HomeMy WebLinkAbout2001-04-09 City Council (10)City of Palo Alto
City Manager’s Report
TO:HONORABLE CITY COUNCIL
FROM:CITY MANAGER DEPARTMENT: PUBLIC WORKS
1
DATE:
SUBJECT:
APRIL 9, 2001 CMR: 168:01
FIRST AMENDMENT. TO THE REVISED AND RESTATED
LANDFILL GAS LEASE AND OPERATING AGREEMENT FOR
CONVERSION SYSTEMS BETWEEN PALO ALTO LANDFILL
GAS CORPORATION AND THE CITY OF PALO ALTO
RECOMMENDATION
Staff recommends that Council authorize the Mayor to execute the attached First
Amendment to the Revised and Restated Landfill Gas Lease and Operating Agreement
for Conversion Systems between Palo Alto Landfill Gas Corporation agd the City of Palo
Alto.
BACKGROUND
On November 16, 1989. (CMR: 525:89), Council approved a Revised and Restated Gas
Lease and Interconnection Agreement with PALGC. This agreement incorporated all
relevant clauses of past agreements, in addition to adding a lease payment (to the City)
and change in royalty percentages (increased percentage share from 5 percent to 5.5
percent of the PG&E payments to PALGC).
In August 1994, a consent and assignment agreement was signed between PALGC,
Waukesha-Pearce Industries Packaging and Maintenance, Inc. (WPI), Monterey Landfill
Gas Corporation (MLGC) and the City of Palo Alto. This agreement assigned PALGC
rights and obligations to WPI and MLGC.
DISCUSSION
On February 7, 2000, WPI sent a letter to the City stating that WPI would lose its
economic interest in the project beginning June 13, 2000 (cliff date) due to the changes in
the standard offer #4 PG&E power purchase agreement. The PG&E power purchase
agreement cliff date changed how energy prices were to be determined, from a
guaranteed cost per kwh to avoided cost for energy produced. WPI estimated that energy
payments from PG&E could drop in excess of $1 million a year. WPI indicated that after
June 13, 2000, it would be operating in the negative, losing all economic interest.
Unless the terms of the 1989 Agreement are amended to address.potential reduced
revenues from PG&E when PG&E’s avoided costs are less than 10 cents per kWh, WPI
CMR:I68:01 Page 1 of 2
and.,MLGC, may be forced to terminate the 1989 Agreement. The City would then be
required to resume responsibility and .qxpenses for the operation of the land~fi!l gas
-recovery sygtem. ~It.is !mp, ortant~.tonote’~the Current wholesale energy prices far exceed 10
cents per kWh, in which case there would be no changes made to royalty payments made
to the City of Palo Alto.
The proposed amendment would allow the royalty percentage share paid to the City to be
reduced when the revenues jeopardize profits to the partners. When the monthly PG&E
energy payments are made and the average kWh paid is less than ten cents, the
percentage share to the City would be reducedlfrom 5.5 percent to 1 percent. If the
monthly PG&E energy payments are made, and the average kWh is ten cents or greater,
the existing 1989 agreement percentage shares will be used (5.5 percent to 22.0 percent)..
RESOURCE IMPACT
The proposed amendment could cause a loss of revenue to the Refuse Fund of $70,000
per year, only if the PG&E energy payments stayed below the i0 cents a kWh rate. If
WPI decides to terminate this partnership, it would cost the City $325,000 per year
(additibnal operation cost and loss of other royalties-lease payments, wheeling charges &
natural gas sales).
POLICY IMPLICATIONS
This recommendation does not represent any change to existing City Policies.
ENVIRONMENTAL REvIEw
This is not a project for purposes of the caiifomia Environmental Quality Act (CEQA).
ATTACHMENTS
Attachment A: First Amendment
PREPARED BY:
DEPARTMENT HEAD:
RUSSELL REISERER
Manager, Solid Waste
GLENN S. ROBERTS
Director of Public Works
CITY MANAGER APPROVAL: .~., ~,
HARRISON
Assistant City Manager
CMR: 168:01 Page2 of 2
FIRST AMENDMENT TO
REVISED AND RESTATED
LANDFILL GAS~LEASE
AND OPERATINGAGREEMENT"
FOR CONVERSION SYSTEMS
ATTACHMENT. A
BETWEEN
PALO ALTO I~h~’DFILL GAS CORPORATION
AND
CITY OF PALO ALTO
This First-Amendment To Revised And Restated Landfill
Gas Lease And Operating Agreement For. Conversion Systems Between
Palo Alto Landfill Gas Corporation And City Of Palo Alto is
entered into as of the 1"t day of July, 2000, .by and between
MONTEREY LANDFILL GAS . CORPORATION ("MLGC"), WPI PACKAGING AND
MAINTENANCE, INC. ("WPI"), and the CITY OF PALO ALTO, a municipal
corporation ("Landfill ¯Owner") .
RECITALS
A. On. November 20, 1989, Palo Alto Landfill Gas
.Corporation (~PALGC=) and Landfill Owner entered into a Revised
and Restated Landfill Gas Lease and operating¯ Agreement for
Conversion Systems Between Palo.Alto Landfill. Gas Corporation and
City Of Palo Alto (~the .I~89~ Agreement"). Under the terms of
this agreement, pALGC leased from Landfill Owner the right, among
others, to produce LandfillGas and generate electric power.
B. On December i, 1989, PALGC and MLGC entered into a
~andfill ~Gas Saies Contract and Sublease. Under the terms of
this.agreement PALGC sublet the right to .produce and sell.gas to
MLGC, MLGC agreed to.sell Landfill Gas to PALGC,andPALGC agreed
to produce.electric power using the Landfill Gas.
C. In August, 1994, PALGC, WPI, MLGC, and Landfill
Owner entered into a Consent and Assignment. Agreement whereby
PALGC transferred to and MLGC assumed all of PALGC’s. right.and
obligatibns as Lessee under the 1989 Agreement, and MLGC
concurrently sold the generating plant to WPI and WPI assumed
MLGC’s rights and obligations, as Lessee to operate the generating
plant and produce electric power under the 1989 Agreement¯.
D. Prior to June, 2000, WPI had an Interim Standard
Offer .Number .4 Power Purchase Agreement with Pacific Gas &
Electric ("PG&E") under which it sold power to PG&E. As of June,
2000, PG&E reduced the effective price for WPI’s power from
approximately 17 cents per kilowatt hour to approximately 5.6
cents per kilowatt hour.
10677~0006~544523.1 (Formerly 637758.3) 02/21/2001
E. As a result of this change in the PG&E agreement,
WPI will no~longer be able to sell the power from the landfill
gas operation at a profit under the existing terms of the 1989
Agreement. Unless the terms of the 1989 Agreement are changed,
it will not be possible for MLGC and- WPI to continue the
operation of the natural gas recovery-system at the landfill,
MLGC and WPI will be forced to terminate the 198-9 Agreement, and
the City wil! be requ±red to resume responsibility and expense
for the operation of the landfill gas recovery system~
F. The parties desire to amend the 1989 Agreement to
permit WPI to continue to operate the gas recovery system in a
cost-effective manner for both parties.
NOW, THEREFORE, in consideration of performance by the
parties of the promises, covenants, and conditions herein
contained, the parties hereto agree as follows:
I. Exhibit 3. Exhibit 3 to.the 1989 Agreement is
deleted in its entirely and replaced with the revised Exhibit 3
attached to and incorporated herein by this reference. For
continuity and clarity of interpretation, all references toPALGC
in Exhibit 3 remain intact even though PALGC is no longer a party
to the 1989 Agreement.
2. Reaffirmation of Other Terms. Except as modified
or changed herein, -~ii of the terms and provisions of the 1989
Agreement shall remain in full force and effect.
II
II
II
II
II
II
II
II
II
II
10677~0006~o44523.1 (Formerly 637758.3) 02/21/2001
IN WITNESS WHEREOF, the parties have executed this Agreement
as Of the date first written above.
"Landfill Owner"
CITY OF PALO ALTO, aMunicipal
corporation
By:
Mayor
ATTEST:
By:
City Clerk
APPROVED AS TO FORM:
City Attorney
APPROVED:
Assistant City Manager
Director of Administrative
Services
Director of Public Works
Insurance Review
"MLGC"
MONTEREY LANDFILL GAS
CORPORATION, a California
.corporation
By:~ ’~
ts
By: ~
~axpayer Identification .No.
" WPI"
WPI PACKAGING ANDMAINTENANCE,
!NC.,% Delaware corporation.
By:
Its - President
~.S " V.P.~Finance & Administration
Taxpayer Identification No,
76-0288418
(Compliance with Corp. Code 313 is
required ifthe entity on whose behalf
this contract ~s 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)
3
10677~0006~644523.1 (Formerly 637758.3) 02/21/2001
EXHIBIT 3
SITE LEASE PAYMENTS
A. For any period during the term of the Lease that the Gross Revenues divided by
Net Generating .Capacity~ as defined below, is less than ten ($0.10) cents per kilowatt hour
based upon the monthly statement from PG&E, PALGC will pay the Landfill Owner one
percent (1%) of the Gross Revenues.
.B. For any period during the term of the Lease¯that the Gross Revenues divided by
Net Generating Capacity, as defined below, is ten ($0.10) cents per kilowatt hour or greater
based upon the monthly statement from PG&E, P~,LGC will pay the Landfill Owner a
percentage of the Gross Revenues as follows:
1. For any period during the term of the Lease that the Net Generating
Capacity, as defined below, is 1,000 kilowatts or less, PALGC will pay .the Landfill
Owner five and one-half percent (5.5%) of that portion of the Gross Revenues received
with respect to the Conversion System which is determined at an average rate for the
billing period of up to and including eleven cents ($0.11) per kilowatt hour. As to that
portion of the Gross Revenues which is determined at. an average rate for the billing
period exceeding eleven cents ($0.11) per kilowatt hour, PALGC will pay the Landfill
Owner thirty-three and one-third percent. (33-1/3%).. In .no event, however, shall the
total payable by PALGC-exceed twenty-nine percent (29%) of the Gross Revenues.
Such lease payment will be adjusted for the use of fuels other than Landfill Gas as set
forth below. By way of example, if PALGC is generating 1,000 kilowatts of electric
power the Gross Revenues from which are deter.mined to be purchased at an average
rate of thirteen cents ($0.13) per kilowatt hour, then PALGC would pay five and one--
half percent (5.5%) on that portion of the Gross Revenues determined at eleven cents
($0.11) per kilowatt hour and would pay a thirty-three and one-third percen~ (33-1/3%)
on the remaining portion of the Gross Revenues determined at two cents ($0.02)per
kilowatt hour. It is assumed in the example that the amount paid to the Landfill Owner
would not exceed 29% of Gross Revenues.
2. For any period during the term of the Lease that the Net Generating
Capacity is between 1,001 kilowatts and up to and including 1,725 kilowatts, PALGC
will .pay the Landfill Owner 11 percent (11%) of that portion of the Gross Revenues
received with respect to the Conversion System which is determined at an average rate
for the billing period of up to and including eleven cents ($0.11). per.kilowatt hour. As to
that portion of the Gross Revenues which is determined at an average rate for the
billing period exceeding eleven cents ($0.11) per kilowatt hour, PALGC will pay the
Landfill Owner thirty-three and one-third percent (33-1/3%)..In no event, however, shall.
the totalpayable by PALGC exceed twenty-nine percent (29%) of the Gross Revenues.
Such lease payment will be adjusted for the use of fuels Other than Landfill Gas as set
forth below.
3. For any period during the first five (5) years following thestart-up of the
Conversion System .that the Net Generating Capacity is in excess of 1,726 kilowatts,
PALGC will pay the Landfill Qwner sixteen and one-half percent (16.5%) of that portion
of the Gross Revenues received from the then installed Conversion System which is
1s~ AMENDMENT TO LANDFILL GAS LEASE
10677~0006\644529.1 (Formerly 637786.4) 02/27/2001
Page 1 of 3 MLGCNVPI/
CITY OF PALO ALTO
determined at an average rate for the billing period of up to and including eleven cents
($0.11) per kilowatt hour. As to that portion of theGross Revenues which is
determined at an average rate for the billing period exceeding eleven cents ($0.11) per
kilowatt hour, PALGC will pay the Landfill Owner thirty-three and one-third percent (33-
1/3%). In no event, however, shall the total payable by PALGC exceed twenty-nine
percent (29%) of the Gross Revenues. Such lease payment will be adjusted for the
use of fuels other than Landfill Gas as set forth below.
4. For any period during the sixth (6th) and each succeeding year following
the start-up of the Conversion System in which the Net Generating Capacity is in
excess of 1,726 kilowatts, PALGC will pay the Landfill Owner twenty-two percent (22%)
of that portion of the Gross Revenues received with respect to the Conversion System
which is determined at an average rate for .the billing period of up to and including
eleven cents ($0.11) per kilowatt hour. As to that portion of the Gross Revenues which
is determined at an average rate for the billing period exceeding eleven cents ($0.11)
per kilowatt hour, PALGC will pay the Landfill Owner thirty-three and one-third percent
(33-1/3%). In no event, however, shall the total paYable by PALGC exceed twenty-nine
percent (29%).of the Gross Revenues. Such lease payment will be adjusted for the
use of fuels other than Landfill Ga~ as set forth below.
C. Gross Revenues.shall mean the total revenues received, including, but n~t
limited to, energy payments, capacity payments and any capacity bonus payments to PALGC
from any utility or other customer that is purchasing the electric power, produced by the
Conversion System or Systems less (i) any wheeling charges paid by PALGC if any utility,
purchasing such power does not have a franchise for the area in which the Landfill is located,
(ii) any capacity penalties paid by PALGC, and (iii) allsales, energy, license, severance,
production, or ad valorem taxes, if applicable~ Provided, however, that no capital stock tax,
privilege tax, or franchise tax, and no income or similar tax based upon profits as such, shall
be. deducted from Gross Revenues.
D. "Net Generating Capacity" shall mean the maximum net kilowatts of electricity
delivered to the purchasing electric utility by the installed .generating .capacity of the
Conversion System (after deducting parasitic loads, line losses, transformer losses,
compressor losses associated with the Conversion System and the .Utility Interface) after being
adjusted for the use of fuel other than Landfill Gas as provided in paragraph 7 below. The
determination of the maximum net kilowatts of electricity delivered to the purchasing utility shall
be as reported by PG&E as the maximum capacity for each month on which it is paying a
capacity payment.
E. If during any pei’iod of operation of the Conversion System or Systems a fuel
other than Landfill Gas is used to operate the Conversion System or Systems (such as natural
gas or propane), the Gross Revenues upon which the .site lease payment payable by PALGC
to the Landfill Owner is based with respect to such period shall be reduced in the same
proportion as the quantity (measured in BTU’s of other fuel or other comparable measure
agreed to by both parties) of such other fuel used during the period bears to the quantity of
Landfill Gas used in operating the Conversion System or Systems. By way of example,
assume that in year ten of the Lease that the Net Generating Capacity exceeds. 1,726
kilowatts, the payment rate for all increments of the Conversion System is twenty-two percent
(22%) and, 20 million KWhrs of electricity is sold for $3,400,000. Assume further that in order
AMENDMENT TO LANDFILL GAS LEASE
0677~0006\644529.1 (Formerly 637786.4) 02/27/2001
Page 2 of 3 MLGC/WPI/
CITY OF PALO ALTO
to generate the power, 20 billion BTU’s of natural gas was used to supplement 180 billion
BTU’s of Landfill Gas.
Site Lease Gross payment to the-Landfill Owner in Year Ten:
Revenue =$3,400,000 = 17C/Kwh
Kwh 20M Kwh
% Payment = (.22~(11)+.3333(17¢-I1) =
17¢
4.4___~2 = ..26 =. 26%
17
(.26) ($3,400,000)( 200 billion. BTU’s - 20 billion BTU’s )
( 200 billion BTU’s )
.26 ($3,400,000) (.90) = $795,600
Assumes 20 billion-BTU’s supplied by other than Landfill Gas. Total fuel
consumption is 200 billion BTU’s.
1sT AMENDMENT TO LANDFILL GAS LEASE Page 3 of 3 MLGC/WPI/
’ 10677~000~644529.1 (Fon’netly 637"/86.4) 02/27/2001 CITY O F PALO ALTO
CERTIFICATE OF ACKNOWLEDGEMENT
(Civil Code § 1189)
STATE OF TEXAS
COUNTY OF HARRIS
On March 2 ,2001before me, Louise Lona , a
Notary Public in and for said County and State, personally
appeared Louis M. Pearce, III , personally known to me
or proved to me on the basis of satisfactory evidence to be the
person(s) whose, name(s) is/are subscribed to the within
instrument and acknowledged.to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
"~-i~ature of Notary Public
10677\0006\644523.1 (Formerly 637758.3) 02/2112001
CERTIFICATE OF ACKNOWLEDGEMENT
(Civil Code § 1189)
STATE OF Texas
COUNTY OF Harris
On March 7 , 2001, before me, .Theresia Raif ,
a Notary Public in and for said County. and State, personally
appeared . Robert J. Jesse , personally known to me
or proved to me on the basis of satisfactory e~idgnce to be the
person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity(ies), and that by
his!her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the. person(s) acted, executed the
instrument.
WITNESS my hand and official seal.
signature of Notary Public
10677~0006\644523.1 (Formerly’ 637758.3) 02/21/2001
CERTIFICATE OF ACKNOWLEDGEMENT
.(Civil Code § 1189)
STATE OF )
) SS.
COUNTY OF )
On ~~ /~ _, 200..=!=i, before me, ~ /~f i~/I~ ,
a Notary PL~blic in and/~o~ said County and State, personally
appeared ~ ~. /~I#~-- ¯ , personally known to me
or proved to me on the basis of satisfactory evidence to be the
person (s) whose name (s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capacity (ies), and that by
his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which, the )erson(s) acted, executed the
instrument.
ff~ ~~sea.ll
WITNESS my hand and o
..-/
Signature o~ Nota~ Public
Notadal SealPrudence N. Szlraki, Notary PublicPittsburgh, Allegheny CountyMy Commission Expires July 27, 2003
Member, PennsylvanlaAssocialJonol Notal;ies
10677~0006~644523A (Formerly 637758.3) 02/21/200’1"
STATE OF
COUNTY OF
.CERTIFICATE OF ACKNOWLEDGEMENT
(Civil Code § 1189)
On
a~d. f~ ~id County and. State~ personallyaNotary ~
appeared .~J-- ~l~gu¯ , personally known to me
or proved to me on the basis of satisfactory evidence to be the
person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the
same in his/her/their authorized capac±ty(ies), and that by
his/her/their signature(s) on the instrument the person(s), or
the entity upon behalf of which the person(s) acted, executed the
instrument.
WITNESS my hand and
.gnature of ic
Notarial Seal
Prudence N. Szlraki, Nota~ Public
Pittsburgh, Allegheny County "
My Commission Expires July 27, 2003
Member, Pen nsyivania Association of Notaries
10677~0006~644523.1 (Formerly 637758.3) 02/21/2001
4