HomeMy WebLinkAbout2002-07-22 City Council (14)1VIanager s Summary Re
TO:
FROM:
DATE:
SUBJECT:
HONORABLE CITY COUNCIL
CITY MANAGER
JULY 22, 2002
DEPARTMENT: UTILITIES
CMR:331:02
APPROVAL OF THE NATURAL GAS SERVICES AGREEMENT
WITH PACIFIC GAS ANDELECTRIC ENERGY TRADING GAS
CORPORATION FOR ANAMOUNT NOT TO EXCEED $10.9
MILLION FOR NATURALGAS..OPERATIONS AND RESIDUAL
GAS BALANCING SERVICES
RECOMMENDATION
Staff recommends that Council:
Authorize the City Manager or his designee to negotiate and execute the attached Natural
Gas Services Agreement with Pacific Gas and Electric Energy Trading Gas Corporation
in the amount not to exceed $1.6 million for natural gas operations and residual gas
services to commence September 1, 2002 and end December 31, 2003.
1.Authorize the City Manager or his designee to exercise the option to renew the
contract through August 3.1, 2005 in an amount not to exceed $6.9 million.
o Authorize the City Manager or his designee to negotiate and execute one or more
amendments to the. contract with Pacific Gas and Electric Energy Trading Gas
Corporation to cover additional gas commodity cost associated with an increase in
wholesale natural gas prices and!or natural gas usage. The total of these change
orders shall not exceed $2.4 million.
Adopt the attached resolution authorizing the City Manager or his designee to
confirm its legal authorization to enter into a contract with Pacific Gas and
Electric Energy Trading Gas Corporation.
CMR:331:02 Page 1 of 5
BACKGROUND
The City of Palo Alto Utilities Department (CPAU) is obligated to provide reliable
natural gas supplies to its approximately 23,000 gas customers. To do this, the CPAU
procures gas from multiple gas commodity suppliers at the California-Oregon border
(Malin) and at the Pacific Gas and Electric Company’s (PG&E) Citygate. The gas
commodity is then transported via PG&E’s gas transportation system to the CPAU’s
distribution system.
As a gas wholesale customer on PG&E’s gas transportation system, CPAU must adhere
to PG&E"s rules and .regulations relating to gas operations, which include daily
nominating and scheduling on PG&E’s system, monitoring and responding to Emergency
and Operational Flow Order (EFO/OFO) events as called by PG&E, and assuring that gas
supplies are balanced with CPAU’s actual usage. In order to properly carry out these
functions, coverage is needed on a 24 hours per day, seven days a week basis. Failure to
meet PG&E’s operational requirements may expose CPAU to penalties in accordance
with PG&E’ s published tariffs.
In Spring 2001, Enron North America (Enron) was selected-through a Request for
Proposals (RFP) process to be CPAU’s natural gas operations services and residual gas
provider. On November 30, 2001, CPAU terminated its contracts with Enron. Since
termination, Enron has not provided operations or gas commodity to CPAU. An existing
gas consultant to CPAU, Interstate Gas Services (IGS), has been providing daily gas
operations services. Gas supplies are being purchased from British Petroleum Energy
Company (BP)and Sempra Energy Trading Company (Sempra) through agreements
signed by CPAU on March 1, 2001 and July 31, 2001 respectively and later ratified by
Council (CMR’s 341:0! and 420:01).
DISCUSSION
Selection Process
On April 1, 2002, staff sent an RFP to 37 natural gas suppliers operating in North
America and to IGS, CPAU’s interim gas operations provider. Firms were given 22 days
to respond to the request. A total ofeight firms submitted proposals. Two proposals
were rejected for not meeting the RFP requirements and one was withdrawn. The
expected cost of the proposals for operational services and premiums to the residual gas
commodity index ranged from an estimated $22,000 to $613,000. This range does not
include the cost of residual gas commodities since all proposals offered to .provide
residual supplies at prices based on the same daily index.
CMR:331:02 Page 2 of 5
Those firms not responding indicated that they did not submit a proposal because the
process was either too cumbersome, they were not interested in providing operations
services, or they did not have markets in Northern California.
An evaluation committee consisting of staff from Administrative Services’ Treasury and
Purchasing Divisions and Utilities Resource Management Division reviewed the
proposals, and four firms were invited to participate in oral interviews. The committee -
carefully reviewed each firm’s qualifications and submittal in response to the RFP
relative to the following criteria:
Creditworthiness
Current CPAU Energy Risk Management Guidelines for counterparty
creditworthiness were applied as a screening criteria for firms providing residual
gas.
Operations Service Level
Firms were evaluated gn their willingness and ability to provide daily operations
services as required by PG&E’s operational requirements.
o Residual Gas Services
Firms were evaluated based on their ability to provide residual gas services and
whether they provided daily or monthly balancing.
Minimization of Risk
Firms were assessed based on their ability, to minimize commodity price and
operational risks.
o Cost
Cost consisted of the annual fee for providing daily operations, and the premium,
if any, to the index price for the residual gas commodities. The cost was adjusted
to account for different levels of service proposed. Additional costs were added
for proposals that provided lower levels of service.
6. Past Performance
If applicable, past performance with CPAU was evaluated.
Pacific Gas and Electric Energy Trading Gas Corporation (PGET), a subsidiary of PG&E
Corporation, was selected because it met CPAU’s creditworthiness criteria, was willing
to provide adequate daily operations services and its proposal resulted in the lowest
CMR:331:02 Page 3 of 5
expected annual cost to CPAU for operations and residual gas services. Further, PGET
demonstrated a greater kmowledge of the California’s gas markets, specifically operations
on PG&E’s system. Additionally, because of PGET’s extensive pool of gas customers in
Northern California, CPAU staff believes and anticipates that PGET is better able to
manage and minimize operational risk, thus further reducing CPAU’s expected annual
gas cost.
RESOURCE IMPACT
PGET’s proposal consists of a management fee of $0.005 per million British thermal
units (MMBtu) on all gas used by CPAU to cover daily operations. All residual gas
purchases and sales are to be provided at a daily index price. The initial term of the
contract is September 1, 2002 through December 31, 2003. The contract has an option to
extend through August 31, 2005, a maximum of three years. The total cost for the term
of the contract is dependent on actual usage and the daily index price both of which are
unknown until the end of the delivery month.
For FY 2002/03 CPAU has procured roughly 100 percent of its expected load at a fixed
price through its current suppliers BP and Sempra. CPAU .anticipates purchasing
baseload gas for up to 75 percent of its expected load for FY 2003/04 and 2004/05 via
multiple suppliers and not under this contract. Thus, the residual gas quantities are not
anticipated to be more than 25 percent of expected usage. The expected usage is based
on a forecast that is highly weather correlated, therefore actual usage will vary and
residual quantities will likewise vary.
Staff estimates the management fee and residual gas costs to be $50,000 and $8.45
million respectively over the. three-year term of the contract .for a total cost of $8.5
million. A contingency of $2.4 million is requested to cover a scenario where prices and
load are higher than the expected case for a six month period. Under certain
circumstances of usage and market prices, the cost of residual gas under this contract may
be substantially higher than $8.5 million. If this occurs, staff will return to Council for
further authorization.
CPAU has budgeted for this amount within the fiscal, year 2002/03 budget. The funds for
subsequent years to cover the cost of residual gas and the management fee are included in
the Utilities Department’s ten-year financial forecast and will be included in future year
budgets.
CMR:331:02 Page 4 of 5
ALTERNATIVES
The alternatives evaluated include:
Develop the necessary skills, systems, and gas commodity counterparties to carry
out all daily operations and residual gas balancing functions in-house by existing
staff.
2.Outsource the operations function to a non-commodity supplier and perform the
residual gas balancing function in-house by existing staff.
3.Outsource both the operations and residual gas balancing functions to a single gas
commodity supplier.
Staff’s recommendation, Alternative 3, was selected based on a lower overall cost to the
City versus the other alternatives.
POLICY IMPLICATIONS
This recommendation is consistent with the Council approved Utilities Strategic Plan to:
1) Preserve a supply cost advantage compared to market price; 2) Streamline and manage
business processes to allow CPAU to work efficiently and cost effectively; and 3)
Provide superior financial performance to CPAU and competitive rates to customers.
This recommendation is consistent with the Council approved Utilities Risk Management
Policies and Procedures specifically adhering to the Counterparty Credit Policy.
Further, this recommendation adheres to the City, s competitive selection process for
services and to the Utilities Interim Risk Management Policies and Procedures, which
require, competitive bidding for commodity products.
ENVIRONMENTAL REVIEW
The authorization of this contract does not constitute a project under the California
Environmental Quality Act; therefore, no environmental assessment is required.
ATTACHMENTS
A: Draft of the Natural Gas Services Agreement by and Between PG&E Energy
Trading - Gas Corporation and City of Palo Alto
B:Resolution Authorizing the City Manager to Execute the Natural Gas Services
Agreement with PGET
CMR:331:02 Page 5 of 6
PREPARED BY:
Monica V. Padilla, Resource /~ ’
DEPARTMENT HEAD:
of Utilities
CITY MANAGER APPROVAL:
Assistant City Manager
CMR:331:02 Page 6 of 6
NATURAL GAS SERVICES AGREEMENT
BY AND BETWEEN
PG&E ENERGY TRADING- GAS CORPORATION
CITY OF PALO ALTO
Section
1
2
3
4
5
6
7
8
9
10
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14
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TABLE OF CONTENTS
Heading
Definitions ..................................’ ..............................................................................i .....1
Contract Term ........................................................................................¯ ....¯ ................5
Sale and Purchase of Gas ................................................i ..............................................5
Operational Services ......................................................................................................7
Use of Redwood Capacity ................................. .............................................................7
Invoices and Payments; Netting ......................................................................................7
Default and Termination. ....................................." ..............8
Title and Risk of Loss : ..............................................................................’ .....................9
Gas Quality and Measurement .....................................................................................10
Audit Rights .................................. ............................................................................... 10
PGET’s Representations and Warranties .....................................................................11
City’s Representations and Warranties ........................................., ...............................12
Force Maj eure ..............................................................................................................12
Indemnification ...................................................................: ........................................13
Assignment ............................................................................................... ................’... 14
Notices ...................................................................................................... ...................14
Further Assurances ..........................................................................16
S everability ..................................................................................................................16
No Third Party Beneficiaries .......................................................................................16
Counterparts .......................................; ............................................................: ............16
Waiver ...............~ ..........................................................................................................17
Entire Agreement - Amendments in Writing ...............................................................17
Governing Law ............................................................................................................17
Interpretation ......................................................................................................17
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NATURAL GAS SERVICES AND SALES CONTRACT
THIS NATURAL GAS SERVICES AND SALES CONTRACT ("Contract") is entered
into on , 2002 (the "Effective Date") by and between PG&E ENERGY
TRADING-GAS CORPORATION, a corporation duly organized and existing under the laws of the
state of California ("PGET"), and the CITY OF PALO ALTO, a Califomi~ municipal corporation
("City"). PGET and City may be referred to individually as a "Party" or collectively as the "Parties."
IN CONSIDERATION OF the covenants, agreements, terms and conditions contained
herein, the Parties hereby agree as follows:
1.0 DEFINITIONS
The following terms, when capitalized, shall have the following meanings, unless the
context clearly indicates otherwise.
"Baseload City Gate Quantity’ means quantities of Gas (MMBtu per Day) that City
purchases from a Third P~irty supplier delivered at the Delivery Point for a particular Month.
"Baseload Contracts" shall mean those certain firm Gas purchase/sale agreements currently in
effect or hereafter entered into between City and Third Party suppliers for the purchase/sale of the
Baseload Redwood Quantity and the Baseload City Gate Quantity.
"Baseload Quantity" shall mean (a) if no New Quantity has been designated, the sum of the
(i) Daily Quantity, (ii) the Baseload City Gate Quantity actually delivered to the Delivery Point by a
Third Party, and (iii) the Baseload Redwood Quantity actually delivered t6 Malin by City’s supplier
and redelivered, lessshrinkage, by the Transporter to the Delivery Point, or (b) if a New Quantity has
been designated, the New Quantity less any portion of the Baseload Quantity that City’s supplier or
Transporter fails to deliver to the Delivery Point.
"Baseload Redwood Quantity" shall mean quantities of Gas that City purchases from a
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supplier other than PGET delivered into PG&E’s Malin receipt point (delivered on the PG&E side of
the meter) expressed as a single daily quantity (MMBtu per Day) for a particular Month. "
"Business Day" means Monday through Friday except the official holidays recognized by
City.
"Ci _ty’s City Gate" means ~he interconnection point ofPG&E’s local transmission system and
City’s distribution pipeline.
City’s Forecasted Load" (or "Forecasted Load") means City’s forecasted average daily Gas
usage measured at City’s City Gate for each Month.
"City’s Load (or "Load")means the Gas required by City’s residential, commercial and
industrial commodity customers as measured at City’s City Gate.
"Contract Term" shall have the meaning set forth in Section 2.1.
"Daily Quantity" shall mean the quantity of Gas that PGET and the City mutually agree to
buy or sell to each other at the Delivery Point for a period within the then current cash trading month
(beginning afterthe close of such month’s NYMEX contract), which agreement shall be covered
under a separate transaction and confirmation. The Daily Quantity shall be expressed as a constant
daily quantity throughout the applicable period, and shall be expressed as a positive number ifPGET
is selling the quantity to City and as a negative number if City is selling the quantity to PGET.
"Day" means a period beginning at 7:00 a.m. Pacific Standard Time on a calendar day and
ending at 7:00 a.m. Pacific Standard Time on the next succeeding calendar day.
"Delivery Point" shall mean PG&E’s City Gate.
"Emergency Flow Order" (or "EFO") means an event on PG&E’s Gas transmission system
which requires that City’ s usage shall be less than or equal to City’ s supply of Gas that Day pursuant
to Gas Rule 14 of PG&E’s tariff, as amended from time to time.
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"Firm" means, with respect to delivery and receipt obligations hereunder, that, unless
excluded by Force Maj cure or operation of applicable Law, PGET shall sell and deliver to City, and
City shall purchase and receiv~ from PGET, the quantities of Gas provided for herein without
interruption, suspension, or curtailment, at the prices set forth herein.
"Flow Order Day" shall mean a Day for which PG&E declares an OFO, EFO or a diversion
pursuant to Gas Rule 14 of PG&E’s tariff, as amended from time to time.
"Gas" means methane and other Gaseous hydrocarbons meeting the quality standards of
City’s Transporter.
"Index Price" shall mean the Midpoint price as set forth in Gas Daily or any successor
publication in the column "Daily Price Survey" for PG&E City Gate.
"Imbalance Price" shall mean the Index Price for that date (the "Applicable Pricing Day") on
which the Gas flowed; provided, however, that ifa Flow Order Day exists on the Applicable Pricing
Day, the Imbalance Price will be the Index Price on the first subsequent non-Flow Order Day after
the Applicable Pricing Day. For purposes of the previous sentence, if the publication of the Index
Price covers multiple Days and any Day therein is a Flow Order Day, all Days of such publication
will be considered a Flow Order Day.
"Law" means any administrative or judicial act, decision, bill, certificate, charter, code,
constitution, opinion, order, ordinance, policy, procedure, rate, re.gulation, resolution, rule, schedule,
specification, statute, tariff, or other requirement of any district, local, municipal, county, joint
powers, state, or federal agency having joint or several jurisdiction over the Parties, in effect during
the Contract Term, including, without limitation, any regulation or order of an official or quasi-
official entity or body.
"Maximum Daffy Quantity" (or "MDQ") means 30,000 MMBtu of Gas per day, as defined in
City’s Transportation Contracts.
"MMBtu" means one million (1,000,000) Btu (equal to one dekatherm), where Btu means
British Thermal Unit, measured on a dry basis.
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"Month" means a period beginning at 7:00 a.m. Pacific Standard Time on the first Day of a
calendar month and ending at 7:00 a.m. Pacific Standard Time on the first Day of the next
succeeding calendar month.
"New Quantity" shall mean a) in the event of a Flow Order Day on which PG&E does not
declare a diversion, the quantity of Gas for such Day, if any, which the City notifies PGET in
accordance with the procedures in Section 3.5 below, or b) in the event of a Flow Order Day on
which PG&E declares a diversion, the quantity of Gas that PG&E allocates for City’s use on such
Day.
"NYMEX" means the New York Mercantile Exchange.
"Operational Flow Order" (or "OFO") means an event on PG&E’s Gas transmission system
which requires that City’s usage matches City’s supply within a PG&E-specified tolerance band as
defined in Section E of Gas Rule 14-Capacity Allocation and Constraint of Natural Gas Service of
PG&E’s tariff, or any event that PG&E’s tariff is amended from time to time to include as a
successor to such term.
"Operational Services" shall mean the management of City’S Redwood Capacity and other
Gas control logistics including, without limitation, nominating, remote monitoring of EFOs and
OFOs on the PG&E system and communicating such events to City, and providing periodic
telephonic fixed and daily Gas price updates.
"PG&E" means the Pacific Gas & Electric Company and its successors or permitted
assignees.
"PG&E City Gate" means the interconnection point of PG&E’ s backbone Gas transmission
system and PG&E’s local Gas transmission system.
"Prime Rate" means the then-effective prime rate of interest, published under "Money Rates"
by The Wall street Journal, plus two percent (2%) per annum.
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"Redwood Capacity" means City’ s firm capacity rights on PG&E’s Gas transmission system.
"Residual Gas" shall mean 100% of Gas requirements of City, less the Baseload Quantity, up
to the MDQ as defined in City’s Transportation Contracts, as the same may be amended from time
to time.
"Shrinkage" means ~he amount of Gas used, and the lost and unaccounted for supply of Gas
on PG&E"s backbone transmission pipeline.
"Third Party" means any party other than a Party.
"Transportation Contracts" shall mean those certain Gas transportation contracts between
City and PG&E made and entered into as of March 1, 1998 entitled "Natural Gas Service
Agreement" and "Gas Transmission Service Agreement’," as the same may be amended prior to the
Effective Date.
"Transporter" means any interstate or intrastate Gas transportation provider.
2.0 CONTRACT TERM
2.1 The term of this Contract ("Contract Term") shall commence on September
1, 2002, and unless earlier terminated in accordance with the provisions hereof, shall terminate on
December 31, 2003. The Contract Term may be extended toAugust 31, 2005 by mutual agreement
of the Parties, which agreement shall be documented by a written amendment to this Contract
executed by the Parties.
3.0 SALE AND PURCHASE OF GAS
3.1 On any given Day during the Contract Term, and subject to the conditions
described herein, PGET shall sell and deliver to City Residual Gas at the Delivery Point, and City
shall sell and deliver to PGET any Baseload Quantity in excess of City’s Load at the Delivery Point.
All such sales shall be at the hnbalance Price.
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3.2 At least six (6) Business Days prior to the beginning of each Month during the
Contract Term, City shall give PGET notice of the daily Baseload Quantity for such Month. Such
notice will include (i) the name of each of City’s Third Party suppliers, (ii) each supplier’s contact
person and phone number, (iii) each supplier’s delivery/receipt point, (iv) each supplier’s pool
number, and (v) the quantity of Gas that each supplier has agreed to supply on a daily basis.
3.3 City may purchase Baseload Quantities from Third Parties for City’s
utilization if such purchase (i) is for a subsequent Month, (ii) is purchased at least six (6)
Business Days prior to the delivery Month, (iii) consists of an equal quantity per Day throughout
a Month, and (iv) consists of Firm baseload Gas supply or delivery. In addition, the sum of the
Daily Quantity and.the Baseload Quantity shall not be greater than City’s Forecasted Load.
3.4 During the Contract Term, City shall exercise all rights and shall be fully
responsible for all obligations under each Baseload Contract, including without limitation,
payment for all Gas purchased thereunder.
3.5 PGET shall advise City of any Flow Order Day, and City shall notify
PGET of the New Quantity, if any, for the Day(s) such orders are in effect, at least two and one-
half (2½) hours prior to the first applicable nomination cycle for such Flow Order Day.
3.6 If, on a Flow Order Day, City’s Actual Load is different from the Baseload
Quantities, or diversion day allocation (as described in PG&E’s tariff from time to time), City
shall reimburse PGET for any penalties imposed on PGET by PG&E caused by City. In addition,
City shall reimburse PGET for any penalties imposed on PGET by PG&E that are caused by (i) a
Third Party’s failure to deliver all or any portion of the Baseload City Gate Quantity or the
Baseload Redwood Quantity to the Delivery Point or (ii) a Transporter’s failure to transport the
Baseload Redwood Quantity from Malin to the Delivery Point. PGET shall bear only those
penalties imposed by PG&E in the case where PGET has received adequate notice to make a
timely nomination, and fails to schedule and deliver to the Delivery Point a) the Baseload
Quantity (on any Day other than an EFO or diversion Day), or b) in the event of an EFO or
diversion Day, the authorized quantity allowed by PG&E or the quantity.of the post-diverted
supply allocated to City.
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4.0 OPERATIONAL SERVICES
4.1 During the Contract Term, PGET shall ~ct as City’s agent under the
Transportation Contracts for the purpose of performing the Operational Services. Such agency shall
at all times comply with applicable PG&E requirements.
4.2 In consideration of the Operational Services performed by PGET, City shallpay
to PGET a volumetric fee of $0.005 per MMBtu multiplied by the City’s Load.
4.3 The Parties will arrange with PG&E for PGET to act on behalf of City for the
purpose of managing natural Gas control logistics, including imbalance trading, from the Delivery
Point to City’s City Gate.
4.4 Ci.ty shall allow PGET to monitor on a daily basis City’s Load recorded in
PG&E’s meter data while PGET utilizes PG&E’s electronic bulletin board, "Inside Tracc". The
Parties shall cooperate to ensure that PGET can obtain the data from City’s backup pulse recorders.
City will endeavor to maintain an accessible file of Gas usage data for backup purposes.
5.0 USE OF REDWOOD CAPACITY
5.1 City shall, no later than six (6) Days prior to each Month during the Contract
Term, provide PGET with notice of the quantity of Redwood Capacity which is excess to City’s
requirements. PGET shall be entitled to utilize such excess Redwood Capacity for PGET’s own use.
For all such excess Redwood Capacity utilized by PGET, PGET shall pay City the daily "Midpoint"
price as set forth in Gas Daily in the column "Daily Price Survey" (PG&E City Gate), less the sum of
(i) the daily "Midpoint" price as set forth in Gas Daily in the column "Daily Price Survey" (Malin),
(ii) Shrinkage, (iii) any variable and reservation fees paid by PGET, and (iv) $0.03 per MMBtu.
6.0 INVOICES AND PAYMENTS; NETTING
6.1 On or about the tenth Day of each Month during the Contract Term, PGET
shall provide City with a facsimile invoice and supporting documentation which reflects (i) the
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volumetric fee (as defined in section 4.2) payable to PGET for performance of the Operational
Services during the immediately preceding calendar Month, (ii) the amount payable to PGET
hereunder for the total quantity and heating value of the Residual Gas purchased by City from PGET
during the immediately preceding calendar Month, (iii) the amount payable to City hereunder for Gas
excess to City’ s Load purchased by PGET from City, and (iv) the amount payable to City for PGET’s
use of City’s excess Redwood Capacity pursuant to section 5.1 and other charges arising hereunder.
6.2 The Parties shall net all undisputed amounts due and owing, or past due,
under any such invoice, such that the Party owing the greater amount shall make a single payment of
the net amount to the other Party. Such payment shall be made on or before the later of the tenth
Business Day following receipt of the invoice by City, or the twenty-fifth Day of the Month in which
such invoice is issued.
6.3 If either Party, in good faith, disputes the amount of any such invoice, or any
part thereof, such Party shall pay such amount as it concedes is correct and provide the other Party
with any documentation regarding the disputed amounts. In the event the Parties are unable to
resolve such dispute, either Party may pursue any remedy available at law or in equity to enforce its
rights hereunder.Arbitration ?
6.4 A failure by either Party to pay any amount when such amount is due shall
result in the additional payment of interest thereon, which shall accrue from the due date until paid in
full, at a variable rate per annum equal to the Prime Rate, or the maximum interest rate allowed by
Law, whichever is less.
7.0 DEFAULT AND TERMINATION
7.1 In the event (each an "Event of Default") either Party (the "Defaulting Party")
or its guarantor shall: (i) make an assignment or any general arrangement for the benefit of creditors;
(ii) file a petition or otherwise commence, authorize, or acquiesce in the commencement of a
proceeding or case under any bankruptcy or similar law for the protection of creditors or have such
petition filed or proceeding commenced against it; (iii) otherwise become bankrupt or insolvent
(however evidenced); (iv) be unable to pay its debts as they fall due; (v) have a receiver, provisional
liquidator, conservator, custodian, trustee or other similar official appointed with respect to it or
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substantially all of its assets; (vi) fail to perform any obligation relating to this Contract; or (vii) not
have paid any amount due the other Party hereunder when due; then the other Party (the "Non-
Defaulting Party") shall have the right, at its sole election, to immediately withhold and!or suspend
deliveries or payments upon notice and/or to terminate this Contract in addition to any and all other
remedies available hereunder.
7.2 Each Party shall use every reasonable effort to mitigate any damages resulting
from a breach and/or termination of this Contract.
7.3 If PGET terminates this Contract as a result of a breach by City, then PGET
may utilize its right to administer the Transportation Contracts as City’s agent to the extent necessary
for PGET to mitigate its damages and determine the amounts that City will owe to PGET as of the
effective date of, or as a result of, the termination.
7.4 If City terminates this Contract as a result of a breach by PGET, then PGET
shall lose its right to administer the Transportation Contracts as City’s agent as of the effective date
of such termination.
7.5 Termination of this Contract by one Party due to the other Party’s breach shall
be in addition to any other remedy available at law or equity to the terminating Party.
7.6 NOTWITHSTANDING ANY PROVISION OF .THIS CONTRACT, THE
PARTIES HERETO WAIVE ANY AND ALL RIGHTS, CLAIMS, OR OTHER CAUSES OF
ACTION FOR INCIDENTAL INDIRECT, SPECIAL, CONSEQUENTIAL OR PUNITIVE
DAMAGES, INCLUDING, WITHOUT LIMITATION, LOSS OF USE AND LOSS OF PROFITS
AND OTHER BUSINES S INTERRUPTION DAMAGES ARISING OUT OF EITHER PARTY’ S
FAILURE TO FULLY PERFORM ITS OBLIGATION UNDER THE CONTRACT.
8.0 TITLE AND RISK OF LOSS; TAXES
8.1 PGET shall take title to, be in control and possession of, and assume all risk
of loss associated with the Gas sold hereuffder until the Gas has been made available at the City’s
City Gate. City shall take title t6, be in control and possession of, and assume all risk of loss
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associated with the Gas after the Gas has beenmade available at the City’s City Gate.
8.2 PGET shall pay or cause to be paid all taxes, fees, levies, penalties, licenses
or charges imposed by any government authority ("Taxes") on or with respect to the Residual Gas
prior to the Delivery Point. City shall pay or cause to be paid all Taxes on or with respect to the
Residual Gas at and after the Delivery Point.
9.0 GAS QUALITY AND MEASUREMENT
9.1 Gas delivered by PGET to PG&E shall meet PG&E specifications at the
Delivery Point, as required. When Gas is delivered in a common stream with other Gas, to the extent
that the common stream Gas meets the specifications of the Transporter at the Delivery Point, then
PGET shall be deemed to have met the required specifications. EXCEPT FOR THE FOREGOING
EXPRESS QUALITY SPECIFICATIONS, City ACCEPTS THE NATURAL GAS "AS-IS" AND
"WITH ALL FAULTS" AND PGET EXPRESSLY NEGATES ALL OTHER WARRANTIES,
EXPRESS OR IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE NATURAL GAS. ’
9.2 The Parties agree and acknowledge that testing and measurement of natural
Gas delivered hereunder at the Delivery Point shall be conducted byPG&E, and they hereby agree to
accept such testing and measurement as conclusive.
10.0 AUDIT RIGHTS
10.1 The Parties hereto covenant and agree that either Party shall have the right, at
its own cost, and at reasonable times during normal business hours, no more than once each calendar
quarter, to examine the books, records, charts and accounts of the other Party to the extent necessary
to verify the accuracy of any invoice, charge or computation made under or pursuant to any provision
of this Contract. This right shall terminate two (2) years after the date of expiration or termination of
this Contract.
11.0 PGET’S REPRESENTATIONS AND WARRANTIES
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11.1 PGET represents and warrants that:
(a) It is a corporation duly organized, validly existing and in good standing under
the Laws of the State of California;
(b) It has all requisite power and authority to enter into this Contract and to
perform it~ obligations hereunder;
(c) The consummation by it of the transactions contemplated herein will not
violate, nor be in conflict with, any provision of any contract or instrument to which it is a party or
by which it is bound or any. Law applicable to it;
(d) It owns or has irrevocable authority to sell all of the Gas delivered by it to City
hereunder,, flee and clear of any and all liens, encumbrances and claims, whatsoever, and lawful
authority to sell the same; and ’
(e) As of the date of execution of this Contract, the counterparty credit rating of
PGET fails to meet the minimum requirements of City’s risk management policies. On or before
the commencement date of this Contract, or within the time mutually agreed to by the Parties, PGET
shall cause PG&E Energy Trading Holdings Corporation, or another affiliate of PGET reasonably
acceptable to City ("Guarantor") to issue a written guaranty of the performance of PGET under this
Contract. City’s City Attorney shall approve the form and substance of the guaranty.
(f) If, during the Contract Term, the counterparty rating from Moody’s Investors
Services for PGET’s Guarantor and the corporate credit rating from Standard & Poor’s Corporation
of PGET’s Guarantor drops below investment grade, or the exposure of City increases beyond the
limits of any existing guaranty, City may, upon written notice to PGET, require PGET to provide, no
later than ten (10) Business Days after such notice to PGET, additional performance assurance (in
the form of letters of credit or Third Party guarantees) in form and substance satisfactory to City’s
City Attorney to secure PGET’s performance of its obligations hereunder. If PGET fails to deliver
such performance assurance to City in a timely manner as provided in the preceding sentence, City
shall be entitled to suspend its performance hereunder until the requested security has been provided.
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12.0 CITY’S REPRESENTATIONS AND WARRANTIES
12.1 City represents and warrants that:
(a)It is a.municipal corporation duly organized, validly existing and in good
standing under the Laws of the State of California.
(b) It has all requisite corporate power and authority to enter into this Contract
and to perform its obligations under this Contract; and
(c) The consummation by City of the transactions contemplated herein will not
violate, nor be in conflict with, any provision of any contract or instrument to which it is a party or
by which it is bound or any Law applicable to City.
13.0 FORCE MAJEURE
13.1 The obligation of a Party hereunder, other than the obligation to pay money
when due, shall be suspended, during the time and to the extent, that it is prevented from performing
its obligation in whole or in part by an event of Force Majeure.
13.1.1 "Force Majeure" means (i) any act of God, including flood, fire, storms,
lightning, landslides hurricanes and evacuations due to the threats of hurricanes, and earthquakes; (ii)
any strikes, lockouts or other industrial disturbances; wars, blockades, insurrections, riots, arrests and
restraints of rulers and peoples, civil disturbances and explosions; (iii) the loss, interruption, or
curtailment of Firm transportation by any Third Party Transporter; (iv) the binding order of any court
or governmental authority; and (v) any other cause, whether of the kind herein enumerated or
otherwise, not within the control of the one claiming suspension and which, by the exercise of due
diligence, it is unable to prevent or overcome.
13.2 Notwithstanding Section 18.1, a Party hereto shall not be relieved of liability
for failure to perform an obligation contained in this Contract because of an event ofForce Maj eure
to the extent that such Force Majeure results from its own fault or negligence or to the extent that
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such failure continues because such party does not use due diligence to resume performance of such
obligation following the occurrence of the Force Majeure. Furthermore, lack of funds and economic
hardship shall not constitute Force Majeure, nor shall an event of Force Majeure suspend any
obligation for the payment of monies due hereunder.
13.3 A Party claiming to be relieved from liability for failure to perform an
obligation hereunder as a result of Force Majeure shall promptly give notice, in writing or
electronically or orally, confirmed in writing or electronically, to the other Party as soon as possible
after the occurrence of the Force Majeure, giving full particulars thereof including the expected
duration, and thereafter shall use due diligence to restore its ability to perform such obligation with
all reasonable dis’patch. No Party shall be required against its will to adjust or settle any labor
disputes.
13.4 During periods when City is unable to take delivery of the Gas hereunder by
reason of Force 19iaj eure, PGET shall have the right to sell such Gas to other Third Parties for City’s
account, provided that such sales will not interfere with nor preclude PGET from subsequently
performing its obligations hereunder after the Force Majeure has ceased to operate. City shall be
required to give to PGET written notice of the cessation of an event of Force Majeure.
13.5 During periods when PGET is unable to deliver Gas by reason of Force
Maj eure, City shall have the right to purchase natural Gas or other fuels from Third Parties, provided
that such purchases will not interfere with nor preclude City from subsequently performing its
obligations hereunder after the Force Maj eure has ceased to operate. PGET shall be required to give
to City Written notice of the cessation of an event of Force Majeure.
14.0 INDEMNIFICATION
14.1 PGET hereby agrees to indemnify, defend and hold harmless City and its
officers, council members, employees and agents from, against and in respect of any and all losses,
liabilities, damages, compensation, injuries, costs, claims, actions, suits, causes of action, judgments,
amounts paid in settlement, interest, penalties, assessments and expenses (including, without
limitation, reasonable attorney fees) of every kind and character resulting from incurred in
connection with or arising out of (i) any inaccuracy in or breach of any representation, warranty,
DRAFT-for discussion purposes only
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covenant, obligation or agreement of PGET pursuant to this Contract, and (ii) the Gas purchased
~hereunder prior to its delivery at the Delivery Point. This obligation shall survive termination of this
Contract.
14.2 City hereby agrees to indemnify, defend and hold harmless PGET and its
officers, directors, employees and agents from, against and in respect of any and all losses, liabilities,
damages, compensation, injuries, costs, claims, actions, suits, causes of action, judgments, amounts
paid in settlement, interest, penalties, assessments and expenses (including, without limitation,
reasonable attorney fees) of every kind and character resulting from, incurred in connection with or
arising out of (i) any inaccuracy or breach of any representation, warranty, covenant, obligation or
agreement of City pursuant to this Contract, and (ii) the Gas purchased hereunder after its delivery at
the Delivery Point. This obligation shall survive termination of this Contract.
15.0 ASSIGNMENT
15.1 Neither Party may assign.its rights or obligations under this Contract to any
Third Party without the prior written consent of the other Party, which consent shall not be
unreasonably withheld; provided, however, that such consent shall not be required for (a).an
assignment by either Party to its affiliate, or (b) a sale or transfer of all or substantially all of the
assets of a Party, or (c) the assignment of money due and owing to a Party. No assignment shall be
effective unless and until the assignee shall have delivered to the non-assigning party an agreement,
in writing, whereby the ~assignee agrees .to be bound by the assignor’s obligations under this Contract.
No assignment, even with the other Party’s approval or consent, shall relieve the assigning Party of
any of its obligations hereunder unless the non-assigning Party expressly releases the assigning Party
from its obligations.
16.0 NOTICES
16.1 Except as otherwise specifically provided herein, any notice, request, demand
or invoice shall be in writing and shall be deemed to have been duly given when personally
delivered, or sent by facsimile, registered or certified mail, or overnight mail, postage prepaid
(provided that, at any time when there is a strike or pending strike affecting delivery of mail, all such
deliveries shall be made by hand or by facsimile) to:
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PGET:PG&E Energy Trading-Gas Corporation
7500 Old Georgetown Road
Bethesda, MD 20814
Telephone: 301-280-6600
Facsimile: 301-280-6601
Payment by wire:Mellon Financial
ABA #011-001-234
Account # 101036
Payment by check:
Cit~:City of Palo Alto
Department of Utilities
P.O. Box 10250
Palo Alto, CA 94303
Telephone: 650-329-2689
Facsimile: 650-326-1507
For Contractual Information and Invoices:
Attention:Mr. Girish Balachandran
Manager, Supply Resources
Attention:Ms. Karla Dailey
Resource Planner
For Operational’and Administrative Information:
Attention:Mr. Raveen Maan
Resource Planner
Payment by wire:
Payment by check:
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Such notice shall for all purposes be treated as being effective or having been given
when actually received, or the first business Day following the date sent by overnight mail or by
facsimile to the numbers set forth herein, or if given by mail, the earlier of actual receipt or five (5)
Business Days after mailing. Either Party may from time to time change its address or facsimile
number for receipt of notices required under this Contract by written notice given in the manner
provided herein.
17.0 FURTHER ASSURANCES
17.1 ’Each Party and its respective successors and assigns shall, without further
consideration, execute, acknowledge and deliver any and all documents and instruments which,
from time to time, may be reasonably necessary and/or requested by the other Party to carry out
the purpose and intent of this Contract.
18.0 SEVERABILITY
18.1 If, and to the extent that, any court of competent jurisdiction determines that
any provision of this Contract is invalid, such holding shall in no way affect the validity of the other
provisions of this Contract, which shall remain in full force and effect, except that as to a provision
governing price, quantity, or term which is determined to be invalid, the Contract shall terminate.
19.0 NO THIRD PARTY BENEFICIARIES
19.1Nothing in this Contract shall be construed to create rights in, or duties or
liabilities to, or to grant remedies to, any Third Party.
20.0 COUNTERPARTS
20.1 This Contract may be executed in counterparts, each of which shall be
deemed the original, but both of which together shall constitute one and the same instrument.
21.0 WAIVER
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21.1 No failure by any Party to insist upon compliance with any term of this
Contract, or to exercise any option to enforce any right under or in respect to this Contract will
constitute a waiver of that Party’s rights with respect to compliance of such term, exercise of such
option or enforcement of such right or in such circumstances or in other circumstances, whether prior
or subsequent.
22.0 ENTIRE AGREEMENT - AMENDMENTS IN WRITING
22.1 This Contract constitutes the entire agreement between the Parties with respect
to the subject matter hereof, and supercedes any prior agreement, understanding, or representation,
whether oral or written. This Contract may only be amended by an agreement, in writing, executed
by the Parties.
23.0 GOVERNING LAW
23.1 The interpretation and performance of this Contract, and any remedies for
breach (except otherwise provided herein), shall be in accordance with the laws of tile State of
California. Any action, lawsuit or proceeding relating to this Contract, and any dispute arising under
this Contract, shall be initiated, and maintained in a court of competent jurisdiction in the County of
Santa Clara, State of California.
23.2 In the event of any litigation regarding the interpretation or performance of
this Contract, the prevailing Party shall recover all of its reasonable attorney fees from the other
Party, including any reasonable attorney fees included in recovering on a judgment.
24.0 INTERPRETATION
24.1 The Parties and their respective legal counsel have participated in the
negotiation and drafting of this Contract. Accordingly, the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be employed in the
construction and interpretation hereof.
24.2 The headings contained in this Contract are used solely for convenience and
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do not constitute a part of this Contract and shall not be used in its construction or interpretation.
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IN WITNESS WHEREOF, the Parties have executed this Contract at Palo Alto,
California on the date first above stated.
City OF PALO ALTO PG&E ENERGY TRADING-GAS CORPORATION
City Manager Name:
APPROVED AS TO FORM:
Title:
City Attorney Name:
Title:
Approved:
Director of Utilities
SIGNATURES MUST BE NOTARIZED
(Compliance with Corp. Code §313 is required if the
entity on whose behalf this contract is signed is a
corporation. In the alternative, a certified, corporate
resolution attesting’ to the signatory authority of the
individuals signing in their respective capacities is
acceptable)
RESOLUTION NO.
RESOLUTION OF THE COUNCIL OF THE CITY OF PALO
ALTO AUTHORIZING THE CITY MANAGER TO EXECUTE THE
NATURAL GAS SERVICES AGREEMENT WITH PACIFIC GAS
AND ELECTRIC ENERGY TRADING GAS CORPORATION FOR AN
AMOUNT NOT TO EXCEED $10.9 MILLION FOR NATURAL GAS
OPERATIONS AND RESIDUAL GAS BALANCING
Atta c h rn ~1
WHEREAS, the City of Palo Alto ("City") is a municipal
corporation and a charter city, duly and validly created,
organized and existing under the constitution and laws of the
State of California; and
WHEREAS, the City has the full iegal right, power and
authority to execute contracts for the purchase of electricity
and natural gas under California law, the Charter of the City of
Palo Alto and the Palo Alto Municipal Code; ~and
WHEREAS, the City wishes to procure natural gas services
and residual gas commodities from Pacific Gas and Electric
Trading Gas Corporation ("PGET") for consumption by its utility
customers; and
WHEREAS, the City Manager seeks the Council’s delegation
of authority to him to sign the Agreement along with any
ancillary agreements needed to execute the Natural Gas Services
Agreement.
NOW, THEREFORE, the Council of the City of Palo Alto
does hereby RESOLVE as follows:
SECTION i. The Council hereby authorizes the City
Manager, subject to approval as to form by the City Attorney, to
negotiate and execute the Natural Gas Services Agreement and
related exhibits with PGET, and to undertake all actions
necessary to exercise the City’s rights and perform its
obligations, under the Agreement.
//
//
//
//
020716 syn 0072198
SECTION 2. The Council finds that the adoption of this
resolution does not constitute a project under the California
Environmental Quality Act and the CEQA Guidelines and,
therefore, no.environment assessment is required.
INTRODUCED AND PASSED:
AYES:
NOES:
ABSENT:~
ABSTENTIONS:
ATTEST:APPROVED:
City Clerk Mayor
APPROVED AS TO FORM:
City Manager
Senior Asst. City Attorney
Director of Utilities
Director Of Administrative
Services
020716 syn 0072198