource Customers
who request Supplemental Power to meet their loads. The minimum term for tNs service
shall be thirty (30) days.
7.2 VRC will provide Western with the details of its Supplemental Power needs.
Western shall have sole discretion in determining if it is able to provide Supplemental
Power service to VRC as requested by VRC. If Western determines it is able to provide
the Supplemental Power requested by VRC, Western will enter into a supply contract(s).
Contract 04-$ N R-00 rq c~,~ 4
7.3 The specific terms of the Supplemental Power to be provided to VRC will be listed
in Exhibit A, attached hereto. Exhibit A may be revised from time-to-time to meet the
Supplemental Power needs of VRC as agreed to by the Parties.
7.4 VRC shall be responsible for all costs associated with such purchases.]
8. ADDITIONAL SERVICES NECESSARY TO PROVIDE CUSTOM PRODUCT(S):
VRC understands that additional services, including but not limited to, scheduling the resource
and control area services may be necessary to provide the Custom Product(s) requested under
this Contract.
DELIVERY ARRANGEMENTS:
9.1 Day-Ahead Base Resource Schedule Firming will be provided to the point(s) of
delivery specified in Exhibit A of VRC’s Base Resource Contract.]
9.2 Supplemental Power provided by Western will be made available to VRC at the
point(s) of delivery specified in Section 4 of Exhibit A attached hereto.]
10. SCB]~DULING, METER_ING~ AND TRANSMISSION ORGANIZATIONS:
All services provided by Western to VRC under this Contract will be subject to the same
Scheduling and Metering terms and conditions and Transmission Organization Protocols as
provided under VRC’s Base Resource Contract with Western the same as if they had been
expressly set forth herein.
Contract 04-SNR-00 FJc~;Js 5
11.WESTERN RATES:
11.! VRC shall pay for electric and related services furnished hereunder in accordance
with the rates, charges, and conditions set forth in the CVP schedules of rates effective
January 1, 2005, or any superseding rate schedules.
11.2 VRC shall be responsible for all costs incurred by Western to provide the Custom
Product(s) specified in this Contract.
12.GENERAL POWER CONTRACT PROVISIONS:
12.1 The GPCP, effective July 10, 1998, attached hereto, are hereby made a part of this
Contract, the same as if they had been expressly set forth herein [; Provided, That, For the
term of Exlzibit A to this Contract, VRC hereby agrees to waive its rights under this
Contract to Article 11 of the GPCP. ONLY APPLHgS TO SUPPLEMENTAL POVCER
CUSTOMERS]
13.[REIMBURSABLE FINANCING: FOR FEDERAL CUSTOMERS ONLY then skip
to Section 15]
13.1 Western may purchase power or provide other services using reimbursable
authority pursuant to the Economy Act, 31 U.S.C. 1535. Reimbursable financing
establishes the budgetary resource to fund Westem’s reimbursable financing program.
Western’s reimbursable authority shall not exceed the fiscal year (presently October 1st of
the current calendar year through September 30th of the following calendar year) estimated
costs related to power and other services provided by Western. Reimbursable financing
under this Contract is limited to the total value of the Custom Product(s) provided by
Western.
13.2 Each February 1st, VRC shall provide written notification to Western of its
budgeted appropriations, or forecasted plan for budget requests for power and other
Contract 04-SNR-O0 iqcty~ 6
services provided by Western, for the upcoming fiscal year.. VRC shall inform Western
of any major changes to the forecasted budgeted authority.
13.3 VRC will obligate or otherwise commit the value of the Custom Product(s) to be
provided by Western in a manner that is standard for the agency for the fiscal year.
13.4 Each monthly power bill issued by Western to VRC will identify the portion of
such bill that will be designated as reimbursable.]
[CREDITWORTItlNESS: FOR ALL CUSTOMERS EXCEPT FEDERAL CUSTOMERS
For the purpose of determining the ability of VRC to meet its obligations related to service
hereunder, Western may require reasonable credit review procedures. In addition, Western may
require VRC to:
13.1 Provide and keep in effect during the term of this Contract, an unconditional and
irrevocable letter of credit as security to meet its responsibilities and obligations under
this Contract; or,
13.2 Provide an alternate form of security acceptable to Western.
14.ADVANCE FUNDING:
Unless otherwise agreed to by the Parties, the following advance funding language shall apply.
Any alternative method of advance funding shall be set forth in a separate contractual agreement.
14.1 Western shall use advanced funds for [Final Day-Ahead Base Resource
Schedule Firming] [and] [Supplemental Power] costs. Western will bill VRC for
the other services provided under this Contract as necessary.
14.2 Western will estimate the initial amount of funds required, and VRC shall
deposit that amount into a Western trust account. The estimate for the advance
Contract 04-SNR-00 Reefs 7
shall be based on the costs that Western anticipates incurring when providing
[Final Day-Ahead Base Resource Schedule Firming for three (3)months] [and]
[the entire cost of any contract Western enters into in order to provide
Supplemental Power] to VRC.
14.3 The amount of advance funding VRC is able to provide, as well as
Western’s funding authority, will determine the maximum term of any
Supplemental Power provided by Western. The term of any Supplemental
Power purchase will not exceed, five (5) years.l
14.4 The advance funding amount determined by Western in accordance with
Section 14.2 shall be due on the date specified on the initial bill for collection.
The initial bill for collection will be issued [by October 1,2004 for Day-Ahead
Base Resource Schedule Firming] [and] [at least ninety (90) days prior to
Western acquiring the resources necessary to provide Supplemental Power to
VRC].
14.5 [VRC shall be required to maintain a trust account balance of at least
three (3) months of estimated Final Day-Ahead Base Resource Schedule Firming
purchase costs. ]Western shall monitor the trust account balance and, if, at any
time, Western determines that:
14.5.1 There are not sufficient funds in the trust account, Western shall
notify VRC, and VRC shall advance the requested amount of funds to
Western within ten (10) days; or,
14.5.2 If excessive funds accumulate in the trust account, Western, at
Western’s discretion, will either 1) reduce the following month’s advance
funding amount; or, 2) return the difference to VRC.
Contract 04-SNR-00__Rc~ys 8
14.6 Funds that VRC advances to Western for [Final Day-Ahead Base
Resource Schedule Firming] [and] [Supplemental Power] provided under this
Contract shall be sent via wire transfer in accordance with the information
included on the Western bill for collection or as Western otherwise directs or
agrees.
14.7 Western will provide VRC with:
14.7.1 A monthly statement of the transactions that were posted to the
trust account, and the end-of-month balance in the account;
14.7.2 A bill for collection for the costs that Western anticipates it will
incur while providing [Final Day-Ahead Base Resource Schedule Firming]
[and] [Supplemental Power] to VRC for the following month, if necessary;
and,
14.7.3 An electric service bill that may reflect [Final Day-Ahead Base
Resource Schedule Firming] [and] [Supplemental Power] costs and any
associated credits for advanced payments of such costs.
14.8 Western shall be under no obligation to provide service hereunder without
VRC advancing sufficient funds and said funds being available in the Western
trust account described herein.
14.9 Western shall return any funds that VRC advances under this Contract in
excess of Western’s actual total costs incurred, without interest, to VRC within
sixty (60) days of the termination of service hereunder.]
15.DEFAULT PROVISIONS:
15.1 The failure of VRC to perform any of its payment obligations under this
Contract shall constitute a default. If Western determines VRC to be in default,
Contract 04-SNR-00 i-]c~ys 9
Western shall promptly notify VRC in writing. If VRC has not cured the default
within seven (7) days, Western may suspend service under this Contract.
15.2 IfVRC is determined to be in default and does not cure such default in a
manner and within the timeframe established or allowed by Western, Western
shall have the right to terminate this Contract, and assess damages, as follows:
15.2.1 If Western’s aggregate gains exceed its aggregate losses and
costs, Western, after any set-off, shall make no payment to VRC and,
notwithstanding anything in this Contract to the contrary, the amount by
which such gain exceeds the losses and costs for the purposes of this
Contract shall be zero (0); or,
15.2.2 If Western’s aggregate gains do not exceed its aggregate losses,
Western will promptly calculate the damages associated with the default.
As soon as practical, Westernwill provide notice to VRC of the amount of
the damages. Payment for the damages shall be made by VRC to
Western within ten (10) business days after such notice is received.
16.ENFORCEABILITY:
It is not the intent of the Parties that this Contract confer any rights on third parties to enforce the
provisions of this Contract except as required by law or express provision in this Contract.
Except as provided in this Section, this Contract may be enforced, or caused to be enforced, only
by Western or VRC, or their successors or assigns.
[17.EXHIBITS MADE PART OF CONTRACT:
Exhibit A (Variable Resource Supplemental Power) existing under this Contract may vary
during the term hereof. Said Exhibit shall become a part of this Contract during the term fbxed
by its provisions. Exhibit A is attached hereto and shall be in force and effect in accordance with
Contract 04-SNR-00 Vlc~.,fs 10
its terms until superseded by a subsequent Exhibit, as allowed by the terms of the Exhibit, or
terminated.]
IN WITNESS WftEREOF, the Parties have caused this Contract to be executed the day
and year first above written.
VARIABLE RESOURCE CUSTOMER
By:
Title:
Address:
WESTERN AREA POWER ADMINISTRATION
By:
Title:
Address:
Power Marketing Manager
114 Parkshore Drive
Folsom, California 95630
Contract 04-SNR-00 Vla~,~ 11
Variable Resource Customer
Contract 04-SNR-00
Extfibit A
Exhibit A
(Variable Resource - Supplemental Power)
1. This Exhibit A, to be effective under and as a part of Contract 04-SNR-00
(Contract), shall become effective upon execution of the Contract, and shall remain ineffect
until the earlier of: 1) the date provided in Section 2.2 below; 2) being superseded by another
Exhibit A; or 3) termination of the Contract.
2. On or after the effective date of this Exhibit A, and upon satisfaction of the conditions set
forth in the Contract, Western will provide Supplemental Power to VRC, as follows:
2.1
2.2
2.3
2.4
2.5
2.6
Delivery beginning:
Delivery ending:(Date)
Amount:__ MW per hourPeriod:Begq_nning hour ending __ through hour ending __
Days:(Days of the Week)
Price:dollars per megawatthour
3.Transmission for Supplemental Power provided under this Contract shall be provided
under VRC’s contract with ; and the delivery
point is ]
Contract 04-SNR-00~
19104 Attachment C
CERTIFICATION OF NONDISCRIMINATION FORM 410
Project: Letter of Agreement 04-SNR-00647 for Palo Alto to purchase Western Excess Capacity.
Certification-of Nondiscrimination: As &uppliers of goods or services to the City of Palo Alto, the
firm and individuals listed below certify that they do not discriminate il~ employment with regards to
age, race, color, religion, sex, national origin, ancestry, disabi}ity, or sexua:.l preference; that they are in
compliance with all Federal, State and local directives and executive orders regarding
nondiscrimination in employment.
Firm: Sierra Nevada Customer Service Region of the Western Area Power Adrninistration (Western)
Signature:
CITY OF PALO ALTO: CERTIFICATION OF NONDISCRIMINATION