HomeMy WebLinkAbout2003-04-21 City Council (3)Manager’s p! rt
TO:HONORABLE CITY COUNCIL
FROM: CITY MANAGER DEPARTMENT: UTILITIES
DATE:APRIL 21, 2003 CMR:238:03
SUBJECT:NCPA MEMBER COST SHARING AGREEMENT FOR THE
FINANCING OF THE PLANNING AND DEVELOPMENT OF THE
POE HYDROELECTRIC PROJECT
RECOMMENDATION
Staff recommends that Council approve the Northern California Power Agency (NCPA)
Member Cost Sharing A~eement (Second Phase) for cost sharing of the activities
associated with competing for the licensing of the Poe Hydroelectric Project (Poe
Project), currently licensed to Pacific Gas and Electric (PG&E).
DISCUSSION
The Poe Project is an existing 128 MW hydroelectric generating station located on the
Feather River in Butte County. Currently PG&E holds a 50-year license of the Poe
Project under the Federal Energy Regulatory Commission (FERC). The license is
effective through September 2003. PG&E failed to file for an extension of this license on
time. FERC has opened the licensing of the Poe Project to competitive review with an
application filing date of January 2004. NCPA has partnered with Butte County and the
City of Fremont to share the cost and to compete for the licensing of the Poe Project.
NCPA’s members would be responsible for 50 percent of the planning and licensing
expenses and, if successful in the bid for the Poe Project, would receive 50 percent of the
energy output. Palo Alto’s share of expenses would be $143,000, to be spent over the
next year to support NCPA’s licensing and legal activities; its share of the capacity and
energy output would be 9 MW and 40,000 MWh respectively representing three-and-a-
half percent (3.5°,";) of the City’s energy needs starting in mid to late 2005. The Poe
Project could potentially serve as a low-cost resource to fill a portion of the City’s post-
CMR:238:03 Page 1 of 2
2004 energy deficit and is consistent with the Long-term Energy Acquisition Plan
guidelines approved by Council on October 21, 2002 (CMR 398:02).
BOARD/COMMISSION REVIEW AND RECOMMENDATIONS
The UAC reviewed this recommendation at the April 2, 2003 meeting and approved it 4
to 1 with Commissioner Dexter Dawes opposing. Commissioner Dawes summarized his
opposition to the motion on the basis that, if this ~oup of municipal entities were
successful in obtaining the license to operate this project, there might be a backlash at the
legislative level resulting in negative impacts to the municipal power community as a
whole. This recommendation is consistent with the Council approved Utilities Strategic
Plan to "preserve a supply cost advantage compared to the market price".
ATTACHMENTS
A:Staff memorandum to UAC dated April 2, 2003
B:Member Agreement (Second Phase) for Financing of Planning and Development
Activities of Hydroelectric Project Number Two The Poe Hydroelectric Project
Minutes from the April 2, 2003 UAC meeting
PREPARED BY:~. /. , .~_~" :/, /,’ ~’~;~.-/
Md;nica V. Padilla, Re~e Planner
Shiva Swaminathan, Senior Resource Planner
DEPARTMENT HEAD:
.OHN/ULRICI~ "J
Director of Utili(ie’s"/
CITY MANAGER APPROVAL:
Assistant City Manager
CMR:238:03 Page 2 of 2
Attachment A
MEMORANDUM
TO:UTILITIES ADVISORY COMMISSION
FROM:UTILITIES DEPARTMENT
SUBJECT:NCPA MEMBER COST SHARING AGREEMENT FOR THE
FINANCING OF THE PLANNING AND DEVELOPMENT OF
THE POE HYDROELECTRIC PROJECT
DATE:APRIL 2, 2003
P, EQUEST
Staff requests that the UAC recommend that the City Council approve the
Northern California Power Agency (NCPA) Member Agreement (Second Phase)
for cost sharing of the activities associated with competing for the relicensing of
the Poe Hydroelectric Project (Poe Project), currently licensed to PG&E.
BACKGROUND
In an effort to fill the City’s post 2004 energy deficit, on October 21, 2002,
Council approved the Long-term Energy Acquisition Plan (LEAP) Guidelines to
be used by staff in evaluating and acquiring new energy resources. The Poe
Project could potentially serve as a low-cost resource to fill a portion of the post-
2004 energy deficit.
The Poe Project is an existing 128 MW hydroelectric generating station located on
the Feather River, currently licensed by the Federal Energy Regulatory
Commission (FERC) to Pacific Gas & Electric Co. (PG&E). The original FERC
license was issued on September 26, 1953 for a period of 50 years. By federal
law, a filing to renew the license must be made by a date certain, which in this
case was September 30, 2001. PG&E filed the application late on October 2,
200!. FERC has agreed to permit others to compete for the Project.
Page 1 of 3
DISCUSSION
NCPA staff has analyzed the project economics and concluded that, if NCPA is
successful in acquiring the hydro license, the power output from the Poe Project
could cost approximately two cents per kilowatt-hour under one likely scenario.
This cost estimate compares favorably to other resource alternatives. Energy from
the Poe Project could be available to NCPA members in mid to late 2005.
However, there are legal issues with respect to NCPA’s appeal in the 9a Circuit
Court of Appeal that could very well change the outcome or even delay the
transfer of the Project from PG&E. NCPA staff and its legal advisors have advised
that the members should proceed with the relicensing because the potential reward
could outweigh the risks.
In order to collectively pursue the license for the Poe Project, NCPA is negotiating
a partnership with Butte County and the City of t:remont. The estimated total cost
of these licensing activities is estimated to be between $1.2 and $2 million through
January 2004, of which the NCPA share would potentially be 50%.
In order for NCPA members to cover the cost of planning and development
activities related to the Poe Project, NCPA has drafted a Second Phase Member
Service Agreement. Each NCPA member that is interested in participating in the
project must a~ee to pay its participation share of the development costs which is
initially determined by averaging the member’s non-coincidental peak capacity
and annual energy load. Currently, all NCPA members, with the exception of the
Turlock Irrigation District have indicated a preliminary interest in participating in
the project. Based on these preliminary indications of interest, Palo Alto’s
allocation would be 14.252% with an associated cost outlay of approximately
$143,000 over the next year. If NCPA is successful in obtaining a license for the
Poe Project, the City’s share of project output in an average hydro year would be
approximately 9 MW and 40,000 MWh representing approximately three-and-a-
half percent (3.5%) of the City’s energy needs.
There is no guarantee that participating NCPA members will be successful in
either the 9th Circuit Court appeal or in the competing license application process
before FERC. However, a~eement by the City to participate in the planning and
licensing phase will ensure that if NCPA is successful in obtaining a license, the
City will have access to a potentially low cost energy resource. IfNCPA’s efforts
are successful, .additional funding would be necessary to acquire the Project, and
comply with the FERC license conditions such as increased recreation, better
habitat for fish and wildlife, etc. NCPA would raise funding through public
financing and the funds spent through the Second Phase would be repaid with
interest to the participating members. During the next year or so updated
information regarding costs and output of this project will be analyzed. If the
project economics remain favorable, Staff will seek UAC and Council approval of
Page 2 of 3
a Third (and final) Phase a=~eement with NCPA for the City to participate in the
financing and rights to the output of the Poe Project.
RESOURCE IMPACT
The City would expend approximately $143,000 over the next year to support
NCPA’s licensing and legal activities. Such funds have been budgeted for in the
Utilities’ Electric Supply budget for fiscal years 2002-03 and 2003-04.
POLICY IMPLICATIONS
Agreement to participate with NCPA in the legal and licensing activities for the
Poe Project is consistent with the Utilities Strategic Plan Strategy #2, "Preserve a
supply cost advantage compared to the market price" and further follows the
LEAP Guidelines in filling the post-2004 energy deficit.
NATTACHMEI ’T
A~Draft Member Ageement (Second Phase) For Financing of Planning and
Development Activities of Hydroelectric Project Number Two The POE
Hydroelectric Project
PREPARED BY: Monica V. Padilla, Resource Planner
Shiva Swaminathan, Senior Resource Planner
REVIEWED BY: Girish Balachandran,
Management
DEPARTMENT HEAD APPROVAL:
Assistant Director, Resource
of Utilities
Page 3 of 3
MEMBER AGREEMENT (SECOND PHASE) FOR
FINANCING OF PLANNING AND DEVELOPMENT ACTIVITIES
OF
HYDROELECTRIC PROJECT NUMBER TWO
THE POE HYDROELECTRIC PROJECT
This Agreement, by and between Northern California Power Agency, a
joint powers agency of the State of California, hereinafter called "NCPA" and its
members who execute this AgTeement, hereinafter called "Project Members,"
WITNESSETH:
~,&~-IEREAS, NCPA and the Project Members are interested in developing
additional power generation resources for the benefit of the residential,
commercial, and industrial customers of the Project Members; and
"WHEREAS, NCPA and the Project Members have evaluated the potential
for obtaining a license for the Poe Hydroelectric Project (Project) from the Federal
Energy Regulatory Commission (FERC) tt~rough a competing license application
in competition with the license application of Pacific Gas and Elec~’ic Company;
and
WHEREAS, in furtherance of the Project, NCPA has filed with FERC its
Notice of Intent to file a timely license application under the Federal Power Act;
and
WHEREAS, the City of Fremont has expressed an interest in joining with
NCPA in a si~-tgle competing license application, and both the City of Frernont
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and NCPA wish to seek authorization to make the County of Butte a co-licensee
with them, if NCPA and the City of Fremont, or either of them, are issued a
license for the Poe Project; and
~Arl--IEREAS, the City of Fremont and the County of Butte wish to share the
costs and benefits with NCPA of pursuing and securing a license for the Poe
Project and to have NCPA provide project management; and
WHEREAS, the September 22, 1993 Facilities Agreement provides for a
second stage of project planning and design pursuant to a Second Phase
Agreement, as had been provided in the Member Service Agreement; and
~4rHEREAS, the second phase consists of all work performed after one or
more participants has siocmed an agTeement with NCPA for project study, design,
or development before a Third Phase Agreement becomes effective for the
financing, construction, operation, maintenance and rights to the output of an
NCPA project; and
WHEREAS, to advance the investigation of the Project and further
provide working capital fo~ the study, desig-n, and development of the Project, to
include changes and improvements to the Project to better enhance the public
interest factors under the Federal Power Act, and the licensing and permitting of
the Project, as well as managing pursuit of the Project pursuant to a cost-sharing
agreement with other parties, and litigating the defense of NCPA’s competing
license position, NCPA and the Project Members are entering into this Second
Phase Agreement;
NOW THEREFORE, the parties hereto agTee as follows:
Section 1.
and Accounting.
Obligations Formalized - Percentage Participation - Collections
NCPA, on behalf of itself and the Project Members, shall
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prosecute a competing license application for the Project, alone or in conjunction
with others, as provided in this Ag-reement. Each Project Member agTees to
continue to pay or advance to NCPA, .from its electric department net revenues
(after the payment of operating expenses) only, its percentage participation share
of the costs authorized by Project Members in accordance with this Agreement in
connection with the Project prior to the issuance of a license by the FERC to
NCPA or NCPA and Fremont, or the first issuance of Project bonds. Each Project
Member further agTees that it will fix the rates and charges for services provided
by its electric department so that it will at all times have sufficient money in its
electric department revenue funds to meet this obligation. The percentage
participation of each Project Member is initially established as follows:
Alameda 5.3218
Biggs 0.2570
Gridley 0.5229
Healdsburg 1.1915
Lodi 7.5738
Lompoc 1.9351
Palo Alto 14.2520
Plumas-Sierra R.E.C.1.8306
Port of Oakland 0.0889
Redding 12,8804
Roseville 16.0598
Santa Clara 33,5810
Truckee Donner Public Utility District 2.0216
Ukiah 1.8835
100.0000%
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The percentage participation share of each Project Member shall be
revised proportionately if less than all NCPA members become Project Members
on the effective date hereof, and thereafter if and when any Project Member
withdraws in whole or in part. Any Project Member wholly withdrawing shall
thereupon cease to be a Project Member for all purposes except for purposes of
Sections 4 and Y(c).
After the expenditure of the $750,000 heretofore appropriated for licensing
activities in the Annual Budget for Fiscal Year 2003-2004, NCPA shall demand
from each Project Member its share of its ag-reed to financial commitment on a
concurrent basis. Any part of such demand by NCPA which remains unpaid for
sixty days after its billing date shall bear interest from such sixtieth day at the
prime rate of the Bank of America then in effect computed on a daily basis plus
two percent until paid. Interest so earned shall not change any Project Member’s
participation percentage, and shall become a part of the working capital account
defined below.
The funds advanced according to this Section I shall be used to establish a
working capital account when approved by the Project Members, and in an
amount and subject to an}, limitations approved by the Project Members.
Nothing in this Section 1 shall be construed to proMbit a Project Member
from satisfying its financial commitments from unencumbered funds otherwise
on deposit at NCPA.
Section 2.Limited Rights to Participate in Final Implementation and
Financing.
(a)Discretion - Disposition of Power. In consideration of the
payments provided for in Section 1 hereof, each Project Member who has not
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wholly withdrawn, or who is not then in default, shall have an exclusive option
to enter into a Third Phase A~eement for all or a part of its participation
percentage of all power made available to NCPA from the Project.
(b) Increase in Purchases. A Project Member can, at the time of
entering into the Third Phase A~eement, purchase more than its participation
percentage of Project power if additional power is available by reason of the non-
participation in the Third Phase A~eement by one or more Project Members.
Such excess power shall be reallocated among those who do participate in the
same proportion as their shares bear to the total shares of those who do
participate. If Project Members so entitled do not wish to contact for all the
excess power, such remaining excess shall be disposed of as a~eed to b), the
Project Members.
(c) Exercise and Effect of Taking Less Than Full Entitlement.
The Project Members shall establish the terms and provisions of an agTeement to
purchase power of the Project prior to the expiration of tt’LiS Ag-reement, to be
known as the Tl-drd Phase Ao~reement. They shall also establish the date by
which the Third Phase Agreement must be executed by Project Members and
delivered to NCPA if they are to participate in the purchase of power from the
Project. Failure to execute the Third Phase A~eement for any of its total
participation share and to deliver it to NCPA by that date or 30 days after Project
Member receipt, whichever is later, will be an irrevocable decision on the part of
that Project Member not to purchase any such power or otherwise participate in
the Project. Execution and delivery of the Third Phase Ag-reement for less than its
original total participation percentage, and delivery of that Project Member
executed a~eement to NCPA by the date established or 30 days after Project
Member’s receipt, whichever is later, will likewise be an irrevocable decision on
the part of that Project Member not to purchase any such power in excess of the
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share set forth in its delivered ag-~eement. Supplemental agreements or other
agreements will be entered into for the excess or surplus power. The procedure
for processing supplemental a~eements shall be consistent with those
prescribed immediately above in this subsection (c) for making purchases of
power. Failure to re~urn an executed a~eement for any additional power within
the prescribed period .is an irrevocable decision not to purchase such additional
power. The Project Member making any herein defined irrevocable decision not
to purchase all of its original share of power shall be foreclosed from receiving,
and shall be relieved of further burdens related to, power which it has declined
to purchase or further expense relative to the future development of the Project.
Section 3. Member Direction and Review. NCPA shall comply with all
lawful directions of the Project Members with respect to this A~eement, while
not stayed or nullified, to the fullest extent authorized by law. Actions of Project
Members, including giving above directions to NCPA, will be taken only at
meetings of authorized representatives of Project Members duly called and held
pursuant to the Ralph M. Brown Act. Ordinarily, voting by representatives of
Project Members will be on a one member/one vote basis, with a majority vote
required for action; however, upon request of a Project Member representative,
the voting on an issue will be by percentage participation with a 65% or more
favorable vote necessary to carry the action.
Any decision related to the Project taken by the favorable vote of
representation of Project Members holding less than 65% of percentage
participation can be reviewed and revised if a Project Member holding any
participation percentage gives Notice of Intention to seek such review and
revision to each other Project Member within 48 hours after receiving written
notice of such action. If such Notice of Intention is so given, any action taken
specified in the Notice of Intention shall be nullified, unless the NCPA
6
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Commissioners of Project Members holding at least 65% of the total participation
percentage then in effect vote in favor thereof at a reo~ular or specially called
meeting of Project Members. If the Notice of Intention concerned a failure to act,
such action shall nevertheless be taken ff NCPA Commissioners of Project
Members holding at least 65% of the total Participation Percentage vote in favor
thereof at a regmlar or specially called meeting of Project Members.
Section 4. Conditional Repayment to Members. All payments and
advances made heretofore, and those hereafter made pursuant to Section l,
excluding interest paid on delinquent payments, shall be repaid to each of the
Project Members making such payments and advances pursuant to this
Agreement out of the proceeds of the first issuance of the Project bonds or as and
when there are sufficient funds available from the partial sale of bonds. Such
reimbursements shall be made within 60 days following the sale of any Project
bonds. If NCPA is not successful in financing the Project, there shall be no
reimbursement except out of unused Project funds along with all other receipts
to which NCPA is entitled in connection with the Project.
Section 5. Term. This A~eement shall take effect on April 24, 2003, or
whenever executed by NCPA members holding 85% of the initial percentage
participation, whichever is later, and it shall not take effect at all ff not in effect
by June 30, 2003. This Agreement shall be superseded by the Third Phase
Agreement into which Project Members shall enter any time prior to the issuance
of the Project bonds, pursuant to Section 2, except that Section 4 sha!l remain in
effect. Changes in this provision, except as to Section 4, shall be in accordance
with Section 3 hereof.
Section 6. Financial Commitments. Eacl~ Project Member ag-rees to a total
financial co1~m~itment for its respective percentage participation of a total sum,
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including payments and advances heretofore made, up to $2 million in costs
allocable to NCPA as authorized and approved by Project Members.
From time to time as needs arise, representatives of Project Members may,
by a favorable vote as provided in Section 3, authorize an increased financial
commitment above $2 million which can be shown to support the completion of
the Project, but only after 30 days’ written notice of such proposed increase has
been given to all Project Members.
Section 7. Assignment.
(a) Notwithstanding an); other provision of this A~eement, if
NCPA shall require funds to carry out the terms of this Agreement prior to the
receipt of adequate funds from the Project Members, it may assigm its right to
receive any payments under this Agreement to a bank or other financial
instihation to secure a borrowing by NCPA or in exchange for an amount of
money equal to the then present value of those payments, as determined by
NCPA. Project Members hereby consent to such assignment, and upon
notification in writing by NCPA, each such Project Member will make each such
assigned payment directly to the assignee. The assignee shall not be liable to
Project Members for the amounts so assigned, and NCPA shall use the proceeds
of such borrowing or assignment for the purposes provided into this A~eement.
If an assignment is made under this section, then upon the failure of any
Project Member to make any payment so assigned, the percentage participant
share of each non-defaulting Project Member shall be automatically increased for
the term of the assignment pro rata with that of the other non-defaulting Project
Members, and the defaulting Project Member’s share shall (but only for purposes
of computing the respective percentage participation shares of the non-
defaulting Project Members) be reduced correspondingly; provided that the sum
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of such increase for any non-defaulting Project Member shall not exceed without
written consent of the non-defaulting Project Members an accumulated
maximum of 25% of the non-defaulting Project Member’s original percentage
participation share.
If the Project Member shall fail or refuse to pay any amounts due to
NCPA, the fact that other Project Members shall increase their obligations to
make such payments shall not relieve the defaulting Project Member of its
liability for such payments and any Project Member increasing such obligation
shall have a right of recover), from the defaulting Project Member to the extent of
such respective increase.
In addition, NCPA may terminate the provisions of this Agreement
insofar as the), entitle the defaulting Project Member to its percentage
participation share of Project output.
(b) For the purposes of such assigTument, NCPA may fix and
schedule the total amount payable by each Project Member into any number of
semi-annual payments, not less than four nor to exceed ten, and the dates on
which such payments will be made, and each Project Member ag-rees to abide by
such schedule. NCPA shall provide a reasonable opportunity for any Project
Member to prepay its total obligation.
(c) After such an assignment is made, no Project Member may
avoid the obligation so assigned by withdrawal pursuant to Section 7 hereof or
otherwise.
Section 8. Withdrawal From Further Participation. If at any time
following the execution of this A~eement, there is an increase in tne financial
commitment beyond that contemplated in Section 6, Project Members may
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partially withdraw, i.e., from participation in the increase, or may withdraw
wholly from the Project. Any withdrawal shall be subject to honoring any
commitments made by them or on their behalf pursuant to authorization of this
AgTeement. To withdraw, such Project Members shall ~ve NCPA written notice
of such withdrawal, in part or in whole, within thirty (30) days of the receipt of
the notice by them of the increase.
Section 9. Voting Rights and Duration. A Project Member is participating
for purposes of Section 3 percentage voting until it completely withdraws, but a
partial withdrawal will result in a reduction in its percentage participation share
to the ratio of its payments after such withdrawal to the total amount of
payments by all Project Members after such withdrawal. When the Third Phase
A~eement is executed, or revised, revised participation percentages for voting
shall be established by dividing the amount of power ag-reed to be purchased by
each Project Member by the total amount of power to be purchased bY all Project
Members except that the 65% of percentage participation specified in Sections 3
and 9 shall be reduced by the amount that the percentage participation of any
Project Member shall exceed 35%, but such 65% shall not be reduced below 50%.
Section 10. Quorum Defined. The presence of either a majority of the
Project Members, or of Project Members then having a combined participation
percentage of at least 65%, shall constitute a quorum for the purpose of action.
IN WITNESS ~4.~qEREOF, each Project Member has executed this
Agreement with the approval of its governing body, and NCPA has authorized
this Ao~eement in accordance with the authorization of its Con-tmission.
10
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NORTHERN CALIFORNIA
POWER AGENCY
By:
By:
CITY OF BIGGS
By:
By:.
CITY OF HEALDSBURG
By:
By:
CITY OF LOMPOC
By:
By:
PLUMAS-SIERRA RURAL
ELECTRIC COOPERATIVE
By:
By:
CITY OF ROSEVILLE
By:
CITY OF ALAMEDA
DRAFT
By:
By:
CITY OF GRIDLEY
By:
By:
CITY OF LODI
By:
By:
CITY OF PALO ALTO
By:
By:.
CITY OF REDDING
By:
By:
CITY OF SANTA CLARA
By:
By:
11
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TRUCKEE DONNER PUBLIC
UTILITY DISTRICT
CITY OF UKIAH
By:.
By:
By:
By:
12
EXECUTION COUNTERPART
ATTACHMENT C
UTILITIES ADVISORY COMMISSION
MEETING MINUTES
APRIL 2, 2003
DRAFT EXCERPT
NCPA MEMBER COST SHARING AGREEMENT FOR THE FINANCING
OF THE PLANNING & DEVELOPMENT OF THE POE
HYDROELECTRIC PROJECT
Ulrich: It’s always an excellent introduction. Thank you. In transposing these two
what we have tonight is something that doesn’t come along very often and I hope
all have a chance to read the report. This is a cost-sharing agreement for financing
for the planning and development of the POE Hydroelectric project. And your first
question is probably POE Hydroelectric Project.? You probably have never heard
of it before, yet it clearly not opened by any municipal utility. It is owned by
Pacific Gas and Electric Company and it is one of a number of hydroelectric
projects that are in a cascade along our river system. The license was for 50 years.
Unfortunately for PG&E, they did not renew the license as required by law. They
have to file an application to renew it. So that has given an opportunity to others to
come in and attempt to show reasons why license given to them. One of the
players that would like to do that is NCPA. We’re asking tonight for agreement to
move ahead with helping to fund the licensing process and make the step forward.
So you may have some questions around that. Had Modi from NCPA who is
intimately involved with this and who has been working on it has joined us this
evening to be able to answ-er some of your questions. Do you have anything you
want to say before they ask questions?
Carlson: Okay go ahead Dexter.
Dawes: John, I’m fascinated that our tong considered electric resource plan
primary conclusion was that we needed to diverse our resource base.
Ulrich: Yes
Dawes: The first request we have is to fund more hydro.
Ulrich: Yes
UAC Minutes April 2, 2003 - Draft Excerpt
ATTACHMENT C
Dawes: And I know the answer is cheap power and you know I’ll probably go
along with it but I just couldn’t pass up the opportunity to...
Ulrich: Well, there’s this mantrathat just keeps going on and on ~ There’s no
such a thing as too much 2 cent power"
Dawes: I agree. I knew you’d say that so. It refers to NCPA’s appeal to the 9th
Circuit Court Of Appeals but it doesn’t say anything about litigation that’s
involved here. I assume the PG&E has gone to court to try to overturn an arbitrary
and capriouscious decision that some clerk, slept in on Saturday morning and
caused them to lose a $100,000,000 asset so.
Ulrich: You can imagine it’s not their fault.
Dawes: Of course not. Evidently the court decided that they would in fact let
PG&E keep it and that is what NCPA is appealing, is that correct?
Moti: It is slightly different. APRC allowed PG&E, in spite of them not
filing on time, to go ahead and file a license application, even though PG&E was
late in filing. We said to , we meaning jointly the City of Fremont and
NCPA, acting separately indicated to that did not have the right
under the regulations to permit PG&E to refile that license application under the
circumstance. So in order to appeal that court’s decision, we, NCPA and City of
Fremont, filed an appeal in the 9m Circuit Court.
Dawes: What’s the probability of success here? There’s a fair amount of money
being put up in legal fees and it seems to me a rational point of view that to
deprive a struggling entity of an asset on technicality, is pushing things a little bit
far. I don’t know if this has been reduced to probability of success but personally
I’d say it’s gotta be less than 10%. There’s gotta be some logic and common sense
out there.
Moti: With respect to the probability the attorneys that are intimately involved in
these kinds of cases, indicated to us that under the regulations an entity
is given two (21) years to prepare and submit the license application. When an
entity such as PG&E in this particular case fails to deliver the license application
on time, the law should be prevailed with respect to not allowing that utility to file.
The 9th Circuit Court decision is the one that we have to really rely upon in order
to draw the probability case because there are three probabilities: One is that 9th
Circuit Court would listen to us, abide by the law, and give us the go ahead with
respect to filing the application alone. The other possibility is that the 9th Circuit
Court would rule in favor of what the has decided, meaning
allowing PG&E to file the application and giving it the preference status. And the
UAC Minutes April 2, 2003 - Draft Excerpt
ATTACHMENT C
third possibility is that we both be allowed, both meaning on our side City of
Fremont and NCPA, and on the others like PG&E equal consideration.
Dawes: Is there any precedent that there’s been a late filing and the courts through
all it’s due process has allowed other people t compete for it? Or is this attorneys
who are attempting to be hired and want to paid 1.2million to lead some gullible
municipalities down the primrose path of appealing a !ost cause?
Moti: With respect to the 1.2 million dollars that is not the attorney cost. That
includes the cost of us on the Engineering side performing several required studies
with respect to the water temperature and other things and as to whether there as
been a case like that, to the best of my knowledge, there was one small case, but I
do not know the details of it.
Dawes: And lastly, how did these percentages come about? Why isn’t Palo Alto
in for 35% and Fremont in for 25% rather than the way it is?
Moti: Should I go ahead and explain to them? Okay. Initially the desire on the part
of Fremont and Butte, Butte being the county of origin, wanted to have equal
percentage, that is 33 1/3%. But with the opinions and express desire on the part of
the N CPA commissioners a nel t he U tility directors, t hey directed staff t o o btain
higher percentage because they believed we held the knowledge to expertly move
this process more efficiently then Fremont and Butte would ever have. So we
negotiated with Fremont to reduce their percentage, and Fremont said that the
minimum that they would be willing to go would be 25% and no less than that.
Then there was the possibility that if we were to force Fremont to go less than
25%, the entire process with three entities competing with PG&E in this case,
would become highly inefficient. So when at the staff level brought the idea of us
and N CPA, u s a ssuming t he 1 arger percentage 5 0% and s hating with B utte and
Fremont, 25%, that was acceptable to the commission and utility directors.
Dawes: Thank you.
Carlson: Dick, go ahead.
Rosenbaum: Haft it’s nice to see you. People may not know that Hari was project
manager for our Calveras project, 20 years ago. So you’ve got another opportunity
to pursue hydro though there isn’t much construction in this one. But where’s the
City of Fremont come from? Why are they involved?
Moti: City of Fremont found out about this project through an attorney by the
name of Howard Gallen(?) who used to be the attorney for PG&E. When Gallen
noticed this late filing, he detected or his attorneys did and so City of Fremont as
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ATTACHMENT C
we know was desirous from about 2 years back to get a reliable power and was
willing to pay a higher price. So Howard Gallen approached the City of Fremont
and said that would be their opportunity really take this project and reduce their
price and perhaps get very reliable power. So that is the Fremont connection, with
respect to the project.
Rosenbaum: I mean Fremont does not have a municipal utility. What are they
gonna do?
Moti: Fremont has indicated to us that their desire would be over a very short
period of time to make NCPA be the entity to really market it’s share of the
project power so therefore they would be the obtaining the revenue which is what
they’re after. However, their long term desire is to understand the power market
and to be in that.
Rosenbaum: Sounds like someone could write a novel about this. Maybe
somebody will.
Moti: I’m just telling you everything.
Ulrich: Wrho says this business isn’t fun?
Carlson: Okay, any more questions on this one?
Ulrich: If I could respond?
Carlson: Yeah, go ahead
Beecham: To Dexter’s questions, if you do look at expected value based on
modest probability of success, we’re looking at the valuation of having a 2 cent
asset out there. The numbers still look pretty good.
Dawes: Even if they lose this re-licensing case, we can’t expropriate it. I mean it’s
got to be bought and then there will be a protracted evaluation process of what’s
the fair market value and I’m sure if it fair market value was estimated on the basis
of current and expected power costs, that the amount that will have to be paid PGE
is going to be vastly higher than the equivalent of 2 cents. I don’t see where this 2
cent thing comes from. Somebody’s invented out of whole cloth how much a
judge is going to award PGE when they lose this license. I just don’t get it.
Moti: There are governing regulations with respect to the competing applications.
It’s that in a competition like this if you were to acquire the project from an entity
you will be required to pay them the book value, the depreciated book value.
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Beecham: Well, you know it’s not so funny actually. Go ahead.
Moti: The depreciated book value on this project is close to $17-$18 million
dollars, and on top of that, there is a requirement that we pay for, what you call,
the severance, and the definition of severance with respect to the entity to entity.
So the 2 cent number that we have come up with is some basis to it. It is up to the
9th circuit to really agree with us or disagree with us, but the law and the
regulations governing the transfer of under these circumstances is clear.
Beecham: And this issue here of who has the federal license for this? This isn’t an
asset 100% owned by PGE, and it’s being put on the market as such. What we are
competing for is the federal license and that’s where the value is. PGE’s book
value in the actual facility...yeah, we’ll pay them a depreciated cost, whatever it
cost them. They won’t lose on that. They won’t lose anything, but what we would
hope to pick up is the value of the Federal license.
Moti: You are absolutely right because this is a public resource on a public land,
and that is what the government intended initially when issuing the license.
Beecham: And in terms of the partnerships, Fremont has identified with what
might be a good thing, but in terms of Butte County, working with them, there
may be in fact some advantages in terms going to and saying hey we’re
working with the local county here. They will get benefits out of this, so therefore,
this is one of the benefits of us working. Now let me add in terms of the risks,
there is not only a legal risk in the Court of Appeals, but there also may be
legislative risk. And PGE can certainly go to Congress and say "hey, you know,
write a law for me" , and that’s a risk also that NCPA’s looked at and has
acknowledged and has taken into account.
Carlson: Go ahead Rick.
Fer~uson: I move the staff recommendation.
Carlson: Is there a 2nd?
:Seconded.
Carlson: All in favor.
Dawes: There is a little more discussion.
Carlson: Alright, some discussion.
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Dawes: I just want to summarize my feeling here. I think this could be a major
blow to the whole municipal power operation. I mean there is reoccurring
pressures legislatively in Washington to the effect that municipal power is unfair
to IOU’s, that the ability of municipals to get Federal power at cost is a huge
benefit that the Federal people should get the revenues at fair market values for it.
I think if it would be publicized certainly by PG&E that this group of municipal
entities is in effect stealing their asset at vastly less than fair market value, and oh
by the way, one of them doesn’t even have a municipal power system, and they’re
only in for the money. They’re going to get 25% of the power for 2 cents and sell
it for 4-7 cents - would just make the whole municipal power movement look
terrible and I intend to vote against. I’m not raising my arm.
Beecham: If I could respond to that, this in fact is not that situation. This is not
power marketing administration, this is not a Federally owned facility, this is not a
Federally operated facility, this is not the Western Power Administration. This is
again an asset, a license that is offered to anybody. We are competing for it.
Anybody else can come and compete for it, if they have been watching and
careful. PG&E is competing for it. We’re doing that on an equal basis. There is no
advantage given to us because we are municipal, this is not disadvantage given to
us because we are municipal. This is the competitive market. There is no subsidy
here. There is no PMA Act issue here, so the issues that may be in some people’s
minds and other cases is not relevant to this situation.
Carlson: Any more discussion?
Bechtel: I’d just like to respond. I think I’m going to support the motion. When it
comes to licensing, think about it also, the FCC all stations, radio, television
require an FCC license. It comes up for renewal and if they’ve not done a good job
in serving their listener or viewer base, then the FCC does something about it. The
airways were ruled many years ago, so I’ll look at it in this way, if they fail to file
a license application on time, then I don’t think we’re doing anything wrong by
competing in the open market for getting that license.
Carlson: Okay. Any more discussion? All I favor say aye.
Fer~uson. Bechtel. Rosenbaum. Beecham: Aye
Carlson: I’ll say aye too.
Dawes is Nay. Motion passes.
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Carlson: Thank you very much Hari. This is going to be fascinating. It is probably
worth a $143,000 gamble.
Ulrich: Thank you Haft for coming down. I appreciate it.
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